Rotech prevails in VA dispute

Saturday, September 30, 2006

WASHINGTON - A federal court of claims judge sided with Rotech in August, ruling that the Department of Veterans Affairs' contracts for home oxygen therapy are supply--not service--contracts.
The VA hasn't decided whether it will pursue an appeal of the judge's decision. One thing's for sure, though: As a result of the ruling, the department will change its template for home oxygen contracts, said Merilee Rosenberg, a VA attorney.
"We really feel they're service contracts," she said.
Earlier this year, Rotech protested the VA's plans to award several small providers small business set-aside contracts for home oxygen. Rotech argued the contracts were supply contracts, and therefore, the providers had to comply with what's known as the "non-manufacturer rule." In small business set-aside contracts, the rule requires small providers to buy equipment from small manufacturers--those that employ fewer than 500 employees.
The VA must now go back to the providers it had planned to award the contracts to and ask them if they can comply with the rule, Rosenberg said. "If that's a possibility, we can issue an amendment," she said. If not, "we have to do something different."
Although Rotech filed protests in only two VISNs, the judge's decision will likely affect all of the VA's small business set-aside contracts, industry sources said. That puts providers like Sandra Hoskin, who holds a VA home oxygen contract for VISN 16, in limbo.
"We just hope we're able to hold on (to our contract)," said Hoskin, president of the Houston-based American Medical Equipment, which provides oxygen services to about 1,500 VA patients.
In late August, Hoskin completed a form to certify that she met the non-manufacturer rule. She gets her concentrators from AirSep and cylinders from Hy-mark.
Although the judge's ruling doesn't necessarily mean Rotech will be able to pick up the protested contracts, it may help them in the long run, said one industry source.
"(This ruling) could kill small businesses," he said. "If a small business, which has to go out and hunt for a small manufacturer, is forced to bid against Rotech, which can go out and use its buying power to come in at a killer rate, this definitely helps Rotech."
A provider who, like Hoskin, holds a VA home oxygen contract, agreed: "We're heavily committed to the VA--it's the majority of our business," he said. "It would be devastating to us, if the VA were unable to continue using small businesses."
The Department of Justice, which represents the VA in federal court, has filed an appeal to give the VA time to "mull over" its next move, Rosenberg said.
"It's an interesting issue," she said. "It's not an easy one to resolve, and it's not an easy one to give guidance on, based on the judge's ruling, because there is too much left unsaid."