To Network Or Not?

With plans shattered by surprise provisions regarding networks that appeared in the DMEPOS competitive bidding final rule, network members and facilitators are 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 who could join. 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,” says Jim Walsh, 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 sent emerging networks into a scramble. “We’ve been working on these networks for over a year. We don’t know what we’re going to do,” says 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 says, is the cap on network membership. While Tampa is not among the first 10 MSAs where competitive bidding will roll out, Miami is, 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 says, while the Tampa network includes about one-third that number.

“We need to take a look at the numbers and look at the logistics,” Arado says, 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 says.

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 explains.

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.

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 says his group will 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.”

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 says 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 scramble to revise their plans, other concerns about networks have surfaced.

For example, Neil Caesar, president of the Health Law Center in Greenville, S.C., believes 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 CBA.

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

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

Arado, however, thinks that is 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 says.

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 points 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 says. “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.”

Since publication of the final rule, some observers have suggested that small providers should consider CMS’ subcontracting options.

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 says. “Otherwise, I would have to go it alone.”

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

Network FAQs

The following are questions and answers from the Competitive Bidding Implementation Contractor Web site about competitive bidding networks.

Q If a network is selected to become a contract supplier, will the contract be awarded to the network entity, each individual network member, or both?

A The final rule states that each network must form a single legal entity that acts as the bidder and submits the bid. Therefore, the contract will be awarded to the network entity.

Q What responsibilities will a network entity have after contracts are awarded? For example, will the network entity be required to monitor and report on its members?

A Each member of the network must meet basic eligibility, accreditation and financial standards requirements. Networks should ensure the information from each supplier in the network is accurate and complete and that each supplier maintains compliance with all competitive bidding requirements, including all network requirements, all Medicare supplier standards requirements and other Medicare laws, regulations, and policies.

The final regulation states that any deviation from contract requirements, including a failure to comply with governmental agency or licensing organization requirements, constitutes a breach of contract. This means that the network entity is the contractor, and if any one supplier of the network deviates from the contract requirements, it may result in the loss of the contract from the network entity.

If there are required reporting from Medicare laws, regulations, and policies related to DMEPOS, the network would be expected to meet those requirements.

Q Will beneficiaries request competitively bid items from the network entity or directly from the network members?

A The beneficiaries will request the items from the individual network members.

Q What is the extent of a network’s liability (i.e., the entity itself and network members), if, unbeknownst to the network or the other members, one member engages in wrongful conduct?

A The final rule defines the requirements for breach of contract. The network is the entity that is awarded a contract. If any one supplier of the network breaches the contract, the contract for the entire network may be jeopardized. CMS may take one or more actions, including requiring the contract supplier to submit a corrective action plan; suspending the contract supplier’s contract; terminating the contract; precluding the contract supplier from participating in the competitive bidding program; revoking the supplier number of the contract supplier; or other remedies allowed by law.

CMS will evaluate each incidence and determine the best course of action. Any of these actions may affect each member of the network; however, the individual supplier may be subjected to additional remedies.

Q Will liability depend on the legal structure (e.g., partnership, limited liability company, etc.) of the network entity?

A As stated in the final rule, the network must form a single legal entity. Therefore, the entire network is accountable regardless of its structure.

Quick Facts

About Competitive Bidding Networks

According to CMS, “Our network option is an effort to ensure that small suppliers have an opportunity to be considered for participation in the [competitive bidding] program because independently they would not be able to service an entire competitive bidding area.”

Here are the facts about bidding networks based on the final rule:

• Participation is limited to small providers, defined as those with $3.5 million or less in annual gross revenue.
• Network membership can range from two to 20 small providers.
• Network members must form a legal entity (like a joint venture or limited partnership, etc.) that will act as the bidder and submit the bid. All of the contracts supporting this entity must be completed before the network can submit a bid.
• Each network member must be eligible to bid on its own, including meeting all quality standards and accreditation requirements. (The accreditation deadline for first-round bidders is Aug. 31.)
• The network’s total market share for a product category on which it bids in any competitive bidding area can’t be more than 20 percent of the Medicare market for that product category in that CBA.
• Once a provider joins a network, it cannot bid on its own on the same product category in the same CBA as that network. However, a provider can join more than one network to bid on different product categories.
• Each member 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 CBA.
• If the network wins a contract, each member must bill Medicare on its own for the items it furnishes under the competitive bidding program.