Shaping Up for NCB

As we all try to understand what the effects of Medicare’s final rule on national competitive bidding will be, many HME providers are feeling uncertain about their future with Medicare. However, rather than being nervous or concerned, now is the time to prepare for competitive bidding and its implications even if you are not located in one of the first 10 MSAs where it will occur.

Whether or not you decide to bid, working to make your company run more efficiently is a worthwhile exercise. If anything, it readies you for the next phase in this all-too-fickle industry — and you can make modifications as part of this exercise that will benefit your company.

Competitive Bidding Facts

• Savings Medicare will not pay more than what is allowed under the present fee schedule. In other words, Medicare must save money on competitively bid products. In the demonstration projects concluded in 2002, Medicare realized a savings of approximately 20 percent. Although CMS cannot dictate a specific savings amount in 2007’s first bidding round, that 20 percent is a gauge since there is no other historical precedent.
• Multiple Winning Providers Competitive bidding contracts must be awarded to multiple entities within a bidding area. Technically, “multiple” means two or more. In reality, Medicare will examine capacity based upon the number of Medicare beneficiaries and utilization to determine how many providers are needed in each area. The variable is the capacity of the provider. For example, if you are small today but plan on growing, you must show Medicare how you will do that (e.g., financial planning). Once CMS feels comfortable that Medicare beneficiaries’ needs will be met in the most economical way with quality providers, the number of winning bidders will be cut off (unless a legislative remedy changes things). To make sure Medicare meets the potential for fluctuating businesses and the changing needs of its beneficiaries, it is likely that CMS may select more providers than are needed. This would provide a cushion for both Medicare and the beneficiary, in addition to offering more patient choice.
• Single Payment There must be a single payment established for each item in a competitive bidding area. This means that there will be only one price for a particular item in a specific CBA. However, the same product might be paid at a lower or higher allowable in another CBA based upon the “pivotal” bid, which will be calculated from the bids submitted throughout that CBA. National companies that have winning bids in multiple MSAs may find a geographic shift in revenue as a result.
• Quality Standards Contracts will only be awarded to accredited suppliers who meet Medicare quality standards. As it stands today, providers must be accredited in order to participate in competitive bidding. The quality standards will be enforced by CMS’ “deemed” status accreditation organizations, forcing many providers to become accredited quickly before bidding. Other providers (not in the first 10 MSAs) will have more time as CMS expands the bidding program in 2009. It is important to remember that just because Medicare approves a particular accreditation agency, not all payers concur with Medicare’s choice. Check with your other major third-party payers to know which agency they require, if any, for accreditation. To have to become accredited by two separate accreditation agencies seems superfluous, at best. n Contract Term. Contracts to suppliers are not to exceed more than three years. It seems likely that CMS would continue with a contract for the maximum of three years since it takes so much time and effort to implement. The true benefits (any real savings) would be reaped toward the end of the contract period, at least after the startup costs are absorbed. This means that providers that do not opt to participate, or providers that lose their bids, cannot participate for the three-year term (at least for that MSA for the included items). This should be a consideration when deciding on your bid.
• Forms Although the final rule had not been issued at press time, the draft application forms require you to list quite a bit of technical information.

CMS, through its Competitive Bidding Implementation Contractor (Palmetto GBA), asks you to note total revenue per product. If you have growth plans, the agency wants to know how you will achieve that growth. CMS expects you to notify the CBIC of everything from staffing plans to financing you will acquire and distribution methods you will use.

Additionally, on the quarterly update report (form C) that is used for tracking data should you win a bid, you are asked to report totals by quantity supplied of each product, by make and model (CMS understands that you may change manufacturers).

Clearly, you will be expected to track utilization by payer and product and report it accordingly. This, in turn, means that you will need your software to track this data. Regardless of its use — when preparing to bid or for reporting purposes after you win a bid — it is useful to track this type of information.

Bidding Preparation

Since Medicare has to achieve a savings through this project, you must focus not only on your costs for each product but also on your cost of doing business. How so? A few examples follow.

• Reporting and Revenue-Tracking Knowing that Medicare wants your revenue broken out by Medicare and other payers, it would behoove you to have this information at your fingertips for each product category. Logically, you would want to know which items generate the most revenue. However, you will need to delve more deeply since you will have to know about each product in a category by payer. This data may provide enough information to begin your search for which product categories, if any, you will submit a bid. In other words, if your Medicare revenue is larger than other payers’ and you want to continue to provide a specific Medicare bid product, you may elect to bid if you are in one of the 10 chosen MSAs. At a minimum, this information will direct you to examine certain products more seriously than others. While you are sorting your revenue reports by payer and product, the draft forms state that you will also need to gather manufacturer make and model information to report to Medicare on a quarterly basis (if you win). You will need to quantify how many of each item you provided during that quarter, and submit that information to the CBIC no later than 10 days after the quarter ends. You will have to keep your reports current in addition to filtering them according to Medicare’s manufacturer specifications. While you examine your revenue, I suggest you also note your collection ratios per payer in each of the product categories. This will help you see where you need to improve on receivable collections. The more receivables you collect in a timely manner, the more attractive your bid price.
• Automation Similar to revenue and related Medicare-required reports, you should evaluate your operation to ensure maximum use of automated functions. Not only should you be sure that you are using your software for billing, documentation, order entry and more, you should also be looking at ways to zero in on expenses. Specifically, you should be using document imaging and scanning, online purchasing, efaxing and/or eCMNs and online verification and eligibility. For many HME providers, document imaging dramatically reduces time spent on manual filing. It should also reduce the number of billers and documentation specialists needed to rummage though information in patient files/records. This translates into tens to hundreds of thousands of dollars in savings to the bottom line. The message is to ask yourself constantly if there is a better way to perform a task and if there is a software solution to enhance your productivity. In addition, think of all of the ways the Internet can help. Further, work on reducing duplicate work or manual intervention. Finally, you should be able to trust your software to work as your ally. Automation solutions alone could make the difference between winning and losing a bid.
• Inventory Control/Purchasing A more obvious way to reduce your costs is to scrutinize your purchases more carefully. That is, you should know your purchasing patterns, favored manufacturers (best relationships), and you should know how quickly you turn your most readily used products.

Reducing inventory can help keep costs down, as long as it is not so lean that you can’t service your referral sources’ needs. Rather, have just enough just-in-time inventory so that you are not caught without product when you need it but you are not holding onto product for too long.

This implies an automated solution that is real-time, and not a system that is unreliable. I find that often it is not the system but the data entered that is the real problem. To function in a real-time environment, information must be entered immediately after receiving or dispensing equipment.

You should also know from which manufacturers you purchase the bulk of your goods. More than ever before, providers are examining formularies as a preferred purchasing method. After all, Medicare is requiring that you notify them about this.

Finally, to determine your best purchasing strategy, you need to know your history and current inventory status. Medicare will ask for your growth plans, including, but not limited to, inventory tracking, distribution method and facility space. This is an opportune time to consolidate vendors if you have fragmented purchasing patterns.

Shaping Up

Now is the time to make your company run like the efficient business it should be.

Although there are many additional ways to focus on costs, it is essential that you take what we know about competitive bidding, adopt a simulation model and begin the process of preparing for bidding. Tour your company in search of operational efficiencies that will make quantifiable improvements in your costs and expenses.

After all of your hard work, you may decide not to bid, or you could lose the bid. At least you will have educated yourself on your true costs, and you will be able to make modifications that will only enhance your business’ value.

Miriam Lieber is president of Lieber Consulting, Sherman Oaks, Calif., specializing in operations management and reimbursement for the HME industry. She can be reached at 818/789-0670 or by e-mail at [email protected].

Note: At press time, CMS’ final rule on national competitive bidding had not been issued. For updates, contact Miriam Lieber at [email protected].