Tough Numbers under Competitive Bidding

“Life was pretty good on Dec. 21, 2010,” said John Geller, vice president of 61-year-old Medical Service Co. in Cleveland. “I put my head down on the pillow that evening and when I woke up on Jan. 1, no question it was a new day.”

Geller, whose company was awarded multiple contracts in three competitive bidding areas in the Round 1 rebid, said management thought it was prepared for the start of the program. But he called what it has encountered since the bid’s Jan. 1 implementation the “triple witching hour,” citing a 33.5 percent reduction in oxygen reimbursement, the mounting pressure of audits and, on top of that, “deductibles season.”

“Roughly 100 days into it, I can’t tell you yet we’re a survivor,” Geller said April 12 at a Medtrade Spring session called “Round 1 Lessons Learned.” While some probably breathed a sigh of relief that Round 2 will be delayed by six months, he cautioned that delay will not soften the impact of the bidding program on any company’s business.

In the Cleveland CBA, he noted as an example, payment for an E1390 oxygen concentrator dropped from about $175 to $103 under that CBA’s bid rates. “How do you provide services having a price reduction from $175 to $103?” Geller asked the audience. “How do you make it work?”

Questions like those are what providers in Round 2 need to figure out, he said. “In competitive biding, there’s going to be a significant price reduction from what you’re currently being paid. You need to understand what it’s going to cost you.”

Geller suggested doing some “guerilla math” to get an idea: For any products you are interested in for Round 2, take the existing competitive bidding prices now in effect from any one of the nine CBAs. “Subtract that amount from what you are currently being paid,” Geller said. Apply the difference to revenues from that product for current patients from January through March, and multiply by four. “That’s the annual impact of lost revenue you’ll have,” he explained.

Then begin to prepare yourself for how you’re going to live under those bid rates, he said. “How will you change your business structure to be able to afford to exist under those rates?”

His advice to providers who will be caught up in Round 2? “Stash your cash,” Geller said. “I cannot tell you how important that is. For those of you who still have cash available, zip up your pockets and hang on to it, because you’re going to need it.”

Session moderator Miriam Lieber said that advice is important for all providers because “everywhere you turn you need additional cash” to defend against unknowns in the industry’s rapidly changing environment.

“The truth is, each and every one of you is actually involved in competitive bidding,” said Lieber of Lieber Consulting, Sherman Oaks, Calif. “Whether you like it or not, it is impacting you.”

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