How to Prepare for Round Two of Competitive Bidding

• By David Kopf
• Jul 01, 2011

In January, when Round One of competitive bidding was implemented, the effect was immediately noticeable. 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. Some opted to try and subcontract to winning providers, while other sought entirely new business models — or an exit.

Meanwhile, confusion reigned supreme with patients and referral partners, who had not received much notice or education from CMS. The disarray was immediately felt by both bid winners and losers who had to try and clarify which providers could offer what DME in the various Round One categories. Not surprisingly, complaints started pouring into industry websites and hotlines, and CMS let slip at a PAOC meeting that it had received more than 40,000 “inquiries” to its phone line (while amusingly labeling only 35 of them as “complaints”). The result, if anything, could best be described as “a giant mess,” and CMS was sharply criticized by an army of economists for its handling of the first round.

And the Round One story isn’t over. Providers are still witnessing the consequences of the program shake out. Some assumptions about how it would play out have not run true, and others were magnified. What can be said for certain is that providers in Round Two had best prepare themselves now.

And because Round One has somewhat acted as a model for what HMEs can expect from Round Two of competitive bidding, there are various ways in which we can look to the first round for some lessons learned and ways to approach the next iteration of the bid program.

Use Round One to plan. Looking at the average 32 percent funding cut from Round One, you have to wonder how some providers are pulling it off. Well, now is the time to stop guessing and start figuring out if it is possible. Look at the contracts you want to bid on, examine the Round One funding amounts for the competitive bidding areas that are most like your CBA, and calculate what it would take for you to live within that funding amount. Could you do it for a little more? A little less? How could you alter your business model and cost structure to survive a deep funding cut? Is it worth it? If so, you must start putting that new model in place now.

Bid within your means, and come up with a plan B. We all know that CMS is encouraging what has aptly been labeled “suicide bidding.” And there’s a lot of truth to that. The massive cuts of 2008’s bid of Round One, and then the even deeper cuts of the re-bid have demonstrated that bidders will do anything to stay in the game. Consider how you can bid realistically and what you would need to do if you lost? How could you change or expand your business to stay in the game despite losing a bid?

Quietly repeat this to yourself: subcontracting doesn’t work. While we all might have hopes that subcontracting can somehow help providers that don’t win contracts to stay in the game, the experience has been otherwise. In the first several months of Round One’s implementation, what the industry has learned is that subcontracting, if anything, simply delays the inevitable. There is not enough funding to be split between the bid winner and the subcontracting provider to make it a viable option. Do not let subcontracting be your backup plan.

Educate your referral partners. Before you bid, it is critical that you meet with all your referral partners to educate them on the competitive bidding program, and how it could impact the services you provide. Let them know what categories you are bidding on and that you want to keep their business. After bidding, meet with them to discuss what services are now available to them and your patients through your business.

Market your services. Assuming you have won a contract (or more), now is the time to reach out to new referral partners and let them know that you are the contract holder for that given category and that they need to work with you for that specific type of DME. Introduce them to the full range of services you offer and familiarize them with your working model and learn their working models so that you can ensure a successful relationship.

Be cautious in your build-out. Once again, assuming you have won a bid, you will now “own” a category for a given area, but that doesn’t mean you should immediately build out. The results of bid winners from Round One has been mixed. Some needed to staff up and build out.

Instead, build relationships. Because competitive bidding has been set up so that only certain providers will hold contracts for certain DME, your competition could become your friend. If you win a bid and hold the contract for a certain category, your goal now is to establish referral relationships with the HMEs that won other categories. Start networking and meeting to find what shared strengths you can build. Moreover, by tapping into each other’s pools of physician referral partners you could very well grow your business, even though you might have lost a bid category.

Fight, fight, fight. Remember, competitive bidding is a no-win proposition for the industry and the patients it serves. Continue to drive support for the repeal of competitive bidding. Your top priority for preparing for Round Two should always be to stop it from happening at all.

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