Round 2 bids: ˜We don't want the winner's curse'

Saturday, May 31, 2008

Will the pricing for Round 1 of national competitive bidding influence bid amounts for Round 2? Hopefully, not much, say providers located in the Round 2 competitive bidding areas (CBAs).

“Bidding in Round 1 was crazy and irresponsible, and bidding in Round 2 needs to be realistic and responsible, even if it means losing a bid,” said Todd Tyson, president of Hi Tech Homecare in Marietta, Ga., one of the 70 Round 2 CBAs. “We don’t want the winner’s curse.”

Like most of the industry, Round 2 bidders were shocked by Round 1 prices--a 26% cut, on average, to the current Medicare fee schedule. They say many Round 1 bidders panicked and threw cost analyses out the window to ensure wining bids.

Now, industry sources fear some Round 2 bidders will base their bids on Round 1 prices, not the current Medicare fee schedule, resulting in an additional 10% to 20% cut.

“We’re trying to figure out who would go lower than (Round 1 prices),” said Jay Broadbent, president of Alpine Home Medical Equipment in Salt Lake City, a Round 2 area. “That’s a scary thought.”

Provider Marcia Togami expects Round 2 bidders to submit prices at Round 1 prices or a little higher.

“I need my margin--that black ink on the bottom line,” said Togami, the billing manager for A&R Medical in Albuquerque, N.M., a Round 2 area.

“On the other hand, we can’t afford to bypass competitive bidding. So we’re analyzing our numbers and demographics to see what prices will still allow us to make a profit.”

Round 2 bidders admit they have somewhat of an advantage. They have more time to study their costs, including inflation. Provider Jim Poteet has even befriended a Round 1 winning bidder through a software vendor they have in common.

“They’ve invited us down to their location to get a close-up snapshot of how they handled bidding and what kind of issues they’ve run into,” said Poteet, owner of MetroCare Home Medical & Rehab in Germantown, Wis., a Round 2 area.

At the end of the day, provider George Block predicts reduced Medicare prices won’t be the death knell for providers.

“Providers can probably get by with (a 26% cut) for a while,” said Block, president of Remco Medical in Joliet, Ill., a Round 2 area. “But as other payers follow suit and reduce their reimbursement--you can’t run an entire business on those margins.”