Competitive Bidding

Weighing the Options

• Jun 01, 2012

Welcome to the waiting game. At the end of March bidding for Round Two of national competitive bidding closed, and now providers must wait things out until the bid amounts are announced in fall 2012, the contract holders are announced in spring 2013, and the program is implemented in July 2013 (CMS’s target date for Round Two’s roll out). With Round Two impacting 91 additional competitive bidding areas — essentially nationwide — that is going to be a long, tough wait for providers.

Smart providers will have already started thinking about possible outcomes from being awarded a contract, or not being awarded a contract. If they won, what CBA were they awarded and for which category, and perhaps most importantly, what will the reimbursement structure be like? They might win a contract, but “suicide bidding” could drive down funding rates to an incredibly difficult — and for some impossible — level. Because of the NCB’s bid structure, Round Two winners will need to consider if and how they can live up to bids that might be below what they actually bid.

And of course they need to consider the very real possibility that they won’t be awarded a contract. How will providers without contracts — the majority of NCB’s participants — change or expand their businesses to stay in the game despite losing a bid? Is sub-contracting a possibility? Can retail sales carry them? What about private payor funding?

The net-net is that the second installment of competitive bidding is approaching roll-out and providers need to be considering potential outcomes and how they will deal with them now; not when the program is implemented. There are a wide range of options Round Two providers must consider when mapping out possible business plans that can ensure that they survive and thrive however they fare in Round Two.

One of the first considerations is subcontracting. Many Round One providers will say that subcontracting is not a viable long-term strategy, and with good reason. In the first several months of Round One’s implementation, the industry learned that subcontracting, if anything, simply delays the inevitable. There is not enough funding to be split between the bid winnerand the subcontracting provider to make it sustainable for the long haul.

That said, could Round Two’s size force a reconsideration of that stance? With an essentially national footprint, it is conceivable that a large regional provider that did not win a contract could set itself up as a outsourcer for a contract winner that does not have a expertise or regional presence to provide that service. There might be a survivable economy of scale thanks to the larger volume of patients over multiple CBAs. That said, such a scenario remains to be seen, and if it happened would also likely lead to an eventual acquisition or merger, rather than a long-term subcontracting relationship.

Cash Sales

Retails sales have been a key dynamic in the evolution of the industry for a while, but chances are the pace of providers’ adoption of this tool for driving increased revenue will increase as Round Two approaches implementation. Providers started making forays into cash sales a few years ago as other funding pressures such as the MIPPA cuts, oxygen’s rental cap, and the removal of the first-month purchase option for power mobility, but developing a solid retail strategy and skill set has become an absolute must for providers now that Round Two is underway. Providers must cement a solid position in new revenue sources, and retail sales is an excellent accompaniment to many types of funded DME.

Private Payor

Private payor insurance could be another alternative revenue source that providers could start emphasizing in the face of Round Two of competitive bidding, but its future is unclear. Some providers have pursued private insurance in the same way others have focused on retail sales, but there has been change in the private payor space, as well. The two main changes in private insurance are rapid consolidation among health insurance companies, and single-supplier deals in which a private insurance company contracts with a sole national or regional HME provider for its home medical equipment and related services. There is a possibility that providers could act as subcontractors in single-provider arrangements, where local providers could cover gaps in areas not served by a larger HMEs, but here again, given the lower reimbursement rates associated with such deals, there might not be enough profit
to go around.

Market Pricing Proposal

While providers are working to learn how to survive competitive bidding, they need to keep fighting it. This is why it is critical for them to back the market pricing proposal. To create the MPP, the industry, working through the American Association for Homecare, took the various recommendations made by the more than 200 economists and auction model experts led by University of Maryland Professor of Economics Peter Cramton and put them into the MPP. The MPP provides a competitive approach to setting Medicare reimbursement rates for HME, but does so in a way that is actually competitive and ensures fair participation.

Currently, the industry is working to convince the Congressional Budget Office to score the MPP so that it can more easily attached to a good legislative vehicle. Providers must make it a priority to impress upon their lawmakers the dangers to Medicare beneficiaries posted by NCB, importance of the market pricing program and the necessity to have it scored by the CBO.

This article originally appeared in the June 2012 issue of HME Business.