Entering competitive bidding after the fact

A noncontract supplier can have its PTAN(s) added to a competitive bid contract after (1) a contract supplier purchases 5 percent or more of the noncontract supplier, (2) a noncontract supplier purchases 5 percent or more of a contract supplier, or (3) a shared parent company or shared individual owner acquires 5 percent or more of both the contract supplier and the noncontract supplier. This is sometimes known as a “5 percent transaction.”

When this idea first surfaced, the key question was whether a contract supplier can add the PTAN(s) of a commonly owned supplier if the common-ownership link between the two is established after the time that the competitive bid contract was awarded. CBIC guidance indicates that (i) a contract supplier may add additional locations as long as the locations are for the same product category/CBA for which the contract supplier was awarded a contract and (ii) the contract supplier may only add locations, including those of a commonly owned supplier, if the locations (identified by PTANs) are not on another contract for the same CBA/product category combination and the locations meet all of the competitive bidding program requirements. In other words, a contract supplier can only add a commonly owned supplier’s PTAN to a CBA/product category combination that is included on the competitive bid contract, and the contract supplier cannot add a commonly owned supplier’s PTAN to a CBA/product category combination if that PTAN is already on another competitive-bid contract for the same CBA/product category combination. So long as a common-ownership link is established and reported to the NSC on the 855S of the supplier that sells 5 percent or more of its stock, the issue of which supplier acquires the stock of the other does not matter.

Before proceeding with a 5 percent transaction, some of the regulatory issues to consider are the following.

  • If the 5 percent or greater common-ownership link exists when a future round of competitive bidding comes up, and the commonly owned parties desire to bid on the same product category in the same CBA, the parties must submit a joint bid. And if a contract is awarded pursuant to that joint bid, it will be a single contract number shared by both parties.
  • If the parties share a joint contract, the actions of either party may have a direct impact on the other party’s standing as a contract supplier. If company A and company B establish a common-ownership link, and company A adds company B to the company A contract, then there is a risk that a breach of the terms of the contract by either A or B could lead to the termination of the entire contract, as opposed to the removal of just the breaching party. Related to this point is the fact that a competitive bid contract is an “all or nothing” proposition in the sense that individual CBAs or product categories cannot be removed or deleted from a contract. So, if each party does not cover the entire contract, but together they cover the entire contract, and one party desires to walk away from a part of the contract that the other does not cover, this could potentially jeopardize the contract.

By establishing a common-ownership link between two suppliers, those suppliers become “affiliated” for purposes of the increased enrollment reporting requirements issued by the Affordable Care Act. See 42 U.S.C. 1395cc(j)(5). These requirements say that a supplier submitting an enrollment or revalidation application on or after March 23, 2011 must disclose any current or previous, direct or indirect, affiliation with a supplier that (1) has uncollected debt, (2) has been or is subject to a payment suspension under a federal health care program, (3) has been excluded from participating in Medicare, Medicaid, or CHIP, or (4) has had its billing privileges denied or revoked. Additionally, if CMS determines that the current or previous affiliation poses an undue risk of fraud, waste or abuse, CMS may deny the enrollment or revalidation application.

Again, I am not aware of instances in which CMS has denied enrollment or revalidation applications on this basis, but it is a risk to be aware of.