Carving out contracts: New scheme or practical solution?

Friday, July 18, 2014

WASHINGTON – CMS’s proposal to allow contract suppliers to sell specific lines of business could jolt M&A activity in the HME industry, but not necessarily in a good way, industry watchers say.

As part of a proposed rule published in the Federal Register on July 11, CMS proposes “establishing an exception to the prohibition against subdividing a contract that would allow a contract supplier to sell a distinct company that furnishes a specific product category or (serves) a specific competitive bidding area.”

Industry watchers like Don Davis worry the plan would reward contract suppliers that submitted low-ball bids by increasing the value of their contracts.

“It’s like ticket scalping,” said Davis, president of Duckridge Advisors. “It gives providers a ticket for bidding artificially low rates, even though they never intended to play the game, and makes it easier for them to sell it for a profit, because there are fewer legal restrictions. It’s crazy.”

As part of the plan, CMS would: sever the product categories and bid areas that the company serves, along with the company’s location, from the original contract; incorporate those product categories, bid areas and location into a new contract; and transfer the contract to a new owner under specific circumstances.

The plan would apply to all current and future rounds of competitive bidding.

It’s true that where you stand on competitive bidding has a lot to do with whether or not you view the plan positively or negatively, but industry watchers say the plan makes sense for several reasons.

“I’ve had situations, for example, where a company has purchased a company whose contracts included beds and oxygen, but all they wanted was mobility,” said Denise Leard, a healthcare attorney with Brown & Fortunato. “They don’t end up doing a lot with beds and oxygen, but they’re still responsible for them. If they could sever them, that would be wonderful.”

As for CMS’s motive for such a proposal? Leard says the agency may have realized the cumbersomeness of having “one big contract.”

“In Tennessee, where there were instances of providers with contracts that didn’t have licensure or a location, there was some concern they could have their whole contract taken away,” she said. “What they ended up doing is taking away just that part. In a real-world situation, you need more flexibility.”

That flexibility may come in handy especially for providers with multiple locations across the country but one tax ID, and providers with 5% or more common ownership, industry watchers say.

“CMS is not throwing in the towel and saying anything goes, but attorneys like me can work with this kind of expansion to be able to do a lot,” said Neil Caesar, president of the Health Law Center.