How to Make the Right Competitive Bid
While the industry fights to delay or even stop competitive bidding providers must embrace it as a way of doing business. Providers working in competitive bidding areas must understand how to make the right competitive bid, which involves much more than offering an attractive number to CMS.
“Winning at a very low bid is not a win at all,” says Georgie Blackburn, vice president of government relations and legislative affairs for Pittsburgh-based provider Blackburns. Blackburns won CMS contracts in several categories; however, five of its six bids were above the median price.
“Discounting sufficiently is just offering a number low enough to get there — it’s not science,” says Wallace Weeks, president of the Weeks Group, which provides competitive bidding consulting and other services. “The science comes from being able to be profitable after discounting sufficiently to get in a competitive range.”
Here are some tips to help you become a better competitive bidder.
Do the math. Week says the core philosophy should be why take a contract that won’t turn a profit? If you know that you can discount only, say, 16 percent rather than 26 percent, then you need to start finding efficiencies. Weeks says his firm provides clients with tools to determine how much a provider can reduce its cost your structure to cover that remaining percent to make a bid that is competitive while keeping them within their profit margin.
Find efficiencies and reduce overhead. Know where the costs are. “We’re talking about both the costs of products, and more importantly, the costs of people doing the things that we do for the beneficiary,” Weeks says.
When it comes to trimming costs, identify overlap between product categories. Software, in particular, is a key area.
Legacy, DOS-based billing systems prevent providers from implementing technologies, such as bar-coded inventory, or directly entering orders into the billing system, which can dramatically increase efficiencies and slash costs, Weeks says. Likewise, many providers haven’t eliminated shuffling paperwork and transition to documentation. “Paper is a huge waster of productivity in our industry,” Weeks says.
Delivery and other transportation routing are sweet spots for identifying efficiencies, Blackburn says. Using GPS and other navigation tools to maximize delivery route efficiency will save in fuel and lost time. There will always be late-hour deliveries and other unpredictable situations, but streamlining every possible process will save you time and money.
“We asked ourselves, ‘Is there a better way to do it?’ and the answer was, ‘yes!’” Blackburn says. “You’re pushed into a corner to improve your operation with competitive bidding when the discounts are very, very deep ... but we didn’t cut costs drastically just to win. Our opinion: It is better to present the best, honest bid that might win an award, but not make it so low that you worry. We weren’t going to do this out of fear.”
Cultivate market intelligence. To Blackburn’s point, providers tend to bid defensively — trying not to over- or underbid the competition. Providers typically do not share information the way companies from other industries do, such as banking or commercial real estate. They often share information via industry-wide programs and credit associations administered by third-party organizations, Week says. Moreover, CMS has leveraged this self-imposed lack of shared market intelligence — and the ensuing defensive bidding — to the detriment of the providers.
For now, providers are left to guess how their competition is bidding and to try to underbid them, while remaining profitable. “It’s pure speculation,” Weeks says. While providers can estimate the revenues and unit costs for their local competition, they don’t know the actual costs that drive their competitors’ ultimate bids. As a long-term strategy, Weeks says providers should work through industry associations or other third parties to create a repository of marketshare and costs data.
Points to take away:• Don’t bid just to win. You want to bid and maintain decent margins.
• If you can’t initially bid low enough to maintain margin, look for costs you can remove from your business, as well as implementing tools and processes to increase efficiencies.
• Understand your rivals and start collecting marketing intelligence to help you bid competitively.
• Be aware that your market information is limited. Be open to sharing information and lobby in state and national associations for the creation of shared market intelligence.
This article originally appeared in the July 2008 issue of HME Business.