The American Way—Not

On March 21, CMS and its Competitive Bidding Implementation Contractor notified bidders of whether they would be offered a contract to provide items in each of the initial bidding areas in round one. The CBIC had six months to review the bids but requested a 10-day turnaround for suppliers to respond with a yes or no answer, and stated that it needs four weeks thereafter to finalize the list of “winning” bidders.

The program is scheduled to be effective July 1 in 10 large U.S. cities. This means that patients will have less than six weeks to find a winning supplier if theirs did not “win,” and transition their products and services to another supplier. Winning suppliers will take a 26 percent payment cut, on average, and will have a short period of time to ramp up product inventories (assuming they are credit-worthy), hire and train new staff and purchase trucks.

Given the high likelihood of significant negative impacts starting in July, and the series of fundamental procedural flaws already identified, every impacted provider must contact their legislators and ask them to tell CMS that it must postpone the program until errors can be fixed, and the industry and CMS can agree on an alternative system.

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Real Impacts

• Local market disruption: Long-standing local companies who have offered quality home care services for decades were excluded from participating, and will be forced out of business based upon government fiat. This will result in significant local market disruption.
• Beneficiary disruption: Over 3.5 million Medicare beneficiaries will be impacted by round one. Beneficiaries have come to rely on the long-standing relationships they have with their home oxygen and DME providers. Not only will they be surprised to discover their long-time provider may no longer be able to serve them effective July 1, they will also be faced with obtaining services, equipment and supplies from multiple new suppliers — some of which may not be local or experienced in providing the care they need.
• Good companies arbitrarily eliminated: Many suppliers traditionally serving beneficiaries did not win the bid for products representing their core business. It appears that non-traditional and “long-distance” providers with little or no history serving these markets won bids simply because they bid the lowest prices. Many of the winning bidders in the round one MSAs have no physical presence where they won the bid. These winners are already contacting local providers who lost with whom they wish to subcontract to serve these local markets. The CBIC told many bid applicants that their bids were disqualified for technical reasons; no detailed explanation was provided, and there is no appeal process allowed. We expect significant job loss and business bankruptcies in these communities. In a program designed in part to weed out unscrupulous providers, this game of “roulette” will instead result in the financial demise or disqualification of some of the country’s best providers on technicalities that cannot be corrected. They are shut out of the market for at least three years.
• Winners did not necessarily “win”: Even suppliers who won bids are seriously concerned that the deep payment cuts will make it impossible to remain financially viable and be able to serve beneficiaries throughout the three-year contract period, given the magnitude of the reductions. Many will have difficulty obtaining additional working capital in the current credit environment. These cuts, combined with the upcoming January 2009 implementation of the Deficit Reduction Act of 2005, will jeopardize patient access to care and services.
• Program threatens long-term viability of the industry and its ability to serve beneficiaries: We foresee significant chaos in the credit market for this industry given the tight margins that currently exist. Good providers who lost bids have become instant bankruptcy risks. It will also be difficult to provide winning firms with the credit they are seeking given the significant payment cuts. Inflation rates for certain provider costs have escalated since the bids were prepared and submitted almost a year ago (e.g., fuel), yet providers must live with the new rates for three years without any opportunity for adjustment.
• Beneficiaries will suffer: When suppliers are forced to establish an artificially low bid to obtain a winning contract, two things often occur to the disadvantage of the beneficiaries they serve. First, suppliers may substitute cheaper products and reduce the non-equipment services they have historically provided, as they must find ways to reduce their operating costs. Second, once budget pressures begin to set in for these suppliers, due to poor inflation projections or unexpected administrative costs from meeting capacity requirements, support services are eliminated such as 24-hour on-call, preventive maintenance, etc. Hospital discharge planners will be forced to place patients in the hands of suppliers with no track record of service. Further, a significant challenge for beneficiaries will be the fact that they will have to obtain competitively bid products from as many as nine different suppliers, depending on the products and services they need to treat their medical condition(s) at home. This is contrasted with their ability today to receive many services from a single, local provider.

Answers Needed From CMS

CMS’ one-page notification letter and grid of wining/non-winning products, along with reason codes, was simply inadequate for a program of this magnitude. CMS must be held accountable for its decisions regarding which suppliers won contracts and which did not. There was zero clarity around how the agency determined each supplier’s capacity and determined how many winners were needed for each market.

Since CMS disqualified many bidders for supposedly not providing the correct financial reports (without giving them the opportunity to rectify the situation), the agency must be fully transparent and publicly disclose the financial criteria it used to assess the financial information bidders submitted.

• CMS must publicly disclose how it calculated the single payment amount for all the HCPCS codes in each product category in each competitive bidding area. Some non-winning bidders lost by 1 percent, which represents pennies or dollars, and since CMS’ definition of “capacity” remains unclear, arbitrary exclusions of high-quality, accredited providers occurred.
• CMS must disclose how many suppliers submitted bids compared to how many were offered contracts, compared to how many accepted contracts.
• CMS must explain why it relied on unsubstantiated “supplier-reported” capacity for growth and how it used that capacity data to determine the total number of winners needed for each market.
• If in fact errors occurred that were the fault of CMS and its CBIC contractor, will CMS/CBIC fix the errors and allow affected suppliers to participate?
• Since the Federal Acquisition Regulations are generally not applicable to this process, what legal basis exists for CMS’ refusal to provide information related to:
  • The number of bids submitted in each product category for each of the 10 areas?
  • The financial criteria and review process that were applied to the supplier’s financial information that was submitted?
  • How many contracts were offered for each product category in each of the 10 CBAs?
  • How CMS/CBIC calculated the single payment amount for each HCPCS code in each product category in the 10 areas.
  • How CMS determined that a provider with an office eight hours away could serve Medicare beneficiaries with home oxygen therapy?

The American Way — Not

This is a heavy-handed government takeover of an industry, where CMS determines whether individual businesses live or die, CMS sets pricing and controls an owner’s individual right to sell the business. This process will be repeated every three years, steadily eliminating competition in local markets and ensuring that consumers have limited access to needed items.

This is not the American way.

A specialist in health care legislation, regulations and government relations, Cara C. Bachenheimer is vice president, government relations, for Invacare Corp., Elyria, Ohio. Bachenheimer previously worked at the law firm of Epstein, Becker & Green in Washington, D.C., and at the American Association for Homecare and the Health Industry Distributors Association. You can reach her by phone at 440/329-6226 or by e-mail at [email protected].