Bid Rates ‘Devastating;’ To Sign or Not to Sign?

ATLANTA — Home medical equipment providers were struggling
to regroup over the July 4 holiday in the wake of Round 1 rebid
rates — averaging 32 percent cuts across nine product
categories — announced by CMS last week.

“I think everyone is kind of in shock at this point,” said Cara
Bachenheimer, senior vice president of government relations for
Elyria, Ohio-based Invacare Corp. “If this is allowed to continue,
this is devastating.”

The new rates result from the Centers for Medicare and Medicaid
Services’ DMEPOS competitive
bidding project, set in motion under the Medicare Modernization
Act of 2003, and are scheduled to take effect Jan. 1, 2011, in the
nine Round 1 cities: Charlotte, Cincinnati, Cleveland, Dallas,
Kansas City, Miami, Orlando, Pittsburgh and Riverside, Calif.
Contract winners will be announced in September.

The idea is to undercut current fee schedule reimbursements with
lower rates determined by competing bidders. In a July 1 press
conference, CMS officials said the Medicare bidding program would
save $17 billion over 10 years.

But at what cost? Somber HME stakeholders said the new rates
would decimate the industry, eventually drive up Medicare costs and
throw the lives of beneficiaries in jeopardy.

“The bid prices announced … will translate into
unsustainable reimbursement rates for home care providers,” said
Tyler J. Wilson, president and CEO of the American Association for
Homecare. “Over time, it will make it harder for seniors and people
with disabilities to get the home medical equipment and services
they require to live independently in the most cost-effective
post-acute setting — their own homes.”

He said the country would eventually “see spending soar in other
parts of Medicare because the bidding program will push spending
into longer hospital stays and ER visits.”

Bachenheimer said the sharply reduced rates — which come
on the heels of a 9.5 percent cut the industry took as a pay-for to get the initial
Round 1 (2008) delayed for 18 months — reflect
stakeholders’ worst fears: that providers terrified of losing
Medicare’s business would enter low-ball bids.

“I think it just validates the fundamental flaws of this
program. It is the suicide bidding notion,” she said. “You put in a
suicide bid just to stay in the game … It’s this artificial
price-setting mechanism which has no rationale. It’s a complicated
gaming system. The problem is, nobody wins.”

Not so in CMS’ eyes. The agency’s Jonathan Blum, deputy
administrator and director for the Center for Medicare, said the
program “also ensures continued access for beneficiaries to
high-quality products.”

That was a bit hard for providers to swallow.

“It’s just the opposite,” said Georgie Blackburn, vice president
of government relations for Blackburn’s in Tarentum, Pa. The rates
“are way too low to make ends meet” let alone provide high-quality
products and services, she said.

“CMS is short-sighted,” said Patrick Clevidence of
Cleveland-based Medical Services Co., who added that some of the
pricing is below cost. “They look at just the initial savings.
Patients are going to end up paying a lot more for insurance costs
because they are not going to get the care they need in the home
and they aren’t going to get the quality of equipment.”

Medical Service was offered some contracts, but Clevidence said
the company would have to scrutinize the rates to see if it can
provide their patients with quality service as in the past.

“We don’t want to be one of those companies that puts a CPAP in
a box, mails it with a mask to the beneficiary and says, ‘Here you
go,’” he said.

To Sign or Not to Sign

With such low Medicare payments — which historically are
mirrored by private insurers and Medicaid — it could all just
come down to staying in business, stakeholders said.

CMS officials, however, said they were confident providers could
sustain operations under the prices that were announced.

“We have put in place a much stronger bid review process …
to ensure that suppliers who are submitting bids have strong
financial documentation, have licenses in place,” asserted Blum.
“We have done a lot more this year to ensure the financial review
is more robust. The goal is that we want to make sure that we have
confidence in the supplier’s bid to provide services for the life
of the contract.”

Added Laurence Wilson, CMS’ director of chronic care policy, “We
do have a rigorous bona fide bid analysis. We do screen bids that
are on the low side [to] determine whether or not the supplier can
actually provide the service at that price.”

That could entail looking at bidders’ invoices and at company
financials including liquidity, credit and the ability to expand
into a market area or with respect to a certain number of
beneficiaries, Wilson said. “We scrutinize that very closely, and
where we do not feel comfortable that a supplier can do that, we
actually may not count their capacity at all or to the degree they
may wish us to in determining the number of suppliers for a
particular market area.

“We did that about 30 percent of the time,” he said. “And with
respect to prices and sustainability, we are comfortable when we
look at the prices that we see for some of the items that resulted
from the bid process, especially when we take into account some of
the recent OIG reports that look at other prices that other payers
pay or where these items are available on the open market.”

Bachenheimer, however, pointed out that 50 percent of the
participating providers bid higher than the end rate.

“Half the so-called winners will get paid less than their
supposedly best price,” Bachenheimer said. “There are some people
on [Capitol] Hill who know the margins of the few public companies,
and they don’t provide the ability to provide product at this
discount.”

Blackburn said her company was offered two contracts, but she is
unsure if they will accept them.

“We are going to have to re-analyze before signing. This is not
what we bid, but this is what the median pricing is — we did
not feel that we could go that low. So we may not sign,” she
said.

Blum said CMS expects that bidders “who have submitted a bid
will accept it.” The agency, he said, has “a responsibility that’s
twofold: One is to ensure that bids are credible and that bids are
defensible but also to ensure that beneficiaries receive services,
so I’m confident that our review process will ensure that suppliers
who have submitted bids will stand behind them.”

‘Any Willing Provider’

As much as they are concerned about being able to do business at
CMS’ new rates, HME stakeholders are also anxious about the number
of providers that may be forced out of business. The bidding
project allows only those who accept offered contracts to
participate, with analysts projecting that as many as 90 percent of
HME companies could go under and up to 100,000 jobs could be
lost.

CMS said it would offer 1,287 contracts to 364 suppliers with
622 locations. (AAHomecare reported there were 1,011 bidders in the
rebid.) If the three-year contract offers are not accepted, the
CBIC will offer contracts to other providers until demand for the
CBA is met.

But CMS does not believe that providers falling out of the
system will be a problem. Even if they don’t get contracts,
providers in the CBAs could serve as subcontractors, provide other
products that Medicare didn’t put out for bid or continue to
provide rental equipment under the grandfathering provision, Wilson
said.

What there is not is the opportunity for “any willing provider”
to participate in Medicare under the bid program without a
contract.

Why?

“It’s our belief that in order to have the most competitive bids
we also have to ensure that we have a bid process that awards a
contact to the best possible bid, and if we were to change that to
allow any willing provider, we believe that we would see less
savings than what we are seeing with the results as of today,” said
Blum.

Why, again?

“The current rules don’t provide for that scenario … and
the agency believes that … we would not see the same degree
of savings that we are seeing today,” repeated Blum.

Bachenheimer, however, said CMS would see the same savings. The
issue, she said, is the number of providers, and CMS’ objective is
to reduce that number. “They think they will be able to do their
jobs easier with fewer providers in the system,” she said.

Blum also noted that 48 percent of the contracts were being
offered to “small” providers, or those with revenues under $3.5
million, and that 72 percent of the contracts being offered were to
bidders with “market presence,” which CMS defined as those “that
have provided equipment that they bid on and provided their
services in the CBA, the competitive bid area, historically.”

What was the reasoning behind offering contracts to the other 28
percent that don’t?

“It could be that some of the balance of the suppliers, the 28
percent … are suppliers that were in that MSA or in that
competitive bid area but just didn’t provide that product, or maybe
they provided that product but in a different metropolitan area and
now they’ve moving into this area,” Wilson said. “We should
recognize that nearly every month more and more suppliers move into
different areas as businesses expand.”

CMS intends the entire bidding program to expand as well, with
Round 2 scheduled to be bid in 2011 in 91 additional cities. Round
2 implementation is scheduled for January 2013.

“We have worked very hard to address complaints that Congress
had in the past,” said Blum, pointing to improvements in the online
bidding system and to education for suppliers and beneficiaries.
“Given the improvements we have made but also given that this
program responds to the desire to reduce health care costs, to
reduce Medicare costs, gives me great confidence that the program
will go forward,” he said.

Get H.R. 3790 Passed

Announcement of the rates, said Bachenheimer, should galvanize
the industry into activity to get H.R. 3790, the bill that would
eliminate competitive bidding, passed in the House and a companion
bill going in the Senate.

“I would urge everybody whether they are in a bid area or not,
we cannot be complacent. Everybody needs to educate every member of
Congress as to what this really means. We’re all in this together,”
Bachenheimer said, adding that CMS employees “are up there touting
their perspective on how much they have been overpaying and how
much they can save.”

Congress, she said, needs to hear the truth from HME
stakeholders.

“If members of Congress don’t hear what’s going on, this will
not be good for us,” she said. “This thing goes live in January.
They are going to start the bidding process for Round 2 next
spring, so there is absolutely no time for CMS to analyze [the
effect of Round 1]. It’s just too quick.”

In other words, stop the program now, before it rolls into Round
2.

VGM Group, the Waterloo, Iowa-based member service organization,
challenged providers to “get hopping mad” and make sure they sought
out their legislators over the July 4 weekend to tell them the
facts about competitive bidding and why it needs to be
defeated.

“We only have a small window of time to get this fixed,” VGM
said. “Providers across the country must get moving and active! If
you haven’t gotten involved, NOW IS THE TIME TO START! All
providers, including those in non-CBAs, must talk to their
congressional members (House and Senate).”

Bachenheimer is hoping momentum for the bill can carry into
September when Rep. Pete Stark, D-Calif., will hold a hearing on
competitive bidding. It is scheduled after the announcement of
those companies that have accepted bids.

“That’s crucial information for us,” she said.

But then, only a short time will remain to get H.R. 3790 through
and something going in the Senate before Congress adjourns and
legislators go back home to rally the troops for the November
elections.

“The ‘lame duck’ session will be beneficial to us, and we’ll
need it,” said Bachenheimer about the few weeks available in
September before adjournment. “Dec. 31 is our deadline.”

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