Articles
Analysis: Industry Uncovers Additional Problems with Competitive Bidding
The Centers for Medicare & Medicaid Services (CMS) may be sticking to its guns about the merits of competitive bidding, but the significant problems with the program have not escaped the HME industry or members of Congress.
Initially, the industry was outraged by the number of providers disqualified for missing financial information — information providers said they submitted. As analysis continues, however, other problems are popping up:
Problem: The Winners
A quick look at the winners across the first 10 MSAs reveals some startling patterns: winners located far from the MSA and winners without significant expertise in the product category.
Though a number of good providers won, according to Cara Bachenheimer, senior vice president of government relations, Invacare, based in Alexandria, Va., there were many that won in areas outside their core competency. "You'd think there would be some part of the selection process focused on whether or not this company has a successful track record — a) in this geographic area and b) in this product category," she says. "When you're talking things like oxygen and high-end rehab, that's a pretty significant issue, in my mind at least. It really does require some expertise."
Still, Don Clayback, vice president of government relations, The MED Group, based in Buffalo, N.Y., was not surprised by some of the new players in the MSAs. He says that CMS did not have stringent rules regarding bidding within the CBAs and he fully expected that national chains would take advantage of the opportunity to expand their businesses.
Clayback says the issues with determining winners really encompasses problems with weak or lacking requirements: few regarding subcontractors, none for service experience in a particular area and none for service experience within a product category.
"They (CMS) certainly have some safeguards; they do have the accreditation requirement," he says. "But I think their policing of that and their follow-up leaves a little something lacking."
Certainly, some national chains can argue, legitimately, that they've been in the business for 20+ years and have the infrastructure and financial resources to support a new business venture, especially if they defer to subcontractors to actually carry out the service. Clayback says what bothers him are the companies that won bids that don't yet have a business plan in place and subcontractors secured. In fact, Clayback said that some MED Group members reported that winning bidders, after receiving notification, called them to ask if they wanted to subcontract.
"What was supposed to happen is that when you submitted the bid, either you provided it or you presented a business plan on how you would provide it or you had a subcontracting agreement in place," Clayback says. "All of those things are showing another significant shortfall in this implementation."
Click here to see the HME Media Group analysis of the winners.
Problem: Deep Discounts
Perhaps the biggest round-one shocker was the deep reductions in the fee schedules. CMS has touted a 26 percent savings on average. Clayback questions how providers will be able to stay in business with the lowered reimbursement.
"CMS can quote all of their standards and the quality of care and the product, but the fact is you've got significant reductions and you're not going to be able to keep things the same at those prices," he says. Clayback fully expects providers to cut back the quality of products and types of services to make ends meet.
"I think in a lot of case, companies approached it (bidding) from a business perspective," Clayback says. "They looked at their costs. They looked at the cost of product, the cost of service. They figured out what they could comfortably bid on and then they got a little scared and said, 'Geez, what if that's not low enough? What if I lose all of my Medicare business? I better take another 10 percent off that number.' I think that was some of that mentality that was out there."
He says that among The MED Group members, there are still some questions about whether or not winning a contract was a good thing. "I think companies still would rather go back to the old system. In other words, they're not happy that they won," he says.
In some MSAs, the significant drop in reimbursement might be the result of providers who bid outside their core competency. "People had a lot more data analysis behind the bids where they're experts," Bachenheimer says. As for providers who bid on categories in which they had less experience, "it may be that those bids were less reasoned, less thought was given to them," she says. "I think that may be one of the reasons why the bid prices are so low. Obviously, it doesn't hold true across the board, but I think that is an issue for a lot of the metropolitan areas."
Some other possible explanations for the deep discounts include the possibility that providers were bidding to sabotage the bid prices or to practice for when competitive bidding moves to their city. "There's nothing in the bid process that basically prevents anyone from just playing in the game," Bachenheimer says.
The fact that CMS did not have measures in place to prevent such practices is alarming, especially considering the fact that bidders participating in competitive bidding for prescription drugs, a program also administered by CMS, are held accountable for their bids, says Bachenheimer. For example, bidders must agree to provide the product at their bid price or a higher price if offered a contract. "I think that's a significant check in the system to disallow frivolous bidders," Bachenheimer says.
The question on everyone's mind now is how will these fee schedule impact round two. While it's too soon to tell, "we're concerned that people will see the bid prices in round one as the ceiling for round two and that's not in fact the case," Bachenheimer says. "The current fee schedule is the ceiling."
Clayback says he thinks it's foolish to think the round one prices won't play a significant part in round two. "There were more than a few companies that agreed to that pricing," he says. "I think companies are going to factor that into their bidding. Hopefully, they'll still present an educated bid."
Problem: State Licensure
Bachenheimer says one of the most interesting phenomena of round one is the number of bid winners that do not possess state licenses to provide oxygen — a problem for many that bid outside their local coverage area.
"We've looked at Ohio and Florida, which have specific state licensure requirements in order to provide oxygen," Bachenheimer says. "It appears that probably close to half a dozen oxygen companies that won bids in those states — in Ohio, Cleveland, Cincinnati, and the Florida markets — don't appear to hold current state licenses."
Bidders that did not meet state and local requirements should not have been allowed to move forward in the bidding process, she says. "It raises a massive question as to why that information wasn't checked at the time of bid submission," she says.
Undoubtedly, CMS will say that providers without licenses have the option of subcontracting with providers who do possess licenses, but if providers do not subcontract, they can't legally provide oxygen in certain MSAs.
And getting a license will take time — much more time than providers have ahead of the July 1 implementation date. "That's (a license) not something you get in a couple of days. In Florida, it takes eight to 10 months," Bachenheimer says.
Fortunately for the industry, Congress sees the state licensure issue as a huge problem with the program as well.
In a recent hearing, Rep. Nydia Velazquez, D-N.Y., who chairs the Small Business Committee, questioned Laurence Wilson, CMS director of Chronic Care Policy Group, about whether contract winners are licensed within the state where they won contracts. When Wilson was unable to answer the question, Velazquez asked him to report back in one week with an answer. Rep. Yvette Clarke, D-N.Y., also grilled Wilson on licensure, asking more specifically about the lack of policies concerning subcontractors and saying that it is "critical that we have our finger on the pulse of every party in the system."
Problem: Fulfilled Prophecy
Perhaps the biggest letdown about competitive bidding is that there were few surprises. In many cases, round one turned out exactly as the industry predicted, especially regarding the low number of bid winners.
"We knew the number was small, but still it's a remarkably small number of winners to serve some pretty large metropolitan areas, particularly when some don't appear to have any experience serving that area (or) those product categories," Bachenheimer says. "I think that's the thing that's going to be a real challenge. I think it will increase the likelihood of an issue arising in one of these areas."
And the problems with round one will likely crop up again unless Congress intervenes to change the bidding rules, Bachenheimer predicts.
CMS has extended the accreditation deadline for suppliers in the 70 MSAs in the second round of competitive bidding. Providers must now be accredited or have applied for accreditation by July 21 (formerly May 14). The final accreditation deadline for the second round of competitive bidding is now Jan. 14, 2009, a change from Oct. 31.
CMS LINKS:
CR 5978 — Phase 1 of Manual Revisions to Reflect Payment Changes for DMEPOS Items as a Result of the DMEPOS Competitive Bidding Program and the Deficit Reduction Act (DRA) of 2005
www.cms.hhs.gov/MLNMattersArticles/downloads/MM5978.pdf
Tip Sheet for Grandfathered Suppliers under the DMEPOS Competitive Bidding Program www.cms.hhs.gov/dmeposfeesched/emailupdates/ItemDetail.asp?ItemID=CMS1211648
Tip Sheet for Referral Agents under the DMEPOS Competitive Bidding Program www.cms.hhs.gov/dmeposfeesched/emailupdates/ItemDetail.asp?ItemID=CMS1211647
