For more industry news, features and highlights from our latest issue, please visit our Web site at www.homecaremag.com.

Headline News
Life After the Final Rule: What Happens Now?
Industry turns to legislation, litigation to thwart competitive bidding

BALTIMORE--Years of conjecture and mounting anxiety about the final rule for national competitive bidding ended last week when the Centers for Medicare and Medicaid Services unveiled the document--only to lead to new industry concerns.

Mandated by the Medicare Modernization Act of 2003, the project will replace the current Medicare fee schedule for some DME with a single-payment amount. Leslie V. Norwalk, CMS acting administrator, said that when fully implemented in 2010, the program would save taxpayers $1 billion annually.

"Given the need to tackle the continued and unsustainable growth in health care costs, this new program represents yet another way to use the competitive marketplace to bring the best possible and most efficient care to Medicare beneficiaries," Norwalk said, speaking at a late afternoon press briefing on Monday.

She said the call for bids would be issued at the end of this month with a bid window of 60 days for providers in the 10 metropolitan statistical areas where competitive bidding will roll out. The project will expand to 70 more of the country's largest MSAs--including New York, Los Angeles and Chicago--in 2009, after which CMS will include additional areas and items, Norwalk said.

Set to appear in tomorrow's Federal Register, the long-awaited rule has already generated shock and surprise among industry stakeholders. Some pointed to litigation and/or legislation as possible shelters from the rule's stipulations.

"This has got to give us a tremendous amount of ammunition for the Tanner-Hobson bill because there is not a lot of good that will come out of it," said Cara Bachenheimer, vice president of government relations at Elyria, Ohio-based Invacare.

She referred to H.R.1845, the Medicare Durable Medical Equipment Access Act of 2007, introduced last month by U.S. Rep. John Tanner, D-Tenn. The bill, cosponsored by Reps. David Hobson, R-Ohio, and Mike Ross, D-Ark. (the only HME owner in Congress), would ensure accessibility for beneficiaries and soften some of competitive bidding's effects. (See HomeCare Monday, April 2.)

American Association for Homecare President Tyler Wilson said the association "will aggressively enlist cosponsors" for the proposed legislation. "This bill would fix some of the larger flaws in the competitive bidding program," he said.

Meanwhile, Jim Walsh, general counsel for Waterloo, Iowa-based VGM, said Last Chance for Patient Choice, an advocacy organization backed by the buying group, plans to file lawsuits in Texas and Ohio challenging the implementation of NCB.

Last Chance will argue that the MMA creates a "second class" of Medicare beneficiaries because it requires CMS to select a group of low-cost providers to serve beneficiaries in the competitive bidding areas. (See HomeCare Monday, Sept. 18, 2006.)

"It doesn't take a genius to realize that if you're a Medicare beneficiary in a bid area, you are not going to get the same level of care or the same quality as someone in a non-bid area," Walsh said. "You are forcing a Medicare beneficiary to get a lesser standard of care that nobody who is not under Medicare has to put up with."

While stakeholders commented on additional areas of concern, notably the few weeks providers were given to prepare for bidding, most said the 401-page final rule simply left them with lots of questions--and little time in which to get them answered.

Following are several key provisions of the final rule and initial reaction from across the industry.

Initial Cities
The first round of competitive bidding will take place in the following 10 MSAs:

1. Charlotte-Gastonia-Concord, N.C.-S.C.
2. Cincinnati-Middletown, Ohio-Ky.-Ind.
3. Cleveland-Elyria-Mentor, Ohio
4. Dallas-Fort Worth-Arlington, Texas
5. Kansas City, Mo.-Kan.
6. Miami-Fort Lauderdale-Miami Beach, Fla.
7. Riverside-San Bernardino-Ontario, Calif.
8. Orlando-Kissimmee, Fla.
9. Pittsburgh, Pa.
10. San Juan-Caguas-Guaynabo, Puerto Rico

"I was amazed Houston wasn't one [of the MSAs]," said Mary Ellen Conway, president of Capital Healthcare Group, Bethesda, Md. That city was, after all, the epicenter of Medicare's notorious power wheelchair anti-fraud project, Operation Wheeler Dealer, and many in the industry had expected it to make the list.

Noting that it will make a crucial difference to providers as they decide whether or not they can service the entire MSA--a requirement of the final rule--Conway said there could be some confusion as to exactly what locales fall into those areas. "I think some guys in the outlying areas are going to be surprised," she said.

Dave McCausland, senior vice president of planning and government affairs for The Roho Group, Belleville, Ill., also expressed disappointment that CMS would require a provider to cover the entire competitive bidding area.

"Based on the size of the supplier and the size of the CBA, this could really hurt small, specialty providers," he said.

Product Categories
While specific items to be included were not identified in the final rule--those will come with the request for bids later this month, according to CMS--the agency did reveal the following product categories that will be up for bid in the 10 MSAs:

1. Oxygen supplies and equipment
2. Standard power wheelchairs, scooters, and related accessories
3. Complex rehabilitative power wheelchairs and related accessories
4. Mail-order diabetic supplies
5. Enteral nutrients, equipment, and supplies
6. Continuous positive airway pressure (CPAP) devices, respiratory assist devices and related supplies and accessories
7. Hospital beds and related accessories
8. Negative pressure wound therapy (NPWT) pumps and related supplies and accessories
9.Walkers and related accessories
10. Support surfaces (Group 2 and 3 mattresses and overlays to be bid only in the Miami and San Juan areas)

Advocates said a big disappointment here is the inclusion of the hard-hit complex rehab sector, which many had hoped would be a carve-out.

"We were shocked and dismayed," said Sharon Hildebrandt, executive director of the National Coalition for Assistive Rehab Technology, which had lobbied strenuously against the inclusion. "We had talked to CMS, and not only us but clinicians and consumers had testified ... that complex rehab would not work as a competitive bidding item."

CMS' decision is "confusing and disappointing," added NCART President Rita Hostak, vice president of government relations at Sunrise Medical, Longmont, Colo. "From consumer groups through suppliers and manufacturers, there has been a lot of time and effort invested in educating CMS and policymakers on the intricacies of rehab, she said, noting that "officials at CMS appeared to acknowledge the real difference between rehab and DME/HME."

Hildebrandt said she is now concerned about the ability of rehab providers to bid. A recent NCART study revealed that the "average margins of rehab companies are 1 to 2 percent," she said. "With those low margins, I don't see how they are going to be able to bid because they will have to bid under the [current] fee schedule." (See HomeCare Monday, Jan. 8.)

And what would happen if no rehab provider bid?

"If nobody bids, then CMS won't be able to go forward with competitive bidding in those MSAs," said Seth Johnson, vice president of government affairs for Exeter, Pa.-based Pride Mobility Products.

Under the final rule, CMS must be able to show a "significant savings" in order to pursue competitive bidding, but Johnson questioned this in the mobility categories, pointing out that through recent reimbursement cuts and the CPI freeze (which has been in effect for three years and will continue for at least two more), CMS has already achieved a 30-percent reduction on the equipment.

"How much more do they think they are going to save?" he asked.

Eric Sokol, executive director of the Power Mobility Coalition, also believes that PMD providers are being unfairly targeted.

"The time frame is very difficult for PMD suppliers who have weathered three years of reform, changes in HCPCS codes, changes in the fee schedule and now are tested again to change their business model and determine what is a competitive bidding price," he said. "There are no automatic updates for inflation. This is not a positive. In the bidding price, they are going to have to take that into account because they are going to be stuck with it for the next three years [the time limit CMS has put on the bid contracts]."

Hildebrandt said NCART will be seeking "a legislative carve-out," hoping to stem the effects of complex rehab's inclusion in the bid. She expects a bill to that effect to be introduced sometime this month, and added that NCART will host a May Washington fly-in "to get rehab companies on the Hill and see if legislators will be more reasonable because CMS just isn't listening to us."

Regarding other products on the target list, Bachenheimer said "there are a lot of categories that clearly don't have the margins for significant reductions."

Timeline and Bidding Process
Another big surprise in the final rule was the timetable for implementing competitive bidding. Here is CMS' current timeline for the first round:

Late April 2007--Bidding begins and lasts for 60 days
Summer through Fall 2007--CMS and its contractors review bids
December 2007--Announcement of winning bids
April 2008--Single payment amounts go into effect in the first 10 MSAs

"This is extremely fast-track," said Bachenheimer. "This is a tremendously short window for providers in these 10 areas to figure their total costs and submit bids." She also pointed out that the final rule does not contain the particulars of how to bid, although those should come when the request for bids is issued.

Winning a Bid
The final rule stipulates that in order to qualify for Medicare contracts, providers must:

--Be in good standing with the Medicare program and not under any current sanctions by Medicare or any governmental agency or accreditation or licensing organization.
--Have an active National Supplier Clearinghouse number.
--Meet any local or state licensure requirements for the item being bid.
--Submit a bid as a prerequisite to becoming a winning supplier.
--Be accredited or have an application for accreditation pending in order to participate in bidding.
--Provide capacity estimates of the number of units for each item included in the product category that the supplier would be capable of furnishing under the program.
--Agree to service the entire CBA regardless of where the beneficiary is located, although the supplier will not be required to be capable of servicing 100 percent of the beneficiaries in that geographic area.

But providers must come to grips with several issues before submitting bids, consultants said.

"They have to know the cost of doing business," said Miriam Leiber of Sherman Oaks, Calif.-based Leiber Consulting, because that information will help determine how low providers can go with a bid. And, she added, "I encourage [providers] at all costs to include a profit [in the bid]."

Alison Cherney of Cherney & Associates, Brentwood, Tenn., cautioned against repeating the mistakes of old when health maintenance organizations first came about. "Prices dropped below costs because nobody understood the real costs of delivering services," she said.

Wallace Weeks of Melbourne, Fla.-based Weeks Group said in order to place a bid that is viable for their companies, providers will need to set a target net profit margin; understand their complete costs; figure out how much they can afford to discount before they violate their profit margin; and temper that discount based on what their competitors may discount.

"If I have the ability to discount 20 percent without violating my target margin, and everyone else only has the ability to discount 10 percent, why should I discount 20 percent?" he asked. "I only need to discount 12 percent."

Under the rule, contracts will be awarded to a sufficient number of suppliers in each area "to ensure access and service to high-quality DMEPOS items," CMS said, although no supplier's capacity can be considered to meet more than 20 percent of the total beneficiary need within the CBA.

"We estimate that 28,960 suppliers will provide DMEPOS items in the CBAs that we initially designate," CMS said, adding that "there will be 15,973 suppliers who will submit a bid because they will want the opportunity to continue to provide these products to Medicare beneficiaries and to expand their business base. We also assume, based on the results of the demonstration [in Polk County, Fla., and San Antonio, Texas], that at least 60 percent of bidding suppliers will be selected as winners in at least one product category."

But VGM's Walsh said there's a flip side. "One of the things people ... don't recognize is that there are going to be losers in this bidding process," he said. "There's an alarming chance that a well-run, well-meaning business will not be allowed to serve beneficiaries in one of these MSAs."

Bidding Networks
The final rule allows the formation of bidding networks, but only for smaller providers (now defined as those with $3.5 million or less in gross receipts, as opposed to $6.5 million in the draft rule). CMS has, however, capped the number of providers in each network at 20--an admitted problem for several recently formed networks that already have in excess of 20 members. (See HomeCare Monday, Jan. 8.)

"Networks have much more limited applicability now to the industry," said Bachenheimer.

John Gallagher, vice president, government relations, for VGM, agreed, pointing out that some of the benefits of network bidding disappeared under the final rule. "They require each provider within the network to cover all products in a product category and the whole MSA. But the whole idea of getting into a network was that you couldn't cover the whole MSA and you couldn't provide some of the products in the product category," he said.

Unlike the proposed rule, the final rule also does not require centralized billing and collection for providers in a network, added VGM's Walsh.

"Everybody in a network is still going to do their own billing and their own collection, which mystified me, because why would anyone want to be in a network and have to do that?" he asked.

Small Provider Protections
Responding to concerns about smaller companies' inability to vie with national or regional providers for contracts, CMS did put some safeguards into place. The agency--which received more than 2,100 comments on the draft rule--not only lowered revenue amount for its definition of "small" provider but also set a target of 30 percent for small supplier participation in each product category.

If there are not enough small companies with winning bids to meet that target in each category, according to CMS, "then contracts will be offered to small suppliers that submitted bids higher than but close to the winning bids. The small suppliers will have the option to accept the single-payment amounts based on the winning bids until the 30 percent goal is met or there are no additional small suppliers."

That's one of the few bright spots in the final rule, several sources said. However, Jeff Baird, chairman of the Health Care Group at Brown & Fortunato, P.C., Amarillo, Texas, said the target is low. "In my mind, this should be at least 50 percent, if not higher," he said.

In what some see as another possible boon to small providers and others, CMS will allow suppliers to subcontract.

"This is good for those in the large MSAs," said Weeks. "One of the benefits is that they can cover areas with subcontractors. A terrible inefficiency can be overcome. They still have to cover the entire MSA, but they don't have to take on the big money-loser across the MSA--a subcontractor can do it."

The rule also includes a "grandfather" provision that could enable beneficiaries to continue renting certain equipment from their existing suppliers if the supplier chooses to continue renting the item. For oxygen providers, the final rule allows a minimum of 10 months of payment to a contract provider who takes over oxygen service to a beneficiary who had been serviced by a noncontract provider. And if a beneficiary who is renting capped rental equipment switches from a noncontract provider to one that has won a contract, the new contract provider will receive 13 months of rental payment.

Despite such provisions, some said they fear for small providers.

"I think the deck is stacked against them," said Sokol. "They don't have the volume purchasing power or the staff."

McCausland was even gloomier. "Bottom line, I see this as a train wreck that we all know is going to happen ... but we can't stop it. Here's hoping that we can get something through the new Congress before it's too late."

According to provider Chris Rice, director of marketing for Diamond Respiratory Care, Riverside, Calif., "The first concern is, of course, what happens if we don't win a bid. Following that, will we be able to make a profit at the new bid level?"

Competitive Bidding Useful Web Links
The following Web links may be helpful in your study of Medicare's DMEPOS competitive bidding program.

CMS overview of competitive bidding, including MSAs and product categories: http://www.cms.hhs.gov/competitiveacqforDMEPOS/01_overview.asp

Competitive Bidding Implementation Contractor (CBIC) Web site: www.dmecompetitivebid.com

PDF of the complete final rule (401 pages): http://www.cms.hhs.gov/CompetitiveAcqforDMEPOS/Downloads/CMS-1270-F.pdf.

Final Supplier Quality Standards: http://www.cms.hhs.gov/CompetitiveAcqforDMEPOS/04_New_Quality_Standards.asp.

For a list of CMS' 10 approved accreditation organizations for DMEPOS suppliers, click here.

For a CMS press release on competitive bidding, click here.

For a fact sheet including data on each CBA, click here.

For an area map and a full list of zip codes included in each CBA, click here.

For more on the ITEM Coalition, see www.itemcoalition.org.

CMS Announces Contingency Plan for NPI Compliance
BALTIMORE--On Monday, CMS announced that health care providers that can't meet the pending May 23 deadline to become compliant with National Provider Identifier provisions will have another year to do so.

For up to 12 months after the deadline, suppliers covered under the Health Insurance Portability and Accountability Act will now be able to implement contingency plans if they have tried in "good faith" to comply, CMS said. Such contingency plans could include accepting legacy provider numbers (those currently in use) on HIPPA transactions in order to maintain operations and cash flow, according to an agency press release.

HIPPA-covered entities had until May 23 to be compliant with the NPI provisions, except for small plans, which had until May 23, 2008.

However, CMS said, "it became apparent that many covered entities would not be able to fully comply" by the deadline. Therefore, the agency said that up until May 23, 2008, it will not impose penalties on suppliers or other covered entities "if they continue to act in good faith to come into compliance, and they develop and implement contingency plans to enable them and their trading partners to continue to move toward compliance."

Medicare will announce its own contingency plan shortly, CMS said.

The NPI is an identifier that will be used to identify health care providers on all HIPAA-covered transactions, replacing all legacy identifiers that are currently being used such as Medicaid provider IDs, individual plan provider IDs and UPINs, etc.

While the Medical Group Management Association called the move a "critically important decision," the group practice organization said the necessity for the extension "was due in part to CMS' failure to publish their data-dissemination policy in a timely manner and facilitate the communication of NPIs."

To download a CMS document explaining the contingency guidance, click here.

For more information on applying for an NPI, visit the National Plan/Provider Enumeration System Web site at https://nppes.cms.hhs.gov/.

In Brief

CMS has established three new K codes for oral/mask use with a CPAP (continuous positive airway pressure) device. The new codes will be effective July 1. The three new codes include: K0553, combination oral/nasal mask, each; K0554, oral cushion for combination oral/nasal mask, replacement only, each; and K0555, nasal pillows for combination oral/nasal mask, replacement only (pair). For a Medlearn Matters article on the new codes, click here.

Former HHS Secretary Tommy Thompson has announced he will run as a Republican candidate in the 2008 presidential race. Thompson, former governor of Wisconsin, headed HHS from 2001 to 2005 during President Bush's first term, but stepped down shortly before the Medicare prescription drug benefit was set to take effect. In previous news interviews, Thompson has predicted that health care will be a top issue in the election, and has said he thinks that the U.S. health care system will "implode" by 2013 without major reforms. "I don't think anybody's got a better handle on health care than me," Thompson told reporters.

Take a survey on diabetes supplies. AAHomecare's Medical Supplies Council is gathering information on Medicare reimbursement of diabetes supplies to help advocate for stronger policies and reimbursement. To participate, visit the AAHomecare Web site at www.aahomecare.org.

On Thursday, House Ways and Means Health Subcommittee Chair Pete Stark, D-Calif., introduced The AmeriCare Health Care Act, a universal health coverage bill. Under the plan, people would either be covered through their employer or through AmeriCare, a program modeled on Medicare that would use its existing administrative infrastructure but add benefits for prescription drugs, mental health treatments, pediatric care and family planning services. Financed through contributions from employers, individuals and states, AmeriCare would limit out-of-pocket costs for all and subsidize costs for people with incomes of less than 300 percent of the poverty level. "After more than a decade on the back burner, America's 45 million uninsured are finally receiving the attention they deserve," said Stark. A summary of the bill is available at http://www.house.gov/stark/news/110th/pressreleases/20070328/americare_summary.pdf.