Life After the Final Rule: What Happens Now?

BALTIMORE–Years of conjecture and mounting anxiety about the
final rule for national competitive bidding ended last week when
the Centers for Medicare and Medicaid Services unveiled the
document–only to lead to new industry concerns.

Mandated by the Medicare Modernization Act of 2003, the project
will replace the current Medicare fee schedule for some DME with a
single-payment amount. Leslie V. Norwalk, CMS acting administrator,
said that when fully implemented in 2010, the program would save
taxpayers $1 billion annually.

“Given the need to tackle the continued and unsustainable growth
in health care costs, this new program represents yet another way
to use the competitive marketplace to bring the best possible and
most efficient care to Medicare beneficiaries,” Norwalk said,
speaking at a late afternoon press briefing on Monday.

She said the call for bids would be issued at the end of this
month with a bid window of 60 days for providers in the 10
metropolitan statistical areas where competitive bidding will roll
out. The project will expand to 70 more of the country’s largest
MSAs–including New York, Los Angeles and Chicago–in 2009, after
which CMS will include additional areas and items, Norwalk
said.

Set to appear in tomorrow’s Federal Register, the
long-awaited rule has already generated shock and surprise among
industry stakeholders. Some pointed to litigation and/or
legislation as possible shelters from the rule’s stipulations.

“This has got to give us a tremendous amount of ammunition for
the Tanner-Hobson bill because there is not a lot of good that will
come out of it,” said Cara Bachenheimer, vice president of
government relations at Elyria, Ohio-based Invacare.

She referred to H.R.1845, the Medicare Durable Medical Equipment
Access Act of 2007, introduced last month by U.S. Rep. John Tanner,
D-Tenn. The bill, cosponsored by Reps. David Hobson, R-Ohio, and
Mike Ross, D-Ark. (the only HME owner in Congress), would ensure
accessibility for beneficiaries and soften some of competitive
bidding’s effects. (See HomeCare Monday, April 2.)

American Association for Homecare President Tyler Wilson said
the association “will aggressively enlist cosponsors” for the
proposed legislation. “This bill would fix some of the larger flaws
in the competitive bidding program,” he said.

Meanwhile, Jim Walsh, general counsel for Waterloo, Iowa-based
VGM, said Last Chance for Patient Choice, an advocacy organization
backed by the buying group, plans to file lawsuits in Texas and
Ohio challenging the implementation of NCB.

Last Chance will argue that the MMA creates a “second class” of
Medicare beneficiaries because it requires CMS to select a group of
low-cost providers to serve beneficiaries in the competitive
bidding areas. (See HomeCare Monday, Sept. 18, 2006.)

“It doesn’t take a genius to realize that if you’re a Medicare
beneficiary in a bid area, you are not going to get the same level
of care or the same quality as someone in a non-bid area,” Walsh
said. “You are forcing a Medicare beneficiary to get a lesser
standard of care that nobody who is not under Medicare has to put
up with.”

While stakeholders commented on additional areas of concern,
notably the few weeks providers were given to prepare for bidding,
most said the 401-page final rule simply left them with lots of
questions–and little time in which to get them answered.

Following are several key provisions of the final rule and
initial reaction from across the industry.

Initial Cities
The first round of competitive bidding will take place in the
following 10 MSAs:

1. Charlotte-Gastonia-Concord, N.C.-S.C.
2. Cincinnati-Middletown, Ohio-Ky.-Ind.
3. Cleveland-Elyria-Mentor, Ohio
4. Dallas-Fort Worth-Arlington, Texas
5. Kansas City, Mo.-Kan.
6. Miami-Fort Lauderdale-Miami Beach, Fla.
7. Riverside-San Bernardino-Ontario, Calif.
8. Orlando-Kissimmee, Fla.
9. Pittsburgh, Pa.
10. San Juan-Caguas-Guaynabo, Puerto Rico

“I was amazed Houston wasn’t one [of the MSAs],” said Mary Ellen
Conway, president of Capital Healthcare Group, Bethesda, Md. That
city was, after all, the epicenter of Medicare’s notorious power
wheelchair anti-fraud project, Operation Wheeler Dealer, and many
in the industry had expected it to make the list.

Noting that it will make a crucial difference to providers as
they decide whether or not they can service the entire MSA–a
requirement of the final rule–Conway said there could be some
confusion as to exactly what locales fall into those areas. “I
think some guys in the outlying areas are going to be surprised,”
she said.

Dave McCausland, senior vice president of planning and
government affairs for The Roho Group, Belleville, Ill., also
expressed disappointment that CMS would require a provider to cover
the entire competitive bidding area.

“Based on the size of the supplier and the size of the CBA, this
could really hurt small, specialty providers,” he said.

Product Categories
While specific items to be included were not identified in the
final rule–those will come with the request for bids later this
month, according to CMS–the agency did reveal the following
product categories that will be up for bid in the 10 MSAs:

1. Oxygen supplies and equipment
2. Standard power wheelchairs, scooters, and related
accessories
3. Complex rehabilitative power wheelchairs and related
accessories
4. Mail-order diabetic supplies
5. Enteral nutrients, equipment, and supplies
6. Continuous positive airway pressure (CPAP) devices, respiratory
assist devices and related supplies and accessories
7. Hospital beds and related accessories
8. Negative pressure wound therapy (NPWT) pumps and related
supplies and accessories
9.Walkers and related accessories
10. Support surfaces (Group 2 and 3 mattresses and overlays to be
bid only in the Miami and San Juan areas)

Advocates said a big disappointment here is the inclusion of the
hard-hit complex rehab sector, which many had hoped would be a
carve-out.

“We were shocked and dismayed,” said Sharon Hildebrandt,
executive director of the National Coalition for Assistive Rehab
Technology, which had lobbied strenuously against the inclusion.
“We had talked to CMS, and not only us but clinicians and consumers
had testified … that complex rehab would not work as a
competitive bidding item.”

CMS’ decision is “confusing and disappointing,” added NCART
President Rita Hostak, vice president of government relations at
Sunrise Medical, Longmont, Colo. “From consumer groups through
suppliers and manufacturers, there has been a lot of time and
effort invested in educating CMS and policymakers on the
intricacies of rehab, she said, noting that “officials at CMS
appeared to acknowledge the real difference between rehab and
DME/HME.”

Hildebrandt said she is now concerned about the ability of rehab
providers to bid. A recent NCART study revealed that the “average
margins of rehab companies are 1 to 2 percent,” she said. “With
those low margins, I don’t see how they are going to be able to bid
because they will have to bid under the [current] fee schedule.”
(See HomeCare Monday, Jan. 8.)

And what would happen if no rehab provider bid?

“If nobody bids, then CMS won’t be able to go forward with
competitive bidding in those MSAs,” said Seth Johnson, vice
president of government affairs for Exeter, Pa.-based Pride
Mobility Products.

Under the final rule, CMS must be able to show a “significant
savings” in order to pursue competitive bidding, but Johnson
questioned this in the mobility categories, pointing out that
through recent reimbursement cuts and the CPI freeze (which has
been in effect for three years and will continue for at least two
more), CMS has already achieved a 30-percent reduction on the
equipment.

“How much more do they think they are going to save?” he
asked.

Eric Sokol, executive director of the Power Mobility Coalition,
also believes that PMD providers are being unfairly targeted.

“The time frame is very difficult for PMD suppliers who have
weathered three years of reform, changes in HCPCS codes, changes in
the fee schedule and now are tested again to change their business
model and determine what is a competitive bidding price,” he said.
“There are no automatic updates for inflation. This is not a
positive. In the bidding price, they are going to have to take that
into account because they are going to be stuck with it for the
next three years [the time limit CMS has put on the bid
contracts].”

Hildebrandt said NCART will be seeking “a legislative
carve-out,” hoping to stem the effects of complex rehab’s inclusion
in the bid. She expects a bill to that effect to be introduced
sometime this month, and added that NCART will host a May
Washington fly-in “to get rehab companies on the Hill and see if
legislators will be more reasonable because CMS just isn’t
listening to us.”

Regarding other products on the target list, Bachenheimer said
“there are a lot of categories that clearly don’t have the margins
for significant reductions.”

Timeline and Bidding Process
Another big surprise in the final rule was the timetable for
implementing competitive bidding. Here is CMS’ current timeline for
the first round:

Late April 2007–Bidding begins and lasts for 60 days
Summer through Fall 2007–CMS and its contractors review bids
December 2007–Announcement of winning bids
April 2008–Single payment amounts go into effect in the first 10
MSAs

“This is extremely fast-track,” said Bachenheimer. “This is a
tremendously short window for providers in these 10 areas to figure
their total costs and submit bids.” She also pointed out that the
final rule does not contain the particulars of how to bid, although
those should come when the request for bids is issued.

Winning a Bid
The final rule stipulates that in order to qualify for Medicare
contracts, providers must:

–Be in good standing with the Medicare program and not under
any current sanctions by Medicare or any governmental agency or
accreditation or licensing organization.
–Have an active National Supplier Clearinghouse number.
–Meet any local or state licensure requirements for the item being
bid.
–Submit a bid as a prerequisite to becoming a winning
supplier.
–Be accredited or have an application for accreditation pending in
order to participate in bidding.
–Provide capacity estimates of the number of units for each item
included in the product category that the supplier would be capable
of furnishing under the program.
–Agree to service the entire CBA regardless of where the
beneficiary is located, although the supplier will not be required
to be capable of servicing 100 percent of the beneficiaries in that
geographic area.

But providers must come to grips with several issues before
submitting bids, consultants said.

“They have to know the cost of doing business,” said Miriam
Leiber of Sherman Oaks, Calif.-based Leiber Consulting, because
that information will help determine how low providers can go with
a bid. And, she added, “I encourage [providers] at all costs to
include a profit [in the bid].”

Alison Cherney of Cherney & Associates, Brentwood, Tenn.,
cautioned against repeating the mistakes of old when health
maintenance organizations first came about. “Prices dropped below
costs because nobody understood the real costs of delivering
services,” she said.

Wallace Weeks of Melbourne, Fla.-based Weeks Group said in order
to place a bid that is viable for their companies, providers will
need to set a target net profit margin; understand their complete
costs; figure out how much they can afford to discount before they
violate their profit margin; and temper that discount based on what
their competitors may discount.

“If I have the ability to discount 20 percent without violating
my target margin, and everyone else only has the ability to
discount 10 percent, why should I discount 20 percent?” he asked.
“I only need to discount 12 percent.”

Under the rule, contracts will be awarded to a sufficient number
of suppliers in each area “to ensure access and service to
high-quality DMEPOS items,” CMS said, although no supplier’s
capacity can be considered to meet more than 20 percent of the
total beneficiary need within the CBA.

“We estimate that 28,960 suppliers will provide DMEPOS items in
the CBAs that we initially designate,” CMS said, adding that “there
will be 15,973 suppliers who will submit a bid because they will
want the opportunity to continue to provide these products to
Medicare beneficiaries and to expand their business base. We also
assume, based on the results of the demonstration [in Polk County,
Fla., and San Antonio, Texas], that at least 60 percent of bidding
suppliers will be selected as winners in at least one product
category.”

But VGM’s Walsh said there’s a flip side. “One of the things
people … don’t recognize is that there are going to be losers in
this bidding process,” he said. “There’s an alarming chance that a
well-run, well-meaning business will not be allowed to serve
beneficiaries in one of these MSAs.”

Bidding Networks
The final rule allows the formation of bidding networks, but only
for smaller providers (now defined as those with $3.5 million or
less in gross receipts, as opposed to $6.5 million in the draft
rule). CMS has, however, capped the number of providers in each
network at 20–an admitted problem for several recently formed
networks that already have in excess of 20 members. (See HomeCare Monday, Jan. 8.)

“Networks have much more limited applicability now to the
industry,” said Bachenheimer.

John Gallagher, vice president, government relations, for VGM,
agreed, pointing out that some of the benefits of network bidding
disappeared under the final rule. “They require each provider
within the network to cover all products in a product category and
the whole MSA. But the whole idea of getting into a network was
that you couldn’t cover the whole MSA and you couldn’t provide some
of the products in the product category,” he said.

Unlike the proposed rule, the final rule also does not require
centralized billing and collection for providers in a network,
added VGM’s Walsh.

“Everybody in a network is still going to do their own billing
and their own collection, which mystified me, because why would
anyone want to be in a network and have to do that?” he asked.

Small Provider Protections
Responding to concerns about smaller companies’ inability to vie
with national or regional providers for contracts, CMS did put some
safeguards into place. The agency–which received more than 2,100
comments on the draft rule–not only lowered revenue amount for its
definition of “small” provider but also set a target of 30 percent
for small supplier participation in each product
category.

If there are not enough small companies with winning bids to
meet that target in each category, according to CMS, “then
contracts will be offered to small suppliers that submitted bids
higher than but close to the winning bids. The small suppliers will
have the option to accept the single-payment amounts based on the
winning bids until the 30 percent goal is met or there are no
additional small suppliers.”

That’s one of the few bright spots in the final rule, several
sources said. However, Jeff Baird, chairman of the Health Care
Group at Brown & Fortunato, P.C., Amarillo, Texas, said the
target is low. “In my mind, this should be at least 50 percent, if
not higher,” he said.

In what some see as another possible boon to small providers and
others, CMS will allow suppliers to subcontract.

“This is good for those in the large MSAs,” said Weeks. “One of
the benefits is that they can cover areas with subcontractors. A
terrible inefficiency can be overcome. They still have to cover the
entire MSA, but they don’t have to take on the big money-loser
across the MSA–a subcontractor can do it.”

The rule also includes a “grandfather” provision that could
enable beneficiaries to continue renting certain equipment from
their existing suppliers if the supplier chooses to continue
renting the item. For oxygen providers, the final rule allows a
minimum of 10 months of payment to a contract provider who takes
over oxygen service to a beneficiary who had been serviced by a
noncontract provider. And if a beneficiary who is renting capped
rental equipment switches from a noncontract provider to one that
has won a contract, the new contract provider will receive 13
months of rental payment.

Despite such provisions, some said they fear for small
providers.

“I think the deck is stacked against them,” said Sokol. “They
don’t have the volume purchasing power or the staff.”

McCausland was even gloomier. “Bottom line, I see this as a
train wreck that we all know is going to happen … but we can’t
stop it. Here’s hoping that we can get something through the new
Congress before it’s too late.”

According to provider Chris Rice, director of marketing for
Diamond Respiratory Care, Riverside, Calif., “The first concern is,
of course, what happens if we don’t win a bid. Following that, will
we be able to make a profit at the new bid level?”
The following Web links may be helpful in your study of Medicare’s
DMEPOS competitive bidding program.

Competitive Bidding Useful Web
Links

CMS overview of competitive bidding, including MSAs and
product categories: http://www.cms.hhs.gov/competitiveacqforDMEPOS/01_overview.asp

Competitive Bidding Implementation Contractor (CBIC) Web
site: www.dmecompetitivebid.com

PDF of the complete final rule (401 pages):
http://www.cms.hhs.gov/CompetitiveAcqforDMEPOS/Downloads/CMS-1270-F.pdf.

Final Supplier Quality Standards: http://www.cms.hhs.gov/CompetitiveAcqforDMEPOS/04_New_Quality_Standards.asp.

For a list of CMS’ 10 approved accreditation
organizations for DMEPOS suppliers, click here.

For a CMS press release on competitive bidding,
click here.

For a fact sheet including data on each CBA,
click here.

For an area map and a full list of zip codes included in
each CBA, click here.