Subcontracting Clause in Competitive Bidding Final Rule Gives Oxygen Providers Way Around Networks

May 14, 2007

Oxygen providers wondering how to meet the requirements for competitive bidding might have a glimmer of hope in subcontracting, a clause in the final rule that could be a practical alternative to networks, say industry experts.

To bid, providers must show they can cover the entire competitive bidding area and provide all of the products under the oxygen category — including liquid oxygen. Those strict requirements mean many providers would need to form a network or subcontract to do that.

"We think that there's more opportunity on the subcontracting side than there is on the networking side, particularly because with many of our members they're over the revenue threshold (and) not able to take advantage of the network," says The MED Group's Don Clayback, senior vice president of Networks.

Going the subcontracting route has many advantages over networks, including opening doors for providers whose revenue exceeds $3.5 million. Also providers don't have to share proprietary financial information with competitors.

VGM's Vice President of Government Relations John Gallagher says that unlike networks, the major benefit of subcontracting is that it gives providers "a couple of swings at the piñata."

"The network rhetoric was just there to cover the whole CBA, and you can do that under subcontracting," says Gallagher. "So, you're not quite tied together under one bid as opposed to maybe having five providers subcontract with each other, and (then) they all bid and increase their chances of winning by five vs. just one bid under the network."

Since subcontractors do not have to be accredited, the strategy might also be an option for those who can't meet the accreditation deadline of Aug. 31, says Gallagher.

Legal Implications
Jeffrey Baird, Esq., with Amarillo, Texas-based Brown & Fortunato, said in a recent MED Group competitive bidding workshop that he thinks subcontracting is the way to go and a realistic alternative to networks — especially since CMS does not prevent subcontractors from also submitting bids as long as the subcontracting provider is also accredited.

Baird warns that there may be legal implications in regard to the contracting provider proving operational responsibility and financial risk. And although a subcontracting provider does not have to be accredited, that provider might still have to comply with the contracting provider's guidelines as enforced by its accrediting body.

Clayback says, "What is clear is that the winning bidder is responsible for that subcontractor's activities, but specifically what guidelines they have to meet is what we're still waiting for clarification for."

Baird says suppliers entering into subcontract agreements must execute legal contracts and letters of intent to enter into an agreement with bidding suppliers. Those documents must be submitted during bidding.

Both The MED Group and VGM are offering members resources to get started with subcontracting. VGM will provide the legal forms and background checks necessary for its members. In the next couple of weeks, The MED Group will release a subcontracting strategy white paper, which will include an overview of the subcontracting area, the options, the pros and cons, the steps to follow and legal agreement templates.

Looking for a Subcontractor?
Clayback recommends that providers interested in subcontracting first identify what they need from a subcontractor, in terms of products and service area coverage. Then, providers must identify candidates and determine if the company is abiding by Medicare standards.

For those providers who have difficulty locating a subcontracting provider, another possibility is subcontracting with a gas company.

"When we heard at Medtrade that companies were trying to network — they were trying to call their competitor to deliver liquid — you could tell that people were really thinking outside of the box to try to stay in the business," says Tony Eafrati, key account manager and O2 Shield program manager for Lifegas. "That's when we decided that we immediately had to reintroduce O2 Shield to address competitive bidding."

Lifegas started its O2 Shield program more than a year ago at Medtrade to help providers stay profitable despite the 36-month rental cap on oxygen. The program depreciates the equipment so that title can transfer to the beneficiary at the end of the term. Now the company is regearing the program for competitive bidding.

The program foots the upfront costs of expensive oxygen modalities, from liquid to portable oxygen concentrators, and gives patients and providers the choice of major brands. In addition, O2 Shield services seven of the 10 MSAs (excluding San Juan, Kansas City and San Bernardino).

Eafrati says the program would help providers increase their capacity. "If an owner has one van and one delivery technician to service this MSA, by attaching your subcontractor's service information to the bid application you may gain bid capacity," he says. "You would add our delivery infrastructure at our LifeGas Center to your own. So instead of having one driver and one truck that deliver half of the Charlotte MSA, now you have 12 drivers, 12 trucks that deliver in most of the state of North Carolina. Potentially, you could gain large capacity."

Airgas Puritan Medical offers a similar program, Puritan PLUS service, which provides several oxygen modalities in all MSAs except San Juan. John Bookhout, marketing manager, home care, says the program addresses providers' worries about delivering all modes of oxygen therapy in a geographical location as well as offering the right modality for a patient. The program also helps improve a company's efficiency.

"Airgas is well aware of all (providers') concerns and is ready and willing to help," says Bookhout. "We have developed several simple pricing programs that will show exactly what we would be charging to manage the oxygen deliveries to that patient for them. Therefore the home care company has full knowledge of its costs and can manage the business accordingly while providing its patient the best available oxygen care."