Competitive bidding analysis

Sunday, April 29, 2007

Competitive bidding poses a number of challenges for suppliers who expect to submit bids. One of the biggest is determining how to come up with an accurate bid given the many unknown variables that can affect the winning supplier's business. For example, unlike most managed care contracts, CMS will not guarantee winning suppliers a specific number of lives for the duration of the three-year contract. (Bidders are, however, likely to have information about historic utilization for specific products in an MSA.)

An issue that will challenge bidders is how to factor into their bids compliance with the transfer of ownership provisions for capped rental DME and oxygen equipment. The final competitive bidding rule requires all winning bidders in a competitive bidding area (CBA) to accept any Medicare beneficiary who requests their service. Because providers must transfer ownership of capped rental DME and oxygen equipment after 13 and 36 monthly payments respectively, predicting how many beneficiaries may decide to change suppliers in the middle of an existing rental for DME or oxygen may prove difficult.

The final rule anticipates that this could be problematic and provides limited relief to account for beneficiaries who switch suppliers after competitive biding begins. CMS has established a minimum payment amount for contract suppliers who accept capped rental or oxygen patients transferring from noncontract suppliers. For capped rental DME, CMS will pay the new contract supplier for a full 13 months. Contract suppliers who accept an oxygen patient in month 27 or later will receive 10 months payment. In other words, the supplier would get paid for at least 10 months for an oxygen beneficiary who switches suppliers.

This rule applies only when the beneficiary changes from a noncontract to a contract supplier in a CBA. The rule would not apply if the beneficiary migrates from one winning supplier to another. It is unclear why CMS would choose to make this distinction given that the impact is the same for the supplier that accepts the beneficiary under each of these scenarios. It is also likely that a minimum of 10 monthly payments will not be sufficient to offset the ongoing costs of servicing oxygen patients. In any case, suppliers should factor these rules into their assumptions when they formulate their bids.
Healthcare attorney Asela Cuervo is based in Washington, D.C.