Why did providers bid so low? Opinions abound

Sunday, March 30, 2008

YARMOUTH, Maine - Providers don't believe Medicare has been overpaying for home medical equipment, yet they submitted bids for Round 1 of national competitive bidding that were, on average, 26% below the current rates, according to the May HME NewsPoll.

Of the 686 people (mostly providers) who responded to the poll, 91% reported that they don't believe Medicare has been overpaying for equipment. Another large majority, 85%, reported that they don't believe most providers can continue to do business with Medicare at the new rates.

That begs the question: Then why did providers bid so low? Of the respondents, 422 submitted written comments. Their opinions ranged from "sheer insanity, greed and lack of financial knowledge" to "they'll make up the difference with purchase volume increase."

Here is a smattering of what providers had to say:

Full of fear
"I consider these bids to be panic bids and that everyone was so worried about losing that they forgot what it takes to provide the services associated with the product. This industry has been dug into a hole that I hope we can climb out of."
- Jeffrey Hall
"Dealers submitting low prices is very much like a person jumping out the window of a 20-story building that is on fire. It's dangerous and it is costly but staying in the burning building means immediate death. If dealers lose the bid, they lose their business. They have no choice but to jump out of the window and bid lower than they should."
- Randy Wolfe

Didn't know better
"I heard that one of the bid winners in Cincinnati that won the oxygen bid only supplies to nursing homes. I believe the low bids came from providers that do not have a clue what the costs of providing home service in an accredited environment will really cost them."
-Kevin Griggs
"Small providers appear to have predominated the winning bidders (67% per CMS's press release). These unsophisticated providers, with little understanding of true costs and assuming if they won a bid they could find a supplier that would provide them with the supplies at or below their bid price, have skewed the results."
- Anonymous

Earn cash on the side
"From reading about the kinds of businesses that have received contracts, it seems that they have other streams of revenue that they will lean on to supplement the lost revenue for their bid. Maybe they push cash sales of other goods like scrubs that aren't covered by Medicare."
- Anonymous

Lower marketing costs
"I believe that the bids were lower because providers can cut back on their advertising costs due to the fact that if anyone needs equipment through Medicare, they only have one place to go. Companies now do not have to compete in those markets."
- Anonymous

Reduce services
"I believe first round bidders will accept the contracts and just suck it up, cutting service and quality to the bone."
"I believe 'included' services will cease to exist. I envision a day where a Medicare beneficiary only sees their provider once per year, and the quality of the equipment provided will be poor, as companies look to cut costs."
- Jason Wortley

Ignored aftershocks
"I fear some of the bidding providers only looked at their Medicare business when they placed their bid. The discounted price with Medicare will trickle down to every payer we deal with, and these payers will expect additional discounts off the new Medicare fee schedule. How are they going to stay in business when the private insurance companies follow suit and lower their prices 26% or more?"
- Jody Wright

Had ulterior motive
"Providers who have submitted bidding at this reduced level are either extremely inexperienced in accounting or extremely shrewd in government contract procedures. Inexperienced if they were only looking at the cost of the equipment being sold and not at the total cost of providing the item along with the company's overhead costs. Yet they may be very shrewd, planning on reinitiating negotiations for increases in their contracts due to unexpected cost over-ride factors, which has been a driving force in government contracts for ages. The concept: Get the bid then fight for changes down the road where it will be cheaper for the government to settle/compromise rather than reinitiate the bidding process all over again from start. Inexperienced or shrewd--what will it be?"
- Kelsie Waldrop

Quit whining
"Frankly, it's because some are greedy and ignorant, which is always a bad combination. Nonetheless, the industry has not faced up to the fact that our margins have been excessive in a number of areas."
- Larry Ready
"Margins on oxygen have been higher than necessary and our industry knows that. However, bidders in Round 1 went beyond reason and bid too low. Now it will be difficult to make a profit at the low rates. It appears that we have gone from one extreme to another."
- Anonymous