Industry Trends

The Competitive Bidding Fight Goes into Extra Innings

With Round Two of Competitive Bidding in effect as of July 1, the industry continues to work to stop the program while finding ways to stay in business.

• By Joseph Duffy
• Sep 01, 2013

The moment the industry has dreaded for literally years has now hit HME providers: competitive bidding Round Two has reached implementation. This has pushed the long effort to stop the program into extra innings. Although efforts to stop the deleterious effects of competitive bidding have been in motion for years, as of July 1, Competitive Bidding now infiltrates 100 metropolitan areas around the country.

The impact represents a massive chunk of Medicare. On top of the 91 Round Two bid areas just beginning their three-year contract term on July 1, nine Round One bid areas are in the final six months of their initial three-year contract period and are awaiting the release of single purchase amounts for a new contract period set to begin Jan. 1, 2014.

“We believe at least 60 percent of the country’s beneficiaries are impacted in these areas,” says Cara Bachenheimer, senior vice president of Government Relations for key industry manufacturer Invacare Corp.

And for many providers that felt the impact in Round One and that were also bracing themselves for Round Two, July 1 is a reminder of frustration and lost bids. Case in point: BLACKBURN’s, a provider of home medical equipment and services, is located in Pittsburgh, an original Round One MSAs.

“Medicare’s bid program has been front and center for our firm since 2007,” says Georgie Blackburn, vice president of Government Relations and Legislative Affairs for BLACKBURN’S. “Round Two directly affected one of our satellite offices in New York, as well as other marketing areas, so we felt we had some experience with the bid process. While we expected some companies to bid erratically low, we did not expect the level that emerged. Though bidding in all categories, we were not awarded any bids.”

And the bids were low indeed. Mind bogglingly low, in fact. Reimbursement rates for DME items covered by Round Two were slashed by an average of 45 percent, and mail order diabetic supplies were hit by a staggering 72 percent. For Tom Ryan, president and CEO of New York provider Homecare Concepts, competitive bidding has had an “overwhelming effect” on his company.

“We bid on 35 contracts and won one bid,” he says. “We bid aggressively, but responsibly using some activity-based costing principles in our approach. My challenge, I believed, was providing services at our bid rates — not losing the ability to service new Medicare patients.”

Robyn Parrot, president of Sleep Solutions Home Medical, says her company was not offered any bids in any categories. She has since looked at subcontracting but concluded that there is no way to make it work financially. Parrot says the rates are too low to allow any type of subcontracting.

“It does not make sense to do the work only to turn the patient over to a bid winner,” she says. “Our reputation is on the line and I feel it is more important to maintain our integrity.”

With the July 1 milestone passing by without any miraculous intervention to stop Competitive Bidding, most attention focuses back to a pre-July 1 parallel track: finding a way to either defeat or modify the current bidding system while growing a sustainable business in a difficult Round Two universe.

The Fight Going Forward

In terms of stopping competitive bidding, the fight isn’t over. After years of lobbying to stop competitive bidding, the industry’s legislative position is not without a good foundation, built by many dedicated industry organizations and individuals.

The American Association for Homecare along with state associations and other groups continues to work with Congress to stop Round Two and replace it with the Market Pricing Program (MPP). The industry’s current effort in that regard is the Medicare DMEPOS Market Pricing Program Act of 2013. On April 24, 2013, Rep. Tom Price (R-Ga.) introduced the legislation (H.R. 1717), which would require CMS to make fundamental changes to ensure a financially sustainable bid program for HME items. It uses an auction system to establish market-based reimbursement rates around the country.

“These changes, supported by independent auction experts and economists, are consistent with Congress’ original intent: to create a program that is based on competition while maintaining beneficiary access to quality items and services,” says Jay Witter IV, vice president of Government Affairs for AAHomecare. “This legislation has strong bipartisan support and currently has 146 cosponsors [at press time]. AAHomecare is also working for introduction of the legislation in the Senate, as well.”

AAHomecare has also filed legal action against the Department of Health and Human Services (HHS) regarding the flaws in the implementation of the competitive bidding program. Witter says the lawsuit charges that the HHS Secretary has awarded unlicensed providers contracts in numerous Round Two states, which violated CMS’ own rules and has skewed the single payment amounts for HME bid items. The state licensure issue is important because at the time of awarding contracts, many bid winners did not meet the licensure requirements in the states for which they won bids. For instance:

• Twenty percent of all contract winners in Tennessee did not have licenses required by the Volunteer State to legally provide services to patients.
• Fifty-two percent of contracted suppliers in Washington, Baltimore and Philadelphia bid areas lacked the required RSA license to provide DMW services in the state of Maryland.
• Twenty-eight of the 79 providers that signed contracts for Richmond, Va. did not have required Board of Pharmacy permits.
• More than 50 percent of providers holding contracts in South Carolina did not possess the required licenses or permits.
• More than 90 contracts for Ohio were signed by companies not qualified to provide services in the Buckeye state.
  AAHomecare is asking HME providers and manufacturers to help with the effort. The Association has set up a legal action fund and a donation form.

To get any legislation passed, providers and industry organizations need to shake off the blow of Round Two reaching implementation, and continue to be diligent in lobbying effort, and enlist their patients in the effort to support H.R. 1717.

“First and foremost we must build the political will in Congress,” Invacare’s Bachenheimer says. “This will only happen if consumers are actively engaged in communicating with the legislators. We hear it every day on Capitol Hill: these offices need to hear from consumers.

“Second, we must make sure our legislative proposal (H.R. 1717) is broadly supported by both Republicans and Democrats,” she continues. “With Democrats controlling the Senate, and Republicans controlling the House, bipartisanship is critical for any legislative measure to get through both chambers. Third, we must make sure our legislative proposal is budget neutral. And while we believe it is, the Congressional Budget Office must still weigh in to make it official. We have control over the first two. We can build the political will and can make sure it is broadly supported by both parties. The third obstacle will be overcome when we address the first two.”

Communication seems to be the best strategy to defeating competitive bidding (see side bar). The providers interviewed for this article have all been outspoken and proactive every stage of Competitive Bidding.

“My focus since 2007 has been to defeat the current system and replace it with a more efficient, equitable and long-term solution,” Blackburn says. “H.R. 1717 is that solution — The Medicare DMEPOS Market Pricing Program Act of 2013. The industry’s effort to have CMS enact an administrative delay disappointingly fell on deaf ears even though we had significant support from the House. So our job now is to keep the heat on, keep the problems surfacing in the MSAs in focus, and keep directing beneficiaries and referral sources to the Hotline to report problems incurred. Eventually, Congress will have to call a time out.”

Ryan has been advocating to repeal and more recently to replace competitive bidding since it was first put in statute. He says the industry has a very viable replacement in MPP.

“Our company, our patients and our referral sources are constantly reminded that we must change this program,” he says. “We educate all of them. We have them call their elected representatives. We get the bad stories out and we are relentless in building the case. The service issues are happening; the lower-end technology and poorer quality equipment are becoming the norm and the beneficiaries are going outside their benefit to get what they need.”

Even though Parrot, her staff and their patients have been contacting Congress and Medicare on a regular basis, Parrot is not convinced that the industry can “defeat” competitive bidding. She believes the program will be changed but it won’t be defeated. She foresees Medicare lowering its screen fees and if providers want to accept the new fee then they can service the patient.

Preserving the Business

While the battles to defeat competitive bidding continue, HME business must simultaneously fight for profitability. Facing the stress and resource consumption of Competitive Bidding, other Medicare cuts, and time-consuming audits, how do providers continue to grow and survive?

“This bid program has forced the industry players to rethink dependency on Medicare dollars,” says Blackburn. “New avenues of revenue must be embraced in order to compete. The demographic is exploding, and the demand for quality product and good customer service is more important than ever.

“We’ve focused on what we can do and not upon what we cannot do,” she continues. “Subcontracting was never in our vocabulary — we viewed it as supporting a defective policy. Grandfathering required no decision — we continued to take care of our customers we had on board. Moving forward, we’ve built upon our core competencies and continued to grow.”

Ryan says he has had to make very difficult choices for his company, including laying off 11 people, cutting back on salaries, increasing the remaining employees’ workload and looking for non-Medicare revenue.

“I believe we will survive,” he says. “We are a 25-year-old business and have legacy costs but a determined approach combined with revenue replacement, driving efficiencies and looking at all aspects of our business for both efficiency and savings is key. It is not business as usual — it is challenging but we will survive. We are already seeing consolidations, winning bidders unwilling or unable to take on new patients and access issues.”

Sleep Solutions Home Medical’s Parrot says her company had been preparing for this bid for over two years. Many of their processes have been streamlined to run more efficiently. Pricing with manufacturers is ongoing and many manufacturers have lowered their pricing.

They have had a couple of employees leave the organization and at this time are not replacing them. They are actively seeking new lines of business, which she says will prove more profitable than subcontracting. Parrot’s Medicare population was just under 20 percent and she believes that she has taken the necessary actions to sustain competitive bidding. She has also increased marketing efforts in non-bid areas.

“We believe that the ill-effects of this badly designed bidding program will soon become very apparent,” says Bachenheimer. “Just in the initial few weeks, we have already heard many stories about consumers experiencing delays, having various issues in accessing the equipment and services they need from certain contractors, and many reports of consumers having difficulty accessing wheelchair repair services. Congress needs to hear about these issues to understand what’s going on at the ground level.

“The difficulty is that beneficiaries and their caregivers are focused on getting the HME items they need, contacting their members of Congress is not the first thing on their mind,” she adds. “But it’s important to help consumers through this process, give them the contact information they need to let their legislators know what problems are happening, and to register official complaints with Medicare through their 800 number [1-800-MEDICARE].”

There are lots of resources on the web, particularly if you belong to a buying group and your state/regional association, Bachenheimer says. The American Association for Homecare and Invacare have detailed information on their websites.

“You can get background information, position papers, and talking points to use in your communications with members of Congress and their staff, and send customized letters electronically or via paper,” she says. “It’s a lot simpler than people think, and once you’ve done it, it’s important to keep up the communications. Be the squeaky wheel.”

This article originally appeared in the September 2013 issue of HME Business.