It boils down to cost, cost and more cost

Thursday, May 31, 2007

As providers brainstorm how to craft a bid for the first round of national competitive bidding, they've shined a spotlight on the acquisition costs of equipment and the services supplied to Medicare beneficiaries.
"Cost of equipment, cost of service, costs of getting paid by Medicare. Cost, cost, cost," is how Tom Fry owner of Sunbelt Medical Supply & Oxygen in Orlando, Fla., summed up his bidding strategy.
Because costs lurk all over the place in day-to-day business, suppliers are weighing myriad influences as they tease out their bids. Those factors include quality of product, current reimbursement rates, accreditation and the role a manufacturer may play in helping to offset the pending reimbursement cut.
At the same time, suppliers know the successful bid is not merely a function of cost. They're also peeking around the corner at what their competitors are likely to do.
"Cost-based estimates are a great place to start, but I think you need to bid based on what you think your competitors can do it for and not necessarily what you would be most comfortable with as a company. You may have to manage within a lower number but it's better than losing the revenue all together," said Brennen Garry, president of Unimed in Kansas City, Mo.
Likewise, Carol Gilligan, president of Health Aid of Ohio in Cleveland, Ohio, is considering "what we feel other companies may bid" as a determinant.
As suppliers mull the costs of service, the geographical expanse of an MSA is high on the list of considerations. If travel-time to the far-flung reaches of an MSA are significant, they go into the bid.
Some suppliers are digging as deeply as possible into existing demographics and statistics. John Serafin, the vice president of Provider Plus in St. Louis, is looking into "annual Medicare spending and the number of beneficiaries in an MSA or state for that product class or HPCS versus total MSA or state spending and the number of beneficiaries," he said. " And every other possible statistical piece of information we can get our hands around."
From the wings, suppliers who'll be subject to competitive bidding two years from now plan to see what brews in the coming months.
"We will be reviewing the bid allowables for the 10 cities in 2008, and depending on the average bid price, decide if we can offer those products at a profit," said David Daniel, CEO of Medi-Serv in Oklahoma. "If not, we may not bid on them."
Some are worried that suppliers may bid too low.
"Those preparing their bids should carefully understand their costs per HCPC code (Activity Based Costing) so they don't bid so low as to not make a reasonable profit," said Mike Kuller, president of AllStar Oxygen Services in Concord, Calif. "Their pricing will probably affect all of us in 2009."
Reckless bidding also a worries Syd Gubin, president of Home Health Supply, DBA The Seating Center in Palm Springs, Calif: "My concern are naive HME's that think that they can deeply discount services so that they will win a bid and expect manufacturers to make up the difference."
But suppliers do expect discounting from manufacturers as they wade in the unknown perils ahead. Tammy Zelenko, president and CEO of Advacare Home Services in Bridgeville, Pa., said her company is "working with the manufacturers to ensure we are negotiating the best prices possible, without compromising the quality of the equipment."