Bid Winners Wonder: Who Pays for Their Costs?

ATLANTA–While the suspension of DMEPOS competitive bidding
generated cheers that reverberated across the industry last week,
it was a bittersweet result for the 325 round one suppliers who won
contracts in the 10 competitive bidding areas.

On Friday afternoon, information was still dribbling out of CMS
about how reimbursement issues would be addressed for contract
providers. As they waited to hear how some of their questions would
be answered, those providers also were wondering if there was any
ability to recoup the thousands–in some cases, hundreds of
thousands–of dollars they had invested in preparing for business
under bidding.

“They have mixed feelings,” said Rose Schafhauser,
executive director of the Midwest Association of Medical Equipment
Services. “The delay was good for the entire industry. I
think those folks that did win contracts understand it, but they
are out lots of money.

“They have spent a lot of money and spent a lot of time
and hired staff,” she continued. “And what now? How do
they recover the expenses they incurred? They are the good ones
that literally got hurt from this. They are basically the
sacrificial lambs in this whole process.”

Interviewed by HomeCare Monday last week, here is what
several bid winners had to say:

Georgie Blackburn, vice president of government
relations for Blackburn’s Pharmacy in Tarentum, Pa., awarded
six contracts: “You’re the winner of six
contracts one day and you wake up the next day and you’re
not,” said Blackburn. “There were doors that were
opened that were not there before.

“But are we still glad [about the delay]? Yes. The bottom
line is, we weren’t happy to be signing contracts in a system
that was so plagued with flaws. It wouldn’t have been a good
program down the road for our patients.”

Blackburn said she had been concerned about the unfair
elimination of providers from the bidding process, the loss of
small businesses and the quality of service that would result from
competitive bidding.

“I was especially concerned with contractors who won
contracts and had never provided the equipment before,” she
said, adding that she was also appalled that at least one company
with a corporate integrity agreement “hanging over its
head” had won several competitive bidding contracts.

Beyond the suspension of the competitive bidding program, the
new law (the Medicare Improvements for Patients and Providers Act)
has many pluses, Blackburn said. For example, it mandates the
removal of complex rehab from any potential competitive bidding
project.

“That’s outstanding,” she said.

And she was relieved at the 9.5 percent reimbursement cut that
providers across the nation will feel in 10 product categories come
Jan. 1, 2009.

“The 9.5 percent cut is a huge improvement over the 27
percent [average cut] in the Pittsburgh [competitive bidding
area],” she said.

CMS had said the average savings through competitive bidding
reimbursement cuts across all product categories would be 26
percent. But in some areas and some categories, the cuts were in
excess of 40 percent.

Blackburn said she looks forward to the prospect of Medicare
reform next year. “This is the first step in making a wrong
right,” she said. “The next step is doing the reforms
… [with] the right people at the table [working] to save
dollars. I hope we can be part of that process.”

Jeffrey Holman, president of First Priority Medical
Services, Hollywood, Fla., awarded five contracts:
“I’m very disappointed in the Senate, that they allowed
big business to attach [the delay in competitive bidding] to a bill
that has nothing to do with it,” said Holman, an attorney
who, with his wife, father and business partner, owns the small
mom-and-pop.

Holman said he viewed the project as a way of banishing fraud
and abuse from the industry. “Competitive bidding never
seemed like the best way from the beginning,” he
acknowledged, “but it seemed like a necessary evil to clean
up this industry and be on a level playing field where we can do
business the right way with other people who are doing it the right
way.”

Instead, he said, he finds himself in a position where he is not
going to be able to build his business as he anticipated, and
he’s out a lot of money because of the delay in competitive
bidding. “My expansion plan that I put into Medicare
accounted for a 100 percent expansion,” he said. “We
were actually prepared to go to 400 percent. We hired new people,
our warehouses were filled to the hilt.”

Now, Holman has to backpedal. “The thing that disturbs me
the most is not only the rigorous process we went through to bid,
but we hired new staff, installed a new phone system,” he
said.

“Now we have to fire people, and what are you going to do
with a phone system you don’t need? It’s an $8,000
paperweight.”

From his vantage point, CMS should never have implemented the
program, which for weeks prior to the July 1 start date, was being
seriously questioned by Congress.

“They could have, frankly, saved the 325 [contracted]
suppliers maybe over $100 million by not taking the program
live,” Holman said.

He is sure, he said, “that there will be meritorious
lawsuits” filed by providers attempting to recoup their
losses. “I do not know if I will take part. I am more hopeful
that Medicare or Congress or whoever will simply step up and give
us some sort of format by which we can recover our losses,”
he said.

Round one providers may be able to claim damages from the
government resulting from the delay or loss of contract. CMS has as
yet issued no guidance as to how those claims can be made.

Meanwhile, Holman is distressed at the turn of events.
“It’s not just the financial,” he said. “I
feel so disappointed, so disillusioned with the Senate. I am so
disheartened by the way this issue was handled and was not decided
on its merits. It’s awful. It’s terrifying. The company
goes from being extraordinarily valuable because of the contracts
to being worth nothing. It’s an unbelievable reversal of
fortune.”

Raul Lopez, director of operations for Bayshore Dura
Medical in Miami Lakes, Fla., and president of the Florida
Association of Medical Equipment Services, awarded eight
contracts: “It’s a mixed bag. Obviously,
there was an enormous amount of relief that we had won the
contracts, disappointment as to the amount of revenue under the
contracts and concerns about servicing patients.”

While his company, like the other members of FAMES, did not
support the idea of competitive bidding, he felt it had no
alternative but to participate, Lopez said, and ramped up to do it.
Bayshore bulked up its inventory and added and trained more staff,
so there was a significant investment in the project, he said.

Now he is left with an inflated inventory and numerous
reimbursement questions. But he isn’t particularly concerned
about his excess inventory.

“Will the inventory get used? In the first month of July,
probably not. In the first quarter, probably,” he said.

In the end, he says, the delay, though somewhat costly, pales in
contrast to what could have happened to the industry if competitive
bidding had moved forward.

“We have got to get rid of it altogether,” Lopez
said. “Competitive bidding is never going to work.”

Chris Rice, Diamond Care Respiratory Care in
Riverside, Calif., awarded five contracts: “We
hired more staff, we bought more trucks, everything you can think
of, we did. We’ve got hundreds of thousands of dollars
invested,” said Rice.

Never a champion of competitive bidding–he launched a Web site,
www.competingbid.com, to fight the CMS program–Rice
said he is unsure how he feels about the delay.

“Now that the program is undone, we have a lot of
issues,” he said. “One of the rules of the program was
that if you had a patient with a capped rental item and you had to
replace it, you’d be paid for that item. And we’ve had
that happen.”

Under the pre-competitive bidding scenario, however, the
beneficiary would not have been entitled to another capped rental
item, he said. So will he get paid or not? CMS has not yet said how
it will resolve the issue.

Rice also has concerns about how to re-educate not only his
staff but also his referral sources and beneficiaries. “We
spent an awful lot of time educating [employees] on the program
itself, and now we have to un-ring that bell,” he said.
“And it’s not only employees, but referral sources and
beneficiaries. I’m not sure the beneficiaries even know
it’s been stopped.”

Like other providers, he’s waiting for further direction
from CMS.

“We’re just going to have to wait and see,” he
said. “I guess the real fear is that people are just going to
go back to business as usual, and what will happen in 18
months?”

While some industry stakeholders believe the program will not be
resurrected, Rice isn’t so sure.

“Really, I have a feeling it is going to happen in 18
months,” he said. “I hope I’m wrong, but from
talking to Congressmen and everyone, they don’t seem to think
that competitive bidding is a bad idea. They think it wasn’t
implemented well.”

It’s going to be up to the industry, he said, to convince
them otherwise.

Tammy Zelenko, CEO and president of Bridgeville,
Pa.-based AdvaCare Home Services, awarded one
contract: “I won a contract for oxygen, but I
fought with my heart and soul to get this stopped,” said
Zelenko, who objected to competitive bidding on a number of levels,
not the least of which was the severe drop in reimbursement.

“To plan for a 26 percent cut is hard to do,” she
said. “My bid was higher than what the allowable bid came in
at.”

Retail and private insurance comprise much of the business at
her three locations, while Medicare accounts for only about 12
percent, she said. “But the long-term effects of [competitive
bidding] for business owners, staff and beneficiaries–every
[insurance] company would be basing their reimbursement off
Medicare.”

Zelenko was happy, she said, that they “put the brakes on
the whole thing.”

While it was costly to go through the bidding process, she
doesn’t expect the delay to cost her much money.
“Fortunately, our whole infrastructure was in place,”
she said. “I was not adding trucks, I was not adding
facilities.”

She pointed out that another provision of the new Medicare law
is worth celebrating. “The repeal of the transfer of the
ownership of oxygen is not an unimportant feature,” she
said.

Had the title transfer to beneficiaries gone through as planned
on Jan. 1, 2009, “we would have lost not only the
reimbursement but the asset. We can’t continue to do business
that way.”