Hard Target: CMS Pushes toward Jan. 1 Bidding Rollout

News

BALTIMORE — Less than two months before the implementation
of Round 1 competitive
bidding, CMS revealed
the names of winning contract suppliers Nov. 3 — and
there were some surprises.

The Centers for Medicare and Medicaid Services awarded 1,217
contracts to a total of 356 providers with 662 locations in the
nine CBAs. The agency made 1,324 contract offers, Jonathan Blum,
deputy administrator and director, Center for Medicare, told
reporters on a media call.

“Ninety-two percent of the suppliers signed the contracts they
were offered,” he said, adding that small suppliers made up 51
percent of the contract holders. In all, the agency received 6,215
bids from 1,011 different providers in the Round 1 rebid.

“At first glance, I’m surprised at the amount of winners who are
rather small,” said Chris Rice of Diamond Respiratory Care in
Riverside, Calif., whose company accepted contracts in eight of the
nine categories in that Round 1 bidding area. “Many I have never
heard of.”

Some of the HME sector’s biggest names — including Apria,
American HomePatient, Pacific Pulmonary and Rotech — are on
lists in multiple markets. While analysts were still poring over
the lists, a report from Deutsche Bank noted Brentwood, Tenn.-based
AHP won eight oxygen and nine CPAP contracts; and Lake Forest,
Calif.-based Apria won eight oxygen and seven CPAP contracts. The
Scooter Store of New Braunfels, Texas, which has made its name in
mobility products, landed contracts in hospital beds and oxygen in
several markets. As previously announced by the company, Lincare accepted oxygen
contracts in two markets.

Another surprise on the list is the presence of Santa Barbra,
Calif.-based Inogen, which is now a contract holder for oxygen in
six CBAs. Deutsche Bank also pointed out two other
“non-traditional” business models present among the bid winners: US
Med, a mail order supply company that won CPAP contracts in all
nine Round 1 areas; and Open-Aire, which focuses on the portable
market, with oxygen contracts in seven CBAs.

Very Late for an Important Date

CMS was late in announcing the list. After missing its target
date in September, the agency later said it was holding
off because of “red flags” that popped up when it used a new
“program integrity tool.”

“We wanted to make sure we had the best possible suppliers. We
announced previously that we would take extra care and we have
taken extra care,” Blum told reporters. But he dodged questions as
to whether CMS had withdrawn contracts from providers due to any of
the  “red flags” the agency said caused the delay.

“All the contract suppliers are in good standing,” Blum said,
noting that every contract supplier met enrollment requirements,
quality standards and is accredited.

Even as the announcement was made, however, some stakeholders
were skeptical about CMS’ choices.

“Like 2008, patients will be relying on out of area,
inexperienced, financially bankrupt companies,” said Rob Brant of
City Medical Services in Miami and a member of the Florida Alliance
for Home Care Services. “The only difference this time around is
that some companies on this list have already closed, and others
are on 100 percent prepay audit. Hospitals, doctors and patients
will be fortunate if these companies are in business in a few
weeks, let alone in January.”

According to Brant, “there are several contracted providers that
have contacted FAHCS about fighting ZPIC audits and others who are
on 100 percent prepay audits for oxygen. How can companies operate
providing equipment and services below their cost, when they will
not be reimbursed for at least four to six months?”

Orlando, Fla.-based Rotech announced in July that it had been
offered 17
contracts. That
sparked disbelief among providers as well, with some noting
that, at the time of the contract offers, the company was more than
a half-billion dollars in debt. When Rotech accepted, the company
said it expected to lose $900,000 in the first quarter of the
contracts. (Last month, the provider said it would sell $230 million of secured
notes and planned to use the proceeds to repay a $226 million
term loan.)

Reporters also questioned whether contract winners had
experience providing service in the bidding areas and with the
contracted products, a major complaint during the initial Round 1
in 2008.

“Seventy-six percent of contract suppliers have experience in
the product category in the area,” said CMS’ Laurence Wilson, and a
CMS fact sheet said “97 percent of contracts were awarded to
suppliers already established in the [CBA], the product category or
both.”

At least one provider challenged those figures.

“In the Pittsburgh CBA, we have a substantial number of
contractors from other states — Ohio, California, Tennessee,
Florida, etc.,” pointed out Georgie Blackburn, vice president of
government relations for Blackburn’s in Tarentum, Pa., which
accepted contracts in the enteral nutrition and power wheelchairs
categories. “It’s incredible that so many contractors are from
outside our state and/or have never supplied the product for which
they won an award.”

‘Holistic’ Savings

With rates that average
32 percent lower than current reimbursements, Blum said CMS
estimates the bidding program will save $28 billion over 10 years,
a figure that perplexed listeners since the agency had announced in
July it would save $17
billion. “We take a holistic view of the savings of the
program,” said Blum. “Our actuaries believe that when the program
is fully implemented, the [Medicare] trust fund will spend $17
billion less.” Beneficiaries, he said, will save $11 billion over
10 years through lower insurance premiums and copays.

The timing of CMS’ announcement was also of considerable
concern.

“CMS is now five weeks past its September 2010 deadline for
completing contracting and announcing the bid winners,” the
American Association of Homecare said in an e-mail to members.

“The long overdue announcement leaves very little time for
[providers] to make numerous required administrative and
operational changes before the Jan. 1, 2011, implementation of the
bidding system. Those changes relate to regulations,
‘grandfathering’ notifications to patients, subcontracting
arrangements, and changes in company ownership. Medicare
beneficiaries have received little information to date about the
coming changes.”

But Blum said CMS was “taking very active steps to educate
suppliers” as well as beneficiaries, referral sources and
caregivers. Wilson said brochures explaining the program would be
mailed to beneficiaries Nov. 8. CMS has also scheduled a national
education call for non-contract suppliers on that date, and
another for referral agents on Nov. 16.

Winning providers were only told Wednesday (Nov. 3) to be on the
lookout for their completed contracts. “The package contains a
cover letter, fully executed contract, and attachments, which
identify the bid(s) for which you have accepted a contract and the
location(s) (identified by the Provider Transaction Access Number
(PTAN)) eligible under the program to furnish bid items to Medicare
beneficiaries,” CMS wrote contract holders.

Non-contract suppliers must notify CMS of their decision to
become grandfathered suppliers under the bidding program by
Nov. 17 — and they must begin beneficiary notification of
their decision by the same date.

The agency said contract holders must also disclose any
subcontractors, including “information on each subcontracting
relationship that the contract supplier has entered into to furnish
items and services under its contract and whether each
subcontractor meets the accreditation requirements in 42 CFR
424.57, if applicable. This information must be provided within 10
business days after final contract execution or within 10 business
days after subsequently entering into a contract arrangement.
Please see the Competitive Bidding Implementation Contractor (CBIC)
website at www.dmecompetitivebid.com for a sample form and
further guidance.”

‘Our Model Is Superior’

The time squeeze on all fronts is extreme, said Beth Bowen,
executive director of the North Carolina Association of Medical
Equipment Suppliers, in a statement following the CMS announcement.
The crunch gives beneficiaries in the Round 1 areas less than 60
days to find contract providers to continue their care, and will
force contract winners “to scramble to provide services as outlined
in the bid awards, while those providers who are now blocked from
serving their patients are hurrying to inform their customers and
find alternative revenue streams or contract their businesses,” she
said.

But Blum said CMS plans implementation of the bidding program as
scheduled on Jan. 1, 2011.

Neither do the concerns
aired by 166 economists about the bidding program’s flaws
bother the agency, Blum said on the press call.

“I think from our perspective we feel very confident with the
program,” said Blum, adding that he had met with some of the
economists who sent their criticisms to Rep. Pete Stark, chairman
of the House Ways and Means Subcommittee on Health, in a September
letter. According to the economists, the bid program is designed to
fail.

Blum seemed to discount the economists’ warnings. “Their primary
concern is that bidders won’t sign contracts,” he said. “Given the
fact that 92 percent of companies who were awarded a contract have
signed, it gives me great confidence in the integrity of our
program … and tells me that the program should move forward,”
Blum said. With regard to questions about beneficiary access under
the program, he added, “I believe our model is superior to other
recommendations that are out there.”

Blum said CMS is “putting into place a very aggressive
monitoring effort”‘ to ensure patient access and product quality.
According to a CMS fact sheet, that monitoring will include
“local, on-the-ground presence in each [CBA] through the CMS
regional offices and local ombudsmen who will closely monitor
transition activities, conduct a local assessment of supplier
activities, analyze trends and identify and address any emerging
issues.”

Consumer satisfaction surveys will be conducted before and after
the rollout of the program, the agency said.

After studying the list of bid winners, Blackburn said she was
“appalled.”

“I resent what CMS has designed and will do everything I can to
bring this to the public’s attention,” she said. “CMS must be made
accountable for auctioning off patient care to the lowest bidders.
Many of the names appear on each contract, which tells me that
those firms made a conscious decision to bid excessively low. The
Pittsburgh allowables are the second lowest of all CBAs. It’s a
travesty to equate this logic with patient care.”

Blackburn was even more motivated to work to get the program
stopped in its tracks.

“This program should not be permitted to move forward January
1,” she said. “It is doomed. We need to piggyback on [Tuesday’s]
election results, make noise about what’s coming down the pike in a
few short weeks and let the people speak!”

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