Medical Supply Industry Targeted

October 26, 2010

Investigative Reports

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The NerveA state budget proviso is threatening to sink an $11 million annual industry in South Carolina that provides incontinence supplies to adults on Medicaid, says the president of a state industry trade group.

But an S.C. lawmaker who is a doctor believes a proposal by the state Department of Health and Human Services, which oversees Medicaid services to the poor, will save taxpayers money.

The agency likely will face a lot of painful budget choices in the coming months as it contends with an expected several hundred-million-dollar shortfall.

The proviso (89.87) for the fiscal year that started July 1 prohibits HHS from reducing Medicaid provider rates from their current levels. On the surface, that would appear to protect the state’s medical supply industry.

But that’s not the case when it comes to incontinence supplies, said Dan Gooch, president of the 160-member S.C. Medical Equipment Services Association, when contacted recently by The Nerve.

That’s because, according to Gooch, HHS wants to award a contract, through a bidding process, to a single company to provide incontinence supplies to all eligible Medicaid recipients.

The current system allows Medicaid recipients to pick their own HHS-approved, in-state providers of those supplies, which include such things as diapers, bed pads and sanitary wipes, he said, adding that many of his members make home deliveries.

Gooch said the single-source contract likely will go to a large, out-of-state vendor. He said his association approached HHS several months ago with a proposal to allow the state to reduce provider rates paid to his members by a collective $3.1 million, or 28 percent, noting that three S.C. distributors were “willing to take the hits.”

But HHS officials responded that they couldn’t reduce provider rates because of the budget proviso, Gooch said. If HHS goes through with the contract, in-state companies might be forced to lay off as many as several hundred workers statewide, he said.

“Everybody who touches it (incontinence supplies) is going to have to shed people,” Gooch said. “It would appear that a more rational way would be to take a small bite from everybody so nobody gets devastated.”

Gooch said any cost savings from a single-source contract likely would be wiped out with unemployment payments to laid-off workers, who, ironically, might also be forced to join the state’s Medicaid rolls. He also noted the state could lose an approximate $750,000 a year in sales taxes.

But state Rep. Kris Crawford – the Legislature’s only physician – doesn’t buy those arguments.

“What I’m hearing from them is that they feel they can’t be competitive,” the Florence Republican told The Nerve. “I don’t see how that is the South Carolina taxpayers’ problem.”

“As a first priority for the state, we’ve got to make sure we’re getting taxpayers the best deal for the money,” Crawford added. “South Carolina needs to stop thinking in this parochial way of ‘don’t come across the border here.’”

Crawford said it was his understanding that HHS will allow a consortium of South Carolina companies to bid on the contract.

Crawford was interviewed by The Nerve prior to last week’s announcement that he had been indicted on state charges of failure to file quarterly estimated tax payments and timely income tax returns. Crawford has maintained his innocence and on Monday asked a court to dismiss the indictments, according to media reports.

HHS spokesman Jeff Stensland told The Nerve that after listening to the concerns of S.C. medical supply vendors, his agency amended an initial bid proposal to allow individual in-state businesses to form a single group to place a bid, so long as their collective business experience is at least three years. Under the initial proposal, each individual vendor had to be in the business at least three years, he said.

“We’ll basically go with the lowest bidder as long as they can do the work and as long as the product is of good quality,” Stensland said. “That way we can ensure quality and save some money.”

Bids were due Oct. 18, Stensland said, though he added that the deadline might be extended to the end of the month to accommodate vendors with questions. Gooch said he hopes HHS will ask the state Materials Management Office, which will process the bids, to postpone any action until at least after the General Assembly returns in January.

“It (the single-source bid proposal) could be brought to the director’s office (of HHS) today if it was ordered,” Gooch said.

Stensland said his agency estimates that a single-source contract will save taxpayers “a minimum of 10 percent, but it could be significantly higher.” He said it isn’t the first time the agency has bid out services through a single contract, noting, for example, that eyeglasses are handled that way.

Stensland confirmed that a group of in-state incontinence supply vendors approached his agency offering a “significant reduction in their rates.” He declined to identify the providers or discuss specifics of their proposal, though he noted that but for the budget proviso, HHS “would have entertained that idea (of reducing provider rates).”

“It’s something we would have considered for sure,” he said.

Stensland earlier told The Nerve that with rapidly rising Medicaid rolls with the recession and tens of millions of dollars in recent cuts to the agency’s general fund budget, HHS is facing an estimated budget shortfall this fiscal year of about $200 million, even with the announced influx of $127 million in federal Medicaid dollars.

Over the past two months, HHS Director Emma Forkner and S.C. Senate President Pro Tempore Glenn McConnell, R-Charleston, have exchanged tense letters about the problem, who’s to blame for it, and what should be done to fix it.

In an Aug. 30 letter to McConnell, Forkner said, among other things, that South Carolina is the only state that isn’t allowed to reduce Medicaid provider rates; and that about 40 other states, including Georgia and North Carolina, have reduced their rates over the past two years as a “way to curb expenditures.”

Forkner said the state’s Medicaid rolls have grown by more than 90,000 since the recession officially began in December 2007, and that the agency’s general fund budget in the last two fiscal years was slashed by a total of $228 million.

“Over the past three budget cycles, reserve funds the agency had maintained as a backstop against unanticipated enrollment increases have been used both by the agency to offset these general fund reductions and reallocated by the General Assembly to other government functions,” Forkner wrote, noting the transfers totaled more than $500 million. “Unfortunately, now that we are faced with steep enrollment increases as a result of the recession, we lack both the reserve funds and the necessary flexibility to significantly reduce expenditures.”

But Forkner received no sympathy from McConnell.

“Frankly, I am tired of state agencies spending too much and then asking for forgiveness and permission to run a deficit they knew was coming,” McConnell replied in a Sept. 29 letter. “Creating a crisis and having those rely on your services to bombard legislators and members of the (S.C.) Budget and Control Board with correspondence to justify deficit spending is no way to operate an agency.”

“I prefer you balance your books and make the hard choices on the front end, and I believe that is what our constitution simply requires,” McConnell continued. “Furthermore, I believe that is what the taxpayers expect of you.”

Besides dealing with projected Medicaid funding shortfalls this fiscal year, state lawmakers returning to session in January will somehow have to fill a budget hole for fiscal year 2011-12 that is projected to be as much as $1 billion, mainly because of the loss of federal stimulus dollars used for recurring programs.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org.