Business Solutions

The New Regulatory Reality

Can providers right themselves after being upended by competitive bidding Round One and the loss of the first month purchase option? Moreover, how can they fight back?

• By David Kopf
• Apr 01, 2011

Like a turtle being flipped on its back, the HME industry witnessed its world being upended in January when Round One of competitive bidding and the removal of the first month purchase option for standard power mobility went into effect.

The impact was almost immediate. Winning providers in the nine Round One competitive bidding areas braced themselves for the average 32 percent funding cut they knew they were about to experience, and providers without contracts scrambled to try and keep their businesses afl oat despite losing key funding segments. And, patients and referral partners, without much notice or education from CMS, tried to determine who could help them. Not surprisingly, complaints started streaming into the industry’s the industry’s www.biddingfeedback.com website and (888) 990-0499 hotline.

Meanwhile mobility providers were left to contend with the proposition of having their business models turned completely upside down. While they originally could depend on the first month purchase option to get patients with long-term or permanent mobility impairments into chairs, now they had to convert to a 13-month rental model for all power mobility claims. Now, providers found themselves in the position of having to source inventory financing or other capital in order to obtain the chairs patients needed while the funding trickled in over 13 months.

A One-Two Punch

Worse yet, there are some providers that have to deal with both. They are not only caught in Round One of competitive bidding, but also provide standard power mobility. These HMEs have to deal with the doublewhammy of being on the bleeding edge of CMS’s bid program while also having to develop an entire new model for their powerchair businesses.

Such is the case for Medi-Source Equipment & Supply, a multi-line DME located in Yucca Valley, Calif. The business is 60 percent oxygen, with the rest of its business focused on a full line of DME ranging from walkers to beds to power mobility to some complex rehab, according to Esta Willman, ATP, president of Medi-Source.

Based on its location, Medi-Source finds itself in an interesting position. It works in a border community of the Riverside Round One competitive bidding area and serves patients within that CBA, and also serves patients across a wide swatch of inland communities ranging from the California Morongo Basin and the Coachella Valley.

“So some of our patients are in the competitive bidding area and some of them are not,” she says. “Which makes it’s quite an interesting adventure when we get a hospital discharge.”

While Medi-Source bid on various categories, Medi-Source wound up getting an oxygen contract and a standard power contract in the Riverside CBA, the only CBA in which it bid.

“We felt it wasn’t ethically appropriate to provide oxygen and certain other services in area in which we had no presence,” she says. “We don’t subscribe to the idea of drop-shipping oxygen.”

And, while it didn’t win for the other categories, Willman says Medi-Source is subcontracting for items such as walkers, CPAPs and beds. “So we’re still able to take care of our communities, but it’s a challenge,” she says. “And when I say that, it’s an understatement.”

“The competitive bidding conundrum is by far the worst thing we’ve ever dealt with,” says Geogie Blackburn, vice president of government relations for BLACKBURN’s, another multi-line provider headquartered in Tarentum, Pa. and serving patients across Western Pennsylvania.

Like Medi-Source, Blackburn’s finds itself not only dealing with Round One, but also the loss of the first-month purchase option. It did receive a standard power mobility contract in Pittsburgh, and also provides complex rehab, which fortunately was carved out of competitive bidding, but it still must contend with the loss of the first month purchase option outside of the Pittsburgh CBA. But as Robert Burns said, the best laid plans of mice and men often go awry.

“We knew what to expect as far as how grandfathering would impact our business,” Blackburn says. “We knew what to expect if we didn’t win a contract. We could analyze the percentage of business we would not have and what we might lose in incoming referrals for a three-year period. But what we didn’t know — and this is a calamity of the program that is across most of the CBAs if not all — is that the discharge process has changed within the competitive bid model, because those who are responsible for giving the referrals have had to simplify their processes.”

Blackburn says she has been told by multiple Round One referral sources that, as part of efforts to simplify their discharge process for Medicare patients they are only going to providers that can offer everything and anything.

“So what I think we’ll find happening is a greater loss of business for the contracts we hold,” Blackburn says. “It’s so confusing for hospitals and many of the doctors; they don’t want to have to go to a web site or look up a list of providers. I see increased losses that have nothing to do with the bid program, but that the bid program caused. It’s a domino effect.”

With two attempts at Round One, both Willman and Blackburn could be categorized as competitive bidding veterans. As it became clear that CMS was gearing up to re-bid Round One, Willman said the thought that was going through her head was “Here we go again.” On the previous take of Round One, Medi-Source didn’t win contracts for any of the categories on which it bid, which was startling to say the least.

“So we stared business closure right in the face,” she recalls. “But on the first take at Round One, there was so much rumbling about a delay that we were pretty confident that it wouldn’t stick that time. But for those first two weeks it was pretty nerve-racking not knowing whether our business would survive.”

So on the re-bid, Medi-Source bid more aggressively to increase its chances of winning a contract, and as hedge against the possibility of not securing a repeal. This possibility actually became self-fulfilling when H.R. 3790, the heavily supported Meek Bill that called for the repeal of competitive bidding, crumbled when the Round One re-bids negated its pay-for structure. The bill’s budgetary structure, based on the initial 2008 bid’s average cut of 26 percent, was capsized by the re-bid’s average 32 percent cut.

Suffice it to say that Round One providers faced a Catch 22: bid to win and nix the Meek Bill’s chances, or don’t bid and lose any chance of retaining business. The industry’s catch phrase of “suicide bidding” was right. No one wins — even the winners.

The question of whether or not the policy would “stick” or not also arose with the removal of the first month purchase option. The notion of forcing mobility providers to rent standard power mobility to patients that had long-term or life-long mobility impairments seemed preposterous.

“It’s another case where people thought, ‘is this really going to stick?’” Willman explains. “When you prepare your business model and you have to make these changes to it, and then competitive bidding is delayed after two weeks of implementation, you begin to wonder ‘is this really going to happen, is this really going to stay, and do I really have to adjust my business model?’”

Dealing with the Here and Now

Regardless of how the bidding played out, providers have had to grapple with the reality of their situation. Willman says Medi-Source is playing a sort of balancing act with the contracts it holds and subcontracting on beds and walkers, but that the subcontracting is probably a short-term play.

“It’s not a viable business model in my opinion,” she says. “There’s not enough reimbursement to cover the administrative overhead and all of the other requirements of the contractor, while also giving an appropriate amount to the subcontractor for the services they offer. … I don’t even know if it’s a break-even for us.”

“The price in every single category is not high enough for two providers to share and garner a profit,” Blackburn agrees. “It does not work.” Nevertheless some providers are willing to subcontract at a possible loss to protect the rest of their referral business, which might be jeopardized — even if they hold a contract. It’s an act of selfpreservation, Willman says.

“We would not get discharge referrals from our local facilities if we didn’t offer a full line,” she explains. “We wouldn’t. And providers are experiencing that across the country.”

Also, in a large area like the Riverside CBA, with lots of ground to cover, a contract-holding provider might not want to travel all the way to Medi-Source’s distant patients, and so those patients could get de-prioritized.

“And that’s not good for my community,” Willman says. “So am I willing to take a loss to make sure my community gets served and so that I can get the rest of the referrals? That’s what I have to do. But is it going to last? Am I going to sustain operations for any length of time under that model? The jury’s still out.”

On the flip-side, Blackburn says BLACKBURNS decided not to subcontract at all, based on the feeling that doing so sends the wrong message to lawmakers.

“We have fought so hard to defeat competitive bidding, and we continue in that mission,” she says. “We chose to accept the losses, redesign our business plan, and continue to fight against what we feel is poor healthcare policy, rather than assist facilitating the program. If we became a subcontractor in the Pittsburgh area, we would make competitive bidding look better, and we weren’t going to do that.”

On the mobility front, Willman says Medi-Source has not yet had to consider inventory financing, but realizes that many providers that emphasize or specialize in mobility will most likely have to move in that direction.

“It is good that at least there was a concession in front-loading the first few months of rent a little bit higher than the typically capped rental items,” she says.

But even if providers can figure out how to pay for their mobility devices before renting them to patients, they still have to deal with the additional complexities of a rental business. For instance, before Round One or the removal of the first month purchase option was implemented, Willman said there was a certain level of latitude a provider had in helping patients with unique needs.

“For example, out here in the desert, we don’t have sidewalks,” she explains. “Some people don’t even have driveways. So, just to get to their mailbox, patients need larger drive tires. … Larger drive tires are on models that are a little more expensive, but we could afford the variety of models of chair before. Now, we have to have a range of rental chairs that are a little more universally applicable, and that have to be refurbishable, so that variety just got narrowed.”

On the business management front, providers in Round One are also trying to determine the other ways in which it must deal with their losses. Blackburn says it made a decision not to reduce staff because it did not want to sacrifice its service levels. While it has not lowered incomes, it might have to look at its bonus structure for sales and other employees.

“All in all, we’re being very cautious about where we put our dollars and cents,” she says, explaining that all members of the team, top to bottom, have to realize they might t 2849 ake a hit. “We don’t expect people to work for nothing, but we do expect them to share in this industry change, until we can hopefully can get it reversed.

“And to our staff we continually talk about faith in the repeal process,” she adds. “And we have not lost faith in that. We will continue to fight this policy, because we believe it’s poor for the patient and certainly poor for the economy and the providers.”

Fighting Back

As the reality of competitive bidding Round One and the removal of the first month purchase option comes into focus, so to do the industry’s political challenges. Clearly the industry needs to fight back politically, but how? What will providers tackle first, regaining the first month purchase option, or repealing competitive bidding? Moreover, what kind of time does it have to win either fight?

Ultimately, the industry’s fight comes down to setting priorities. And, in fact, when it comes to preserving first month purchase option, the window might already be closed, according to Seth Johnson, vice president of Government Affairs for Pride Mobility.

“From a legislative perspective, it really has closed for all intents and purposes,” he says, explaining that the opportunity to attach language to reclaim the option to other legislation wasn’t successful, and there probably won’t be an additional effort to get it back at the present. “Really the only vehicle to do anything for the purchase option at this point in time is the ongoing effort that we’re seeing play out in the House and Senate regarding a repeal of the overall healthcare reform bill in its entirety.

“But the likelihood there is very small, as well,” he adds. “Right now an outright repeal of the bill is pretty much off the table.”

So the industry’s priorities have pretty much been determined for it. But even if regaining the first month purchase option were a viable political option, it would still probably be the industry’s second priority, after competitive bidding.

“If you look in the grand scheme of things, what’s going to have the greatest impact on [providers’] ability to survive and thrive,” says Cara Bachenheimer, senior vice president of government relations at Invacare Corp. “I think people think that competitive bidding is the larger threat. The purchase option is a massive paradigm shift … but in the longer term the competitive bidding issue and being forced to bid at ridiculously low rates is really the larger threat and I think people realize that.

“From our [Invacare’s] perspective, we’re putting all of our legislative resources into defeating competitive bidding for that very reason,” she adds. “The clock is ticking. Competitive bidding has started in Round One and theoretically Round Two starts in less than two years. That’s not a lot of time.”

Fortunately, with the introduction of H.R. 1041 by Representatives Glenn Thompson (R-Pa.) and Jason Altmire (D-Pa.), providers now have a bill calling for the repeal of competitive bidding that they can get behind and present to lawmakers to gain their support. Those efforts began mid March at the American Association for Homecare’s Washington Conference (turn to “News, Trends & Analysis,” to read more). Suffice it to say, with a bill in-hand, now is the time for action.

“[Providers] need to get out and meet with their legislators,” Johnson says. “There are more than 70 new legislators that are part of the freshmen class that need to be educated on the value that DME brings to the Medicare beneficiary. And, there were more than 250 co-sponsors that were on the Meek legislation last year. Many of those — more than 220 — were reelected, so clearly that’s the low-lying fruit to get co-sponsors on H.R. 1041. That’s where a lot of the focus is right now.”

And already, providers have been helping drive home early support for H.R. 1041. At press time, the bill had 20 co-sponsors, including Altmire. “We were fortunate that Thompson and Altmire introduced their repeal bill so enthusiastically at a press conference just before the conference,” says Michael Reinemer, vice president of communications and policy for the American Association for Homecare. “Also, the HME advocates who came to Washington were prepared and enthusiastic, so that created a good deal of momentum for H.R. 1041, and left a good impression all across on Capitol Hill. I’m sure our members will be working hard in the weeks and months a head to build support for the House bill and we hope a Senate bill as well.”

In terms of language, H.R. 1041’s pay-for differs from the Meek Bill in a way that could be helpful to the industry. The Meek Bill’s pay-for came from the industry through a series of funding freezes and modest reductions, Johnson explains.

“The Thompson-Altmire Bill is funded outside the industry through going after unobligated discretionary appropriations to the tune of $20 billion to pay for the repeal,” he says. This helps insulate the bill from the factors that ultimately undermined the Meek Bill.

And of course, in line with what the industry has been saying all along, by preserving the HME industry, Medicare will wind up saving itself uncalculated sums by avoiding costly payouts for the increased hospital and nursing home stays that competitive bidding would otherwise bring. No matter how you slice it, HME is Medicare’s best value.

That said, selling lawmakers on H.R. 1041 won’t be a slam-dunk, and providers don’t have all the time in the world to do it. The tragedy of the Meek Bill was that it lost the race against the re-bidding of Round One. Providers shouldn’t take their time with Thompson-Altmire.

“From my perspective, the time frame that we’re really up against is when CMS announces that it is planning to open the bid window for Round Two,” Johnson says. “Right now it looks like CMS could start the bidding in the Round Two areas sometime around late spring or early summer.

“Once [CMS] opens up the bid window and gets the pricing information, I think that’s the real problem for the industry, because then Medicare has pricing in 100 of the largest arrears of the country,” he explains. “I think the alternative will look much different than it does today once they have the pricing in the additional 91 areas.”

The exact dates for Round Two could be released at the next Program Advisory and Oversight Committee meeting on April 5.

Moreover, to build the support that will get the bill passed into law, the industry needs to keep collecting and sharing detailed examples of the negative impact the program is having on patients and providers in Round One areas, Johnson says.

“We think the cumulative impact over time is going to be devastating,” Bachenheimer says. “As those facts emerge, Congress will be more and more interested in doing something to fix the situation.”

To that point, Bachenheimer noted that an early March presentation to congressional legislative advisors and staff about the impact of competitive bidding that was presented by Thompson and Altmire, as well as various industry experts, was so packed with House and Senate staffers that the hall reached capacity and latecomers had to be turned away at the door.

“People want to know,” she says. “They’ve heard a lot about it; it’s very controversial; and there were lot of offices that said ‘I want to know what’s going on.’ So that’s a good first step.”

And the key to getting those stories in front of Congress is to make sure it’s coming from the patients, according to Johnson and Bachenheimer. That’s where the real point of pain is, and it will resonate the most with lawmakers.

“The beneficiaries are definitely the key here,” Johnson says. “Hearing from those beneficiaries and the groups that represent beneficiaries who need durable medical equipment in order to remain independent and active in their homes and communities are the strongest voice in this fight, because they are the ones that are ultimately impacted. Congress listens to beneficiaries.”

“Congress reacts to those kinds of issues,” Bacheimer adds. “We know the diabetic area is a really tough one. We’re hearing that name brands are close to impossible for beneficiaries to get via mail-order from the winners. These are issues that we believe will mount in noise level.”

And as the House bill gains momentum, the industry is working on a companion piece of legislation that could be introduced into the Senate, with some Senators, such as Sen. Olympia Snowe (R-Maine) and Sen. Pat Roberts (R-Kan.) already identified as potential champions for such a bill.

“There’s been some work already underway to try and get a Senate companion bill, because many in the industry, myself included, believe that was one of the bigger obstacles that we weren’t able to overcome last year, which led to the inaction on the Meek legislation,” Johnson says, adding that, again, the key is to increase the volume of complaints lawmakers are hearing in both the House and the Senate.

“Right now we don’t have the detailed examples that rise to the level of Congress says ‘we have to stop this program; harm is being done here,’” he continues. “Unless we get to that point I think it’s going to be really hard to get the attention and action that we need to get the bill out of the Senate — assuming we can even get one in the Senate. Clearly, time is of the essence.”

This article originally appeared in the April 2011 issue of HME Business.