Inflation throws wrench into bids

Wednesday, April 30, 2008

There's a real concern among industry watchers that providers who decide to participate in Round 1 of national competitive bidding could, as one insider said, "lose their shirts" if not careful.
The culprit here is inflation. Over the past few months, key inflation measures have jumped significantly and appear poised to continue their rise. For that, you can thank the slumping dollar, rising commodity prices and other economic factors.
As a result, Round 1 bids submitted Sept. 25, 2007, may be outdated.
"I think it would be dangerous to assume that the cost of goods and labor will be static for the course of three years," said industry consultant Wallace Weeks.
When providers crafted their bids last fall, the annual rate of core wholesale inflation stood, as it has for many years, at between 2% and 3%. In February, core inflation hit 0.5%, which if extended over an entire year would equal 6%. The 0.5% increase in February was the fastest pace in more than a year.
Since providers in Round 1 submitted their bids, many HME manufacturers have increased their product prices by 3% to 6%, mainly due to the increased cost of doing business in China. Several manufacturers said there's a growing likelihood that there will be more increases later this year.
The VGM Group's Mark Higley said most of the providers he's talked to failed to adequately analyze inflation, minimal acceptable margins, product costs and other factors that figure into a bid. That's not necessarily a bad thing.
"We are hearing from many providers in Round 1 that they are going to wait until the pricing schedule is released and then decide if they will accept," said Higley, vice president of development. HME