Q&A on the Bid Rates with VGM’s Alan Morris

WATERLOO, Iowa — Following CMS’ announcement of Round 1 bid
rates, VGM’s Alan Morris, regulatory analyst, gave
HomeCare his views in this Q&A.

HomeCare: Can HME companies survive at these
rates? Also, how do these rates actually translate when you
consider the 9.5 percent cut?

Morris: When the 32 percent cut announced [July
1] is compounded on top of the 9.5 percent cut the industry took on
Jan. 1, 2009, the result is a 38.5 percent cut from the 2008 rates.
I don’t see how anybody will be able to survive that. No industry
is prepared for that kind of cut.

Based on the conversations I’ve had with several “winning”
bidders, I’ve gathered that they don’t believe they’ll be able to
survive it either. With many providers operating at bottom line
margins of less than 5 percent, and even the most efficient
frequently operating somewhere between 5-7 percent, how could one
expect them to take a nearly 40 percent cut?

HomeCare: Is the number of contracts being
offered sufficient to handle demand?

Morris: CMS will contend that they raised the
number of contract offers by 17 percent, but at these rates it
doesn’t mean a thing. Maybe at 2008 rates or possibly even 2010
rates, this number of contract providers could handle the entire
bid area because the margins would be there.

The reality is, however, that most providers don’t have the
resources immediately on hand to handle the increased workload, and
the 32 percent cut will make it impossible for them to find
financing to expand.

In 2008 [in the first Round 1], we never really got a feel for
the impact of reducing the number of providers so drastically. Many
non-contract providers elected to continue serving Medicare
patients, operating under the belief that the program would be shut
down (as it ultimately was). Furthermore, subcontracting was a more
viable option last time around.

HomeCare: During a CMS press conference
announcing the rates, Jonathan Blum (director of the Center for
Medicare) said Medicare would not see the same amount of savings
from the bid program if there was an “any willing provider”
situation. Do you understand that?

Morris: No, I don’t think anybody understood
what Mr. Blum was attempting to say. Either way, I’m not of the
belief that we should be pushing for an “any willing provider”
provision.

I understand the desire to have everybody retain their ability
to bill Medicare for DME, but we don’t want it at these rates. We
don’t want to be placing any crutches underneath this program. I
truly believe that more providers ultimately survive, which is in
everybody’s best interest, without an any willing provider
provision.

There’s no way everybody should be required to have
reimbursement set by a system that sets the rate based on the
bottom 10th percentile, and especially not from a bid program that
contains so many flaws. This sealed-bid auction puts providers in a
position to bid significantly below what they’re capable of
operating at.

They’ve got a decision to make: Do I lose and deal without
Medicare, or do I “win” and see how it goes?

Furthermore, many bid low under the assumption that they’d be
one of few and that others’ higher bids would pull the median
(single payment amounts) up. [VGM’s] Mark Higley and I warned about
this happening during our competitive bidding seminar series last
summer, and it’s exactly what happened.

There were too many low bidders operating under this assumption,
and they ultimately set they rate. I’m not belittling any winning
bidders, nor am I accusing anyone of unscrupulous tactics. I’m
merely stating that when bidders are put in such a precarious
situation of bidding for their livelihood through a program of this
complexity, it creates the perfect storm for suicide bidding.

HomeCare: What are the main points about the
severity of the rate cuts that you feel are the most
important?

Morris: I think, first and foremost, everybody
needs to recognize that these bids are not representative of the
industry’s capabilities. They’re created by a suicide bidding program that left
providers with no choice but to bid at these rates.

I’ve spoken to several providers in the past few days who are
being offered contracts, but are unwilling to accept them at these
rates. The industry is facing its most difficult time, but I
believe that the viability of this program is now in serious
jeopardy. CMS is going to see that, in many areas, they’ll have a
difficult time meeting beneficiary demand.

I believe it’s important for providers to recognize that better
times are ahead of us. The “baby boomer” generation is just now
hitting Medicare age, so the population will be there. After the
announcement of these rates, it’s very difficult to foresee a
scenario where this program survives. Whether it be this year with
movement of H.R. 3790 and a Senate companion bill, or the program
falls on its face early next year, I just don’t see how it can
survive.

View more competitive bidding
stories.

VGM is offering a webinar called “Do I Want This
Competitive Bidding Contract?” free of charge. Presented
by John Gallagher, vice president-government relations, and Alan
Morris, regulatory analyst, the presentation offers timely
information to providers currently being offered DMEPOS competitive
bidding contracts. Topics include understanding the contractual
obligations, assessing the value of the contract and what happens
if the contract is turned down. View the presentation on the
VGM website.