Emerging Provider Networks Scramble to Revise Plans

ATLANTA–With plans shattered by surprise provisions regarding
networks that appeared in the DMEPOS competitive bidding final
rule, network members and facilitators spent last week trying to
pick up the pieces and form them into new bidding strategies.

In the final rule, published in the April 10 edition of the
Federal Register, CMS limited provider networks for the
purposes of competitive bidding to 20 members, each of whom can
have no more than $3.5 million in gross revenues. The draft
proposal had placed a ceiling of $6.5 million on providers in
networks; it did not include a limit on the number of providers in
a network. It also required networks to centralize their billing, a
provision that disappeared from the final rule.

“[CMS] got much more conservative about who could be in a
network,” said Jim Walsh, president and general counsel for The VGM
Group in Waterloo, Iowa. “You have a much smaller footprint for
networks and a much narrower reason for being in a network.”

The changes threw emerging networks into a tizzy. “We’ve been
working on these networks for over a year. We don’t know what we’re
going to do,” said Robert M. Arado, administrator of Med Trust
Tampa Bay. Arado’s HME company, Caremed Respiratory Services,
spearheaded the Tampa networking effort. “We never expected this.
We were blindsided by this rule that was never mentioned in the
draft proposal.”

The major issue, Arado said, is the cap on network membership.
While Tampa was not included in the first 10 MSAs where competitive
bidding will roll out, Miami was, and Arado was on his way there to
assist sister organization Med Trust Corp. of Southern Florida. The
Miami organization has about 90 members, he said, while the Tampa
network has about one-third that number.

“We need to take a look at the numbers and look at the
logistics,” Arado said, noting that the $3.5 million figure is not
a problem in Miami, but the 20-member cap is. “These are small,
family-owned businesses that may have 50 patients, 100 patients,
and they are getting referrals from a few doctors that favor
them.”

Without a network, there is no chance these companies could bid
for a Medicare contract, he said.

Indeed, one of the stipulations of the final rule is that each
member of the network must submit a statement certifying that it
joined the network because it cannot furnish all of the items in a
product category to beneficiaries throughout the competitive
bidding area.

“For example, if you are bidding in the oxygen category and you
don’t have liquid oxygen and have never had liquid oxygen, it is
unlikely that CMS will accept the bid from you because there is no
proof that you could provide the product,” Walsh said.

Under a network, however, a provider in such a position might
stand a better chance of winning a contract because other members
would likely have a history of providing liquid oxygen, he
said.

Another reason for joining a network, according to Walsh, is
that “CMS has indicated it will give preference to small
businesses. A small business network that has enough of the market
share in that [CBA] will likely get selected, because they would be
omitting too many small businesses by excluding it.” The final rule
stipulates that 30 percent of the winning contracts in each bidding
area be awarded to small providers.

But how can existing networks break up their members?

Arado said his group would likely consider establishing networks
based on product categories. “If we have some providers that do
nothing but power mobility, we might break them off. Same thing if
all they do is mail-order diabetic supplies,” he said.

CMS has said small providers can be members of more than one
network as long as the networks are not competing in the same
product categories in the same MSAs.

Walsh said while VGM is counseling its members to bid on their
own if at all possible, “VGM will have networks in each product
area in each MSA. If no one wants to participate, we are not
disappointed. That just means they are doing what they should and
bidding on their own.”

But even as emerging networks scrambled to revise their plans,
other concerns about networks were surfacing.

For example, Neil Caesar, president of the Health Law Center in
Greenville, S.C., said future problems could arise from the
stipulation that networks cannot have more than 20 percent of the
market share in a particular product category in any one MSA.

If a network with less than that market share is awarded a bid
and, over the three-year contract period enlarges its scope, “what
happens in the next bidding round?” Caesar asked. “What happens
when the network finds itself in a situation where it has to kick
out people who have helped make it successful?”

As well, both Caesar and Walsh decried the lack of centralized
billing. “Since there is no coordinated billing anymore,
[providers] are operating autonomously,” said Caesar. “It pushes
you to a network structure that is very loose and low-tech.”

Walsh said that CMS’ abandonment of the centralized billing
provision eliminated what was previously one of the selling points
of a network.

Arado, however, thought that was a plus. “Originally, we would
have had to have one provider number to bill for the whole network,
and then the network would receive the payment in one lump and have
to disperse it to all the entities. Now, each provider can still
continue to submit its own claim and get electronic payments.”
Because of that, a network won’t have to make a huge financial
outlay for special software for each member in order to facilitate
one bulk claim, he said.

However, while CMS will give networks bidder numbers, it will
not issue separate supplier numbers.

“A lot of the things they are asking from the networks they are
not asking from the big companies,” Arado pointed out. “A network
must use a main provider number in order to be assured a bidder
number. That means that one of the companies in the network has to
offer its number to use. The easier thing would have been to give
the network a provider number of its own.”

To protect its members, a network also has to purchase liability
insurance, Arado said. “If one member goes bankrupt, the whole
network would be exposed to the liability. Or if one is overpaid,
the network is responsible for that–and not just the network but
the company that gave its provider number.”

But even with all the difficulties and risks, Arado still
believes networks are the answer for small providers.

“I’m betting a business I have had for 15 years, along with
2,000 patients, and I am betting it on a network,” he said.
“Otherwise, I would have to go it alone.”

This way, he said, at least he has a chance of survival in
Medicare’s new world.