Should I Sign? Here Is VGM Group’s Take

WATERLOO, Iowa — With contracts in hand, selected HME
providers in the Round 1 competitive bidding areas must
decide this week whether they want to sign on the dotted line to
lock themselves into providing goods and services during a
three-year period that begins six months from now.

A Webinar available at www.vgm.com features John Gallagher, vice
president-government affairs, for the VGM Group, and Alan Morris,
regulatory analyst, highlighting some aspects in thinking about
that important decision. And at reimbursements that average a 32
percent reduction — more in some bid categories — there
is a lot to think about.

Deciding whether to sign can be complicated, and VGM suggests
the following considerations that should play into the
decision-making:

• Before signing, assess the value of the contract to your
  company. Crunch the numbers to make sure your company
  could withstand the contract financially. Use historical financial
  data and consider how fixed expenses could be re-allocated, how
  other revenue streams might fill the holes if you turn down a
  contract and the overall cost of not accepting any or all
  competitive bidding contracts.

• Apply “true weights” when assessing business
  impact. CMS assigns weights based on the national average
  of how often each code is billed within a product category. In some
  cases, a low-cost item (such as a $4.88 CPAP filter) carries 33
  percent of the category because it is the most frequently billed
  item, although higher-priced (less frequently billed) items could
  have a greater impact on a company’s business. The “true weights”
  are those appropriate to your company and must be considered before
  deciding to accept a contract. What are the effects of various
  HCPCS codes on your company’s bottom line?

• If you sign, you are obligated to serve the entire
  geographical area covered by the contact. For example, a
  provider who has previously served three counties in part of the
  bid area is required under the contract to serve the entire bid
  area, even parts that may be geographically remote from the
  business location. There is a possibility of subcontracting part of
  the business or of relying on existing networks to provide broader
  coverage.

• You must accept all referrals (even those outside your
  normal coverage area). Suppliers must accept all referrals
  for patients residing within or visiting the area. Suppliers may be
  able to suggest a “more appropriate” contract supplier in cases
  when a referral is not convenient, but they may not say “no” to a
  referral source. There are no capacity limits or ceilings;
  likewise, there is no guarantee of a certain level of business. The
  “capacity” amount used during the bidding process was merely a
  means of estimating the number of needed contract suppliers and has
  no meaning after the contract period begins Jan. 1, 2011.

• Contract suppliers must supply products for the entire
  bid category. This requirement includes items that may not
  previously have been supplied by a provider. Providers may not
  “cherry pick” products they want to supply, although they may use
  subcontractors to help fulfill this obligation.

• Acceptance of single payment amount is binding for the
  entire three-year contract. Prices are not adjusted for
  inflation during the contract period and there is no provision if,
  for example, the price of gasoline should be drastically higher
  three-and-a-half years from now. There is no legal “out” clause if
  a provider does not like the rates two years into the contract, at
  least not if they want to remain a Medicare provider.

• Discrimination against beneficiaries is
  prohibited. A provider must furnish the same choice of
  items (at competitively bid prices) to Medicare patients as the
  company does to any other customers. For example, a provider may
  not designate a “cheap” product to Medicare patients while
  providing a higher-end product to patients covered by private
  insurers. A required quarterly report (CMS-10169-C or “Form C”)
  will verify what manufacturers, makes and models of equipment are
  provided, which is information that could be audited. Also,
  negative feedback from doctors and/or competitors could help to
  highlight a problem in this area.

• Consider multiple possible outcomes. For
  example, what if industry activists are able to appeal to Congress
  and have the program abolished before it begins? What if the
  program fails after the first year (and you have invested heavily
  in fulfilling a contract that has suddenly disappeared)? Can you
  withstand three years of frozen prices if the program continues for
  the entire contract period?

• What are the alternatives? There is no CMS
  penalty for not accepting any or all contracts offered. In fact, if
  many providers accept the contracts, it diminishes the
  legislative/regulatory argument that the program is unworkable.

Gallagher notes that the extremely low bid rates released by CMS
are likely an advantage in future efforts to lobby Congress to
abandon the program. However, the $17 billion savings projected for
the bidding program make it more difficult to devise a “pay-for”
alternative. H.R. 3790, introduced by Rep. Kendrick Meek, D-Fla.,
to repeal competitive bidding is not dead, he says, but continues
to face an uphill battle in the Senate where a sponsor for a
companion bill has not been found.

VGM is planning a series of seminars on the bidding program
beginning next week in the nine CBAs. For a schedule of cities, see
www.vgm.com.

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