Round 1 Rates Are Devasting

Home medical equipment providers had been waiting for weeks on CMS to release the Round 1 rebid rates. But after they heard the July 1 announcement, many said they were struggling to regroup: Medicare reimbursements will average a 32 percent reduction across all product categories in the DMEPOS competitive bidding program.

“I think everyone is kind of in shock at this point,” said Cara Bachenheimer, senior vice president of government relations for Elyria, Ohio-based Invacare Corp., following the announcement. “If [the bid program] is allowed to continue, this is devastating.”

The new rates are scheduled to take effect Jan. 1, 2011, in the nine Round 1 competitive bidding areas: Charlotte, Cincinnati, Cleveland, Dallas, Kansas City, Miami, Orlando, Pittsburgh and Riverside, Calif. Contract winners are expected to be revealed in September.

In announcing the rates, CMS officials said the bidding program would save $17 billion over 10 years.

But at what cost?

Somber HME stakeholders said the new rates would decimate the industry, eventually drive up Medicare costs and throw the lives of beneficiaries in jeopardy.

“The bid prices … will translate into unsustainable reimbursement rates for home care providers,” said Tyler Wilson, president and CEO of the American Association for Homecare. “Over time, it will make it harder for seniors and people with disabilities to get the home medical equipment and services they require to live independently in the most cost-effective post-acute setting — their own homes.”

He said the country would eventually “see spending soar in other parts of Medicare because the bidding program will push spending into longer hospital stays and ER visits.”

Bachenheimer said the sharply reduced rates — on the heels of a 9.5 percent cut the industry took as a pay-for to get the initial Round 1 (2008) delayed — reflect stakeholders’ worst fears: that providers terrified of losing Medicare’s business would enter lowball bids.

“I think it just validates the fundamental flaws of this program. It is the suicide bidding notion,” she said. “You put in a suicide bid just to stay in the game … It’s this artificial price-setting mechanism which has no rationale. It’s a complicated gaming system. The problem is, nobody wins.”

Not so in CMS’ eyes. The agency’s Jonathan Blum, deputy administrator and director for the Center for Medicare, said the program “also ensures continued access for beneficiaries to high-quality products.”

That was a bit hard for providers to swallow.

“It’s just the opposite,” said Georgie Blackburn, vice president of government relations for Blackburn’s in Tarentum, Pa. The rates “are way too low to make ends meet” let alone provide high-quality products and services, she said.

“CMS is short-sighted,” said Patrick Clevidence of Cleveland-based Medical Service Co., adding that some of the pricing is below cost. “They look at just the initial savings. Patients are going to end up paying a lot more for insurance costs because they are not going to get the care they need in the home and they aren’t going to get the quality of equipment.”

As of press time, Medical Service had been offered some contracts, but Clevidence said management was scrutinizing the rates to see if the company could provide its patients with quality service as in the past.

“We don’t want to be one of those companies that puts a CPAP in a box, mails it with a mask to the beneficiary and says, ‘Here you go,’” he said.

With such low Medicare payments — which historically are mirrored by private insurers and Medicaid — it could all just come down to staying in business, stakeholders said.

But Laurence Wilson, director of chronic care policy for CMS, said the agency was confident providers could sustain operations under the new prices. “With respect to prices and sustainability,” he said, “we are comfortable when we look at the prices that we see for some of the items that resulted from the bid process.”

Bachenheimer, however, pointed out that 50 percent of the participating providers bid higher than the end rate, which is the median of the low bids selected.

CMS: The Program Will Move Forward

“Half the so-called winners will get paid less than their supposedly best price,” she said.

As much as they are concerned about being able to do business at CMS’ new rates, HME stakeholders are also anxious about the number of providers that may be forced out of business. The bidding program allows only those who accept offered contracts to participate, with analysts projecting that as many as 90 percent of HME companies could go under and up to 100,000 jobs could be lost.

CMS said it would offer 1,287 contracts to 364 suppliers with 622 locations (out of 1,011 participating bidders).

But CMS does not believe that providers falling out of the system will be a problem. Even if they don’t get contracts, providers in the CBAs could serve as subcontractors, provide other products that Medicare didn’t put out for bid or continue to provide rental equipment under the grandfathering provision, Wilson said.

What there is not is the opportunity for “any willing provider” to participate in Medicare under the bid program without a contract.

“The current rules don’t provide for that scenario … and the agency believes that … we would not see the same degree of savings that we are seeing today,” said Blum.

Bachenheimer said CMS would see the same savings. The issue is the number of providers, and CMS’ objective is to reduce that number. “They think they will be able to do their jobs easier with fewer providers in the system,” she said.

CMS does, however, intend the entire bidding program to expand, with Round 2 scheduled to be bid in 2011 in 91 additional cities and implementation set for January 2013.

Pointing to improvements in the online bidding system and to education for suppliers and beneficiaries, said Blum, “We have worked very hard to address complaints Congress had in the past … Given the improvements we have made but also given that this program responds to the desire to reduce health care costs, to reduce Medicare costs, gives me great confidence that the program will go forward.”

Get H.R. 3790 Passed!

Announcement of the rates, said Bachenheimer, should galvanize the industry into activity to get H.R. 3790, the bill that would eliminate competitive bidding, passed in the House and a companion bill going in the Senate.

“I would urge everybody whether they are in a bid area or not, we cannot be complacent. Everybody needs to educate every member of Congress as to what this really means. We’re all in this together,” Bachenheimer said, noting that CMS employees “are up there touting their perspective on how much they have been overpaying and how much they can save.”

Congress, she said, needs to hear the truth from HME stakeholders.

“If members of Congress don’t hear what’s going on, this will not be good for us,” she said. “This thing goes live in January. They are going to start the bidding process for Round 2 next spring, so there is absolutely no time for CMS to analyze [the effect of Round 1]. It’s just too quick.”

In other words, stop the program now, before it rolls into Round 2.

A Whopping 32% Cut

While Round 1 reimbursements average a 32 percent reduction across all bid categories, the cuts in individual product categories average:

• Oxygen supplies and equipment: 31%
• Standard power mobility devices and accessories: 23%
• Complex power mobility devices and accessories: 14%
• Mail-order diabetic supplies: 56%
• Enteral nutrients, equipment and supplies: 28%
• CPAP/RAD and related supplies and accessories: 34%
• Hospital beds and accessories: 36%
• Walkers and accessories: 33%
• Support surfaces (Miami only): 49%

For a full schedule of single-payment amounts across the Round 1 CBAs, see the CBIC website at www.dmecompetitivebid.com.

‘Which Part of Dead Do You Want?’

When HomeCare asked providers what they thought about the Round 1 rates, we got an earful. A comment from Barry Johnson, president of the Texas Alliance for Home Care Services, sums up what many said they are feeling: “It’s kind of like the story about the old boy who says, ‘OK, Pardner. I can cut you and let you bleed to death or I can just shoot you in the head,’ Johnson said. “Which part of dead do you want? CMS is forcing us to sign contracts at these rates or we will go out of business.”

Following are additional comments from Round 1 bidders and providers located in Round 2 CBAs.

“The net effect of these drastic reductions once implemented will gut the DME industry. Surely the ‘winners’ have to agree that these rates are unsustainable and cannot be made up for with volume. Does the federal government really want to increase unemployment by the many thousands of jobs that will be lost just in this first round? Seems that cost alone more than offsets any savings to the Medicare program.”

— Tim Binkley, Valentines Diabetic Supply, Roswell, Ga.

“Those offered contracts for oxygen in the Miami MSA complained that they were one of 85 providers offered contracts. There are currently 257 oxygen providers in the Miami MSA; that is three times the number of those offered contracts. There is no way that those providers can make up an additional 29 percent cut in revenue, on top of the 9.5 percent cut in 2009, if they are somehow able to triple their volume.”

— Rob Brant, City Medical Services, North Miami Beach, Fla.

“I’m upset, mad, confused — there are probably 50 adjectives I could use … I didn’t bid [low enough to win a contract]. We just got done giving up 9.5 percent. You add that on top of the 32 percent they are touting as a savings, and that means the industry is going to take a 41.5 percent cut in two years? How can you do that and stay in business?”

— Dean Cheney, Dallas Oxygen Corp., Dallas

“This is a nightmare … We will never be able to provide service to our patients at this price. This has to be stopped.”

— Paula Hardison, Carolina Diabetic Supply Group, New Bern, N.C.

“I kind of expected it. If you compare [the rates] to some managed care contracts or VA numbers, they are about the same — pretty darn close. [The VA and managed-care companies] get bigger discounts and there’s far less paperwork involved. I think most people will accept the contracts. I don’t think you really get an option [if you want to do Medicare].”

— Chris Rice, Diamond Respiratory Care, Riverside, Calif.

“There are no companies out there that are capable of taking 32 percent cuts and remaining in business over any period of time. If they thought they could survive with additional volumes, it proves my feeling that they will just go broke faster than those of us that won’t get picked to play … We may have to close our businesses and lay off employees, but at least we won’t have to file bankruptcy as those that signed these contracts.”

— Round 2 provider