Competitive Bidding:
Preparing for
Round 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 highquality 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, Ohio
Dallas-Fort Worth-Arlington, Texas
Kansas 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…
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•
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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 Categories
For 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” (!)
Estimated total providers in the first 10 bid areas:
Estimated percentage of providers that will furnish products subject to competitive bidding:
Estimated total providers furnishing bid items in the first 10 bid areas (affected suppliers)
Estimated percentage of affected suppliers that will bid in the first 10 bid areas
Estimated total affected suppliers that will bid in the first 10 bid areas:
Estimated percentage of bidding suppliers that will be selected as winners of at least one product category
Estimated total providers that win at least one product category in the first 10 bid areas:
Totals
28,960
68%
19,720
81%
15,973
60%
9,584
Small
Large
Providers
Providers
(85%)
(15%)
24,616
4,344
16,762
2,958
13,577
2,396
8,146
1,438
Questions and Concerns!
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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:
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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.
The result…
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…
• 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.
Credit Reporting Issues
• 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
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/sea
rch
• 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 highquality items and services in an efficient manner at reasonable
cost”.
Authority in other areas as well!
• Medicare payments will be adjusted in noncompetitively 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.
Bidding Eligibility
• 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.
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 A7030
Weight: 0.4
0.3
0.2
0.1 (Total of all HCPC = 1.00)
Supplier # and Bids Per Each HCPC Code:
1
2
3
4
5
6
7
8
9
$90
$82
$85
$87
$94
$100
$80
$86
$87
$185
$180
$175
$192
$170
$181
$170
$183
$190
$202
$170
$190
$185
$200
$207
$188
$190
$206
$52
$42
$50
$41
$40
$50
$38
$44
$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
Weight 0.4
1 $90 $36
2 $82 $33
3 $85 $34
4 $87 $35
5 $94 $38
6 $100$40
7 $80 $32
8 $86 $34
9 $87 $35
E0470
0.3
$185 $56
$180 $72
$175 $70
$192 $77
$170 $68
$181 $72
$170 $68
$183 $73
$190 $76
E0471
0.2
$202 $40
$170 $34
$190 $38
$185 $37
$200 $40
$207 $41
$188 $38
$190 $38
$206 $41
$52
$42
$50
$41
$40
$50
$38
$44
$48
A7030
0.1
$5
$4
$5
$4
$4
$5
$4
$4
$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
Weight 0.4
1
2
3
4
5
6
7
8
9
$90
$82
$85
$87
$94
$100
$80
$86
$87
E0470
0.3
$36
$33
$34
$35
$38
$40
$32
$34
$35
$185
$180
$175
$192
$170
$181
$170
$183
$190
E0471
0.2
$56
$72
$70
$77
$68
$72
$68
$73
$76
$202
$170
$190
$185
$200
$207
$188
$190
$206
A7030
0.1
$40
$34
$38
$37
$40
$41
$38
$38
$41
$52
$42
$50
$41
$40
$50
$38
$44
$48
$5
$4
$5
$4
$4
$5
$4
$4
$5
$137
$143
$147
$153
$150
$159
$141
$150
$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
#
1
2
3
4
5
6
7
8
9
Bid
$137
$143
$147
$153
$150
$159
$141
$150
$157
15
14
18
7
13
7
60
18
9
Total Supplier
capacity is 171!
So which suppliers
“win”?
Array the Suppliers by Lowest Composite Bid
Supplier
1
7
2
3
5
8
4
9
6
Comp. Bid
$137
$141
$143
$147
$150
$150
$153
$157
$159
Capacity
15
60
14
18
13
18
7
9
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
1
7
2
3
5
8
4
9
6
Comp. Bid
$137
$141
$143
$147
$150
$150
$153
$157
$159
Capacity Cumulative
15
15
60 (20% rule ) 35
14
49
18
67
13
80
18
98
7
105
9
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
7
2
3
5
8
4
$90
$80
$82
$85
$94
$86
$87
$36
$32
$33
$34
$38
$34
$35
$185
$170
$180
$175
$170
$183
$192
$56
$68
$72
$70
$68
$73
$77
$202
$188
$170
$190
$200
$190
$185
$40
$38
$34
$38
$40
$38
$37
$52
$38
$42
$50
$40
$44
$41
$5
$4
$4
$5
$4
$4
$4
$137
$141
$143
$147
$150
$150
$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…)
For example…in CPAP/RAD
• 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
• 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/doc
sCat/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 noncontract 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 noncontract 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, email 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.”
$160,000.00
$140,000.00
$120,000.00
$100,000.00
$80,000.00
$60,000.00
$40,000.00
$20,000.00
$0.00
Hospital Beds
and related
Accessories
Enteral
Nutrients,
Equipment
Oxygen
Supplies and
Equipment
CPAP Devices
Standard
Power
Wheelchairs
Grand Total
$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
Non Medicare
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 “timeout”
• Error messages in clear language
• Enhanced technical support
Bidding Suggestions & Reminders
Steps Preparatory to
Submission 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.
“Anti-competitive concerns…”
• 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…”
• 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 subcontract 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.
Subcontracting Agreement
• 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!
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 noncompete? (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 nonMedicare 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 TannerHobson'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, anticompetitive.
• 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.
The Standards…
• (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.
(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 9418
Amarillo, TX 79105
Phone: 806-345-6300
Fax: 806-345-6363
Email: bf@bf-law.com
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 routinelypurchased 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
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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 400
P.O. Box 9418
Amarillo, TX 79105
Phone: 806-345-6300
Fax: 806-345-6363
Email: bf@bf-law.com
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.