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Competitive Bidding:Preparing forRound Two
Why are we here today?
Section 302(b) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “MMA”) required the Secretary of Health and Human Services to implement a competitive acquisition program for durable medical equipment and supplies, enteral nutrition, and off-the-shelf orthotics provided to Medicare beneficiaries.
The statutory authority…• Section 302 of the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003 (MMA) (Pub L 108-173) authorizes the Secretary of Health and Human Services (HHS) to use competitive acquisition authority, as outlined in the US Code Section 1847(a).
• Section 302(b)(1) of the MMA requires CMS to replace the current DME payment methodology for certain items with a competitive acquisition process.
• According to Congress, the intent “is to harness marketplace dynamics to create incentives for suppliers to provide high-quality items and services in an efficient manner at reasonable cost”.
Acknowledging the “authority” the HME/Re-hab industry continues with its efforts to delay/mitigate the implementation of competitive bidding
• Alternative legislation• Judicial “fixes”• Lobbying (e.g., state, regional and national
organizations, vendor and provider stakeholders, “grass roots” beneficiary programs)
• Congressional pressure to suspend round one of competitive bidding
• Economic studies
The MMA…
The Act required CMS to conduct bidding in 10 of the largest metropolitan statistical areas (MSAs) in 2007. As you are most aware, the metro areas included: Charlotte-Gastonia-Concord, N.C.-S.C.
Cincinnati-Middletown, Ohio-Ky.-Ind.Cleveland-Elyria-Mentor, OhioDallas-Fort Worth-Arlington, TexasKansas City, Kan-Mo.Miami-Fort Lauderdale-Miami Beach, Fla.Riverside-San Bernadino-Ontario, Calif.Orlando-Kissimmee, Fla.Pittsburgh, Pa.San Juan-Caguas-Guaynabo, Puerto Rico
• The statute required an additional 70 of the largest MSAs in 2009, and 10 additional areas after 2009.
• On January 8, the 70 metro areas were announced via a CMS Office of Public Affairs media release.
• The MMA provides that competitive bidding may be phased in first among the highest cost and highest volume items and services or those items and services that have the largest savings potential.
First…some facts…• CMS estimates $36 billion to $72 billion in annual waste
and fraud in Medicare. • Total 2006 spending for the millions of Medicare
beneficiaries who receive durable medical equipment and services in their homes was $6.9 billion – less than 2 percent of the $401 billion in total Medicare spending during 2006.
• Durable medical equipment provided in the home is the slowest-growing sector of the skyrocketing Medicare budget, even while demand for home-based care grows.
• During the January meeting, CMS staff gave a briefing on the competitive bidding program to House health legislative assistants.
• “DME fraud is the largest area of fraud in the Medicare program, the biggest loss to the program, and the biggest vulnerability in the program…”
• Is the NCB Program: “Punitive”???
The “CBIC”
CMS has contracted with Palmetto Government Benefits Administrators, the former Region C DMERC, to be the Competitive Bidding Implementation Contractor (CBIC) that will handle many of the implementation tasks.
Product Categories for First 10 CBAs included…
• Oxygen equipment and supplies • Respiratory assist devices and CPAPs • Standard power mobility devices• Complex power rehab • Diabetic supplies (Mail Order Only) • Enteral nutrition • Hospital beds and accessories • Walkers • Negative pressure wound therapy devices • Support surfaces, Group 2 and 3 mattresses and overlays (Only to
be bid in Miami and San Juan)
• For bidding purposes, the products were grouped into categories that correspond generally, but not always exactly, to policy groups defined by the Statistical Analysis DMERC
Round Two Product CategoriesFor the next 70 MSAs, the product categories are identical
with the exception of removing support surfaces and mail-order diabetic supplies
• Oxygen equipment and supplies • Respiratory assist devices and CPAPs • Standard power mobility devices• Complex power rehab • Enteral nutrition • Hospital beds and accessories • Walkers • Negative pressure wound therapy devices
Round One
• Bidding began May 15 & ended September 25– Numerous competitive bid submission system (CBSS)
issues forced three extensions
• The suppliers submitted bids using an internet application
• Initial registration on the internet application– Resulted in bidder number, username and password
• These were mailed (!) to providers in two separate deliveries
Round One • Many HMEs waited too long to register
– Left no time for error corrections• NPIs, SSNs, etc…
• “Bona fide bid verification” and other issues has forced the winner announcement to be delayed.
• Contract offers were initially scheduled for December 2007, then delayed to February…and, in late March, HMEs were finally notified.
• CMS had initially suggested a 30-day evaluation period for providers to accept or decline the contract…
• But………….
But…on Thursday, March 20…• In a late afternoon press conference, CMS
Acting Administrator Kerry Weems announced the new payment rates.
• “Medicare will see average savings of 26 percent on the items included in the program.”
• Weems said CMS would send overnight letters to winning bidders and will announce the contract suppliers once all contracts have been executed.
• Weems indicated that three different types of letters had gone out, including invitations to sign contracts with CMS if suppliers' bids were within the winning price ranges. A second type of letter told non-winning suppliers that they would not currently be invited to sign a contract, but may be offered a contract in the future if a winning supplier in the same area for some reason dropped out of the program.
• He added that “some” suppliers were disqualified from competing for contracts because they fell short of CMS' "safeguards," which included failure to meet basic supplier enrollment standards or submitting bids that did not comply with terms and conditions outlined in the requests for bids.
And to the dismay of more than 100 HMEs in all CBAs, on Friday, March 21…
• “Unfortunately, we are unable to accept your bid as indicated in the enclosed chart”
BSE-4: Bidder did not submit along with its bid the applicable financial documentation specified in the request for bids (RFB)
• More than 100 companies were disqualified, including large hospital based, regional and national players…
(Actual HME comment…)• I received my Fed Ex package before 9:00am this
morning and immediately called the CBIC. The customer service representative alerted me that I was missing one year of a financial document that was required. I immediately checked my copy and it was in there. I also contracted with a very reputable health care law firm to certify my bid was properly completed. We checked every item over 10 times before we sent it to the CBIC. The CBIC representative informed me that since the financial aspect did not qualify, our bid was never reviewed…
Industry stakeholders took action…
• “…we have heard from a number of providers and state associations today indicating that CMS has made errors during the bid evaluation process. Due to the lack of transparency by CMS to share information with the provider community, we must rely on the information gleaned from bidders who were directly involved in the process…”
Litigation?• As of this writing, AAHomecare has retained the law
firm of Sidley Austin in Washington, DC to examine the supplier selection process underway in Round One of competitive bidding. The law firm is reviewing more than 150 case examples by providers across the country that have been shut out of the bidding process in Round One.
• Other stakeholders have contacted legal counsel and are considering options to file for a TRO (temporary restraining order) and/or declaratory judgments.
And on May 8th…• AAHomecare leaders met with key congressional
committee staff to discuss possible delays or adjustments to competitive bidding and alternatives to the bidding program.
• The meeting was a follow up to the May 6th hearing on competitive bidding before the House Ways and Means Subcommittee on Health, where stakeholders testified.
• During the Tuesday hearing, Health Subcommittee Chair Pete Stark (D-Calif.) and other members of Congress were sympathetic to the HME industry’s concerns and asked CMS Acting Administrator Kerry Weems a number of pointed questions.
• The Bush Administration is pushing very hard to go forward with the bidding program, as evidenced by Weems’ undiluted enthusiasm for the program and his unwillingness to acknowledge that there are problems with the bidding process or the program. The same “full steam ahead” attitude was expressed this week by Health and Human Services Secretary Mike Leavitt in a meeting with two Republican Senators who have expressed concern about the bidding program – Sen. George Voinovich (R-Ohio) and Sen. Johnny Isakson (R-Ga.).
• AAH & other stakeholders are working to determine what policy options are available in the short window before the bidding program goes into effect on July 1 and the cost that would be incurred by any changes to the program.
Letters detailing the errors and impact of the program have been sent to CMS, the CBIC and to members of Congress. Providers and other homecare stakeholders keep up the volume of concerns about this bidding program to suspend Round One of bidding in order to address concerns about its impact on services for beneficiaries, quality of care, and fairness to the provider community
• Goal: Suspension of round one of the bidding program.
• In any case, the current “contract offers” are as follows:
Contracts offered by product category/area
• Of the 1335 contract offers, 1,254 were accepted (96 percent), which CMS said would result in DMEPOS savings to Medicare of 26 percent.
• Eligible suppliers had only 10 days (to April 3) to respond to CMS to indicate whether or not they wanted to participate.
• A total of 6358 bids were submitted.
• CMS: “64 percent of the bidders being offered contracts were small businesses”
Bidding Results Summary• 6358 bids were submitted.• 1005 separate and unique bidding numbers, or an average
of six bids per company. (Note: Due to several network bidding entities, the number of unique bidding companies is estimated at 1100 – 1200.)
• 630 bidding entities were disqualified from the process due to various reasons; the majority for missing information from the applications. These bids were never considered within the pricing methodology.
• Of these, 283 were within the range “to win”.
Offers…• 318 bidders were offered contracts• 316 returned a signed contract• Only about 5% of the eligible small
providers were offered a contract, and about 16% of large providers
• A total of 1,254 contracts were accepted
• CMS reported this information to congressional staff who attended an April 22 CMS briefing for congressional staff.
• CMS likened the process to “turning down college applications who forget to include their SAT scores in their applications.”
However…the next day…• Senator George Voinovich, R-Oh., along with Senators
Arlen Specter, R-Pa.; Pat Roberts, R-Kan.; Richard Burr, R-NC; Johnny Isakson, R-Ga.; John Cornyn, R-Tx.; and Jim DeMint, R-SC sent a letter to HHS Secretary Michael Leavitt on April 23 requesting a meeting to discuss the competitive bidding program's "status and next steps." Before moving forward with future rounds of the program, the senators have requested that a resolution of the issues be made.
• "Our first concern is the alleged discrepancies between information submitted by bidders and received by the CMS." The letter also requests that CMS provide more "transparency" on how bidders' financial documents and service capacity were evaluated.
Results grossly different than the Final Rule Regulatory Analysis…
• We estimate that 28,960 suppliers will provide competitive bid items in the CBAs. If suppliers furnish products in more than one MSA, we counted them more than once because they are affected in more than one MSA
• We estimate that 68 percent of suppliers will furnish products subject to competitive bidding and will be affected by competitive bidding during the initial round of competitive bidding…
• We also estimate that approximately 85 percent of registered DMEPOS suppliers are considered small according to the SBA definition.
• …we now estimate that 81 percent (rather than 90 percent) of suppliers will submit bids.
• We also assume, based on the results of the demonstration, that at least 60 percent of bidding suppliers will be selected as winners in at least one product category.
• Hence…
…there should have been many more “offers” (!)
Totals
Small Providers
(85%)
Large Providers
(15%)
Estimated total providers in the first 10 bid areas: 28,960 24,616 4,344
Estimated percentage of providers that will furnish products subject to competitive bidding: 68%
Estimated total providers furnishing bid items in the first 10 bid areas (affected suppliers) 19,720 16,762 2,958
Estimated percentage of affected suppliers that will bid in the first 10 bid areas 81%
Estimated total affected suppliers that will bid in the first 10 bid areas: 15,973 13,577 2,396
Estimated percentage of bidding suppliers that will be selected as winners of at least one product category 60%
Estimated total providers that win at least one product category in the first 10 bid areas: 9,584 8,146 1,438
Questions and Concerns!• Why were CMS’ estimates in the Final Rule so
overstated?• Does it really matter that small providers were offered
64% of the contracts when the total number of contracts offered (1,335) was only 14 % of what CMS had originally forecast they would offer in the Final Rule (9,584)?
• In the Final Rule CMS estimated that 60% of the bids would be awarded contracts. CMS received over 6,000 separate bids and only 1,335 were offered contracts (22.5%). What happened?
The “savings”…• As a result of the competitive bidding process, the
amounts that Medicare will pay for the 10 product categories included in Round 1 of the DMEPOS Competitive Bidding Program overall average 26% less than Medicare’s current fee schedule amounts.”
• CMS’ Weems compared competitive bidding prices (“savings”) to Internet pricing (!)
• "We were overpaying for those items…"
Round One, continued• The contract period
– for mail order diabetic supplies is July 1, 2008 - March 31, 2010– All other product categories are effective July 1, 2008 - June 30, 2011
• “Intensive beneficiary and referral agent education program”– CMS will conduct in May-July 2008– To include:
• special bidder’s conferences• array of printed instructional materials• Handbooks• Web site (e.g., www.medicare.gov) updates• “approved – supplier” directories.
• An example of CMS beneficiary pamphlet follows…
Final Round One Timeline• March 20, 2008: CMS announced new
payment rates for Round 1 derived from competitive bidding and begins contracting process with suppliers
• May 2008: CMS will announce the final Medicare contract suppliers for Round 1
• May 2008: CMS will begin beneficiary education campaign
• July 1, 2008: Payment rates go into effect
Round Two• An additional 70 competitive bidding areas (CBAs) have
been selected for competitive bidding.– Most fall within the top 100 MSAs.– Generally, these MSAs include metro populations >500,000.
• There were slight revisions to product categories.– Revisions to HCPC listings within the product categories are likely
as well.
• Round Two “bidding window” will begin in the summer of 2008
• Round Two contracts are scheduled to take effect April 1, 2009.
• The boundaries of competitive bidding areas (CBAs) more or less follow MSA boundaries, but do not necessarily correspond exactly to MSAs.
• MSAs consist of counties. Providers in these “Round Two” areas may access the county information at
http://www.census.gov/population/www/estimates/metrodef.html
• An example of an MSA maps follows:
You can identify the ZIPs within each county
At the time of printing the exact ZIP codes of the Round
Two CBAs were not posted. • CBA may be concurrent with, larger than, or smaller
than the related MSA depending on a variety of considerations including the exclusion of low population-density areas within the MSA and the inclusion of a part of a normal service area.
• The CBA will be the area wherein contract suppliers will furnish certain DMEPOS items to resident beneficiaries.
Example of Actual CBA Boundary
Charlotte-Gastonia-Concord, NC-SC CBA
• But before we get too far ahead, let’s go back a little. In Round 1, what did CMS “expect”?….
CMS report: “The demonstration projects revealed that substantial
savings could be realized through the implementation of competitive acquisition, without compromising the quality of the products being supplied. Based on these demonstrations, CMS estimates potential savings of 20% on DMEPOS if competitive acquisition for these products is successfully implemented throughout the country. Statistical data indicated that beneficiary access and quality were essentially unchanged.”
Bottom line…• CMS states the program is projected to produce savings of $1
billion in 2010• The savings is based on the estimation that competitive
bidding will reduce DME spending by 12.9 percent below fee-for-service among the 70 percent of DME costs assumed to be subject to the program by 2010.
• The 12.9 percent figure is based on contractor’s modeling over 90 MSAs.
• Note: VGM and other industry groups have disputed the projected savings, contending Medicare reimbursement cuts in recent years -- particularly surrounding oxygen and power mobility devices -- make the billion-dollar projection unrealistic.
Round 1 Anticipated Savings Varied by CBA
• As the next slide indicates, there is substantial variance among the CBAs with regard to the number of eligible Medicare beneficiaries, suppliers serving the area, total Medicare spending, and anticipated savings from the first year (July 2008 – June 30, 2009)
Round One Providers: “Game Theory & the “Winner’s Curse” (*)
• The bidding process is effectively a sealed-bid auction and subject to providers’ “gaming” the system
• The rational view holds that individual bidders will logically adjust their bids to reflect their own company and market evaluation and expectations, but logic does not necessarily apply to the competitive bidding program - - and this fact muddles the strategies of even the savviest HME bidding companies.
(*) Reprinted from M. Higley February 2008 article Paragon Ventures Insight
Let’s use oxygen as an example... • It’s a safe assumption that several dozen HMEs will
bid the O2 category in each CBA, and that most or all currently service the area…an “incumbent supplier” in economic lingo.
• It’s probably also safe to assume that Medicare is the largest single payer for the majority of the bidders. Thus Medicare, in more economic jargon, is a key “status quo” customer.
• Economists believe people are significantly more averse to business losses relative to the status quo than they are attracted by potential gains (e.g., seeking new business). The consequence of this “status quo bias” is that incumbent suppliers generally bid aggressively because of the strong preference not to lose the key customer. Further, research reveals that as the number of bidders increase (think of the CMS bidding window extensions) the more likely it is that bidders will overestimate the actual value of the customer, in this case Medicare O2.
A classic case of appropriate theory meeting ugly reality!!
• HMEs accurately analyze their acquisition and process costs, tighten their belts, and determine their minimal acceptable margins…and then discount oxygen another 5%. Or 10%. Or more…
The result…
The result…• Suppliers who underestimate the number of
companies that will submit low bids to maintain their oxygen “status quo” lose the deal. The ones who overestimate the value of the Medicare contract and bid at minimal or losing margins end up winners who have, effectively, overpaid (been under-reimbursed).
And that is what statisticians dub the “winner’s curse.”
• (Industry analyst): “There is no justification for the industry offering such steep discounts CMS has played the lack of transparency and cohesiveness in our industry to the detriment of many great businesses and the caring people who work in them. But the fault doesn't reside only in the predatory offices of our largest customer; it also resides in the hands of those who signed off on these low bids.”
Various Problems with the 2007 Bid• RFB Instructions were unclear.
• Difficulties in obtaining manufacturer, model name/part number for all HCPC– SADMERC database was incomplete.
• Tedious input processes– Multiple tabs and lack of a “copy and paste” functions
• Hundreds of codes and models were required for power/rehab.
• Only one of the three initial reporting agencies (e.g. TransUnion, Experian, and Equifax) only TransUnion offered an appropriate business credit report
• Dun & Bradstreet & Standard & Poor's were added late in the game– However…frequently full of errors
• Insufficient time to correct errors
Credit Reporting Issues
Lack of CMS Input…• CMS paid little attention in its ramp-up
– Missing program details– Product category issues
• Unclear bid evaluation process– Bona fide bid– Market demand vs. supplier capacity– Supplier’s financial health
• CMS “will not go into specifics about our internal processes”– If you don’t win, why???– Number of bids per category– Financial health evaluation benchmarks
However… Round 2 Providers
Will Fare Better!
• The RFB is likely to be released late May 2008, which will include ZIP Codes and all HCPC codes for bid. Review the RFB closely!
• Accreditation Deadline is now over! Bidding entities had to apply for accreditation by May 14, 2008 and will have to complete the accreditation process by October 31, 2008
• Bidding window will open Summer 2008• Round Two contracts scheduled begin April 1,
2009
• HMEs in the next 70 CBAs will have had the advantage of learning from the experience of HMEs in the first CBAs and, while bidding cautiously, will likely add a more appropriate margin to their estimates.
• And…CMS has reportedly upgraded the CBSS and (at the last minute for Round 1 bidders) allowed the use of an Excel-type spreadsheet for HCPC data/bid submission.
• According to Laurence Wilson (director of the CMS’ Chronic Care Policy Group) there are “a number of refinements” to the bidding process for round 2 that will ease the burden on suppliers. He said they have updated the bid submission system for round 2, and described it as being an easy online process like filling out your taxes using Turbo Tax®. Bid submission for round 2 will require suppliers to enter less information for their bids so that the process will take fewer hours. Also, for many suppliers there will be almost 2/3 fewer financial documents required.
• We will review this process in more detail shortly!
Round 2 provider also have access to several bidding tools prior to the beginning of bidding
• Many manufacturers offer data worksheets such as HCPC crosswalks to models and pricing.
• Electronic spreadsheets to perform “what if” functions (e.g. fixed discount, cost plus margin required, etc.)
• Various industry consultants offer cost analysis and financial reporting tools.
In the meantime…become familiar with the DMEPOS Bidding System (DBidS) NOW!
Log on to www.dmecompetitivebid.com
Financial Measures
Important Messages to Bidders Regarding CBSS
Alternate Method for Submitting Manufacturer, Model and Model Numbers
Basic Bidding Rules
Bid Evaluation Process
DBids User Guide
Change of Ownership
Contract Terms
Form A Instructions
Form B Instructions General Instructions Getting Started Checklist Item Weights and Effect on Composite Bid Calculation Networks Required Financial Documents RFB Instructions SNFs and Nursing Facilities Physicians/Practitioners Terms and Definitions Time Line
At the time of publication the exact ZIPS within the MSAs had not yet been released….
• But, if you are in a Round Two CBA, become familiar with the DBidS now. Click through all the forms, Q&As, rules, etc.
• Begin to assemble your manufacturer data (model, part number) for each product category of which you will be submitting a bid. The DBidS requires this information. Multiple vendors are acceptable (& changeable).
Use the SADMERC for vendor information…
• http://www3.palmettogba.com/dmecs/do/search
• Search DMEPOS Product Classification List Manufacturer/Distributor * HCPCS Code * Product Name* Product/Model * Classification
DBidS will be posting shortly…• Pre-bidding activities for the second round, such
as announcing the specific ZIP codes that constitute the CBAs, specific items in each product category, bidder education, and registration for user IDs and passwords in the spring of 2008.
“So, with all these problems, why doesn’t CMS just lower the DMEPOS reimbursement on a nationwide basis, achieve its savings, and not subject us to the burdens of bidding and losing some or all of our Medicare business?”
Again….the statutory authority…• Section 302 of the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003 (MMA) (Pub L 108-173) authorizes the Secretary of Health and Human Services (HHS) to use competitive acquisition authority, as outlined in the US Code Section 1847(a).
• Section 302(b)(1) of the MMA requires CMS to replace the current DME payment methodology for certain items with a competitive acquisition process.
• According to Congress, the intent “is to harness marketplace dynamics to create incentives for suppliers to provide high-quality items and services in an efficient manner at reasonable cost”.
Authority in other areas as well!
• Medicare payments will be adjusted in non-competitively bid areas– If savings are achieved in bid areas, reimbursement
may be lowered nationally– Adjustments may not necessarily match those seen in
competitively bid areas
• For example, if CMS achieves a 20 percent savings on hospital beds through competitive bidding in participating metropolitan areas, the agency could reduce Medicare payments throughout the country (not necessarily by 20 percent) without requiring a competitive bidding process in the new areas.
The Bid Process for Round 2 HME Providers
Round Two• RFB likely to be released May 2008, which will
include ZIP Codes and all HCPC codes for bid• Accreditation Deadline! Bidding entities must apply
for accreditation by May 14, 2008 and have completed the accreditation process by October 31, 2008
• Bidding window will open Summer 2008• Round Two contracts scheduled begin April 1, 2009
Supplier Eligibility• All bidders must be accredited (or be in the process
of becoming accredited) by a CMS approved accreditation organization. Round 1 bidding deadline was October, 1, 2007.
• Round Two bidders must apply for accreditation by May 14, 2008, and complete the accreditation by October 31, 2008.
• September 30, 2009 is the deadline by which all other DMEPOS providers will be required to be accredited in order to maintain Medicare billing privileges. If you are not currently accredited, and have not yet started the process, get started now!
Related Accreditation Issue• New providers who submit enrollment
applications to the National Supplier Clearinghouse before March 1, 2008, must obtain and submit proof of accreditation to the NSC by Jan. 1, 2009.
• Providers enrolling on or after March 1, 2008, must be accredited prior to submitting their NSC applications.
Bidding Eligibility
• To be eligible for a contract award, suppliers
must… (i) be enrolled in Medicare in good standing
and with no current sanctions; (ii) disclose any previous legal actions,
sanctions, or disbarments of any employees, officers or affiliated companies or subcontractors;
Bidding Eligibility
(iii) have all necessary state and local licenses; and (iv) agree to the terms of the RFB and the resulting
contract.• A supplier may submit bids in as many CBAs and as
many product categories as it wishes, but if it bids in a product category, it must submit a bid on every product in that category.
Bidding Eligibility
• Special rules apply to commonly-owned
suppliers (defined to mean that one supplier has an ownership interest of 5% or more in another supplier) and commonly-controlled suppliers (defined to mean that an owner of one supplier is an officer, director or partner in another supplier).
Bidding Eligibility
• If two or more suppliers are commonly-owned or controlled, they may submit only one bid to furnish a product category in a particular CBA.
• All commonly-owned or controlled suppliers that are located in the CBA, and all commonly-owned or controlled suppliers that are not located in the CBA but that will furnish the product category to beneficiaries within the CBA, must be included in the bid.
• Bidders must abide by the final quality standards, including financial, business, and customer service standards, in addition to product-specific standards. (Note: Many HMEs already comply!)
• CMS requires “evidence of financial resources to support potential market expansion.
• In 2007 CMS analyzed certain financial ratios of bidders.
Bidding Eligibility
EVALUATION OF BIDS AND AWARD OF CONTRACTS
• CMS will determine the expected beneficiary demand for items in each category in each CBA, based on claims data from earlier years, to determine how many contract suppliers will be needed to meet the demand.
• It will require suppliers to estimate in their bids their capacity for supplying bid items in the CBA.
• CMS may adjust these estimates based on the supplier’s claims history and financial resources.
Supplier “Capacity”
• If a supplier estimates that it can furnish more than 20 percent of the expected beneficiary demand for the product category in the CBA, CMS will lower that supplier’s capacity estimate to 20 percent.
• This capacity adjustment is necessary to ensure that at least 5 suppliers furnish the items per product category. According to CMS, “sufficient contract suppliers in the CBA to provide beneficiaries with variety and choice.”
• In January CMS also stated that that if there were too few bids to meet the market demand for a product category in a CBA, there would be no bid rate set and they would follow the fee schedule amount for that product category.
• When beginning a second round of bidding in those CBAs, CMS said they would revisit those product categories and determine whether it was advantageous to rebid them in subsequent rounds.
Bidding• Bidding by product categories requires bidders
to submit bids on multiple items (by HCPC code) within the product category. CMS will aggregate these individual bids into a composite bid in order to compare bidders with each other. The “composite bid” would be equal to the weighted sum of the bids for the items in the product category.
The Bid Process• Competitive bidding items will be included in product
categories and identified by HCPCS codes. Suppliers may choose to bid on one, some, or all of the product categories, but if they bid on a category, they must bid on each item included in the category.
• Bidders who bid at or below the “pivotal bid” are winning bidders, assuming they meet accreditation and other requirements.
• CMS will use the median price (the “middle” bid) of the bids submitted by the winners
The “Pivotal Bid”• This is the point where beneficiary demand is met
by supplier capacity. Generally, all bids above this point (in $$) are non-contract, or losing, bidders.
• CMS will evaluate the composite bid of all eligible bidders for an entire product category, and begin with the lowest bid, and add subsequently higher bids until the capacity is met.
• CMS states this will offer the lowest expected costs to Medicare for all items in a product category.
Confused over the “composite bid” or “pivotal bid” terms?
Let’s use an example…
Respiratory Assist Devices and CPAP Category Bidding Example: Assume CBA Capacity = 100
HCPC:E0601 E0470 E0471 A7030Weight: 0.4 0.3 0.2 0.1 (Total of all HCPC = 1.00)
Supplier # and Bids Per Each HCPC Code:
1 $90 $185 $202 $522 $82 $180 $170 $423 $85 $175 $190 $504 $87 $192 $185 $415 $94 $170 $200 $406 $100 $181 $207 $507 $80 $170 $188 $388 $86 $183 $190 $449 $87 $190 $206 $48
Important Note: Bid amounts do NOT reflect actual or proposed product fee schedules. All examples are for ease of illustration purposes only!
• On “Form B” (which we will detail shortly) each bidding supplier electronically inputs one bid price for every HCPC code in the category. In this case, there are only four codes for example purposes.
• The electronic program then multiplies each HCPC bid times the weight amount assigned by CMS. The total of the HCPC weights will always equal 1.00. This allows the CBIC to compare the multiple product bids of many suppliers. The next slide provides an example.
Apply HCPC Weights HCPC E0601 E0470 E0471 A7030
Weight 0.4 0.3 0.2 0.1
1 $90 $36 $185 $56 $202 $40 $52 $5
2 $82 $33 $180 $72 $170 $34 $42 $4
3 $85 $34 $175 $70 $190 $38 $50 $5
4 $87 $35 $192 $77 $185 $37 $41 $4
5 $94 $38 $170 $68 $200 $40 $40 $4
6 $100$40 $181 $72 $207 $41 $50 $5
7 $80 $32 $170 $68 $188 $38 $38 $4
8 $86 $34 $183 $73 $190 $38 $44 $4
9 $87 $35 $190 $76 $206 $41 $48 $5
• The program then sums all of the weighted bids. This number is undefined, that is, it does not suggest a price for any code. It only allows the CBIC to compare the overall category bids from low to high. Let’s return to the example…
Sum Weighted HCPC Bids To Obtain Composite Category Bid
HCPC E0601 E0470 E0471 A7030Weight 0.4 0.3 0.2 0.1
1 $90 $36 $185 $56 $202 $40 $52 $5 $137
2 $82 $33 $180 $72 $170 $34 $42 $4 $143
3 $85 $34 $175 $70 $190 $38 $50 $5 $147
4 $87 $35 $192 $77 $185 $37 $41 $4 $153
5 $94 $38 $170 $68 $200 $40 $40 $4 $150 6 $100 $40 $181 $72 $207 $41 $50 $5 $159 7 $80 $32 $170 $68 $188 $38 $38 $4 $141 8 $86 $34 $183 $73 $190 $38 $44 $4 $150
9 $87 $35 $190 $76 $206 $41 $48 $5 $157
• In this example, the composite bids from all the suppliers ranged from $137 to $159. (Remember this “composite” figure does not represent a price for an item; it is only a method to compare the suppliers.
• How many bidders will be accepted and offered contracts to supply Respiratory Devices for this CBA? We know in this simple example that the Medicare capacity was 100. We will now review the bidder’s capacity estimates…
Determine Capacity of each Supplier (Units) – Capacity of CBA is 100
Supplier Composite Capacity# Bid1 $137 152 $143 143 $147 184 $153 75 $150 136 $159 77 $141 608 $150 189 $157 9
Total Supplier capacity is 171! So which suppliers “win”?
Array the Suppliers by Lowest Composite Bid Supplier Comp. Bid Capacity1 $137 157 $141 602 $143 143 $147 185 $150 138 $150 184 $153 79 $157 96 $159 17
• In this example, supplier # 1, with a composite bid of $137, is lowest for this CBA. However, this facility can only supply 5 units (or 5%) of the Medicare-estimated demand. Thus, the next highest supplier will be offered a contract.
• BUT…the next highest supplier has a capacity of 60, or 60% of the total estimated demand. This bid will be limited to 20%, or 20 units.
• Important Note! Winning suppliers are never limited in the amount of products provided to Medicare beneficiaries during the contract period! In the example above, the supplier may be reimbursed for 60 (or 600!) units.
Array the Suppliers by Lowest Composite Bid Until Capacity (100) is Reached
Supplier Comp. Bid Capacity Cumulative1 $137 15 157 $141 60 (20% rule ) 352 $143 14 493 $147 18 675 $150 13 808 $150 18 984 $153 7 1059 $157 96 $159 17
• In this example seven of suppliers will be offered contracts (assuming each facility satisfies all requisite standards and other criteria).
• Unless an exception occurs (of which we will review shortly) all suppliers who bid higher than $153 are non-contract, or losing bidders. These companies may not accept, or be directly reimbursed for, new Medicare RAD patients for the duration of the contract (3 years).
• But…what will the “winners” be paid?
The 7 Suppliers Receive the Median of Each HCPC Code
1 $90 $36 $185 $56 $202 $40 $52 $5 $137 7 $80 $32 $170 $68 $188 $38 $38 $4 $141 2 $82 $33 $180 $72 $170 $34 $42 $4 $143 3 $85 $34 $175 $70 $190 $38 $50 $5 $147 5 $94 $38 $170 $68 $200 $40 $40 $4 $150 8 $86 $34 $183 $73 $190 $38 $44 $4 $150 4 $87 $35 $192 $77 $185 $37 $41 $4 $153
• Note that the original nine bids for received for CPAP ranged from $80 to $100. However, the pivotal bid limit excluded some suppliers from being offered contracts. Their unit bids “do not count” to determine the median price. Only winning bidders are included.
• Of the winners, the bids for CPAP ranged from $80 to $94. The median bid was $86.
• Hence, it is important for Round 2 bidders to recognize that the actual payment amount is not the “average”, but the “middle”. And, very few suppliers will be paid what they actually bid.
• Lastly…the danger of Round 1 “low-ball” bids should now be more evident!!!
Bid Weights & HCPC Crosswalk
• The HCPC weights and “bid limits” (current Medicare fee schedule) are available for review on www.dmecompetitivebid.com.
• Many industry stakeholders (VGM, Invacare, Roho, Nestle) have developed electronic/spreadsheet-type tools to assist providers on HCPC cross-walk to product number, pricing, discount tools, etc.
“Weight Utilization” May Be Confusing!!!
• Bids are weighted by utilization and not expenses ($ reimbursed by Medicare).
• Low cost high utilization items have high weights whereas high cost low volume items have low weights.
• When the weights are applied within a product category, the effect is to possibly distort the composite bid amount in a way that is not immediately obvious! (see example…)
• A7038 (FILTER, DISPOSABLE) is weighted (out of 1.00) -- 0.224623254, and the one unit fee schedule amount is $5.39
• E0601(CONTINUOUS POSITIVE AIRWAY PRESSURE) is weighted (out of 1.00) --0.0601943846, and the one unit fee schedule amount is $1,052.60
For example…in CPAP/RAD
• And let’s take a look at the weighting effect to the “composite bid”…
“Special” rules”
The Small Supplier “Target”• In the Final Rule CMS changed the definition of
a “small supplier” to be a supplier that generates gross revenue of $3.5 million or less (compared to the proposed rule’s $6 million in revenues.)
• CMS set a target number of 30% for small supplier participation. Small suppliers must meet all bidding requirements.
• CMS will review whether the number of small suppliers whose bids are at or below the pivotal bid is less than the 30% CMS target number.
• If the number of small suppliers is lower, CMS will offer small suppliers whose bids were most close to, but above, the pivotal (cutoff) bid, the option of accepting a contract to furnish the product category at the contract amount.
• Many HMEs are confused by this “target”…NOT the same as the SBA small business set-aside!
Important Note!• The “30%” target requires 30% of the winning
bidders to be designated as “small suppliers. This does NOT suggest that 30% of the Medicare payments in any product category will be directed to small suppliers.
• Effectively, there is no guarantee of any minimum percentage directed to small suppliers.
Commonly Owned Entities & Small Supplier “Designation”
• CMS has confused many providers with this issue!
• A common question is “if my commonly owned business is not an HME/DME does it ‘count’ towards my $3.5M small supplier revenue?”
• Answer: “Maybe” (!)
Examples…• (1) DME/HME operation does $2M in annual
revenues. Owner also has 5% or more interest in a retail pharmacy with $2M annual revenues.
• (2) Same DME/HME assumption, with interest in $2M home infusion operation
• (3) Same again, with interest in $2M retail lift chair and home modification operation.
So…• Assuming examples 1 (pharmacy) and 2 (home
infusion) offer Part B benefits to Medicare patients, these entities are considered a “supplier”
• Assuming example 3 (retail only lift chairs/home mod) does NOT offer Part B benefits/does not serve Medicare beneficiaries , this entity is not considered a supplier.
• CMS: “Common ownership of SUPPLIERS” – hence example 3 does not apply to overall revenue. Examples 1 and 2 do apply!
Payments…• CMS will pay the supplier 80% of the “single
payment amount” for the item in the CBA where the beneficiary maintains a permanent residence.
• The remaining 20% will be the beneficiary’s coinsurance responsibility.
• The payment amount will remain in effect for the full three-year term of the contracts; they will not be adjusted for inflation.
• Contract suppliers will be required to accept assignment.
• Suppliers may still use ABNs for items for which Medicare might not pay.
If a supplier declines the bid…
• If one of the successful bidders decides not to accept a contract, then a contract will be offered to the supplier whose composite bid was the lowest of the unsuccessful bids
Beneficiary/Travel Rules• Beneficiaries whose permanent residence is in a
CBA will be permitted to obtain competitively bid products only from contracted suppliers within that same CBA.
• Beneficiaries whose permanent residence is in a CBA and travels to an area not covered by the competitive bid program may get items from any Medicare-enrolled DME supplier, but that supplier will be paid by Medicare as if it were in the beneficiary’s competitive bidding area.
• Beneficiaries whose permanent residence is in an area not covered by the program and travels to a competitive bidding area must get the competitively bid item from a contract supplier in the competitive bidding area.
• IMPORTANT UPDATE! If the beneficiary does not use a contract supplier, the noncontract supplier must ask him/her to sign an Advance Beneficiary Notice. Medicare will not pay for competitively bid items furnished by noncontract suppliers.
• A signed ABN indicates that the beneficiary was informed in writing prior to receiving the item that there would be no Medicare coverage due to the supplier's contract status, and that the beneficiary understands that he/she will be liable for all costs that the non-contract supplier may charge the beneficiary for the item.
• If a non-contract supplier furnishes a competitively bid item to a beneficiary and the beneficiary signs an ABN, the supplier must use the “GA” modifier on their claim. If the “GA” modifier is not present on the claim, the supplier may not hold the beneficiary liable for the cost of the item.
• Beneficiaries whose permanent residence is not in a CBA and travels to an area not covered by the competitive bid program may get items from any Medicare-enrolled DME supplier.
• Finally, regardless of permanent residence or CBA travel, beneficiaries may obtain products not included in the competitive bid program from any Medicare-enrolled DME supplier.
A note to billing personnel…• An series of K ___ modifiers will be required
to account for the array of billing options. A draft of the schedule should be available shortly and will be available on dmecompetitivebid.com
• CMS to the Regulatory Committee: “We will ensure the Common Working File (CWF) is accessible and accurate with regard to the beneficiary’s permanent residence ZIP code and other important data…”
• CMS is conducting extensive outreach to Medicare beneficiaries who reside in the CBAs and will be offering to help them identify contract suppliers.
• If DME suppliers or referral agents are unsure whether a beneficiary resides in a CBA and is affected by this program effective July 1, they can make that determination by comparing the ZIP code of the patient’s residence to the list of ZIP codes for the CBAs, which is available at http://dmecompetitivebid.com/Palmetto/Cbic.nsf/docsCat/DMEPOS%20Com
Grandfathering/Transitioning• Monthly rental oxygen: Arrangements entered into before
the start of a competitive bidding program can be continued. The supplier must agree to accept the competitive bidding price. Losing suppliers cannot take on new patients for these items.
• Inexpensive/routinely purchased items furnished on a rental basis, items requiring frequent and substantial servicing, and capped rental items: Grandfathered supplier may continue furnishing these items in accordance with existing rental agreements.
• Grandfathering allows beneficiaries to continue to rent items from their existing supplier, even if that supplier has lost its contract status under a subsequent competitive bidding program.
• CMS’ intent is to drive all business for competitively bid products to the contract supplier. As previously noted, beneficiaries who visit a CBA and need bid products are required to obtain them from a contract supplier. Conversely, beneficiaries who live in a CBA and need bid products when they visit other areas can obtain the equipment from any Medicare supplier. However, Medicare will only pay the competitive bidding contract amount for the item.
• The proposed rule required winning bidders to accept every beneficiary in the CBA no matter how many months rental they have remaining on their equipment. CMS refers to this as a beneficiary protection in the event the beneficiary has a supplier who loses the bid and does not agree to the grandfathering terms.
• However, the final rule somewhat mitigated supplier concern relative to the monthly rental issue…
• For oxygen, CMS allows suppliers that must begin furnishing oxygen equipment after the rental period has already begun to a beneficiary who is no longer renting the item from his or her previous supplier (because the previous supplier elected not to become a grandfathered supplier or the beneficiary elected to change suppliers) will receive at least 10 rental payments for furnishing the equipment.
• If the beneficiary transitions to a new contract supplier, the oxygen and oxygen equipment must be returned to the original supplier that owns the equipment.
• For capped rentals, CMS allows suppliers furnishing items to a beneficiary who is no longer renting the item from their previous supplier (because the previous supplier elected not to become a grandfathered supplier or the beneficiary elected to change suppliers) to receive 13 monthly rental payments for the item, regardless of how many monthly rental payments Medicare previously made to the prior supplier (assuming the item remains medically necessary).
• At the end of this new 13 month rental period, the contract supplier will still transfer title to the capped rental item to the beneficiary.
Important Exception…• This rule does not apply when a beneficiary who
is renting a capped rental item from a contract supplier elects to obtain the same item from another contract supplier, because the grandfathering provisions only apply to those situations in which a beneficiary had been previously receiving the item from a non-contract supplier.
• A new contract supplier would be paid rental only for the duration of the rental period.
Grandfathering Other Items
• CMS: “We do not believe we have authority to allow grandfathering for other DMEPOS, such as glucose testing supplies and enteral nutrition, equipment, and supplies.”
Other Payment Provisions• If Medicare is the secondary payor for a
beneficiary who resides in a CBA, and the primary insurer requires the beneficiary to obtain items from a supplier that is not a contract supplier, then Medicare may pay the secondary payment to the noncontract supplier.
• If a beneficiary receives an item covered under competitive bidding from a noncontract supplier within a CBA, and payment is not grandfathered, then the beneficiary will have no financial liability to the supplier. .
“Specific Brand”• A physician may prescribe a particular brand of an item,
or a particular mode of delivery, if it is determined the brand or mode of delivery would avoid an adverse medical outcome for the beneficiary.
• The supplier must either provide the brand/mode prescribed or consult with the physician to find an appropriate alternative brand/mode and obtain a revised prescription, or, alternatively, assist the beneficiary in locating a contract supplier that can furnish the prescribed item.
“Specific Brand” Payment
• Medicare will pay the supplier only the single payment amount. The regulations specify that there is no extra payment for a specific brand or mode of delivery ordered by a physician.
Repair and Maintenance
• Repair and maintenance of competitively bid items, including replacement parts, may be provided by any supplier with a Medicare billing number.
• Payment for parts and labor will be generally as it is now. Details are as follows…
Repair ONLY
• A beneficiary who owns a competitively bid item that needs to be repaired may have the repairs performed by either a contract supplier or by a non-contract supplier. In these cases, Medicare pays for reasonable and necessary labor not otherwise covered under a manufacturer’s or supplier’s warranty.
Repair and Replacement
• If a part needs to be replaced in order to make the beneficiary-owned equipment serviceable, and the replacement part is also a competitively bid item for the CBA in which the beneficiary maintains a permanent residence, the part may be obtained from either a contract supplier or a non-contract supplier. In either case, Medicare pays the single payment amount provided under the Competitive Bidding Program for the replacement part.
Replacement ONLY• Beneficiaries maintaining permanent residences in a CBA
are required to obtain replacement of all items subject to competitive bidding from a contract supplier. This includes replacement of base equipment and replacement of parts or accessories for base equipment that are being replaced for reasons other than servicing of the base equipment.
• Beneficiaries who are not permanent residents of a CBA but require a replacement of a competitively bid item while visiting a CBA, must obtain the replacement item from a contract supplier. The supplier will be paid the fee schedule amount for the state where the beneficiary is a permanent resident.
Mail Order Diabetic Supplies
• Medicare beneficiaries who permanently reside in a CBA may purchase their diabetic testing supplies from a mail order contract supplier for the area in which the beneficiary maintains a permanent residence; or a non-contract supplier in cases where the supplies are not furnished on a mail order basis.
• The term “mail order” refers to items ordered remotely (i.e., by phone, email, internet, or mail) and delivered to the beneficiary’s residence by common carriers (e.g., U.S. Postal Service, Federal Express, United Parcel Service) and does not include items obtained by beneficiaries from local supplier storefronts.
• Mail order contract suppliers will be reimbursed at the single payment amount for the CBA where the beneficiary maintains a permanent residence.
• For diabetic supplies that are not furnished through mail order, suppliers will be paid the fee schedule amount.
• Medicare payment will not be made to non-contract suppliers that furnish mail order diabetic testing supplies to Medicare beneficiaries residing in a CBA. A special modifier, KL, will be used on each claim to indicate that the item was furnished on a mail order basis.
• Note: Suppliers that furnish diabetic testing supplies on a mail order basis and do not attach the mail order modifier could be subject to significant penalties under the False Claims Act.
• It is solely up to the beneficiary to decide whether or not they wish to obtain their diabetic testing supplies on a mail order basis.
“Education and Outreach”• “CMS will conduct intensive beneficiary and
referral agent education campaign” beginning in 2008
• Resources include customer service support and ombudsmen networks. The claims processing system will also be used as a vehicle for information relating to this program.
• An instructional Webinar for suppliers is now available on www.dmecompetitivebid.com.
Inherent Reasonableness??• NCB will generate a rich HME database even if it
doesn't result in substantial cost savings.
• CMS will have detailed information on what bidders in the first 10 MSAs are willing to charge and, by implication, how low they can go and still stay in business. CMS could use the data to impose an inherent-reasonableness standard on the entire industry.
Other Final Rule Changes or Clarifications
• Proposed CPI increases over three year period removed: “No Payment Adjustment to Account for Inflation”
• Starting in 2009 CMS has the authority to adjust payment amounts in non-bid areas based upon bid amounts in bid areas
• CMS will not require that repairs of beneficiary-owned competitively bid items be performed by contract suppliers. This policy will also apply to maintenance services required by the DRA.
• After considering generally negative comments, CMS removed the “rebate program.
Change of Ownership• If a contract supplier is acquired by or merges into a non-
contract supplier, and the noncontract supplier meets the requirements for contract suppliers, CMS may award a contract to the acquiring supplier. CMS believes that a supplier should not automatically become a contract supplier by merging with or acquiring a contract supplier.
• In any case, a contract supplier must notify CMS if it is negotiating a change in ownership 60 days before the anticipated date of the change.
• If the successor entity is acquiring the assets of the contract supplier, an acceptable, signed novation agreement indicating that the successor entity will assume all contract obligations must be submitted at least 30 days before the anticipated effective date of the change of ownership.
• If a new entity will be formed as a result of the merger or acquisition, the existing contract supplier must submit a final draft novation agreement at least 30 days before the anticipated effective date of the change of ownership. The successor entity must submit an acceptable, signed novation agreement within 30 days after the effective date of the change of ownership.
• A novation agreement is one between the government and a successor entity to continue an existing contract arrangement with that successor entity. By entering the novation agreement, the successor entity takes on the liabilities, obligations, and benefits of the contract.
• CMS: “We understand that the change of ownership information is highly confidential, and will make every effort to protect it as required by law.”
Physicians/Practitioners, SNFs & Hospital-based Suppliers
• The Final Rule permits physicians and certain nonphysician practitioners to furnish certain competitively bid items to their own patients without submitting a bid and being selected as a contract supplier.
• HOWEVER…. SNFs & NFs must bid (and compete to serve their own patients!)
• CMS: We believe it is appropriate to include them in the same bidding process as other suppliers because the statute requires us to conduct bidding for items in which we expect savings.
• Hospital-based suppliers also must bid
The Competitive Bidding Application Process
(Follow along with samples in the Appendix)
The Competitive Bidding Application Process: Four Forms
• CMS-10169A – Form A: Application
• CMS-10169B – Form B: Bidding Sheet per category bidding on
• CMS-10169C – Form C: Medicare DMEPOS Competitive Bidding Program Contract Supplier Quarterly Report
• CMS-10169D – Form D: Competitive Bidding Program Beneficiary Survey
Additional information required…• Supplier Financial Statements• Suppliers Credit Report and Score• Signed legal contracts between all network
members, if applicable• Signed letter of intent to enter into an agreement
if supplier plans to expand capacity through use of subcontractors
• Copy of Accreditation Organization’s Certificate of Accreditation.
Financial Requirements• All documents that are not prepared as part of a tax return
must be “certified” as accurate by the supplier. (Audited documents are not required.)
• Documents may be prepared on a accrual or cash basis of accounting
• New suppliers must submit projected financial statements for any year they do not have past financial information because they were not in business as a DMEPOS supplier and/or did not service the area.
CMS“ Financial Health” Evaluation • In 2007 the CBIC used a standard accounting ratios
(obtained by review of the financial documents that all bidders must submit) to evaluate the “financial health” of the bidder. Note: For Round 2 bidders, CMS will reportedly ease the documentation requirements.
• CBIC will also use the supplier’s credit history in the evaluation.
• According to CMS, this will determine whether the supplier will be able to participate in the program and “maintain viability for the duration of the contract period”.
CMS “Evaluation”, continued…
• However, Round 1 bidders and many industry stakeholders effectively complained to CMS that there were a myriad of confusing issues relative to “evaluation”. Round Two bidders will likely have “answers” or at least greater interpretation. HME providers should again note that this should be of, comparatively, a great advantage (versus Round 1 bidders)
Let’s get to the “actual” bidding application!
• TO BEGIN….Round suppliers who wish to bid will need to first register in the Individuals Authorized Access to CMS Computer Services IACS, before the bidding window opens. There will be three user roles available.
• Consider select your personnel NOW (and leave time to ensure the NSC data is correct!)
Three IACS roles…• Each organization will be allowed one Authorized Official
(AO). The AO role can approve all other users who are requesting access to the bidding system. The AO will be able to input bid data, approve Form A and certify Form B in the bidding system.
• Each organization will be allowed to designate one or more Backup Authorized Officials (BAOs). The BAO can approve the supplier’s End User registration for access to the bidding system. Like the AO, the BAO can also input bid data, approve Form A and certify Form B in the bidding system.
• Each organization will be allowed one or more End User(s). The End User can input bid data, but cannot approve Form A or certify Form B.
Important!!• Only those AOs listed on the CMS-855S as an AO can
register in IACS to approve and certify as described above. The AO is an appointed official to whom the organization has granted the legal authority to enroll it in the Medicare program and to commit the organization to fully abide by the statutes, regulations and program instructions of the Medicare program.
• End Users do not need to be listed on the CMS-855S. However, the AO or BAO will need to approve an End User’s request for access to the bidding system.
Take Action Now!• Be sure that the data you are submitting is current and
in accordance with that submitted to the NSC. In particular, this concerns the AO’s name, date of birth, SSN, and mailing address. If any of these data elements have changed since your last submission to the NSC, then you should PROMPTLY complete a change of information on the CMS 855-S.
• The NSC processing time to complete a change of information on the CMS-855S is approximately 45 days and all submissions are processed in the order in which they are received.
Overview of AO IACS Registration Process
• For an AO, the verification of his/her last name, date of birth, and SSN must be validated against the data maintained by NSC. The NSC received this AO data when the supplier completed their most recent CMS-855S Medicare Enrollment Application. The AO's last name is listed in Section 15 and the AO’s date of birth and SSN in Section 6A of the CMS-855S. If the data does not match, the registration will be rejected.
• Following successful registration, as an added measure of security, the AO's User ID and password is then mailed in a separate correspondence to the mailing address listed in Section 2A2 of the CMS-855S Medicare Enrollment Application.
• The BAO goes through a similar process and an AO for the organization must approve a BAO's request for access before a User ID and password will be emailed to the BAO.
Form A: Application
• One (separate) Form A and appropriate financial data is required every time a supplier submits a bid as a different bidder. (This will be further explained shortly, and includes a “network” bidding option)
• If a supplier has multiple locations within the CBA, the supplier must complete all required information on Form A for each location.
Form A Application – What Does It Include???
• Supplier “type” (e.g., single location, multiple locations, network)
• Select product category to which you are submitting a bid.
• Supplier’s legal business name (as reported to the IRS for tax purposes), address, phone number, e-mail address and fax number
• How long has supplier been supplying DMEPOS items in the CBA in years and months
• Suppliers primary physical address
• Tax ID number
• NSC and NPI number
• Service type (retail locations, mail orders, home delivery) & DBA name
Form A: Application
• Supply all physical locations where supplier does business (has common ownership)
• PO boxes are not acceptable. Must have zip code and telephone number with area code
• Accreditation information• Type of Business (Corporation, Sole proprietorship,
Franchise, etc.)• State and Date of Incorporation)• Main contact person information• Financial documents
Form A: Application• Bidding supplier must disclose any information
on current or past (within last 5 years) sanctions or debarments in which they were involved
• Any applicable settlement agreements or corporate integrity agreements must be submitted
• List key personnel to include officers, partners, directors, managing employees or members of the board of directors
Form B: The “Bidding Sheet”
Form B: Bidding Sheet• Indicate total revenue collected for product
category (not just Medicare) for past calendar year
• If multiple locations that share common ownership, list total for all locations
• Indicate the percentage of total received from Medicare
• Estimates are acceptable!
Your Billing Software May Have What You Need?
Competitive Bidding Revenue“Courtesy of Brightree – A New Way… A Better Way.”
$0.00
$20,000.00
$40,000.00
$60,000.00
$80,000.00
$100,000.00
$120,000.00
$140,000.00
$160,000.00
Non Medicare $195.66 $3,125.39 $8,268.19 $33,688.12 $37,374.82 $82,652.18
Medicare $3,493.78 $2,163.98 $29,317.66 $15,637.82 $15,060.19 $65,673.43
Total Sum of Payment $3,689.44 $5,289.37 $37,585.85 $49,325.94 $52,435.01 $148,325.61
Hospital Beds and related Accessories
Enteral Nutrients,
Equipment
Oxygen Supplies and
EquipmentCPAP Devices
Standard Power
WheelchairsGrand Total
Form B: Bidding Sheet• List counties in the CBA that you are servicing
customers for the product category
• If supplier does not service entire county then list zip codes in the county that you do not service
• Indicate the percentage of total geographic area in the counties the supplier services Medicare Beneficiaries
Form B: Bidding Sheet
• List by HCPC code the number of units provided (total) during the last year and the number supplied to Medicare beneficiaries
• Indicate, in percentage, the increase in volume the supplier or network could provide for the product category. The amount given is an aggregate amount for all codes in the product category
Form B: Bidding Sheet• If a supplier plans to expand you must explain your
business expansion plan on the form to include current and expansion plan levels, such as staff, financing, facilities, inventory control and distribution methods
• If you plan to expand through subcontractors (again – further detail to follow) you must identify them as well as attach signed letters of intent with each subcontractor. Several sources offer templates of these documents.
Form B: Bidding Sheet
• Supplier must list each category of which they are submitting a bid and list the CBA the bid is being submitted in
• On the actual bidding sheet the supplier will complete item “C”: Manufacturer, Model Name and Number of items they will provide to suppliers (suppliers may change models in later periods of the bidding cycle)
Form B: Bidding Sheet• Item F: Bidder put in total estimated Medicare
capacity which is units by HCPC code that bidder currently supplies plus any additional capacity the bidder would be capable of providing per HCPC code
• Item G: Bid price for each item in the product category
IMPORTANT!!• Many bidders in Round 1 were confused by the
“capacity” column “unit” designation. For example, the Form indicated “One Unit = One Month Rental” for capped rental items. (See next page for example).
• HOWEVER, the bid amount was “P” – a single purchase price bid.
• Result? Many bidders bid the “monthly rental” amount…or, an amount 1/10th of their intended bid. BE CAREFUL!!
RFB Bidding Form B “Confusion”…
Form B: Bidding Sheet
• Bids include cost of furnishing item throughout the CBA.
• CMS also assumes it includes providing the item and any services directly associated with the item (such as proper beneficiary/caregiver training and follow up, manufacturer shipping charges, maintaining rented equipment in proper order, education, delivery, set-up and retrieval)
• Suppliers are not locked into furnishing only these products during the contract period. Suppliers must report what products they are furnishing on a quarterly basis (See Form C).
• Suppliers cannot report that they are offering certain items if they are not providing those specific items to Medicare beneficiaries. In addition, suppliers cannot discriminate against Medicare beneficiaries. The items a contract supplier furnishes to Medicare beneficiaries under its contract must be the same items furnished to other customers.
Form C: Quarterly Report
• Submitted no later than 10 days (!) after the quarter ends
• Information must be sent regarding manufacturers, model names and numbers for items furnished to Medicare beneficiaries
Form D: Beneficiary Survey
• Enables the beneficiary to rate you on several categories– Arranging Equipment– Training– Delivery of Equipment– Equipment Quality– Customer Service– Overall Complaint Handling
Good News (we think…)For Round Two Bidders…CMS has updated the
CBSS into the DMEPOS Bidding System (“DBidS”) • No requirement to register twice• “Comprehensive” user-friendly guide• Status indicators simplified; pointers to incomplete
data• Duplicate entry requirements now “copy and paste”• Enhanced data-savings options, longer “time-out”• Error messages in clear language• Enhanced technical support
Bidding Suggestions & Reminders
Steps Preparatory toSubmission of Bid
• Are your patients located in a competitive bid area? Check the boundaries (ZIP code/CBA) carefully!
• Ensure you – and all appropriate staff - understand the bid selection process and criteria and the product and service requirements.
• Begin to select now the product categories you can provide.
• Realistically, what percent of the market (for a particular product) can you handle?
Steps Preparatory to Submission of Bid
• Remember you need to develop a bid for all items (i.e., each HCPCS code) within each product category that you intends to furnish.
• You are not required to submit a bid for every product category, but must submit bids for all items in each product category that the supplier chooses.
Steps Preparatory to Submission of Bid• Reality check –
– How much of a discount - off your usual and customary charge - can you give?
– Important note: You will most likely NOT be paid what you bid…remember the “median” bid example!
– Are your projected costs achievable?
– Do you have any cushion…that is, any margin for error?
You must understand your operation!• Realistically, what products can you provide and what
geographical area can your company cover? ♦ What direct and indirect costs do you have in your products &
services? ♦ How efficient is the operation? ♦ Is the company “lean and mean” or does it have too many
employees? ♦ Do you understand your cost structure…both direct and
indirect costs? (Please note your CD appendix for more information)
♦ If you are successful bidder, will you be able to increase your market share?
And also remember…
• You must be in good standing and have an active National Supplier Clearinghouse (“NSC”) number.
• You must satisfy any local or state licensure requirements for the item being bid.
• You must be accredited or be pending accreditation by a CMS approved accreditation organization. Round Two deadline: October 31, 2008!
• Suppliers in Round Two will likely have 60 days (perhaps more if the system incurs any “glitches”) to submit bids. – You may submit bids 24 hours a day, 7 days a
week.
– During that 60 day window, You may amend their bids as many times as necessary.
– Once the 60 day window closes, however, no amendments will be allowed.
• The issue of missing hard copy documents remains unclear as of this printing. The RFB will indicate whether there is a hard copy notification (e.g., during the last 10 days of the bidding window) or Internet “look-up”.
• The bidding system will not allow you to bid unless the supplier’s accreditation status is complete or pending.
• A different bidder number will be assigned if you submit a bid as a single entity and as a network.
• You can choose to bid for multiple product categories; you are not be required to submit a bid for every product category.
• You must submit a bid price for every item included in the product category.
• The bids should be for the purchase of new items.
• Exceptions are items requiring frequent and substantial servicing and oxygen and oxygen equipment (monthly rental units).
• The bids must include all costs (including services) related to furnishing of the item.
• You will effectively agree to provide items and services to all beneficiaries residing in the CBA.
• Exceptions are a SNF serving as a DMEPOS supplier, a physician serving as a DMEPOS supplier, and network suppliers that divide up an area.
Networks & Subcontracting
Opportunity to Create Networks• Small suppliers (<$3.5 million in revenue) may
join/form networks if they do not service the entire geographical area of the CBA.
• Networks must comply with all applicable laws, including the federal antitrust laws.
• The small suppliers forming the network must have market shares that do not exceed 20 percent of the expected beneficiary demand for the product category.
• No more than 20 small suppliers may participate in a network.
“Reasons” for Networks…• Similar to Subcontracting (see next section) suppliers may
elect to form Networks due to one or more of the following requirements:
1). Product line support (e.g., a single suppler cannot offer a specific item within a category)
2). Geographic access support (e.g., a single supplier cannot effectively service all areas of the CBA)
3). Personnel support (e.g., as single supplier does not maintain appropriate administrative or Medicare-requires support personnel such an ATS)
Network Formation Not Restricted to Competitive Bidding (& Small Suppliers)!
• Each network must form a single legal entity that acts as the bidder (e.g.,. a joint venture, limited partnership, or contractor/subcontractor relationship which would act as the applicant and submit the bid.) The Network will receive a unique Bidding Number from the CBIC.
• A small supplier may join more than one network but cannot submit an individual bid to furnish the same product category in the same CBA as any network in which it is a member.
• A small supplier may not be a member of more than one network if those networks submit bids for the same product category in the same CBA.
• Each member of the network must meet all accreditation and quality standards.
• In a change from the proposed rule, the “legal entity” is no longer responsible for billing Medicare, receiving payment and distributing reimbursements on behalf of the network suppliers.
• Network members will continue to maintain current billing functions.
• However, the Network “legal entity” will submit the bidding application on behalf of all of the members, and will receive a Network “bidding number” from CMS
• Relatively few Networks formed in 2007 due to limited timeframes and competition issues.
Important: Network members are considered individual suppliers
• If the network is awarded a contract, each member of the network is individually counted toward the 30 percent minimum small supplier target. For example, if there are ten members of a network, that network will count as ten small suppliers in the 30 percent minimum small supplier target calculation. If only three small suppliers are needed to meet the 30 percent target goal, CMS will accept the network, thus achieving and exceeding the goal by awarding a contract to one network with 10 members.
• CMS agreed with comments suggesting that suppliers participating in a network must form a "discrete legal entity“
• “…with the purpose to prevent violations of the Federal anti-kickback statute, self-referral rules and regulations, and allegations of unfair business practices among the participating network suppliers…”
“Anti-competitive concerns…”
• CMS stated "we strongly agree that networks must not violate antitrust laws and that networks must take steps to ensure that they are not in violation of Federal antitrust laws. We emphasize that suppliers that pursue the network option must comply with all applicable Federal antitrust laws, and we will reject a network bid if we believe it has been prepared in violation of those laws. We will also refer any suspected cases of Federal antitrust violations to the Department of Justice for further review.”
• ACCORDINGLY…HME Providers should utilize legal counsel for network development purposes and NOT discuss pricing, costs, etc. among prospective members until the legal entity has been formed and only then with the review of legal counsel.
The Network Application• The Network will complete a “Form A” for each member
of the network• The Network must submit all financial documentation
required for each network member, including a copy of current credit reports which must have been completed within 90 days prior to the date on which the supplier submits its bid.
• When submitting bids, networks must submit copies of all contracts with and among their members.
The Network Application• Networks should indicate the percentage increase in
volume it is capable of providing for that product category.
• This increase should represent the aggregate amount applicable for all codes in the product category during a 12 month period. (It is not necessary for one supplier to meet 100% of the demand for an area.)
• A written certification will be required from each network supplier that it is unable to compete (that is, cannot service the entire CBA on its own) without joining a network
• A final “Certification Statement” must be signed by the Authorized Official.
Network “Financial Requirements” are the same as for individual bid submission
• Network suppliers that submit individual tax returns (not common) that include business taxes must submit the following documents for the last 3 years:– Submit Schedule C from their 1040– Balance sheet– Statement of Cash Flow– Income Statement
• Network suppliers that submit corporate tax returns (most common) must submit the following documents for the last 3 years:– Schedule L from the tax return (balance sheet)– Statement of changes in financial position (cash flow)– Statement of operations (income statement)
Suspension and Termination of Network Contracts
• CMS may suspend or terminate a contract for any material breach
Supplier Standards or Quality Standards
Unannounced survey deficiencies
Discrimination
Failure to provide branded items ordered by a physician
• While VGM strongly encourages individual provider bids...at the request of providers - and if suitable numbers indicate interest, VGM will consider operating in a “Messenger Model” capacity for Networks with VGM membership affiliation.
• VGM will accept bids, capacity estimates and other requisite data on behalf of individual providers on a confidential basis. Individual members of the network will not have access to the submitted data.
• VGM will analyze the submissions, assemble a weighted (via individual capacity) bid with statistical outliers removed, and suggest a suitable bid for network approval.
• VGM will monitor the entire bid submission process.
• VGM also offers network consultation and assistance with documentation, accreditation, etc. Please contact VGM for additional information.
Network FAQs • Will the Network require a “Primary Supplier” that
must maintain and utilize its own Medicare supplier number on behalf of all Network members?
• No The proposed rule suggested, but many industry stakeholders replied and the “legal entity” is no longer responsible for billing Medicare, receiving payment and distributing reimbursements on behalf of the network suppliers. Individual members will continue to directly bill Medicare and receive direct payment
• Will members risk losing current patients by participating in a Network?
• Analysts anticipate that the great majority of the Network claims will occur due to the continuing and identical referral source structure in place prior to the Network formation. In other words, Network members will bill and service existing patients. New patients will belong to the referring provider .In cases where a referring entity contacts the Network directly, a standard rotational referral processes (defined within the network agreement) could take place.
• May providers submit a bid with network and also individually?
• Yes and No. Providers cannot bid as individuals and via participation in a network within the same product category. Providers may bid individually in other categories.
• What do you estimate the legal costs of the initial creation of the Network?
• Legal counsel is required to, among other things, develop and review the network membership agreement. VGM estimates legal fees for a 10 member network will range from $5 - $15,000.
• What happens if I withdraw from a network? • Non-contract suppliers cannot assume new patients in the
network product category/ies. You may be eligible to sub-contract with another contract provider or network. You can bid in the next bidding period. On a related note, CMS has not yet detailed its procedures if a network member is suspended or terminated from the Medicare program. It is a likely (especially when the Network itself declares the non-compliance of a member) that a “replacement” provider will be allowed.
• Is Network participation limited? • Yes, the regulations limit Network capacity to 20% of the
estimated MSA capacity per product category, 20 total supplier number members, and each member is limited to annual receipts of less than $3.5 million.
Subcontracting
Generally, suppliers may elect to subcontract due to one or more of the
following requirements:
1). Product line support.
2). Geographic access support.
3). Personnel support.
• The product line support option is for those suppliers who can deliver product to the entire geographic area of the CBA, but may not be able to supply the amount of product to cover all of its customers needs.– Liquid O2 is a common example
• The geographic support option is for suppliers who do not have the capacity to deliver items throughout the entire CBA.
• The personnel support option is for suppliers who do not have the administrative personnel to handle the volume of business in the CBA.
• May be the best option for most HMEs. (As noted, in Round One, Network formation was very limited due to minimal bidding window times and concern over anticompetitive issues)
• However…the subcontracting supplier that performs the service for the winning bidder entity will rarely receive 100% of the reimbursement (due to the administrative fee amount defined within the Agreement; the Network option may reduce or eliminate this fee…)
• The supplier can bid for a product category in a CBA and also becoming a subcontractor to another supplier that submits a bid in the same CBA for the same product category.
Subcontracting Parties• A subcontract arrangement can be entered into
when a contract supplier can cover the entire CBA but does not provide a particular product (e,g., liquid oxygen) in a product category (oxygen supplies and equipment).
• Looking at a different scenario, suppose that a DME supplier (“ABC Medical Equipment”) is based in Nashville and only transacts business in Nashville.
• ABC desires to expand its business into Memphis. ABC can submit a bid for the Memphis CBA.
• If ABC is awarded the contract, then it can serve Nashville with its own personnel and serve Memphis through subcontract arrangements.
• Summary: A losing bidder can serve as a subcontractor; a company that does not submit a bid can serve as a subcontractor; and a winning bidder can serve as a subcontractor for another winning bidder.
Subcontractor Obligations• CMS does not require that a subcontractor be accredited. In
fact, CMS does not require that a subcontractor even have a Medicare supplier number. (Example: Liquid oxygen vendors such as LifeGas®
• However, the contract supplier must be accredited and its accrediting organization will likely require that the contract supplier insure that a subcontractor follow the same quality standards that the accrediting organization imposes on the contract supplier.
• Competitive bid contracts have three year terms.
• During the course of the term, the contract supplier can terminate its relationship with the subcontractor and replace it with a new subcontractor.
Letter of Intent Required! It includes….• Clear identification of parties• Description of functions/services to be performed by
the subcontractors• Language clearly indicating that the subcontractor has
agreed to supply the items, functions and or services• Anticipated length of agreement• Signature of each authorized official or each party• Language obligating subcontractor to abide by State
and Federal privacy and Security requirements, including those provisions stated in the regulation for this program
• The Letter of Intent allows a potential Contractor and Subcontractor to quickly enter into a basic agreement, and then they can finalize the details through a more formal subcontracting agreement.
• A Letter of Intent is typically the first step in an agreement, and its purpose is to encompass the basic terms of a deal clearly and efficiently.
• Templates developed by legal counsel are available• A Letter of Intent will satisfy CMS's request for
information regarding subcontractors at the time of the bid.
• A Subcontracting Agreement is required for the purpose of facilitating the subcontracting process and intended to be used to create a binding contract between parties.
• It may be executed after the winning bidders have been announced.
• Legal counsel is strongly recommended to develop and review the Agreement!
Subcontracting Agreement
Networks or Subcontracting Arrangements?Considerations For
Bidders to Consider…
The Network Legal Entity Has Many Responsibilities…
• Internal Communications
• Data Tracking
• Compliance Oversight• Accreditation• Regulatory Compliance• Quality Control Standards• Enforce Antitrust Issues…
Antitrust Issues• Each network member must sign “a statement in the
bid certifying that it joined the network because it was unable to furnish all of the items in the product category for which the network is submitting a bid to beneficiaries throughout the entire geographic area of the CBA” Federal Register, Vol. 72. No. 68, 18060 (April 10, 2007 )
• In other words, Network members would not be able to join the network for the sole purpose of obtaining referrals
• Network members should safeguard against internal referrals between members for products and services outside of the members’ product category
• Price Fixing: Must control pricing and cost information sharing
• State Antitrust laws may apply – consult with counsel!
• Subcontracting fees should not be related to referrals!
Subcontracting Concerns…• Again, a subcontract should only be entered into for
a legitimate business purpose, e.g., Product Line Support, Geographic Support, and/or Personnel Support.
• Contractors are completely responsible for their Subcontractors
• Does Contractor have enough Subcontractors to cover the CBA?
• Have Subcontractors ever been subject to sanctions?• Is Contractor looking for optional or mandatory use
of Subcontractor?
• Does Contractor want a non-compete and is Subcontractor willing to sign a non-compete? (If Contractor is disqualified or loses Bid, Subcontractor would be out)
• Is Subcontractor willing to accept optional use, or is Subcontractor looking for an exclusivity agreement with Contractor?
• Is Subcontractor also going to compete for the Bid?
Antitrust Concerns…• The government may frown upon too many
subcontracts• Anti Kickback Statute: Prohibited conduct under the
anti-kickback law includes not only remuneration intended to induce referrals but also conduct that “induces the purchase, lease or ordering of goods, facilities, services or other items reimbursed under Medicare”
• Includes all government reimbursement programs• Many states have their own anti-kickback and fraud
statutes and regulations (Individual state laws may vary)
Network or Subcontracting Arrangements: Comply with Medicare Supplier Standards!
• Networks will be responsible for their members.• Contractors will be responsible for their Subcontractors. • Must comply with supplier standards including :
– Insurance requirements ($300,000 comprehensive liability insurance, plus potentially product liability insurance).
– Disclosure requirements– Physical office requirements
• Contractors are ultimately responsible for billing and collecting on behalf of their subcontractors– Maintaining documentation requirements
Potential Advantages Applicable To Both Networks & Subcontracting Arrangements
• Share Costs• Size Leverage• Volume Discounts• Capture and Manage Data• Protect/Enhance Market Share• Negotiation Capacity• Enhanced Support Services
Potential Network Weaknesses• Less Autonomy
• More Accountability
• More Scrutiny
• Freeloaders/Bad Apples
• Added Administrative Costs
Subcontracting Advantages Over Networks• More autonomy (Do not rely on network
partners)• “Two bites of the apple”: you can be a
Contractor and a Subcontractor• Only small suppliers can be in a network.
Anyone can hire Subcontractors and enter subcontracting arrangements
Potential Subcontracting Disadvantages Over Networks
• CMS may consider a high number of subcontractors as evidence that contractor is not a viable business
• No shared costs• Greater scrutiny under antikickback and health care
fraud laws• Subcontracting rules are not clearly defined
Current Subcontracting Uncertainties/Awaiting CMS Comment
• How many Subcontractors can one have without running a risk of violating anti-trust laws, and health care fraud laws?
• How many Subcontractors will be too many for CMS when evaluating the bid?
• How much profit, if any, can Contractor keep in subcontracting relationship? What will be considered a reasonable fee?
How do you choose?
• Large suppliers have no choice• Reliable partners may be better suited for
networks. Do you have partners you can trust?• How many Subcontractors would you need?• Can you justify your need for Subcontractors?• Do you have the administrative capacity to
manage Subcontractors?
Stakeholder & Legislative Update
• Senator George Voinovich, R-Oh., along with Senators Arlen Specter, R-Pa.; Pat Roberts, R-Kan.; Richard Burr, R-NC; Johnny Isakson, R-Ga.; John Cornyn, R-Tx.; and Jim DeMint, R-SC sent a letter to HHS Secretary Michael Leavitt on April 23 requesting a meeting to discuss the competitive bidding program's "status and next steps." Before moving forward with future rounds of the program, the senators have requested that a resolution of the issues be made.
• "Our first concern is the alleged discrepancies between information submitted by bidders and received by the Center for Medicare and Medicaid Services (CMS)."
• The letter also requests that CMS provide more "transparency" on how bidders' financial documents and service capacity were evaluated.
“For Disqualified Bidders, Lawsuit May Be Only Recourse”
• While legislative support appears to be growing for a suspension of round one of competitive bidding, it may take legal recourse for HME providers who were disqualified to get their cases heard, according to industry attorney Jeffrey S. Baird. He said some providers who were disqualified and appealed to the CBIC have received letters indicating their documentation has been re-examined and still found wanting--even though many said they have copies of complete documentation that was submitted with their bids.
• “I am concerned that the CBIC response is what has gone to most of the companies whose applications were disqualified without justification,” said Baird, adding that the letters appear to be the same except for specifics about which documents the CBIC said were missing. “In short,” he continued, “it appears that the CBIC will be of no help. Unless the industry receives intervention from Capitol Hill, or unless CMS directs the CBIC to take a different course of action, then the aggrieved companies will have no choice but to go to court.”
• “I have seen some of the form letters to providers,” added Michael Reinemer, vice president of communications and policy for the American Association for Homecare. “I think the take-away there is to call your member of Congress because the CBIC is not going to resolve these issues. It appears in many cases that nothing has changed, even though ample evidence was provided that the bid was submitted properly.”
• Reinemer said the association is exploring the possibility of filing a lawsuit on the issue.
Other lawsuits targeting competitive bidding are already in the works.
• The VGM Group, through its Last Chance for Patient Choice, is spearheading two lawsuits against the bid program in the Dallas and Cleveland CBAs.
• Last year, the Dallas lawsuit, which, among other things, alleged that Medicare beneficiaries would receive different, lower levels of product and/or service quality and that small HME businesses would be unable to compete under the program, was tossed out because no harm could as yet be proved.
• The Cleveland lawsuit alleges that competitive bidding violates the Regulatory Flexibility Act requiring all agencies to “carefully scrutinize ways to minimize the economic impact on small entities."
• “We're going to try to get the lawsuit reintroduced in Dallas and try to get additional plaintiffs in Cleveland and move forward with a potential constitutional lawsuit based on due process,” said John Gallagher, vice president of government relations for VGM.
• The latter, he said, “is bigger than we can produce,” so VGM is soliciting pledges to support it. “If we can get about $250,000 in pledges from stakeholders across the board, we would move forward [with the due process lawsuit],” Gallagher said.
• AAHomecare has retained the law firm of Sidley Austin in Washington, DC to examine the supplier selection process underway in Round One of competitive bidding. The law firm is reviewing more than 150 case examples by providers across the country that have been shut out of the bidding process in Round One.
• Other stakeholders have contacted legal counsel and are considering options to file for a TRO (temporary restraining order) and/or declaratory judgments.
CMS Briefed the Senate Staff On April 25. HMEs were urged to send to their Senator these concerns:
What will CMS do if it sees a decline in service? Does CMS believe that suppliers will provide the same brands and products to Medicare beneficiaries as they do to non-Medicare customers or to Medicare beneficiaries who do not reside in a bidding area? What will CMS do if it sees a shift from current items to cheaper ones?
• Don’t first-round bidding problems raise serious questions about this program? There appear to be significant problems with companies being inappropriately disqualified from consideration for the bidding program.
• Doesn’t the large number of disqualifications raise questions that CMS’ document tracking system was inadequate? How and when will CMS resolve these issues? Additionally, we hear that CMS will not publicly provide the criteria that it used to judge the financial condition of suppliers. Without this information, there is no accountability and no public confidence that CMS has implemented this program in a rational manner.
• How has CMS monitored the ability of suppliers to handle additional demand? Based on CMS data, the average number of beneficiaries per supplier before competitive bidding is far below the average number of beneficiaries per contract awarded—with percent increase in each (competitive bidding area) CBA ranging from a 108 percent at the low end to 387 percent at the high end. This will undoubtedly involve suppliers increasing their capacity to provide DME for certain items and services, expanding locations and hiring new staff to meet increased demand. Do you think that winning contractors will be able to ramp up to accommodate this demand so quickly?
• How will CMS resolve errors in the bid process? Can you provide a step-by-step explanation of how the bidding process works, addressing what durable medical equipment (DME) providers had to do in order to submit a bid under the program? Also please explain the process CMS and the contractor used to evaluate the DME provider’s bid. Are you certain that no mistakes were made either in excluding suppliers who shouldn’t have been excluded or in the calculation of the payment rates? How would mistakes be corrected?
• How many providers will be barred? We understand that 1,005 unique DME companies submitted bids as part of the program, yet 630 companies were disqualified primarily because their financial information was alleged to be not in order. Does CMS take responsibility for not properly educating suppliers about the intricacies of the program? How many unique companies have accepted contracts?
• Do you believe providers can survive on one or two contracts? Are you concerned that a DME company who won only one or two product categories will be able to survive over the long term if that company previously offered a broader range of DME prior to bidding? What happens if winners do not survive? What methodology has CMS applied to determine if the contract offers are sustainable or unsustainable over the period of the contract?
• Will the new rates be applied to other areas of the country? Is CMS planning to establish payment rates set through competitive bidding in non-competitive bid areas and, if so, what process will CMS use to set the rate and what is the agency’s timeline? Will CMS publish a proposed rule regarding the process CMS will use to apply bid rates in non-bid areas? When do you anticipate that this rule will be published?
• What was the financial yardstick for evaluating bidders? How did CMS make an assessment of a bidder’s financial viability and their ability to serve the particular market? (In several instances, highly regarded and academically affiliated suppliers were eliminated from consideration based on a failure to meet financial requirements, which appears to indicate that errors were made during the bid review process. The Cleveland Clinic is one example.)
• How will out-of-area providers affect beneficiary access to care? In its final rule, CMS allowed out-of-area providers to bid on product categories and markets in which they have no physical presence or experience. For certain beneficiaries, the closest service center of a certain winning bidder is in a different state or located well outside of the bidding area. This seems inconsistent with the goal for the beneficiary to have uninterrupted, easy access to quality products and experienced, competent suppliers who can meet their wide-ranging needs. Moreover, it suggests a possible and significant flaw in the standards the CMS and its contractor, the CBIC, used to evaluate appropriate bidders.
• Why were contracts awarded when the bidder had no local capacity or no history providing a given product category? How did CMS evaluate the bidders’ statements of capacity and their explanations of their prospective ability to serve a bid market, particularly when the bidder had no physical presence in the bid area and no history of serving beneficiaries in the bid area for the products in its bid(s)? We are concerned that suppliers who have never provided competitively bid services in certain bidding areas have been awarded contracts for those areas. Of similar concern is the fact that suppliers have been awarded contracts to provide certain products that they have never provided prior to competitive bidding.
• What processes does CMS have in place to manage the transition for beneficiaries to switch their suppliers’ products and services under the competitive bidding program? The competitive bidding program will cause a disruption to beneficiaries who will now be forced to switch from their existing DME provider to several contract providers, each of whom may only be able to provide one type of equipment.
• Why were low bids indiscriminately rejected? CMS rejected certain suppliers’ bids for submission of particularly low prices for codes that had no or very minimal utilization. Certain bidders had submitted low prices for underutilized HCPCS codes within a product category, even though those prices had very little effect on the bidders’ final composite scores due to the weighting methodology used by the CBIC. Yet, CMS completely rejected such bids without recognizing or considering that suppliers may legitimately have been able to afford these low item prices. Moreover, CMS never clearly notified bidders that this type of bidding strategy would be inappropriate. CMS should be required to re-evaluate these standards or offer bidders more clear guidance on unacceptable pricing.
• Shouldn’t problems in Round One be fixed before the start of Round Two? CMS is moving quickly to implement Round Two of bidding before the questions raised thus far have been answered? Do you believe that questions about transparency, ability of suppliers to serve various marketplaces, and disqualification of suppliers have no merit? Don’t we risk imbedding problems raised by Round One permanently in the program unless these issues can be carefully examined and resolved?
• What efforts has CMS made to contact national patient and consumer groups to make them aware of the changes that will occur as a result of competitive bidding?
• How is CMS assuring that beneficiaries have a wide variety of patient choice for products when the bid price does not support full patient choice? Suppliers who currently hold a majority of market share were not selected as winning bidders. As an example the bid price is below supplier costs for diabetes testing products that make up more than 60 percent of market share.
• Flaws in online bid submission system. Constituents lodged a significant number of complaints about the user-friendliness of the online bid application system last year. While we understand that you have revamped the system to make it more user-friendly, have you had anyone outside of CMS or the contractor test it?
• How can small providers compete in large areas? Looking ahead to Round Two, how are suppliers that are not eligible to form networks or who are not extremely large or national companies supposed to service large MSAs such as New York, Los Angeles, Chicago, or Detroit? Doesn’t that put quality companies in jeopardy? What additional measures will CMS take to ensure healthy participation of small business in both Rounds One and Two?
Legislative (110th Congress)
• Hatch Conrad: S. 1428
• Tanner-Hobson: HR 1845
• Medicare Durable Medical Equipment Access Act of 2007
• A bill to amend part B of title XVIII of the Social Security Act to assure access to durable medical equipment under the Medicare program.
The Bills include provisions that:• Allow providers that do not receive a contract to continue to
provide home medical equipment in Medicare at the competitive bid rate
• Would restore judicial or administrative review of a number off CMS decisions related to competitive bidding.
• Would exempt small rural (populations under 500,000) MSAs.• Would exempt items and services unless a 10% savings could be
demonstrated..• Would subject the Program Advisory and Oversight Committee
(PAOC) to the Federal Advisory Committee Act which requires public access to meetings and proceedings.
However…• (February, 2008): “The industry suffered a major reality check
recently when word leaked out of Congress that the Tanner-Hobson bill, legislation intended to make competitive bidding less onerous to HME providers, "is not going to succeed."
• Informal reports out of the Congressional Budget Office (CBO) estimate the cost of the bill to be a prohibitive $10 billion to $12 billion over 10 years, say industry insiders. The issue here is Tanner-Hobson's any-willing provider provision, which would let even losing HMEs participate in competitive bidding (at the new bid price), provided they meet Medicare quality standards and other requirements. The bill, H.R. 1845, would also, however, deprive Medicare of significant savings by preventing it, for the most part, from consolidating business with fewer providers.
Keep Up Pressure on Congress to Suspend Round One of Bidding
• While industry stakeholders look at legal remedies and regulatory solutions to resolve the serious problems with Round One of competitive bidding, getting congressional intervention is a top priority.
• If enough legislators pitch in and put pressure on HHS Secretary Leavitt and the Centers for Medicare and Medicaid Services (CMS), the homecare community may succeed in getting a suspension or some other delay in Round One
On the positive side…• The DME industry has “Champions”-
members of Congress (Sen. Roberts, Conrad, Rep. Hobson, Tanner, Altmire and others) who are committed to working with us to accomplish realistic goals, this year.
• While the specifics of an alternate bill are not yet set, the following are key points to keep in mind while we develop the alternative legislative strategy:
• Under the current congressional “pay-go” rules, H.R.1845/S.1428, the Tanner Hobson bill in its current form will cost about $12 billion over ten years. As an industry, we would have to “pay for” that with cuts to the benefit. Whatever legislative package we pursue, we must be ready to “pay for” it.
• The small business arguments have been resonating loudly on Capitol Hill. We need to obtain data from CMS regarding how many small businesses in Round 1 submitted bids versus how many small business entities end up as winning bidders. This type of live data will help us on Capitol Hill considerably this year.
• The recent Robert Morris University economists’ study amplifies the arguments we have been making that the bidding program will only lead to oligopolies and higher prices for the Medicare program. The bidding program is, in fact, anti-competitive.
• We will be developing alternate legislative options to achieve our goals. One option is a one-year delay of Round 1 and/or Round 2. The benefits of a one-year delay are significantly lower price tags than the current Tanner-Hobson bill. We are exploring other options as well. For example, we may wish to include the rehab carve-out mandate in a revised bill.
New Competitive Bidding Legislation?
• “Refocused proposal" that compares H.R. 1845 with a possible replacement bill which removes “Any Qualified Provider” and includes other variations.
• The legislation may be introduced within one month
• A side-by-side comparison follows….
Clinical Labs Make Progress in Competitive
Bidding Court Challenge • On a related legal front, U.S. District Court Judge Thomas J.
Whelan ruled that he would hear the arguments of clinical labs in their case against CMS regarding their legal challenge to the Medicare Part B laboratory competitive bidding demonstration project, which is being implemented in the San Diego MSA.
• “For example, Leavitt had argued that if the labs are not named winning bidders, they can use HHS’ administrative review procedures rather than pursue their case in court. In his ruling released last Friday, Judge Whelan said, ‘... contrary to the secretary’s contention, if plaintiffs lose, they cannot submit claims to Medicare and, therefore, will not be in a position to obtain administrative review.’”
President Bush's proposed 2009 budget
• Adds money to the Medicare and Medicaid programs, but also proposes to cut funding by a substantial amount over the next five years, raising protests from providers.
• The current budget proposal for fiscal 2009 includes $425 billion for Medicare, a $29 billion increase from 2008, and $217 billion for Medicaid, a boost of $13.7 billion from 2008.
• However, the proposal would take away what it gives over time. It includes legislative and administrative steps to cut Medicare by $183 billion and Medicaid by $17 billion over the next five years. Like last years proposal, the budget would specifically reduce the home oxygen rental cap from its current 36 months to 13 to save an estimated $3 billion over the five-year period. It would also eliminate the first-month purchase option for power wheelchairs to save $720 million in that time frame.
Questions?Contact VGM
National Competitive Bidding Services
at (800) 642-6065
APPENDIX
Accreditation, NSC Enrollment, Quality
Standards & NPI Summary
Accreditation Deadline Update• CMS has announced that all providers having the
intention to bill Part B Medicare must be accredited by September 30, 2009.
• New suppliers must be accredited by January 1, 2009 and suppliers who are applying to participate in the Medicare program after March 1, 2008 must supply proof of accreditation with their application.
• Failure to achieve accredited status by this date will result in revocation of billing privileges by the National Supplier Clearinghouse.
• Providers must be accredited by one of the ten deemed accrediting organizations.
Accreditation for New Suppliers• Providers entering the marketplace after September
30, 2009 will need to immediately begin the accreditation process.
• According to the January 8 CMS press release, suppliers participating in the second phase of the competitive bidding program will have to be accredited "well in advance of that deadline to be awarded a contract with CMS." VGM and all industry stakeholders will immediately notify affected providers with the “Round 2” date.
Recognized National Accreditation Organizations for DMEPOS
• Joint Commission on Accreditation of Healthcare Organizations• Community Health Accreditation Program• Healthcare Quality Association on Accreditation• National Board of Accreditation for Orthotic Suppliers/Board of
Certification in Pedorthics (merged)• Accreditation Commission for Healthcare Inc.• Board for Orthotist/Prosthetist Certification• National Association of Boards of Pharmacy• Commission on Accreditation of Rehabilitation Facilities• American Board for Certification in Orthotics and Prosthetics Inc.• The Compliance Team Inc.
Accreditation Requirement
• Regardless of the “accreditation deadline”, all supplier standards are still in effect. CMS directly and through its contractor, the National Supplier Clearinghouse (NSC), will still enforce and interpret all standards.
• CMS has requested accreditation organizations to include a plan that outlines their methodology to reduce accreditation fees for small or multiple location suppliers.
Update: Proposed New Supplier Standards!
• On January 25, 2008, CMS posted proposed new supplier standards and revisions to the current 21 standards. The public comment period ends March 25, 2008. We urge all HME providers to closely review and submit comments if appropriate!
• On a related matter, new Medicare suppliers standards were included in a previous Federal Register notice dated August 18, 2006. We will review these now.
The Standards…• (22) All suppliers of DMEPOS and other items and
services must be accredited by a CMS-approved accreditation organization in order to receive and retain a supplier billing number. The accreditation must indicate the specific products and services for which the supplier is accredited in order for the supplier to receive payment for those specific products and services
• (23) All DMEPOS suppliers must notify their accreditation organization when a new DMEPOS location is opened. The accreditation organization may accredit the new supplier location for 3 months after it is operational without requiring a new site visit.
• (24) All DMEPOS supplier locations, whether owned or subcontracted, must meet the DMEPOS quality standards and be separately accredited in order to bill Medicare. An accredited supplier may be denied enrollment or their enrollment may be revoked, if CMS determines that they are not in compliance with the DMEPOS quality standards.
• (25) All DMEPOS suppliers must disclose upon enrollment all products and services, including the addition of new product lines for which they are seeking accreditation. If a new product line is added after enrollment, the DMEPOS supplier will be responsible for notifying the accrediting body of the new product so that the DMEPOS supplier can be re-surveyed and accredited for these new products.
The Standards…
(26) Surety bond requirements for DMEPOS suppliers – some comments…
• Mandated by Congress under the Balanced Budget Act of 1997 (BBA), and CMS issued a proposed rule to implement it in 1998. Because that rule was published more than three years ago and was never finalized, CMS has initiated a new rulemaking proceeding.
• Require all DMEPOS companies to obtain a $65,000 surety bond for each of its NPI numbers (locations) as a condition of enrollment in Medicare.
• The rule aims to limit Medicare’s risk from fraudulent providers, ensure that only legitimate O&P practices are enrolled or remain enrolled, recoup erroneous payments resulting from fraudulent or abusive billing practices, and ensure that Medicare beneficiaries receive products and services from legitimate providers.
• The $65,000 bond is an inflation adjusted amount from the original $50,000 bond CMS proposed in 1998.
• The impact of this surety bond could be detrimental to small HME providers
• VGM and several other stakeholders have submitted comments to the agency.
Summary of stakeholder comments…
• Strongly supported efforts to curtail fraud and abuse in the Medicare DMEPOS benefit, but concerned the rule will increase providers’ cost and paperwork burdens without accomplishing the goals.
• Estimated cost to obtain bond: $198 million/year.
• CMS analysis suggests added costs will result in a reduction in the number of DMEPOS suppliers willing to serve Medicare beneficiaries, especially in rural areas.
• Will not eliminate the most insidious type of fraudulent operator who initially appears to be a legitimate business.
• CMS should exempt providers that have a good track record with the Medicare program.
• CMS should exempt rural providers (provided they don’t otherwise pose risks), to ensure access to care for rural beneficiaries.
• Duplicates other initiatives that CMS has not fully implemented such as the requirement that providers meet quality standards and obtain accreditation.
Surety Bond Suggestions…
Copy the proposed rule and forward to your current business insurance agent. The agency may be able to write the bond and/or assist you in securing an appropriate bonding company (which must be from an Treasury approved list) should the rule be finalized.
Bonding companies will require updated financials/tax returns.
Some surety companies require audited financial statements. Investigate now; budget accordingly for audit/updates and the cost of the bond (2 to 3% is common, or about $1,500).
As the proposed rule also suggests reasons to increase the surety bond amount for “higher risk DMEPOS suppliers” (not specifically defined) a thorough review of past and current Medicare “issues” may be appropriate.
Quality Standards and Accreditation
♦ Contract suppliers must meet quality standards specified by the Secretary under section /1834(a)(20) of the Act
♦ Quality standards applied by recognized independent accreditation organizations designated by the Secretary
♦ Bidding suppliers must be accredited by a CMS approved accreditation organization
♦ Quality Standards will apply to ALL suppliers, not just those in bid areas
Confused?• DMEPOS supplier standards and Medicare Quality
Standards are two separate sets of standards. Each set of standards relates to different aspects of a provider’s business. Therefore, the two processes are not interchangeable.
• Second, two different groups are responsible for ensuring compliance with the two different sets of standards. The National Supplier Clearinghouse (NSC) is responsible for ensuring suppliers are in compliance with the DMEPOS supplier standards. The accrediting organizations appointed by CMS (such as HQAA, CHAP, ACHC, et al) are responsible for ensuring suppliers meet the Medicare Quality Standards.
• Since the two processes and sets of standards are different, being in compliance with one set of standards does not ensure compliance with the other. A supplier’s accreditation does not automatically mean it has met the requirements to bill Medicare as a DMEPOS supplier.
• Some HME facilities are confused about the number of site visits they’ll receive. Both the NSC and the accrediting organizations will conduct site visits or surveys to determine a supplier’s compliance with the set of standards each entity is responsible for enforcing.
• Therefore, you should expect to receive a site visit or survey from both the NSC and an accrediting organization to verify compliance with their respective sets of standards.
• Some of the confusion comes from the fact that the NSC is involved in the quality standards accreditation process. But the NSC’s involvement in the accreditation process is limited to ensuring suppliers are properly accredited to provide the products and services listed on the supplier file, and collecting and maintaining information regarding supplier accreditation.
• CMS has (finally) established a series of dates when all suppliers must be accredited. Therefore, suppliers are required to provide the NSC with their accreditation information and will complete Section 2F of the CMS 855S application form.
Somewhat simply…The NSC is responsible for:
• The DMEPOS enrollment process
• Ensuring all facilities are in compliance with DMEPOS supplier standards
• Maintaining information regarding supplier accreditation
• Performing site visits to ensure a practice’s compliance with the DMEPOS supplier standards
Accrediting organizations are responsible for:
• Accrediting facilities based on the Medicare Quality Standards for specific products and services provided to Medicare beneficiaries
• Ensuring facilities remain in compliance with the quality standards
• Conducting site surveys to ensure facilities are in compliance with the quality standards
Quick NPI Review!• Q: I’ve gotten a National Provider Identifier (NPI).
Do I still need to keep my Medicare supplier number?
• A: Yes, you still need both. Although Medicare originally said that the NPI would replace your Medicare supplier number, CMS has decided to keep the supplier number for use with the DME MAC’s voice inquiry system that you use to check the status of claims.
• Q: I’m getting ready to apply for a new Medicare supplier number. Do I need to have my NPI first or can I get that after I get my new supplier number?
• A: Apply to the National Enumerator first for a number—then use that on your Medicare supplier number application. Go to https://nppes.cms.hhs.gov/NPPES/Welcome.do for more information and to apply.
• NPI Update! All claims since January 1, 2008 Medicare now require NPIs to identify the primary providers (the Billing and Pay-to Providers) in Medicare electronic and paper institutional claims (i.e. 837I and UB-04 claims). HME companies may continue to use the legacy identifier in these fields as long as they also use the NPI in these fields.
• “We will accept the Legacy,” said CMS, “but we will definitely reject the claim if an NPI is not in the primary provider field.”
• Beginning March 1, 2008, Medicare Fee-For-Service 837P and CMS-1500 claims must include an NPI in the primary fields on the claim (the billing, pay-to, and rendering fields).
Supplier Number/NSC FAQ’s• Q: I’m expanding my HME and opening a new branch. Do
I need to get a new Medicare supplier number or can I just use my old one? I intend to do all my billing out of our original location.
• A: Medicare rules dictate that you must have a separate number for each location where you furnish Medicare covered services, so you do need to obtain a separate number for this new location. This is the case even though you do not plan to bill out of that office. You may still bill out of a central location; however, on the claim form, you must use the appropriate supplier number for the location where you treated the patient.
• Medicare does make a few exceptions to this rule. You do not need a separate number for locations where you do not treat patients (e.g., a warehouse or repair facility) or when you are in another facility treating the patient (e.g., a hospital, skilled nursing facility, etc).
• Q: I’m buying an existing HME company. Do I need to get a new supplier number or can I use the business’s original number?
• A: It depends on the kind of purchase you made. If you made an assets-only purchase, you will need a new number. This is because you will be obtaining a new tax identification number (TIN) for that new business and will need a new supplier number to go with it. Supplier numbers are tied to TINs. However, if you made a stock purchase of the assets and liabilities, where you will be operating the business under the original TIN, you do not need a new supplier number.
• Q: I did a stock purchase of a company recently. Since I’m still operating under the old TIN, do I need to notify the National Supplier Clearinghouse (NSC) of anything?
• A: You must notify the NSC within 30 days of the change in ownership. In this case, you would be putting in a change notice. However, if you had made an assets purchase, you would have to do a complete application for a new supplier number.
• Q: I just purchased a company but I don’t yet have my new supplier number. Can I still treat Medicare patients?
• A: Yes, but you will have to hold your billing until you receive your new supplier number. Be aware that you take a small risk in doing this. If for some reason you are turned down for a number, and cannot correct whatever deficiency caused the denial, you will not be receiving a new supplier number and therefore you will not be able to bill Medicare for these services. You will also not be able to bill the patients directly. However, this prospect is not likely. As long as you provide the NSC with all the appropriate documentation they will backdate your new supplier number to the date of the sale. At that point, once you receive your new number, you will be able to bill Medicare for the services you provided between the sale date and the time you received your new number.
• Q: I’m interested in sharing office space with another HME (or other DMEPOS Part B supplier). Are there any concerns regarding my supplier number?
• A: Sharing space with another HME is not a good idea. The NSC will not approve a new supplier number for any location that already has a supplier number assigned to it. If you want to share office space with a physician, make sure he does not have a supplier number that he uses occasionally for billing DMEPOS services, or your application will be turned down.
• Q. My supplier number has been deactivated because the NSC says I didn’t file claims. Since I do all my billing out of a central office, which Medicare says is okay, what’s going on?
• A: You probably neglected to use the supplier number of the office where the service was rendered. If Medicare does not see any billings for four quarters from a specific supplier number, it will assume that location is no longer active and will deactivate that number. While the NSC should have given you some notification of its intent to do this, that doesn’t always happen. Be sure to use all your existing numbers at least annually.
Keep Supplier Info Current!
• Providers must keep their supplier information current or face being excluded from competitive bidding. CMS states "DMEPOS supplier standard # 2 requires all suppliers to notify the NSC of any change to the information provided on the CMS 855S application form within 30 days of the change."
• Maintaining accurate supplier information is critical in the face of the impending implementation of competitive bidding—providers with inaccurate information on their supplier files will not be able to participate in the competitive bidding process. Suppliers can submit a change of information at the NSC Web site: www.palmettogba.com/nsc.
SURVIVAL STEPS IF YOU ARE NOT A SUCCESSFUL BIDDER
Used with permission and courtesy of
Brown & Fortunato, PC. 905 S. Fillmore, Suite 400
P.O. Box 9418Amarillo, TX 79105Phone: 806-345-6300
Fax: 806-345-6363Email: [email protected]
Continue as a “Grandfathered” Supplier
• There will be a “grandfathering” process for: – oxygen equipment and supplies; – inexpensive or routinely-purchased items furnished on
a rental basis; – items requiring frequent and substantial servicing; and – capped rental items furnished on a rental basis.
Continue as a “Grandfathered” Supplier
• Only suppliers that began furnishing the grandfathered item listed above prior to implementation of competitive bidding may be eligible to participate as a grandfathered supplier.
Continue as a “Grandfathered” Supplier
• Beneficiaries may choose to continue renting the item from the grandfathered supplier, provided the grandfathered supplier is willing to continue furnishing the item under the same terms as the contract supplier (e.g., at the same price as the contract supplier).
• The beneficiary may choose to switch from a grandfathered supplier to a contract supplier at any time.
Continue as a “Grandfathered” Supplier
• If a supplier chooses to be a grandfathered supplier, then it must do so for all beneficiaries who request the services. – For items requiring frequent and substantial servicing
and oxygen equipment, the supplier will be paid the bid payment amount.
– For capped rental items and inexpensive or routinely-purchased items, the supplier will be paid the lower of the actual charge or rental fee schedule amount.
Continue as a “Grandfathered” Supplier
♦ Grandfathering is also applicable to suppliers that lose their contract status in a subsequent competitive bidding period.
Subcontract With a Contract Supplier
♦ Contract suppliers may need subcontractors. – For example, a contract supplier may not be able to
service the entire MSA or CBA.
Subcontract With a Contract Supplier
♦ Some suppliers may choose to be subcontractors, rather than submit bids.
♦ Those suppliers will need to execute legal contracts and Letters of Intent to enter into an Agreement with bidding suppliers, and have those documents submitted by the bidding suppliers during bidding.
Subcontract With a Contract Supplier
• Some suppliers may choose to be subcontractors after “losing” the bidding process.
• More details on subcontracting will be known when CMS releases the competitive bidding contracts.
Provide Products and Services Not Subject to Competitive Bidding
• The competitive bidding program only covers defined product categories, featuring enumerated items.
• Suppliers may sell products and services not covered in the competitive bidding program’s product categories without going through the bidding process.
Diversify or Seek Alternative Sources of Revenue
• Retail
– Most suppliers significantly undervalue retail sales.
– There is virtually no delay in reimbursement in retail sales; unlike delays associated with claims submissions.
Diversify or Seek Alternative Sources of Revenue
• Limits on Retail Sales
– Medicare suppliers are required to submit claims on the beneficiary’s behalf, when authorized to do so by the beneficiary.
– Selling items to Medicare beneficiaries for cash poses some significant challenges.
Diversify or Seek Alternative Sources of Revenue
♦ Medicare beneficiaries are required to authorize a supplier to submit claims on their behalf, but, if a beneficiary fails to do so, a supplier may not submit the claim.
• Some suppliers have Medicare beneficiaries sign forms indicating that the beneficiary specifically does not authorize the supplier to submit a claim, therefore allowing the beneficiary to pay cash for the item and eliminating the supplier’s obligation to submit claims.
• However, a beneficiary who signs such a statement may still come back later and request that the claim be submitted.
Diversify or Seek Alternative Sources of Revenue
♦ Medicare limits pricing of items sold retail, because suppliers are prohibited from billing Medicare any amount that is “substantially in excess” of the supplier’s “usual price.”
• CMS proposed that “substantially in excess” means that the amount billed to Medicare is more than 20% greater than the supplier’s retail price.
In other words, the amount billed to Medicare for a particular item should not exceed the average reimbursement from all non-governmental sources by more than 20%.
Diversify or Seek Alternative Sources of Revenue
♦ This restriction is not limited to a single tax ID number, but would apply to any affiliated companies or entities that have common ownership with a Medicare enrolled supplier.
♦ Because of this restriction, suppliers may not open a retail affiliate so that it could have more freedom to lower the prices of retail items.
Long Term Care Facilities
• Most residents in long term care facilities may receive durable medical equipment reimbursed by Medicare Part B as if those patients were residents of their own homes.
Long Term Care Facilities
• For those long term care facilities that are not paid a per diem rate for the patient’s care, DME suppliers may either bill Medicare directly for provision of the equipment, or, in some cases, facilities may choose to contract with the DME supplier to provide the equipment directly to the facility and the facility will then provide it as a benefit to its residents.
Hospices
• The hospice benefit paid to the provider includes the equipment and products used to service the beneficiary.– DME suppliers are not entitled to receive
reimbursement from Medicare for equipment provided to hospice patients.
– Hospices, however, may purchase this equipment directly from DME suppliers.
Veterans Administration (“VA”) Hospitals and Facilities
• The VA is a large purchaser of durable medical equipment and routinely sends out requests for proposals asking that DME suppliers submit a bid to different VA regions or facilities that service patients.
• An overview of the VA bid process is available online at http://www.va.gov/osdbu/library/factsheet/smooth process.
• More detailed information on the claim submission process and the regions involved is available online at http://www1.va.gov/oamm/ index.htm.
State Prison Systems
• Many state prison systems require durable medical equipment or pharmaceuticals for prisoners.
• Many states have moved towards having specific prison facilities designated as “medical detention centers.”
• DME suppliers interested in determining whether the department of corrections in their state contracts independently with DME companies for this service should visit http://www.corrections.com/links/viewlinks.asp?cat=30.
Resort Hotels and Casinos
• Many large resort hotels have begun providing wheelchairs, scooters, and other medical equipment to their guests as a way of making the guests feel more at home.
• DME suppliers who live in a marketplace with large hotels and casinos should contact the hotels directly to determine if there is a contracting process and how companies may participate.
Airports • Airports are frequent purchasers of wheelchairs
and other medical equipment for use by customers traveling through the airport. Many of these pieces of equipment are provided by local medical equipment companies.
Commercial Insurance
• The supplier can make a concerted effort to serve enrollees covered by commercial insurance plans.
• Contact VGM HOMELINK® for more information regarding Preferred Provider Referrals and help with out of network (“backdoor”) referrals.
Additional Survival Steps
• Expanding into geographic areas not covered by competitive bidding.
• Sell the business to a successful bidder.
• Legal Hurdles– Anti-Kickback Statute– Stark Statute– Anti-Solicitation Statute– Beneficiary Inducement Statute
What if I Win?
What you can do should you accept a competitive bidding contract
Used with permission and courtesy of Brown & Fortunato, PC.
905 S. Fillmore, Suite 400P.O. Box 9418
Amarillo, TX 79105Phone: 806-345-6300
Fax: 806-345-6363Email: [email protected]
Increased Marketing Efforts
• Winning a contract opens the door for you to double (or more) your market share within the competitive bidding area
• The key is to simply out-hustle, our-market, and out-compete the competition
Market Legally
• The Medicare/Medicaid anti-kickback statute provides for criminal penalties for any individual and entity that solicits, receives, offers, or pays any remuneration to induce a referral for Medicare-covered items or service
• The statute also provides for criminal penalties for the purchase, leasing, ordering, arrangement for or recommendation thereof of any Medicare-covered item or service
Tools and Tactics
• Use the contract term to double your market share
• Heed the limitations in the anti-kickback statute
• Don’t violate the anti-solicitation statute
Tools and Tactics
• Do not pay commissions or bonuses, or make production-based to independent contractors for marketing– Like payments to bona fide full-time and part-time
employees are legal and acceptable
• Advertise on television, radio, newspaper, or other media outlets
Tools and Tactics
• Call on physicians, hospital discharge planners, home health agencies, and other referral sources for marketing purposes– Be sure not to offer something of value– Simply marked your products and services
• Mail promotional literature• Offer items of nominal value to customers and
prospective customers– Not more than $10 at one time – Not more than $50 to one customer in any 12-month period
Tools and Tactics
• Participate in local health fairs– Again, no “give-aways” of nominal value
• Place a kiosk in a mall to promote your products and services
• Contract with a hospital to provide administrative services
Joint Ventures
• The government may carefully scrutinize joint ventures between providers to ensure that the ventures are not merely a sham in which one entity pays remuneration to the other entity in exchange for customer referrals.
• It is rare that a joint venture will fit within the safe harbor applicable to joint ventures. If the safe harbor is not met, then the government will examine the joint venture under the "one purpose" test. The basic inquiry under this test is whether one purpose of the arrangement is to induce referrals.
Special Advisory Bulletin
• Under Stark, a physician cannot have an ownership interest in an HME company and also refer to it.– An exception, with conditions, has been made for
rural areas
Sleep/CPAP Rules
• Polysomnography does not fall within the Stark definition of DHS. Therefore, Stark does not prohibit a physician from having an ownership interest in a sleep lab, even if the sleep lab is receiving money from Medicare and Medicaid.
• However, CPAP falls under DME, which, in turn, falls within the definition of DHS. Therefore, if a physician has an ownership interest in a sleep lab and refers to it, then the sleep lab cannot also sell CPAP units and related supplies to Medicare/Medicaid customers.
Contractual Arrangement
• A pharmacy, HME, hospital, or any other provider may offer services to each other– The entity receiving services must pay fair market
value
• They may also enter into a coop marketing program– Costs and expenses must be proportionately shared
Contractual Arrangement
• A hospital may open an HME operation located on premises or at a location leased or owned by the hospital– The agreement must comply with the guidance set out by the
OIG’s 2003 Special Advisory Bulletin entitled “Contractual Joint Ventures”
• An HME company may enter into an independent contractor medical agreement (MDA) with a physician, even if the physician is a referral source– The MDA must comply with:
• Personal Services and Management Contracts safe harbor• Personal Services exception in Stark II
Contractual Arrangements• HME companies can enter into preferred provider agreements with
hospitals whereby, subject to patient choice, the hospital will recommend the HME company to its patients who are about to be discharged.– HME company may designate an employee to be on the hospital/physician's
office premises for a certain number of hours each week– The employee may educate the hospital/physician staff regarding medical
equipment (to be used in the home) and related services– The employee also may work with a patient, after a referral is made to the
HME company (but before the patient is discharged/leaves the physician's office), for there to be a smooth transition when the patient goes home
– The employee liaison may not assume responsibilities that the hospital/physician is required to fulfill. Doing so will save the hospital/physician money, which will likely constitute a violation of the Medicare/Medicaid anti-kickback statute.
Comply and Compete
• Successful bidders will compete against each other the same way as they competed prior to competitive bidding
• To out-compete its competitors, it is important that successful bidders implement innovative marketing strategies. In so doing, it is equally important for the supplier to comply with applicable legal guidelines.
