Changes to the Competitive Bidding Network Rules

In its final rule on competitive bidding, CMS made a number of changes from its draft proposal. Some of these changes are welcome and offer further insight into CMS’ reasoning. Others are surprising and troublesome.

• Network member eligibility Network eligibility has been changed significantly under the final rule, and for the worse. Networks may comprise from two to 20 “small suppliers,” defined as those that generate gross revenue of $3.5 million or less in annual receipts including Medicare and non-Medicare revenue. In a special Open Door Forum on April 11, CMS confirmed that a supplier who does $2 million in business for each of two different product categories, or $4 million in total revenue, would not qualify as a small supplier and could not join a network. This rule change is perplexing. Network participation should be allowed whenever the services offered by a network enable a supplier to provide better services under competitive bidding than it could otherwise. There is no reason why this must be a function of size. Further, why should suppliers who exceed the $3.5 million cap be excluded when they generate a small amount of revenue from certain products or in certain locations? These entities’ low volume by Medicare census, geographic location or product puts them at the same competitive disadvantage as “small suppliers.” Further, every network member must now attest that it is joining a network because it cannot otherwise satisfy its competitive bidding obligations. But if the supplier already must swear that it needs the network structure, why should aggregate gross revenues matter?
• No more than 20 members Another significant change limits network participation to 20 small suppliers. CMS’ rationale seems to be that this “max 20” rule limits networks’ market share leverage. But this reasoning makes little sense. Anti-trust law already deals with unfair market share leverage by looking at a network’s market share. In fact, the final competitive bidding network rules specifically require a network to assess its market share percentage, limiting the network to no more than 20 percent of the Medicare market share for the relevant product categories. We are unaware of any other situation where anti-trust law focuses on how many entities are involved; only their market share matters. The “max 20” ceiling is unfair and unnecessary. It also is somewhat of a slap in the face to those networks with more than 20 members who actually believed CMS when it said not to wait for the final rule but to start setting up operations as early as possible.
• One bite of the apple In order to submit a bid, all suppliers in the network must be independently eligible to bid. The final rule eliminates an earlier provision that allowed a network 10 days after notification to expel a member who had become ineligible. Because of the new rule, network members should consider a mutual promise to behave appropriately and to report honestly and accurately.
• Services The final rule removes the network’s ability to perform centralized billing services for it members. Now each participant bills on its own. This change removes one of the key functions of a network under the prior rules, and makes the network’s ability to monitor its members’ activities more difficult. On the other hand, because network members are vulnerable to violations by other members of competitive bidding’s rules concerning quality standards, accreditation and regulatory compliance, networks still can offer value-added services that facilitate members’ ability to satisfy these performance requirements, to track ongoing compliance and to assist with corrective action where necessary. Significant economies of scale and enhanced expertise can be delivered by forward-thinking networks in this regard. Group purchasing discounts also remain a network benefit. Networks can provide the availability of reimbursement, legal expertise or other advisory services on a shared-cost basis. Order-tracking and information management services may also make sense. These services do come at a cost, of course, which should be reflected in the network’s competitive bid. However, when spread among the members, these costs should be less than it would cost an individual member to set up, implement and maintain these compliance and monitoring systems on its own.
• Shared liability One concern under the proposed rule was that, because CMS required network members to operate as a centrally-coordinated unit, this implied that fraud by one member could create liability for all of the network members. However, under the final rule, CMS now requires that network members bill individually. This suggests that members will be individually accountable for their reimbursement decisions. False claims and non-compliance may still result in a network losing its entitlement to participate in that round of competitive bidding, but it now seems unlikely that other network members would have any individual vulnerability for each other’s misdeeds.
• Solutions It seems a network’s key role under the final rule is to facilitate and operate a coordinated infrastructure among its members with regard to inventory purchasing and tracking, and to facilitate and monitor cost-effective compliance with quality standards, accreditation and regulatory compliance needs. Networks should emphasize these services in determining their continuing viability and attractiveness to potential members. Further, these support services may be offered to multiple networks (as well as individual suppliers) for group savings. Even if a current network with, say, 40 members must split into two networks with 20 members, those networks may share many support services. It is exciting to contemplate the opportunities available from the linking together of various networks and their collective membership. There is a great opportunity for organizations that can provide data management and advisory expertise to offer network products that could be shared to some extent among network purchasers.

The Health Law Center is a national health law practice in Greenville, S.C. Contact Caesar or Miller at 864/676-9075 or by e-mail at [email protected].

Neil Caesar is president of the Health Law Center (Neil B. Caesar Law Associates, PA), a national health law practice in Greenville, S.C. He also is a principal with Caesar Cohen Ltd., which offers compliance training, outsourcing and consulting and the author of the Home Care Compliance Answer Book. He can be reached by e-mail at [email protected] or by telephone at 864/676-9075.