Industry Condemns Round 1 Rates: ‘Which Part of Dead Do You Want?’

ATLANTA — While CMS touted 32
percent savings for Medicare via DMEPOS competitive bidding in
its July 1 announcement of Round 1 rates, the HME industry has been
universal both in its condemnation of the severe payment cuts and
resolve to get the bidding program stopped.

Average reimbursement reductions for the Round 1 product
categories are:

• 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%

(View the full schedule of single-payment amounts across
the Round 1 competitive bidding areas on the CBIC website.)

When HomeCare asked providers what they thought about
the new 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 representative comments on the rebid
reimbursements from Round 1 bidders, providers located in Round 2
CBAs, HME consultants, associations and others.

To add your comments about Medicare’s competitive
bid rates, tell us in the comment box
below.

Accredited Medical Equipment Providers of
America: “The cuts are dramatic and unreasonable in many
ways, but know this: The rates will prove unachievable and will be
helpful in our efforts to stop the program.”

American Association for Homecare: “The
Medicare bidding program uses economic coercion to force home care
providers to submit unsustainable bids necessary to win a contract.
Because Medicare is the largest third-party purchaser of home
medical care, its market power effectively coerces providers to bid
at unsustainable reimbursement rates to ensure the opportunity to
continue serving Medicare beneficiaries. Ultimately, the
below-market rates achieved through this bidding program will force
thousands of businesses to close, reducing competition in the long
term and reducing seniors’ access to care and choice of
providers.”

Read AAHomecare’s full statement on the bid
rates.

Cara Bachenheimer, senior vice president, government
relations, Invacare Corp., Elyria, Ohio: “I think it just
validates the fundamental flaws of this program. It is the suicide
bidding notion. 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.”

Jeff Baird, chairman, Health Care Group, Brown &
Fortunato, Amarillo, Texas: “As was its goal, CMS set the
HME industry up to fail. By requiring closed bids and by not
publishing financial standards, providers in the nine CBAs had no
choice but to submit suicide bids. The providers chose to submit
unsustainable bids in order to “stay in the game” as long as
possible and hope for some type of future relief. I have never seen
a governmental agency attack an industry like CMS has attacked the
HME industry. This is as unfair as it gets.

“As an industry, we have no choice but to fight this
ill-conceived program. It may take us years to win this battle. Up
to this point, the persons sounding the alarm have been the
providers. In the CBAs, our senior citizens will see choice
severely limited and services drastically reduced. Beneficiaries
will be hurt. It is important that beneficiaries voice their anger
and concern to their elected officials. In short, it is critical
that the industry involve senior citizens in this fight.”

Tim Binkley, president, Valentines Diabetic Supply,
Roswell, Ga.: “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.”

Beth Bowen, executive director, North Carolina
Association for Medical Equipment Services: “They are
indeed suicide rates and I can’t see how the industry can sustain
those rates and provide the proper level care for the patients that
need it. To be sure, patients will get inferior products, end up in
ERs or hospitals [at] 300 times the cost, and heaven forbid,
encounter a fate much worse. Access to care WILL be an issue
— we saw it with the first attempt as Round 1 flopped and we
will see it again … magnified.

“CMS has failed to fix this fatally flawed program and
therefore, hundreds of thousands of jobs will be lost and patients
will not get the care they need. This is a frightening time for
providers and the beneficiaries should be frightened. But I will
say, my members are furious with the suicide rates and are ready to
continue the battle to save jobs, businesses and their
patients!”

Rob Brant, co-owner and general manager, City Medical
Services, North Miami Beach, Fla.: “In Pittsburgh and
Cleveland, oxygen is 48 percent lower than the 2008 rates, and I
don’t think anyone was making 50 profits between 2008 and 2009. You
can’t fit 10 pounds of garbage in a five-pound bag.

“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.”

Dean Cheney, owner, Dallas Oxygen Corp.,
Dallas: “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?”

Patrick Clevidence, Medical Service Co.,
Cleveland: “I was surprised. You hope for the best in a
situation like this, and when I looked at a lot of the bid pricing,
it’s almost as if people had blinders on. I think ‘suicide bid’ is
a good term for many of these bids. I am not sure what they were
looking at or how they think they can make it and provide service.
The way I look at it, they were just looking at the cost of the
equipment, not the services. What they are not thinking about is
when that oxygen concentrator goes down at 2 in the morning,
somebody has to be called to go out that night and provide
service.”

Jack Evans, Global Media Marketing, Malibu,
Calif.: “This is not an easy fix. There are no champions
or votes in the Senate; regardless of how quickly [H.R. 3790]
passes in the House, it will go nowhere in the Senate. The
consensus is Round 1 will roll out, but before Round 2, something
will be done. Whether that means those bids will be rolled out
nationally, or the program is cancelled and the industry takes a 1
to 2 percent cut annually for five years, we do not know. The end
result must be budget neutral and we must find savings equal to the
competitive bidding program if we want it nullified. We all believe
if Round 2 does roll out, it is the death knell for our industry,
at least as we know it.”

Florida Alliance for Home Care Services: “These
‘awards’ can be characterized in many ways. One of the most
accurate is ‘a slow death’ as opposed to a quick one. Those who are
not awarded contracts … might think, ‘It’s over! We lost and
we are done,’ but you need to ask yourselves, what did a ‘winner’
win? Can you survive with those cuts on top of the audits and
reimbursement caps? Ask yourself how a person can be in business
and meet all the regulations and accreditation requirements at the
rates that win. It’s impossible. There are no winners in this
program and that is why we are committed to stopping it.”

Barry Johnson, president, Texas Alliance for Home Care
Services: “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.’

“Which part of dead do you want? CMS is forcing us to sign
contracts at these rates or we will go out of business.

“I feel like we’ve hit an all-time low in what the government
believes our value is to health care. It doesn’t seem like treating
40 million Medicare beneficiaries and not limiting their access to
care is important anymore, and for that I’m very sad.”

Mike Kuller, president, Allstar Oxygen Services,
Concord, Calif.: “Once again CMS has given the industry
enough rope to hang ourselves and we have willingly complied,
handing them a 32 percent discount on home oxygen rates. The bad
news is that the industry will not be able to survive on those
rates. The good news is that now we will have the industry finally
coming together to move [H.R. 3790] forward to eliminate
competitive bidding.”

Miriam Lieber, president, Lieber Consulting, Sherman
Oaks, Calif.: “It was clear that many suppliers acted out
of desperation. For some who thought they were bidding low, they
didn’t bid low enough. Several winning bidders were only awarded
bids for one or two product categories rather than the five or six
categories for which they submitted bids. Now they have to scramble
to decide if they will accept the contract and if so, how they will
operate with prices like $102-$125 for stationary oxygen and/or
winning the bid for walkers but nothing else.

“Further, patients will be in a fury to switch providers and/or
obtain product from multiple HME providers. Either way, product
accessibility will undoubtedly be limited, and providers will have
to work on executing and expediting payer and product
diversification plans.”

Scott Lloyd, ExtraKare, Norcross, Ga.: “In
early 2010 the owner of a DME supplier called and asked if we were
interested in acquiring their business. They said their supplier
number was suspended in 2009 for failure to obtain a surety bond.
The fact is that making change (i.e. obtaining a surety bond) is
easier than having it crammed down your throat (i.e. Medicare
revoking your supplier number because you did not obtain a surety
bond).

“Many industry members (us included) have made huge investments
in time and money to educate our legislators about the flawed
structure of the competitive bidding program with the hope of
achieving significant reform or repeal of the program. We still
hope to influence reform or repeal. But the end was clear from the
beginning; lower prices. The implementation of competitive bidding
will yield lower prices. Reform of competitive bidding will be paid
for through lower prices. Repeal of competitive bidding will be
paid for through lower prices. Lower prices, lower prices, lower
prices … But did any rational supplier think prices would
fall less than the 26 percent CMS touted after the initial Round 1
single payment amounts were announced two years ago? If the program
continues unchanged, many suppliers will also be prohibited from
supplying entire product categories in certain geographic areas
…

“Implementing changes required to survive competitive bidding is
admittedly more difficult than obtaining a surety bond. But
business managers have a responsibility to effectively manage and
control the resources of a business. If you manage a business,
making these decisions is your job. And improving organizational
efficiency, diversifying products, etc. is surely easier and more
fun than doing nothing and then having a 32 percent price decrease
crammed down your throat.”

Midwest Association of Medical Equipment
Services: “What now? That is truly a hard question to
answer. Bottom line is that we have to continue to keep pushing for
elimination of this program by contacting our members of Congress.
The challenge we have is in telling members of Congress that these
prices cannot be sustained when [members of] the DME industry are
the ones who turned in these bids. We have to explain this is why
we referred to this program as ‘suicide’ bidding, for providers
obviously felt that they had no choice but to go as low as possible
in their bids in order to get a contract to continue to serve
Medicare patients. It seems as if the saying, ‘desperate times call
for desperate measures’ was appropriate to compete in this
program.”

Alan Morris, regulatory analyst, VGM & Assoc.,
Waterloo, Iowa: “There’s no way everybody should be
required to have reimbursement set by a system that sets the rate
based on the bottom 10th percentile, and especially not from a bid
program that contains so many flaws. This sealed-bid auction puts
providers in a position to bid significantly below what they’re
capable of operating at. They’ve got a decision to make: Do I lose
and deal without Medicare, or do I ‘win’ and see how it goes?

“Furthermore, many bid low under the assumption that they’d be
one of few and that others’ higher bids would pull the median
(single payment amounts) up … There were too many low bidders
operating under this assumption, and they ultimately set they rate.
I’m not belittling any winning bidders, nor am I accusing anyone of
unscrupulous tactics. I’m merely stating that when bidders are put
in such a precarious situation of bidding for their livelihood
through a program of this complexity, it creates the perfect storm
for suicide bidding.

“I’ve spoken to several providers in the past few days who are
being offered contracts, but are unwilling to accept them at these
rates. The industry is facing its most difficult time, but I
believe that the viability of this program is now in serious
jeopardy. CMS is going to see that, in many areas, they’ll have a
difficult time meeting beneficiary demand.”

National Association of Independent Medical Equipment
Suppliers: “The implications of the bidding program will
be far reaching and suppliers will need to take time to seriously
review the impact on their businesses. With the pre-tax profit
margin for the most successful public company at about 18 percent,
and according to Wall Street the industry average profit margin at
about 9.7 percent, it seem[s] unlikely that suppliers will be able
to maintain operations at these prices.

“There are many, many unanswered questions at this point and
there will likely be many, many unintended consequences when the
program goes forward.”

Matt O’Brien, William Blair & Co., Chicago:
“We expected cuts of around 20 percent to 25 percent. It will be
interesting to see if the HMEs that bid above the contract price in
one of the nine MSAs decide to accept the contract at the lower
price. I can’t believe that CMS thinks that it will only take two
to three months to get all of the contracts signed up.”

Chris Rice, Diamond Respiratory Care, Riverside,
Calif.: “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].

“I wonder if history is going to somewhat repeat itself. The doc
fix is going to come up again right about the time bidding goes
live. So if we were able to get H.R. 3790 attached to it, it would
stop the program right before it starts or shortly thereafter (like
last time). This time, though, we’re lacking a senator [to carry a
companion bill], but we do have a lot more momentum … I think
any way we slice it, we are going to be down to the wire before we
know the outcome.”

Colette Weil, managing director, Summit Marketing, Mill
Valley, Calif.: “[I’m] just depressed and demoralized
after the news. [It’s] absolutely disgusting, disheartening and
downright damning. I truly was so bummed I didn’t know how to pick
myself up. And I am a born cheerleader. But I knew I must, because
this industry is made up of fighters — and, I truly believe,
perseverance. But it still is so damn devastating.”

Several providers asked that their comments remain
anonymous:

• “How can anyone do oxygen business at those rates?” questioned
  one. “I added up what you would get paid for 36 months for portable
  [in my CBA], and I can tell you for a fact that you can’t find a
  manufacturer to sell you the equipment for less than that
  …

  “I’m not going to grandfather my liquid oxygen patients because
  it’s impossible to service them at these rates. I can’t believe
  anyone who is offered an oxygen contract would take it when they
  know that they’ll have to do liquid and that is impossible. If I
  hear of somebody who signed a contract turning down a liquid
  [oxygen] patient, I’m going to turn them in and they’ll lose their
  Medicare contract anyway.”

• “The horrible news that CMS released late last week about the
  bids coming in at 32 percent savings and $17 billion is just going
  to make any effort [at stopping the program] more impossible,” said
  another. “But I try to find a light and that light maybe is that
  the total [of] ridiculous bids just confirms our argument that this
  bidding program is a flawed and unworkable effort. 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.

  “Those of us that will choose not to play will still get stuck
  with the cuts, but we won’t be taking new patients and can dump any
  current patients and avoid the losses. 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 …

  “America was built on a free enterprise and free market concept.
  I see an entire industry destroyed by this uninformed program and
  thousands of companies going under and hundreds of thousands of
  employees on the unemployment roles. And the beneficiaries will not
  get the services they were promised under the program, period.”

To add your comments about Medicare’s competitive
bid rates, tell us in the comment box
below.

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stories.