Our guest blogger is Lindsay Rosenthal, Special Assistant for Health Policy and Women’s Health and Rights at the Center for American Progress.

Last week, the Obama Administration announced that it would drastically scale up a program that uses competitive bidding to buy medical equipment for Medicare beneficiaries. The decision was made after the results of the first year of the competitive bidding program showed that competitive bidding saved $202 million in spending in 9 metropolitan areas, reducing Medicare expenditures on durable equipment by 42 percent, without sacrificing the quality of or access to care for Medicare beneficiaries. The Centers for Medicare and Medicaid Services (CMS) plans to expand the program to 100 metropolitan areas by 2013, and the entire country is expected to benefit from the program by 2016.

The savings in the first round of the competitive bidding program came from lowered prices for things like oxygen equipment, power wheelchairs, and mail-order test strips for people with diabetes. Instead of paying suppliers based on the current fee schedule that leaves Medicare paying prices well over market value, competitive bidding requires suppliers to compete for their contracts by offering better prices. The results of the first year of the program show that competitive bidding reduced the amount paid by Medicare for an oxygen concentrator from $2,079.72 per year to $1,393.92 per year and saved Medicare beneficiaries an average of $137 a year in cost sharing. Total savings on oxygen equipment alone during the first year of the program were over $59 million.

The savings that resulted from competitive bidding are no surprise— they’re matter of common sense and simple economics. As such, competitive bidding has enjoyed bipartisan support for quite some time. Yet this week’s announcement marks a hard-won victory for CMS, which has had a rocky time implementing competitive bidding against a lobby of suppliers invested in preserving the status quo.

Competitive bidding for durable medical equipment was first mandated as far back as 2003, with the passage of the Medicare Modernization Act. It was implemented in July 2008, but was only in progress for two weeks before all the contracts were terminated by a subsequent law supported by suppliers that delayed this reform. One of the primary concerns cited by suppliers was that small suppliers would be pushed out, unable to compete with larger companies. But the report released by CMS this week shows that approximately 51 percent of the suppliers who won bids were small suppliers.

Now that reform is under way, Medicare officials project that the competitive bidding program will save at least $42 billion over the next ten years, which is an important step in a larger effort towards reducing rising Medicare costs. Last year, the Center for American Progress proposed expanding competitive bidding in Medicare as part of a broader series of cost containment reforms that could save $100 billion or more in health care costs. We recommended not only requiring competitive bidding for all durable medical equipment, but also expanding the program to all medical devices and laboratory tests, among other products and services. Expanding the scope of the program to include medical devices, laboratory tests, and procedures such as outpatient radiological exams (like CT scans and MRIs) would increase the cost saving potential of competitive bidding, but would also require more technical expertise to implement. So CAP has proposed establishing a Medicare Competitive Bidding Committee, composed of individuals with private sector experience in acquisitions and experts in competitive bidding that would oversee the process to ensure preservation of quality and access.

Competitive bidding expansion and other payment and delivery system reforms are smart alternatives to the draconian Medicare cuts like those proposed by the Ryan Plan, which would shift the cost burden onto seniors and offer nothing in the way of meaningful reform for the healthcare system.

Republicans routinely claim that shrinking the government’s involvement in health care would eliminate waste, inefficiency and significantly lower health care costs. But during the debate over the Affordable Care Act, these same politicians lambasted Democrats for cutting $500 billion from Medicare and Medicaid, and specifically argued that the government’s overpayments to private health insurance plans participating in Medicare Advantage (MA) were essential for preserving seniors’ access to services — particularly in rural areas. “The fact of the matter is, the bottom line, is that these are 10 million people that are going to lose benefits. And that’s what it boils down to,” Sen. Orrin Hatch (R-UT) warned during the mark-up process in the Senate Finance Committee.

Since President Obama signed reform into law, however, the GOP’s doomsday predictions have gone unrealized, and today a new report from the Government Accountability Office (GAO) shows that some private plans are still abusing the system and reporting higher patient severity than is actually supported by medical records. As a result, the government is paying private insurers substantially more than it spends on traditional fee-for-service Medicare:

GAO found that diagnostic coding differences exist between MA plans and Medicare FFS. Using data on beneficiary characteristics and regression analysis, GAO estimated that before CMS’s adjustment, 2010 MA beneficiary risk scores were at least 4.8 percent, and perhaps as much as 7.1 percent, higher than they likely would have been if the same beneficiaries had been continuously enrolled in FFS. The higher risk scores were equivalent to $3.9 billion to $5.8 billion in payments to MA plans. Both GAO and CMS found that the impact of coding differences increased over time. This trend suggests that the cumulative impact of coding differences in 2011 and 2012 could be larger than in 2010.

In contrast to GAO, CMS estimated that 3.4 percent of 2010 MA beneficiary risk scores were attributable to coding differences between MA plans and Medicare FFS. CMS’s adjustment for this difference avoided $2.7 billion in excess payments to MA plans. CMS’s 2010 estimate differs from GAO’s in that CMS’s methodology did not include more current data, did not incorporate the trend of the impact of coding differences over time, and did not account for beneficiary characteristics other than age and mortality, such as sex, health status, Medicaid enrollment status, beneficiary residential location, and whether the original reason for Medicare entitlement was disability. [...]

GAO’s findings underscore the importance of both CMS continuing to adjust risk scores to account for coding differences and ensuring that those adjustments are as complete and accurate as possible.

In other words, Republicans were wrong in trying to preserve the government’s subsidies for private insurers during the health care battle and they’d be foolish to stand in the way of more reforms now. Medicare Advantage can only be a viable option for seniors if it can help control health care spending. Eliminating waste, fraud and abuse from the program is crucial to improving Medicare’s sustainability and bending the cost curve.

Ohio Gov. John Kasich’s “new way” of creating jobs has left something to be desired — namely, jobs. Kasich has killed projects that promised to create jobs in favor of policies that are sure to stunt job creation. Now with a state facing an overall loss of 400,000 jobs and an unemployment rate of 9 percent, Kasich’s decision to slash state funding for Medicaid left 2,800 Ohioans who help the elderly and disabled out of a job:

A separate survey of 385 Ohio nursing homes found that 2,800 jobs had been eliminated between July 1 and Sept. 1 — or soon would be — following a 6 percent budget cut to the state’s Medicaid program, the tax-funded health-insurance program for the poor and disabled.

Kasich’s cuts result from his desire to “rebalance” the amount of funding spent on Ohio seniors and the disabled. Hoping to shift towards “in-home care,” state officials say the nursing-home job loss is “not surprising.” But, as FamiliesUSA notes, funding Medicaid is a sure-fire way to ensure economic growth and job creation.

According to the Ohio Health Care Association, mostly nurses and nursing assistants “who provide hands-on care to patients” are the ones who have lost their jobs. Other nursing homes have “frozen or cut workers’ pay, as well as freezing or cutting benefits.” Nursing home officials worry that these cuts will affect patient care. Five homes have already closed since the budget cuts began.

And given the similar obsession with budget hacking among Republican governors and lawmakers, Ohio is just the beginning. According to the Alliance for Quality Nursing Home Care, “Ohio is ground zero for what will be coming for the rest of the country.” There are also federal Medicare cuts pending due to overpayment that will affect jobs in the state.