Round One Rates Add Up to Trouble, HME Stakeholders Say

ATLANTA–The fees are in, but the jury’s still out when it comes
to the impact competitive bidding will have on the home medical
equipment market, according to industry stakeholders who got their
first look last week at Medicare’s reimbursement rates for round
one of the program.

Late Thursday, CMS revealed its new allowables for the items
included in the first round, with average savings across the 10
product categories at 26 percent. The agency also said 64 percent
of the winning bidders fell into the small business category,
surpassing its original 30 percent contract target for small
suppliers, which CMS defines as those with gross revenues of $3.5
million or less.

While stakeholders proclaimed some of the new rates
“doable,” many nevertheless said serious questions
remain about the impact on beneficiaries and providers in the round
one MSAs.

“The American Association for Homecare thinks the jury is
still very much out on the question of competitive bidding and its
impact both on beneficiary access to care and the quality of that
care,” said Tyler Wilson, president. “The CMS
perspective seems to be limited to focusing on payment cuts. After
July 1 when the program is implemented, we will begin to get a
sense of the services that contract providers may have had to
eliminate in order to meet CMS’ singular concern about home medical
equipment pricing.”

Peter Kelly, chairman of the Council for Quality Respiratory
Care, said the changes were “even more dramatic than
anticipated.” The breadth of those changes, he said,
“should cause policymakers–and all of us who care for
Medicare’s sickest beneficiaries–to stop and assess carefully the
effect these changes will have on the health and well-being of
elderly patients. Deep reductions in Medicare funding will
eliminate key jobs at a time when the demand for quality is
increasing and the economy is experiencing a downturn.”

CMS alerted bidders via three types of overnight letters that
most received on Friday. Winning bidders received contracts.
Suppliers whose bids qualified but were not in the winning range
received a notice that they could receive a contract from CMS if a
winning supplier decided not to accept the contract offer.
Suppliers were also notified if they were disqualified and, if so,
why. Bid winners were given 10 days to accept or decline the
contracts.

But even some providers that won had reservations about what the
program could mean to the industry.

Raul Lopez’s company, Bayshore Dura Medical in Miami Lakes,
Fla., won eight of the 10 categories it bid on, losing only in
mail-order diabetic supplies and standard power wheelchairs. Those
two categories comprised very small portions of the company’s
business, so losing those bids was not a great loss, Lopez
said.

But the president of the Florida Association of Medical
Equipment Services still wasn’t celebrating.

“I know too many suppliers who do a good job who can’t do
Medicare business anymore,” Lopez said.

He also fears there could be more fallout as companies that have
won contracts discover they cannot provide the equipment for the
new Medicare rate.

“They could decline at any point,” he said.
“They have until April 3.”

Walt Gorski, AAHomecare’s vice president of government
relations, cautioned that beneficiaries might experience problems
with service.

“We think that there is going to be significant disruption
in care and continuity of care when beneficiaries will be forced to
get their HME needs from multiple suppliers,” he said.
“It’s going to be interesting to see how all this shakes out
when we hear the full disclosure in May of who actually accepted
the contract.”

Earlier in the week, a group of 120 House members and 17
senators sent letters to CMS raising concerns about the effect of
the program on access to medical equipment and quality of service.
Spearheaded by Rep. Jason Altmire, R-Pa., and Sens. George
Voinovich, R-Ohio, and Sherrod Brown, D-Ohio, the letters ask for
economic data on the program’s impact and suggest that reducing the
number of small providers could actually increase rather than
decrease Medicare costs. (See
HomeCare Monday, March 17.)

Still, CMS was elated at the potential savings, which Acting
Administrator Kerry Weems pegged at $1 billion a year once
competitive bidding is fully implemented.

In a Thursday afternoon press briefing, Weems said the Medicare
program will also experience short-term savings. For example,
Medicare currently pays an average of $4,063.96 for a standard
power wheelchair, Weems said. But on July 1 when the bid pricing
takes effect, the program will outlay only an average $3,072.65 for
a PWC.

”We were overpaying” for many of the items now
included in competitive bidding, Weems told reporters.

“This program represents yet another way to use the
competitive marketplace to bring the best possible and most
efficient care and services to people with Medicare. Because new
accreditation and quality standard initiatives are being
implemented in conjunction with the phase-in of competitive
bidding, this program will provide assurance to beneficiaries that
they are receiving high-quality medical equipment for home
use.”

According to CMS, the average savings from Medicare’s current
fee schedule in each category is:

• Oxygen and oxygen equipment: 27%
• Standard power wheelchairs, scooters and related accessories:
  21%
• Complex rehabilitative power wheelchairs and related
  accessories: 15%
• Mail-order diabetic supplies: 43%
• Enteral nutrients, supplies and equipment: 26%
• Continuous Positive Airway Pressure devices, respiratory assist
  devices and related supplies and accessories: 29%
• Hospital beds and related accessories: 29%
• Negative pressure wound therapy pumps and related supplies and
  accessories: 14%
• Walkers and related accessories: 27%
• Support surfaces, such as specialized mattresses to help people
  with pressure ulcers: 36%

The projected Medicare savings in oxygen and related equipment
concerned CQRC’s Kelly. “The magnitude of current and pending
Medicare cuts will make the oxygen benefit unsustainable and the
impact on beneficiaries dangerously unpredictable,” he
warned. “At a time when government is working to stimulate
quality improvement and keep patients in their homes and out of
expensive institutional settings, these budget-driven policies
effectively eliminate all incentives for quality improvement and
discourage preventive care.”

Todd Tyson, president of Norcross, Ga.-based HiTech Healthcare,
however, thought the new oxygen concentrator allowable of around
$140 was workable. Tyson’s mid-sized company operates in the
Atlanta MSA, included in round two of competitive bidding, and the
company plans to bid, he said.

“I believe you can do oxygen for $140 and yes, I would
take a contract for that amount,” he said. “If we could
get CMS to relax the requirement for a CMN and require a written
order, it would greatly reduce the administrative burden, and if we
could reduce our marketing, [promotion] and advertising, you could
definitely do it for that.”

But Tim Pederson, CEO of WestMed Rehab in Rapid City, S.D., was
a bit more conservative as he reflected on the new rates for
complex rehab.

“At the risk of sounding like I work for CMS, I really
can’t say with any certainty that providers can make it on the
pricing reductions until I actually see the pricing reductions on
paper,” he said. “My first reaction is that a 10-19
percent reduction in fees on complex rehab is somewhat unexpected
and will be devastating to those providers. I thought the
reductions on standard power wheelchairs were quite steep but not
completely unexpected. It will be interesting to see what the
landscape looks like once the contracts are returned.”

Stakeholders also were bothered by the disparity in rates from
area to area.

“The disparity between MSAs is quite shocking,” said
Miriam Lieber of Sherman Oaks, Calif.-based Lieber Consulting.
“I think the lesson learned is you don’t have to lowball. In
Miami where the prices are much lower than in Riverside [Calif.],
for instance, it’s almost like providers played a game of chicken,
and look what it got them. They didn’t need to bid so low, because
you see in the other areas that the prices are not nearly as
low.”

Kelly said that “initial results prove that what works in
one community cannot be assumed to work in another.”

Some stakeholders also questioned whether CMS’ assertion that 64
percent of the contracts were awarded to small businesses was
really good news.

“CMS is touting that 64 percent of small suppliers won
bids, but the fact is that those who did not win are simply out of
business,” said Lieber. “I would get back to the fact
that, really, CMS’ objective with competitive bidding was to limit
the number of providers and to get their prices lower.”

CMS has said that after the program begins, bidders that did not
become contract suppliers generally cannot receive Medicare payment
for competitively bid items. However, they may choose to continue
in the Medicare program as grandfathered suppliers for existing
customers if they supply certain rented items or oxygen equipment
to Medicare beneficiaries. Some may subcontract for bid
winners.

However you look at it, though, the fact remains that with
competitive bidding, the industry has changed, stakeholders
said.

“This program will clearly reshape the entire HME
marketplace, whether that was an intent of CMS or not,”
Gorski said.

Read the CMS announcement about round one
pricing.

Access single payment amount charts for the 10
product categories by CBA.

View the weighted average savings by CBA.

View a current timeline of CMS’ competitive bidding
program.