Competitive Bidding: Preparing for Round Two

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Competitive BiddingPreparing forRound Two
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Why are we here today?
Section 302(b) of the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (the
MMA) required the Secretary of Health and Human
Services to implement a competitive acquisition
program for durable medical equipment and
supplies, enteral nutrition, and off-the-shelf
orthotics provided to Medicare beneficiaries.

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The statutory authority

• Section 302 of the Medicare Prescription Drug,
  Improvement, and Modernization Act of 2003 (MMA)
  (Pub L 108-173) authorizes the Secretary of
  Health and Human Services (HHS) to use
  competitive acquisition authority, as outlined in
  the US Code Section 1847(a).
• Section 302(b)(1) of the MMA requires CMS to
  replace the current DME payment methodology for
  certain items with a competitive acquisition
  process.
• According to Congress, the intent is to harness
  marketplace dynamics to create incentives for
  suppliers to provide high-quality items and
  services in an efficient manner at reasonable
  cost.

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Acknowledging the authority the HME/Re-hab
industry continues with its efforts to
delay/mitigate the implementation of competitive
bidding

• Alternative legislation
• Judicial fixes
• Lobbying (e.g., state, regional and national
  organizations, vendor and provider stakeholders,
  grass roots beneficiary programs)
• Congressional pressure to suspend round one of
  competitive bidding
• Economic studies

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The MMA
The Act required CMS to conduct bidding in 10
of the largest metropolitan statistical areas
(MSAs) in 2007. As you are most aware, the metro
areas included Charlotte-Gastonia-Concord,
N.C.-S.C.Cincinnati-Middletown,
Ohio-Ky.-Ind.Cleveland-Elyria-Mentor,
OhioDallas-Fort Worth-Arlington, TexasKansas
City, Kan-Mo.Miami-Fort Lauderdale-Miami Beach,
Fla.Riverside-San Bernadino-Ontario,
Calif.Orlando-Kissimmee, Fla.Pittsburgh,
Pa.San Juan-Caguas-Guaynabo, Puerto Rico

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• The statute required an additional 70 of the
  largest MSAs in 2009, and 10 additional areas
  after 2009.
• On January 8, the 70 metro areas were announced
  via a CMS Office of Public Affairs media release.
• The MMA provides that competitive bidding may be
  phased in first among the highest cost and
  highest volume items and services or those items
  and services that have the largest savings
  potential.

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Firstsome facts

• CMS estimates 36 billion to 72 billion in
  annual waste and fraud in Medicare.
• Total 2006 spending for the millions of Medicare
  beneficiaries who receive durable medical
  equipment and services in their homes was 6.9
  billion less than 2 percent of the 401 billion
  in total Medicare spending during 2006.
• Durable medical equipment provided in the home is
  the slowest-growing sector of the skyrocketing
  Medicare budget, even while demand for home-based
  care grows.

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• During the January meeting, CMS staff gave a
  briefing on the competitive bidding program to
  House health legislative assistants.
• DME fraud is the largest area of fraud in the
  Medicare program, the biggest loss to the
  program, and the biggest vulnerability in the
  program
• Is the NCB Program Punitive???

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The CBIC

• CMS has contracted with Palmetto Government
  Benefits Administrators, the former Region C
  DMERC, to be the Competitive Bidding
  Implementation Contractor (CBIC) that will handle
  many of the implementation tasks.

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Product Categories for First 10 CBAs included

• Oxygen equipment and supplies
• Respiratory assist devices and CPAPs
• Standard power mobility devices
• Complex power rehab
• Diabetic supplies (Mail Order Only)
• Enteral nutrition
• Hospital beds and accessories
• Walkers
• Negative pressure wound therapy devices
• Support surfaces, Group 2 and 3 mattresses and
  overlays (Only to be bid in Miami and San Juan)

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• For bidding purposes, the products were grouped
  into categories that correspond generally, but
  not always exactly, to policy groups defined by
  the Statistical Analysis DMERC

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Round Two Product Categories

• For the next 70 MSAs, the product categories are
  identical with the exception of removing support
  surfaces and mail-order diabetic supplies
• Oxygen equipment and supplies
• Respiratory assist devices and CPAPs
• Standard power mobility devices
• Complex power rehab
• Enteral nutrition
• Hospital beds and accessories
• Walkers
• Negative pressure wound therapy devices

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Round One

• Bidding began May 15 ended September 25
• Numerous competitive bid submission system (CBSS)
  issues forced three extensions
• The suppliers submitted bids using an internet
  application
• Initial registration on the internet application
• Resulted in bidder number, username and password
• These were mailed (!) to providers in two
  separate deliveries

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Round One

• Many HMEs waited too long to register
• Left no time for error corrections
• NPIs, SSNs, etc
• Bona fide bid verification and other issues has
  forced the winner announcement to be delayed.
• Contract offers were initially scheduled for
  December 2007, then delayed to Februaryand, in
  late March, HMEs were finally notified.
• CMS had initially suggested a 30-day evaluation
  period for providers to accept or decline the
  contract
• But.

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Buton Thursday, March 20

• In a late afternoon press conference, CMS Acting
  Administrator Kerry Weems announced the new
  payment rates.
• Medicare will see average savings of 26 percent
  on the items included in the program.
• Weems said CMS would send overnight letters to
  winning bidders and will announce the contract
  suppliers once all contracts have been executed. 

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• Weems indicated that three different types of
  letters had gone out, including invitations to
  sign contracts with CMS if suppliers' bids were
  within the winning price ranges. A second type of
  letter told non-winning suppliers that they would
  not currently be invited to sign a contract, but
  may be offered a contract in the future if a
  winning supplier in the same area for some reason
  dropped out of the program.
• He added that some suppliers were disqualified
  from competing for contracts because they fell
  short of CMS' "safeguards," which included
  failure to meet basic supplier enrollment
  standards or submitting bids that did not comply
  with terms and conditions outlined in the
  requests for bids.

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And to the dismay of more than 100 HMEs in all
CBAs, on Friday, March 21

• Unfortunately, we are unable to accept your bid
  as indicated in the enclosed chart
• BSE-4 Bidder did not submit along with its
  bid the applicable financial documentation
  specified in the request for bids (RFB)
• More than 100 companies were disqualified,
  including large hospital based, regional and
  national players

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(Actual HME comment)

• I received my Fed Ex package before 900am this
  morning and immediately called the CBIC. The
  customer service representative alerted me that I
  was missing one year of a financial document that
  was required. I immediately checked my copy and
  it was in there. I also contracted with a very
  reputable health care law firm to certify my bid
  was properly completed. We checked every item
  over 10 times before we sent it to the CBIC. The
  CBIC representative informed me that since the
  financial aspect did not qualify, our bid was
  never reviewed

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Industry stakeholders took action

• we have heard from a number of providers and
  state associations today indicating that CMS has
  made errors during the bid evaluation process.
  Due to the lack of transparency by CMS to share
  information with the provider community, we must
  rely on the information gleaned from bidders who
  were directly involved in the process

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Litigation?

• As of this writing, AAHomecare has retained the
  law firm of Sidley Austin in Washington, DC to
  examine the supplier selection process underway
  in Round One of competitive bidding. The law firm
  is reviewing more than 150 case examples by
  providers across the country that have been shut
  out of the bidding process in Round One.
• Other stakeholders have contacted legal counsel
  and are considering options to file for a TRO
  (temporary restraining order) and/or declaratory
  judgments.

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And on May 8th

• AAHomecare leaders met with key congressional
  committee staff to discuss possible delays or
  adjustments to competitive bidding and
  alternatives to the bidding program.
• The meeting was a follow up to the May 6th
  hearing on competitive bidding before the House
  Ways and Means Subcommittee on Health, where
  stakeholders testified.
• During the Tuesday hearing, Health Subcommittee
  Chair Pete Stark (D-Calif.) and other members of
  Congress were sympathetic to the HME industrys
  concerns and asked CMS Acting Administrator Kerry
  Weems a number of pointed questions.

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• The Bush Administration is pushing very hard to
  go forward with the bidding program, as evidenced
  by Weems undiluted enthusiasm for the program
  and his unwillingness to acknowledge that there
  are problems with the bidding process or the
  program. The same full steam ahead attitude
  was expressed this week by Health and Human
  Services Secretary Mike Leavitt in a meeting with
  two Republican Senators who have expressed
  concern about the bidding program Sen. George
  Voinovich (R-Ohio) and Sen. Johnny Isakson
  (R-Ga.).
• AAH other stakeholders are working to determine
  what policy options are available in the short
  window before the bidding program goes into
  effect on July 1 and the cost that would be
  incurred by any changes to the program.

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Letters detailing the errors and impact of the
program have been sent to CMS, the CBIC and to
members of Congress. Providers and other
homecare stakeholders keep up the volume of
concerns about this bidding program to suspend
Round One of bidding in order to address concerns
about its impact on services for beneficiaries,
quality of care, and fairness to the provider
community

• Goal Suspension of round one of the bidding
  program.
• In any case, the current contract offers are as
  follows

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Contracts offered by product category/area
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• Of the 1335 contract offers, 1,254 were accepted
  (96 percent), which CMS said would result in
  DMEPOS savings to Medicare of 26 percent.
• Eligible suppliers had only 10 days (to April 3)
  to respond to CMS to indicate whether or not they
  wanted to participate.
• A total of 6358 bids were submitted.
• CMS 64 percent of the bidders being offered
  contracts were small businesses

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Bidding Results Summary

• 6358 bids were submitted.
• 1005 separate and unique bidding numbers, or an
  average of six bids per company. (Note Due to
  several network bidding entities, the number of
  unique bidding companies is estimated at 1100
  1200.)
• 630 bidding entities were disqualified from the
  process due to various reasons the majority for
  missing information from the applications. These
  bids were never considered within the pricing
  methodology.
• Of these, 283 were within the range to win.

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Offers

• 318 bidders were offered contracts
• 316 returned a signed contract
• Only about 5 of the eligible small providers
  were offered a contract, and about 16 of large
  providers
• A total of 1,254 contracts were accepted

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• CMS reported this information to congressional
  staff who attended an April 22 CMS briefing for
  congressional staff.
• CMS likened the process to turning down college
  applications who forget to include their SAT
  scores in their applications.

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Howeverthe next day

• Senator George Voinovich, R-Oh., along with
  Senators Arlen Specter, R-Pa. Pat Roberts,
  R-Kan. Richard Burr, R-NC Johnny Isakson,
  R-Ga. John Cornyn, R-Tx. and Jim DeMint, R-SC
  sent a letter to HHS Secretary Michael Leavitt on
  April 23 requesting a meeting to discuss the
  competitive bidding program's "status and next
  steps."  Before moving forward with future rounds
  of the program, the senators have requested that
  a resolution of the issues be made. 
•  "Our first concern is the alleged discrepancies
  between information submitted by bidders and
  received by the CMS." The letter also requests
  that CMS provide more "transparency" on how
  bidders' financial documents and service capacity
  were evaluated.

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Results grossly different than the Final Rule
Regulatory Analysis

• We estimate that 28,960 suppliers will provide
  competitive bid items in the CBAs. If suppliers
  furnish products in more than one MSA, we counted
  them more than once because they are affected in
  more than one MSA
• We estimate that 68 percent of suppliers will
  furnish products subject to competitive bidding
  and will be affected by competitive bidding
  during the initial round of competitive bidding

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• We also estimate that approximately 85 percent of
  registered DMEPOS suppliers are considered small
  according to the SBA definition.
• we now estimate that 81 percent (rather than 90
  percent) of suppliers will submit bids.
• We also assume, based on the results of the
  demonstration, that at least 60 percent of
  bidding suppliers will be selected as winners in
  at least one product category.
• Hence

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there should have been many more offers (!)
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Questions and Concerns!

• Why were CMS estimates in the Final Rule so
  overstated?
• Does it really matter that small providers were
  offered 64 of the contracts when the total
  number of contracts offered (1,335) was only 14
  of what CMS had originally forecast they would
  offer in the Final Rule (9,584)?
• In the Final Rule CMS estimated that 60 of the
  bids would be awarded contracts. CMS received
  over 6,000 separate bids and only 1,335 were
  offered contracts (22.5). What happened?

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The savings

• As a result of the competitive bidding process,
  the amounts that Medicare will pay for the 10
  product categories included in Round 1 of the
  DMEPOS Competitive Bidding Program overall
  average 26 less than Medicares current fee
  schedule amounts.
• CMS Weems compared competitive bidding prices
  (savings) to Internet pricing (!)
• "We were overpaying for those items"

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Round One, continued

• The contract period
• for mail order diabetic supplies is July 1, 2008
  - March 31, 2010
• All other product categories are effective July
  1, 2008 - June 30, 2011
• Intensive beneficiary and referral agent
  education program
• CMS will conduct in May-July 2008
• To include
• special bidders conferences
• array of printed instructional materials
• Handbooks
• Web site (e.g., www.medicare.gov) updates
• approved supplier directories.
• An example of CMS beneficiary pamphlet follows

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Final Round One Timeline

• March 20, 2008 CMS announced new payment rates
  for Round 1 derived from competitive bidding and
  begins contracting process with suppliers
• May 2008 CMS will announce the final Medicare
  contract suppliers for Round 1
• May 2008 CMS will begin beneficiary education
  campaign
• July 1, 2008 Payment rates go into effect

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Round Two

• An additional 70 competitive bidding areas (CBAs)
  have been selected for competitive bidding.
• Most fall within the top 100 MSAs.
• Generally, these MSAs include metro populations
  gt500,000.
• There were slight revisions to product
  categories.
• Revisions to HCPC listings within the product
  categories are likely as well.
• Round Two bidding window will begin in the
  summer of 2008
• Round Two contracts are scheduled to take effect
  April 1, 2009.

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• The boundaries of competitive bidding areas
  (CBAs) more or less follow MSA boundaries, but do
  not necessarily correspond exactly to MSAs.
• MSAs consist of counties. Providers in these
  Round Two areas may access the county
  information at http//www.census.gov/population/ww
  w/estimates/metrodef.html
• An example of an MSA maps follows

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You can identify the ZIPs within each county
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At the time of printing the exact ZIP codes of
the Round Two CBAs were not posted.

• CBA may be concurrent with, larger than, or
  smaller than the related MSA depending on a
  variety of considerations including the exclusion
  of low population-density areas within the MSA
  and the inclusion of a part of a normal service
  area.
• The CBA will be the area wherein contract
  suppliers will furnish certain DMEPOS items to
  resident beneficiaries.

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Example of Actual CBA Boundary Charlotte-Gastonia-
Concord, NC-SC CBA
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• But before we get too far ahead, lets go back a
  little. In Round 1, what did CMS expect?.

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CMS report

• The demonstration projects revealed that
  substantial savings could be realized through the
  implementation of competitive acquisition,
  without compromising the quality of the products
  being supplied. Based on these demonstrations,
  CMS estimates potential savings of 20 on DMEPOS
  if competitive acquisition for these products is
  successfully implemented throughout the country.
  Statistical data indicated that beneficiary
  access and quality were essentially unchanged.

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Bottom line

• CMS states the program is projected to produce
  savings of 1 billion in 2010
• The savings is based on the estimation that
  competitive bidding will reduce DME spending by
  12.9 percent below fee-for-service among the 70
  percent of DME costs assumed to be subject to the
  program by 2010.
• The 12.9 percent figure is based on contractors
  modeling over 90 MSAs.
• Note VGM and other industry groups have
  disputed the projected savings, contending
  Medicare reimbursement cuts in recent years --
  particularly surrounding oxygen and power
  mobility devices -- make the billion-dollar
  projection unrealistic.

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Round 1 Anticipated Savings Varied by CBA

• As the next slide indicates, there is substantial
  variance among the CBAs with regard to the number
  of eligible Medicare beneficiaries, suppliers
  serving the area, total Medicare spending, and
  anticipated savings from the first year (July
  2008 June 30, 2009)

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Round One Providers Game Theory the
Winners Curse ()

• The bidding process is effectively a sealed-bid
  auction and subject to providers gaming the
  system
• The rational view holds that individual bidders
  will logically adjust their bids to reflect their
  own company and market evaluation and
  expectations, but logic does not necessarily
  apply to the competitive bidding program - - and
  this fact muddles the strategies of even the
  savviest HME bidding companies.
• () Reprinted from M. Higley February 2008
  article Paragon Ventures Insight

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Lets use oxygen as an example...

• Its a safe assumption that several dozen HMEs
  will bid the O2 category in each CBA, and that
  most or all currently service the areaan
  incumbent supplier in economic lingo.
• Its probably also safe to assume that Medicare
  is the largest single payer for the majority of
  the bidders. Thus Medicare, in more economic
  jargon, is a key status quo customer.

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• Economists believe people are significantly more
  averse to business losses relative to the status
  quo than they are attracted by potential gains
  (e.g., seeking new business). The consequence of
  this status quo bias is that incumbent
  suppliers generally bid aggressively because of
  the strong preference not to lose the key
  customer. Further, research reveals that as the
  number of bidders increase (think of the CMS
  bidding window extensions) the more likely it is
  that bidders will overestimate the actual value
  of the customer, in this case Medicare O2.

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The result

• A classic case of appropriate theory meeting ugly
  reality!!
• HMEs accurately analyze their acquisition and
  process costs, tighten their belts, and determine
  their minimal acceptable marginsand then
  discount oxygen another 5. Or 10. Or more

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The result

• Suppliers who underestimate the number of
  companies that will submit low bids to maintain
  their oxygen status quo lose the deal. The
  ones who overestimate the value of the Medicare
  contract and bid at minimal or losing margins end
  up winners who have, effectively, overpaid (been
  under-reimbursed).
• And that is what statisticians dub the winners
  curse.

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• (Industry analyst) There is no justification
  for the industry offering such steep discounts
  CMS has played the lack of transparency and
  cohesiveness in our industry to the detriment of
  many great businesses and the caring people who
  work in them. But the fault doesn't reside only
  in the predatory offices of our largest customer
  it also resides in the hands of those who signed
  off on these low bids.

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Various Problems with the 2007 Bid

• RFB Instructions were unclear.
• Difficulties in obtaining manufacturer, model
  name/part number for all HCPC
• SADMERC database was incomplete.
• Tedious input processes
• Multiple tabs and lack of a copy and paste
  functions
• Hundreds of codes and models were required for
  power/rehab.

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Credit Reporting Issues

• Only one of the three initial reporting agencies
  (e.g. TransUnion, Experian, and Equifax) only
  TransUnion offered an appropriate business credit
  report
• Dun Bradstreet Standard Poor's were added
  late in the game
• Howeverfrequently full of errors
• Insufficient time to correct errors
•  

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Lack of CMS Input

• CMS paid little attention in its ramp-up
• Missing program details
• Product category issues
• Unclear bid evaluation process
• Bona fide bid
• Market demand vs. supplier capacity
• Suppliers financial health
• CMS will not go into specifics about our
  internal processes
• If you dont win, why???
• Number of bids per category
• Financial health evaluation benchmarks

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However Round
2 ProvidersWill Fare Better!
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• The RFB is likely to be released late May 2008,
  which will include ZIP Codes and all HCPC codes
  for bid. Review the RFB closely!
• Accreditation Deadline is now over! Bidding
  entities had to apply for accreditation by May
  14, 2008 and will have to complete the
  accreditation process by October 31, 2008
• Bidding window will open Summer 2008
• Round Two contracts scheduled begin April 1, 2009

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• HMEs in the next 70 CBAs will have had the
  advantage of learning from the experience of HMEs
  in the first CBAs and, while bidding cautiously,
  will likely add a more appropriate margin to
  their estimates.
• AndCMS has reportedly upgraded the CBSS and (at
  the last minute for Round 1 bidders) allowed the
  use of an Excel-type spreadsheet for HCPC
  data/bid submission.

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• According to Laurence Wilson (director of the
  CMS Chronic Care Policy Group) there are a
  number of refinements to the bidding process for
  round 2 that will ease the burden on suppliers.
  He said they have updated the bid submission
  system for round 2, and described it as being an
  easy online process like filling out your taxes
  using Turbo Tax. Bid submission for round 2 will
  require suppliers to enter less information for
  their bids so that the process will take fewer
  hours. Also, for many suppliers there will be
  almost 2/3 fewer financial documents required.
• We will review this process in more detail
  shortly!

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Round 2 provider also have access to several
bidding tools prior to the beginning of bidding

• Many manufacturers offer data worksheets such as
  HCPC crosswalks to models and pricing.
• Electronic spreadsheets to perform what if
  functions (e.g. fixed discount, cost plus margin
  required, etc.)
• Various industry consultants offer cost analysis
  and financial reporting tools.

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In the meantimebecome familiar with the DMEPOS
Bidding System (DBidS) NOW!

• Log on to www.dmecompetitivebid.com

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• Financial Measures
• Important Messages to Bidders Regarding CBSS
• Alternate Method for Submitting Manufacturer,
  Model and Model Numbers
• Basic Bidding Rules
• Bid Evaluation Process
• DBids User Guide
• Change of Ownership
• Contract Terms
• Form A Instructions

Form B Instructions General Instructions
Getting Started Checklist Item Weights and
Effect on Composite Bid Calculation Networks
Required Financial Documents RFB Instructions
SNFs and Nursing Facilities Physicians/Practiti
oners Terms and Definitions Time Line
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At the time of publication the exact ZIPS within
the MSAs had not yet been released.

• But, if you are in a Round Two CBA, become
  familiar with the DBidS now. Click through all
  the forms, QAs, rules, etc.
• Begin to assemble your manufacturer data (model,
  part number) for each product category of which
  you will be submitting a bid. The DBidS requires
  this information. Multiple vendors are
  acceptable ( changeable).

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Use the SADMERC for vendor information

• http//www3.palmettogba.com/dmecs/do/search
• Search DMEPOS Product Classification List
  Manufacturer/Distributor HCPCS Code Product
  Name Product/Model Classification

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DBidS will be posting shortly

• Pre-bidding activities for the second round, such
  as announcing the specific ZIP codes that
  constitute the CBAs, specific items in each
  product category, bidder education, and
  registration for user IDs and passwords in the
  spring of 2008.

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So, with all these problems, why doesnt CMS
just lower the DMEPOS reimbursement on a
nationwide basis, achieve its savings, and not
subject us to the burdens of bidding and losing
some or all of our Medicare business?
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Again.the statutory authority

• Section 302 of the Medicare Prescription Drug,
  Improvement, and Modernization Act of 2003 (MMA)
  (Pub L 108-173) authorizes the Secretary of
  Health and Human Services (HHS) to use
  competitive acquisition authority, as outlined in
  the US Code Section 1847(a).
• Section 302(b)(1) of the MMA requires CMS to
  replace the current DME payment methodology for
  certain items with a competitive acquisition
  process.
• According to Congress, the intent is to harness
  marketplace dynamics to create incentives for
  suppliers to provide high-quality items and
  services in an efficient manner at reasonable
  cost.

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Authority in other areas as well!

• Medicare payments will be adjusted in
  non-competitively bid areas
• If savings are achieved in bid areas,
  reimbursement may be lowered nationally
• Adjustments may not necessarily match those seen
  in competitively bid areas

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• For example, if CMS achieves a 20 percent savings
  on hospital beds through competitive bidding in
  participating metropolitan areas, the agency
  could reduce Medicare payments throughout the
  country (not necessarily by 20 percent) without
  requiring a competitive bidding process in the
  new areas.

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The Bid Process for Round 2 HME Providers
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Round Two

• RFB likely to be released May 2008, which will
  include ZIP Codes and all HCPC codes for bid
• Accreditation Deadline! Bidding entities must
  apply for accreditation by May 14, 2008 and have
  completed the accreditation process by October
  31, 2008
• Bidding window will open Summer 2008
• Round Two contracts scheduled begin April 1, 2009

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Supplier Eligibility

• All bidders must be accredited (or be in the
  process of becoming accredited) by a CMS approved
  accreditation organization. Round 1 bidding
  deadline was October, 1, 2007.
• Round Two bidders must apply for accreditation by
  May 14, 2008, and complete the accreditation by
  October 31, 2008.
• September 30, 2009 is the deadline by which all
  other DMEPOS providers will be required to be
  accredited in order to maintain Medicare billing
  privileges. If you are not currently accredited,
  and have not yet started the process, get started
  now!

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Related Accreditation Issue

• New providers who submit enrollment applications
  to the National Supplier Clearinghouse before
  March 1, 2008, must obtain and submit proof of
  accreditation to the NSC by Jan. 1, 2009.
• Providers enrolling on or after March 1, 2008,
  must be accredited prior to submitting their NSC
  applications.

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Bidding Eligibility

• To be eligible for a contract award, suppliers
  must
• (i) be enrolled in Medicare in good standing
  and with no current sanctions
• (ii) disclose any previous legal actions,
  sanctions, or disbarments of any employees,
  officers or affiliated companies or
  subcontractors

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Bidding Eligibility

• (iii) have all necessary state and local
  licenses and
• (iv) agree to the terms of the RFB and the
  resulting contract.
• A supplier may submit bids in as many CBAs and as
  many product categories as it wishes, but if it
  bids in a product category, it must submit a bid
  on every product in that category.

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Bidding Eligibility

• Special rules apply to commonly-owned suppliers
  (defined to mean that one supplier has an
  ownership interest of 5 or more in another
  supplier) and commonly-controlled suppliers
  (defined to mean that an owner of one supplier is
  an officer, director or partner in another
  supplier).

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Bidding Eligibility

• If two or more suppliers are commonly-owned or
  controlled, they may submit only one bid to
  furnish a product category in a particular CBA.
• All commonly-owned or controlled suppliers that
  are located in the CBA, and all commonly-owned or
  controlled suppliers that are not located in the
  CBA but that will furnish the product category to
  beneficiaries within the CBA, must be included in
  the bid.

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Bidding Eligibility

• Bidders must abide by the final quality
  standards, including financial, business, and
  customer service standards, in addition to
  product-specific standards. (Note Many HMEs
  already comply!)
• CMS requires evidence of financial resources to
  support potential market expansion.
• In 2007 CMS analyzed certain financial ratios of
  bidders. 

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EVALUATION OF BIDS AND AWARD OF CONTRACTS

• CMS will determine the expected beneficiary
  demand for items in each category in each CBA,
  based on claims data from earlier years, to
  determine how many contract suppliers will be
  needed to meet the demand.
• It will require suppliers to estimate in their
  bids their capacity for supplying bid items in
  the CBA.
• CMS may adjust these estimates based on the
  suppliers claims history and financial
  resources.

85
Supplier Capacity

• If a supplier estimates that it can furnish more
  than 20 percent of the expected beneficiary
  demand for the product category in the CBA, CMS
  will lower that suppliers capacity estimate to
  20 percent.
• This capacity adjustment is necessary to ensure
  that at least 5 suppliers furnish the items per
  product category. According to CMS, sufficient
  contract suppliers in the CBA to provide
  beneficiaries with variety and choice.

86

• In January CMS also stated that that if there
  were too few bids to meet the market demand for a
  product category in a CBA, there would be no bid
  rate set and they would follow the fee schedule
  amount for that product category.
• When beginning a second round of bidding in those
  CBAs, CMS said they would revisit those product
  categories and determine whether it was
  advantageous to rebid them in subsequent rounds.

87
Bidding

• Bidding by product categories requires bidders to
  submit bids on multiple items (by HCPC code)
  within the product category. CMS will aggregate
  these individual bids into a composite bid in
  order to compare bidders with each other. The
  composite bid would be equal to the weighted
  sum of the bids for the items in the product
  category.

88
The Bid Process

• Competitive bidding items will be included in
  product categories and identified by HCPCS codes.
  Suppliers may choose to bid on one, some, or all
  of the product categories, but if they bid on a
  category, they must bid on each item included in
  the category.
• Bidders who bid at or below the pivotal bid are
  winning bidders, assuming they meet accreditation
  and other requirements.
• CMS will use the median price (the middle bid)
  of the bids submitted by the winners

89
The Pivotal Bid

• This is the point where beneficiary demand is met
  by supplier capacity. Generally, all bids above
  this point (in ) are non-contract, or losing,
  bidders.
• CMS will evaluate the composite bid of all
  eligible bidders for an entire product category,
  and begin with the lowest bid, and add
  subsequently higher bids until the capacity is
  met.
• CMS states this will offer the lowest expected
  costs to Medicare for all items in a product
  category.

90

• Confused over the composite bid or pivotal
  bid terms?
• Lets use an example

91
Respiratory Assist Devices and CPAP Category
Bidding Example Assume CBA Capacity 100
HCPC E0601 E0470 E0471 A7030 Weight 0.4 0.3
0.2 0.1 (Total of all HCPC 1.00) Supplier
and Bids Per Each HCPC Code 1 90 185 202 5
2 2 82 180 170 42 3 85 175 190 50 4 87 1
92 185 41 5 94 170 200 40 6 100 181 207
50 7 80 170 188 38 8 86 183 190 44 9 87
190 206 48
Important Note Bid amounts do NOT reflect
actual or proposed product fee schedules. All
examples are for ease of illustration purposes
only!
92

• On Form B (which we will detail shortly) each
  bidding supplier electronically inputs one bid
  price for every HCPC code in the category. In
  this case, there are only four codes for example
  purposes.
• The electronic program then multiplies each HCPC
  bid times the weight amount assigned by CMS. The
  total of the HCPC weights will always equal 1.00.
  This allows the CBIC to compare the multiple
  product bids of many suppliers. The next slide
  provides an example.

93
Apply HCPC Weights

• HCPC E0601 E0470 E0471 A7030
• Weight 0.4 0.3 0.2 0.1
• 1 90 36 185 56 202 40 52 5
• 2 82 33 180 72 170 34 42 4
• 3 85 34 175 70 190 38 50 5
• 4 87 35 192 77 185 37 41 4
• 5 94 38 170 68 200 40 40 4
• 6 10040 181 72 207 41 50 5
• 7 80 32 170 68 188 38 38 4
• 8 86 34 183 73 190 38 44 4
• 9 87 35 190 76 206 41 48 5

94

• The program then sums all of the weighted bids.
  This number is undefined, that is, it does not
  suggest a price for any code. It only allows the
  CBIC to compare the overall category bids from
  low to high. Lets return to the example

95
Sum Weighted HCPC Bids To Obtain Composite
Category Bid
HCPC E0601 E0470 E0471 A7030 Weight 0.4 0.3
0.2 0.1 1 90 36 185 56 202 40
52 5 137 2 82 33 180 72 170 34
42 4 143 3 85 34 175 70 190 38
50 5 147 4 87 35 192 77 185 37
41 4 153 5 94 38 170 68 200 40
40 4 150 6 100 40 181 72 207 41
50 5 159 7 80 32 170 68 188 38
38 4 141 8 86 34 183 73 190 38
44 4 150 9 87 35 190 76 206 41
48 5 157
96

• In this example, the composite bids from all the
  suppliers ranged from 137 to 159. (Remember
  this composite figure does not represent a
  price for an item it is only a method to compare
  the suppliers.
• How many bidders will be accepted and offered
  contracts to supply Respiratory Devices for this
  CBA? We know in this simple example that the
  Medicare capacity was 100. We will now review
  the bidders capacity estimates

97
Determine Capacity of each Supplier (Units)
Capacity of CBA is 100
Supplier Composite Capacity Bid 1 137
15 2 143 14 3 147 18 4 153 7 5 150
13 6 159 7 7 141 60 8 150 18 9 157 9
Total Supplier capacity is 171! So which
suppliers win?
98
Array the Suppliers by Lowest Composite Bid
Supplier Comp. Bid Capacity 1 137 15 7 141
60 2 143 14 3 147 18 5 150
13 8 150 18 4 153 7 9 157 9 6 159
17
99

• In this example, supplier 1, with a composite
  bid of 137, is lowest for this CBA. However,
  this facility can only supply 5 units (or 5) of
  the Medicare-estimated demand. Thus, the next
  highest supplier will be offered a contract.
• BUTthe next highest supplier has a capacity of
  60, or 60 of the total estimated demand. This
  bid will be limited to 20, or 20 units.
• Important Note! Winning suppliers are never
  limited in the amount of products provided to
  Medicare beneficiaries during the contract
  period! In the example above, the supplier may
  be reimbursed for 60 (or 600!) units.

100
Array the Suppliers by Lowest Composite Bid Until
Capacity (100) is Reached
Supplier Comp. Bid Capacity
Cumulative 1 137 15 15 7 141 60 (20
rule ) 35 2 143 14 49 3 147 18
67 5 150 13 80 8 150 18
98 4 153 7 105 9 157 9 6 159 17
101

• In this example seven of suppliers will be
  offered contracts (assuming each facility
  satisfies all requisite standards and other
  criteria).
• Unless an exception occurs (of which we will
  review shortly) all suppliers who bid higher than
  153 are non-contract, or losing bidders. These
  companies may not accept, or be directly
  reimbursed for, new Medicare RAD patients for the
  duration of the contract (3 years).
• Butwhat will the winners be paid?

102
The 7 Suppliers Receive the Median of Each HCPC
Code
1 90 36 185 56 202 40 52 5 137
7 80 32 170 68 188 38 38 4 141
2 82 33 180 72 170 34 42 4 143
3 85 34 175 70 190 38 50 5 147
5 94 38 170 68 200 40 40 4 150
8 86 34 183 73 190 38 44 4 150
4 87 35 192 77 185 37 41 4 153
103

• Note that the original nine bids for received for
  CPAP ranged from 80 to 100. However, the
  pivotal bid limit excluded some suppliers from
  being offered contracts. Their unit bids do not
  count to determine the median price. Only
  winning bidders are included.
• Of the winners, the bids for CPAP ranged from 80
  to 94. The median bid was 86.
• Hence, it is important for Round 2 bidders to
  recognize that the actual payment amount is not
  the average, but the middle. And, very few
  suppliers will be paid what they actually bid.
• Lastlythe danger of Round 1 low-ball bids
  should now be more evident!!!

104
Bid Weights HCPC Crosswalk

• The HCPC weights and bid limits (current
  Medicare fee schedule) are available for review
  on www.dmecompetitivebid.com.
• Many industry stakeholders (VGM, Invacare, Roho,
  Nestle) have developed electronic/spreadsheet-type
  tools to assist providers on HCPC cross-walk to
  product number, pricing, discount tools, etc.

105
Weight Utilization May Be Confusing!!!

• Bids are weighted by utilization and not expenses
  ( reimbursed by Medicare).
• Low cost high utilization items have high weights
  whereas high cost low volume items have low
  weights.
• When the weights are applied within a product
  category, the effect is to possibly distort the
  composite bid amount in a way that is not
  immediately obvious! (see example)

106
For examplein CPAP/RAD

• A7038 (FILTER, DISPOSABLE) is weighted (out of
  1.00) -- 0.224623254, and the one unit fee
  schedule amount is 5.39
• E0601(CONTINUOUS POSITIVE AIRWAY PRESSURE) is
  weighted (out of 1.00) --0.0601943846, and the
  one unit fee schedule amount is 1,052.60

107

• And lets take a look at the weighting effect to
  the composite bid

108
(No Transcript)
109

• Special rules

110
The Small Supplier Target

• In the Final Rule CMS changed the definition of a
  small supplier to be a supplier that generates
  gross revenue of 3.5 million or less (compared
  to the proposed rules 6 million in revenues.)
• CMS set a target number of 30 for small supplier
  participation.  Small suppliers must meet all
  bidding requirements.  

111

• CMS will review whether the number of small
  suppliers whose bids are at or below the pivotal
  bid is less than the 30 CMS target number.
• If the number of small suppliers is lower, CMS
  will offer small suppliers whose bids were most
  close to, but above, the pivotal (cutoff) bid,
  the option of accepting a contract to furnish the
  product category at the contract amount. 
• Many HMEs are confused by this targetNOT the
  same as the SBA small business set-aside!

112
Important Note!

• The 30 target requires 30 of the winning
  bidders to be designated as small suppliers.
  This does NOT suggest that 30 of the Medicare
  payments in any product category will be directed
  to small suppliers.
• Effectively, there is no guarantee of any minimum
  percentage directed to small suppliers.

113
Commonly Owned Entities Small Supplier
Designation

• CMS has confused many providers with this issue!
  
• A common question is if my commonly owned
  business is not an HME/DME does it count
  towards my 3.5M small supplier revenue?
• Answer Maybe (!)

114
Examples

• (1) DME/HME operation does 2M in annual
  revenues. Owner also has 5 or more interest in
  a retail pharmacy with 2M annual revenues.
• (2) Same DME/HME assumption, with interest in 2M
  home infusion operation
• (3) Same again, with interest in 2M retail lift
  chair and home modification operation.

115
So

• Assuming examples 1 (pharmacy) and 2 (home
  infusion) offer Part B benefits to Medicare
  patients, these entities are considered a
  supplier
• Assuming example 3 (retail only lift chairs/home
  mod) does NOT offer Part B benefits/does not
  serve Medicare beneficiaries , this entity is not
  considered a supplier.
• CMS Common ownership of SUPPLIERS hence
  example 3 does not apply to overall revenue.
  Examples 1 and 2 do apply!

116
Payments

• CMS will pay the supplier 80 of the single
  payment amount for the item in the CBA where the
  beneficiary maintains a permanent residence.
• The remaining 20 will be the beneficiarys
  coinsurance responsibility.
• The payment amount will remain in effect for the
  full three-year term of the contracts they will
  not be adjusted for inflation.
• Contract suppliers will be required to accept
  assignment.
• Suppliers may still use ABNs for items for which
  Medicare might not pay.

117
If a supplier declines the bid

• If one of the successful bidders decides not to
  accept a contract, then a contract will be
  offered to the supplier whose composite bid was
  the lowest of the unsuccessful bids

118
Beneficiary/Travel Rules

• Beneficiaries whose permanent residence is in a
  CBA will be permitted to obtain competitively bid
  products only from contracted suppliers within
  that same CBA.
• Beneficiaries whose permanent residence is in a
  CBA and travels to an area not covered by the
  competitive bid program may get items from any
  Medicare-enrolled DME supplier, but that supplier
  will be paid by Medicare as if it were in the
  beneficiarys competitive bidding area.

119

• Beneficiaries whose permanent residence is in an
  area not covered by the program and travels to a
  competitive bidding area must get the
  competitively bid item from a contract supplier
  in the competitive bidding area.
• IMPORTANT UPDATE! If the beneficiary does not
  use a contract supplier, the noncontract supplier
  must ask him/her to sign an Advance Beneficiary
  Notice. Medicare will not pay for competitively
  bid items furnished by noncontract suppliers.

120

• A signed ABN indicates that the beneficiary was
  informed in writing prior to receiving the item
  that there would be no Medicare coverage due to
  the supplier's contract status, and that the
  beneficiary understands that he/she will be
  liable for all costs that the non-contract
  supplier may charge the beneficiary for the item.
• If a non-contract supplier furnishes a
  competitively bid item to a beneficiary and the
  beneficiary signs an ABN, the supplier must use
  the GA modifier on their claim. If the GA
  modifier is not present on the claim, the
  supplier may not hold the beneficiary liable for
  the cost of the item.

121

• Beneficiaries whose permanent residence is not in
  a CBA and travels to an area not covered by the
  competitive bid program may get items from any
  Medicare-enrolled DME supplier.
• Finally, regardless of permanent residence or CBA
  travel, beneficiaries may obtain products not
  included in the competitive bid program from any
  Medicare-enrolled DME supplier.

122
A note to billing personnel

• An series of K ___ modifiers will be required to
  account for the array of billing options. A
  draft of the schedule should be available shortly
  and will be available on dmecompetitivebid.com
• CMS to the Regulatory Committee We will ensure
  the Common Working File (CWF) is accessible and
  accurate with regard to the beneficiarys
  permanent residence ZIP code and other important
  data

123

• CMS is conducting extensive outreach to Medicare
  beneficiaries who reside in the CBAs and will be
  offering to help them identify contract
  suppliers.
• If DME suppliers or referral agents are unsure
  whether a beneficiary resides in a CBA and is
  affected by this program effective July 1, they
  can make that determination by comparing the ZIP
  code of the patients residence to the list of
  ZIP codes for the CBAs, which is available at
  http//dmecompetitivebid.com/Palmetto/Cbic.nsf/doc
  sCat/DMEPOS20Com

124
Grandfathering/Transitioning

• Monthly rental oxygen Arrangements entered
  into before the start of a competitive bidding
  program can be continued. The supplier must
  agree to accept the competitive bidding price.
  Losing suppliers cannot take on new patients for
  these items.
• Inexpensive/routinely purchased items furnished
  on a rental basis, items requiring frequent and
  substantial servicing, and capped rental items
  Grandfathered supplier may continue furnishing
  these items in accordance with existing rental
  agreements.

125

• Grandfathering allows beneficiaries to continue
  to rent items from their existing supplier, even
  if that supplier has lost its contract status
  under a subsequent competitive bidding program.
• CMS intent is to drive all business for
  competitively bid products to the contract
  supplier. As previously noted, beneficiaries who
  visit a CBA and need bid products are required to
  obtain them from a contract supplier. Conversely,
  beneficiaries who live in a CBA and need bid
  products when they visit other areas can obtain
  the equipment from any Medicare supplier.
  However, Medicare will only pay the competitive
  bidding contract amount for the item.

126

• The proposed rule required winning bidders to
  accept every beneficiary in the CBA no matter how
  many months rental they have remaining on their
  equipment. CMS refers to this as a beneficiary
  protection in the event the beneficiary has a
  supplier who loses the bid and does not agree to
  the grandfathering terms.
• However, the final rule somewhat mitigated
  supplier concern relative to the monthly rental
  issue

127

• For oxygen, CMS allows suppliers that must begin
  furnishing oxygen equipment after the rental
  period has already begun to a beneficiary who is
  no longer renting the item from his or her
  previous supplier (because the previous supplier
  elected not to become a grandfathered supplier or
  the beneficiary elected to change suppliers) will
  receive at least 10 rental payments for
  furnishing the equipment.
• If the beneficiary transitions to a new contract
  supplier, the oxygen and oxygen equipment must be
  returned to the original supplier that owns the
  equipment.

128

• For capped rentals, CMS allows suppliers
  furnishing items to a beneficiary who is no
  longer renting the item from their previous
  supplier (because the previous supplier elected
  not to become a grandfathered supplier or the
  beneficiary elected to change suppliers) to
  receive 13 monthly rental payments for the item,
  regardless of how many monthly rental payments
  Medicare previously made to the prior supplier
  (assuming the item remains medically necessary).
• At the end of this new 13 month rental period,
  the contract supplier will still transfer title
  to the capped rental item to the beneficiary.

129
Important Exception

• This rule does not apply when a beneficiary who
  is renting a capped rental item from a contract
  supplier elects to obtain the same item from
  another contract supplier, because the
  grandfathering provisions only apply to those
  situations in which a beneficiary had been
  previously receiving the item from a non-contract
  supplier.
• A new contract supplier would be paid rental only
  for the duration of the rental period.

130
Grandfathering Other Items

• CMS We do not believe we have authority to
  allow grandfathering for other DMEPOS, such as
  glucose testing supplies and enteral nutrition,
  equipment, and supplies.

131
Other Payment Provisions

• If Medicare is the secondary payor for a
  beneficiary who resides in a CBA, and the primary
  insurer requires the beneficiary to obtain items
  from a supplier that is not a contract supplier,
  then Medicare may pay the secondary payment to
  the noncontract supplier.
• If a beneficiary receives an item covered under
  competitive bidding from a noncontract supplier
  within a CBA, and payment is not grandfathered,
  then the beneficiary will have no financial
  liability to the supplier. .

132
Specific Brand

• A physician may prescribe a particular brand of
  an item, or a particular mode of delivery, if it
  is determined the brand or mode of delivery would
  avoid an adverse medical outcome for the
  beneficiary.
• The supplier must either provide the brand/mode
  prescribed or consult with the physician to find
  an appropriate alternative brand/mode and obtain
  a revised prescription, or, alternatively, assist
  the beneficiary in locating a contract supplier
  that can furnish the prescribed item.

133
Specific Brand Payment

• Medicare will pay the supplier only the single
  payment amount. The regulations specify that
  there is no extra payment for a specific brand or
  mode of delivery ordered by a physician.

134
Repair and Maintenance

• Repair and maintenance of competitively bid
  items, including replacement parts, may be
  provided by any supplier with a Medicare billing
  number.
• Payment for parts and labor will be generally as
  it is now. Details are as follows

135
Repair ONLY

• A beneficiary who owns a competitively bid item
  that needs to be repaired may have the repairs
  performed by either a contract supplier or by a
  non-contract supplier. In these cases, Medicare
  pays for reasonable and necessary labor not
  otherwise covered under a manufacturers or
  suppliers warranty.

136
Repair and Replacement

• If a part needs to be replaced in order to make
  the beneficiary-owned equipment serviceable, and
  the replacement part is also a competitively bid
  item for the CBA in which the beneficiary
  maintains a permanent residence, the part may be
  obtained from either a contract supplier or a
  non-contract supplier. In either case, Medicare
  pays the single payment amount provided under the
  Competitive Bidding Program for the replacement
  part.

137
Replacement ONLY

• Beneficiaries maintaining permanent residences in
  a CBA are required to obtain replacement of all
  items subject to competitive bidding from a
  contract supplier. This includes replacement of
  base equipment and replacement of parts or
  accessories for base equipment that are being
  replaced for reasons other than servicing of the
  base equipment.
• Beneficiaries who are not permanent residents of
  a CBA but require a replacement of a
  competitively bid item while visiting a CBA, must
  obtain the replacement item from a contract
  supplier. The supplier will be paid the fee
  schedule amount for the state where the
  beneficiary is a permanent resident.

138
Mail Order Diabetic Supplies

• Medicare beneficiaries who permanently reside in
  a CBA may purchase their diabetic testing
  supplies from a mail order contract supplier for
  the area in which the beneficiary maintains a
  permanent residence or a non-contract supplier
  in cases where the supplies are not furnished on
  a mail order basis.

139

• The term mail order refers to items ordered
  remotely (i.e., by phone, email, internet, or
  mail) and delivered to the beneficiarys
  residence by common carriers (e.g., U.S. Postal
  Service, Federal Express, United Parcel Service)
  and does not include items obtained by
  beneficiaries from local supplier storefronts.
• Mail order contract suppliers will be reimbursed
  at the single payment amount for the CBA where
  the beneficiary maintains a permanent residence.
• For diabetic supplies that are not furnished
  through mail order, suppliers will be paid the
  fee schedule amount.

140

• Medicare payment will not be made to non-contract
  suppliers that furnish mail order diabetic
  testing supplies to Medicare beneficiaries
  residing in a CBA. A special modifier, KL, will
  be used on each claim to indicate that the item
  was furnished on a mail order basis.
• Note Suppliers that furnish diabetic testing
  supplies on a mail order basis and do not attach
  the mail order modifier could be subject to
  significant penalties under the False Claims Act.
• It is solely up to the beneficiary to decide
  whether or not they wish to obtain their diabetic
  testing supplies on a mail order basis.

141
Education and Outreach

• CMS will conduct intensive beneficiary and
  referral agent education campaign beginning in
  2008
• Resources include customer service support and
  ombudsmen networks. The claims processing system
  will also be used as a vehicle for information
  relating to this program.
• An instructional Webinar for suppliers is now
  available on www.dmecompetitivebid.com.

142
Inherent Reasonableness??

• NCB will generate a rich HME database even if it
  doesn't result in substantial cost savings.
• CMS will have detailed information on what
  bidders in the first 10 MSAs are willing to
  charge and, by implication, how low they can go
  and still stay in business. CMS could use the
  data to impose an inherent-reasonableness
  standard on the entire industry.

143
Other Final Rule Changes or Clarifications

• Proposed CPI increases over three year period
  removed No Payment Adjustment to Account for
  Inflation
• Starting in 2009 CMS has the authority to adjust
  payment amounts in non-bid areas based upon bid
  amounts in bid areas
• CMS will not require that repairs of
  beneficiary-owned competitively bid items be
  performed by contract suppliers. This policy
  will also apply to maintenance services required
  by the DRA.
• After considering generally negative comments,
  CMS removed the rebate program.

144
Change of Ownership

• If a contract supplier is acquired by or merges
  into a non-contract supplier, and the noncontract
  supplier meets the requirements for contract
  suppliers, CMS may award a contract to the
  acquiring supplier. CMS believes that a supplier
  should not automatically become a contract
  supplier by merging with or acquiring a cont