Analysis: NCB not for the faint of heart

Sunday, April 15, 2007

(Editor's note: Industry attorney Asela Cuervo will write a weekly column for the HME NewsWire that explains different parts of CMS's final rule for competitive bidding. Next week she tackles "grandfathering.")

Earlier this month, nearly a year after it published the proposed rule to implement national competitive bidding, CMS published the final rule. For many suppliers and others affected by competitive bidding, this begins a new phase in a transition that has been in progress for more than 10 years. There are those for whom competitive bidding may have seemed academic compared to the day-to-day challenges of running their businesses. Now, however, it will be impossible to avoid. Competitive bidding will dominate the business climate even beyond the first 10 metropolitan statistical areas (MSAs).

Reviewing the entire 400-page document issued by CMS is not for the faint of heart, but there may be a few surprises for those that do. What is not surprising is the amount of discretion that CMS has retained in administering the program. For example, although the preamble to the rule acknowledges that the Medicare Modernization Act of 2003 (MMA) requires CMS to implement the program in a way that maximizes savings for Medicare, CMS will not identify how it will determine whether the bids submitted meet this threshold. Instead, CMS will decide that the savings it can achieve are adequate after it has reviewed the bids submitted for any given product.

CMS has also established an aggressive agenda to initiate the program. Contrary to the recommendations of many PAOC members, CMS will not phase-in bidding for the first 10 MSAs. Instead, it will begin with all 10 MSAs at once. A phase-in approach would have been a reasonable alternative because CMS has no experience with competitive bidding on a wide scale. The program is still experimental, so beginning on a smaller scale would have allowed CMS to address and correct any problems rather than having to address problems in 10 MSAs at once. Similarly, CMS has chosen a large number of products for bidding in each MSA. This diminishes the possibility that suppliers might be able to diversify their scope of service in a way that offsets the impact of competitive bidding.

It is also interesting that, at a time when CMS is emphasizing the need to give Medicare beneficiaries more choices, beneficiaries subjected to competitive bidding will have fewer choices of suppliers, unless they agree to pay for their DMEPOS item out-of-pocket by signing an ABN. The program is analogous to a closed panel HMO, a managed care model that has long been disfavored. Given that competitive bidding represents a radical departure from the Medicare fee-for-service DMEPOS benefit, CMS recognizes the need to protect beneficiaries, but the scope and scale of the program is so large that this may prove a bigger challenge than CMS anticipates--at least initially.

In recent weeks, CMS has expressed surprise that the number of suppliers seeking accreditation has been much lower than what they had expected. If this is true, the bidding timeline CMS announced may have caught some suppliers in the first 10 MSAs off-guard. CMS stated that it will begin the bid process by the end of April and leave the bids open for 60 days. CMS will only contract with accredited suppliers, but it will permit unaccredited suppliers to submit bids as long as they have initiated the accreditation process. It is unclear whether suppliers who have initiated accreditation can be fully accredited in the amorphous timeframe CMS has identified. More importantly, many PAOC members recommended to CMS that it allow only accredited bidders to submit bids. Including bids from unaccredited suppliers in the bid pool negatively impacts the supplier evaluation and selection process by skewing the bids downward.

The final rule also contains some significant departures from the proposed rule. CMS modified the requirements that would apply to networks. The opportunity to participate in a network would be limited to small suppliers, defined as those with $ 3.5 million or less in gross receipts. Networks would also be limited to a maximum of 20 small suppliers, and suppliers participating in a network would be required to meet other requirements such as attesting to their intent for participating in the network. An interesting twist is that the network entity under the final rule appears to be a more loosely integrated entity than the proposed rule would have required. For example, under the final rule, network members would be responsible for their own billing whereas the proposed rule would have required that one network member bill on behalf of the network. Although this might reduce costs for an individual network member, it could make network administration more complex.

To offset the impact of the transfer of ownership provisions under the Deficit Reduction Act of 2005 (DRA), CMS will extend rental payments to contract suppliers for oxygen and capped rental equipment when they are forced to accept beneficiaries with an ongoing rental. For capped rental equipment, CMS will pay for an additional 13 months of rental. For oxygen, CMS will pay for only 10 additional months. While the 13 months of payment for DME seems adequate, it is unclear whether the oxygen payments will be sufficient.

The final rule also abandons the proposal to allow winning bidders to give beneficiaries rebates in an amount equal to the difference between their bids and the single payment amount. CMS agreed with comments opposing rebates because they could create problems under the fraud and abuse laws and regulations.

Given the short timeline for bid submission and the scope of the program overall, suppliers who expect to bid face some significant challenges. Suppliers in the rest of the country will have some time to prepare and to learn from others' experience as the program unfolds. Clearly, it would be a mistake for anyone to view preparing for competitive bidding as an academic exercise.

Asela Cuervo is a healthcare attorney based in Washington, D.C.