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Headline News
Industry Battles Bungled Bid Exclusions in Congress, Court
ATLANTA--As complaints of mishandled bids continue to pour in, industry organizations including the American Association for Homecare, VGM and the National Association of Independent Medical Equipment Suppliers are rallying providers to fight what many see as yet another miscarriage of justice in a fatally flawed program.

AAHomecare has received more than 100 complaints from providers about improper disqualifications in round one of competitive bidding, the association said last week, and has sent a letter detailing the errors and impact of the program to CMS and the CBIC as well as to members of Congress.

The goal of the letter, addressed to acting CMS Administrator Kerry Weems, is to “extend the 10-day window for accepting contracts in round one. In addition, the association is reiterating its call for a suspension of round one of the bidding program,” AAHomecare said.

Additionally, the association said Friday it is working with several law firms that are exploring legal action to stop round one of competitive bidding.

According to AAHomecare:

--There is mounting evidence that a large number of suppliers participating in round one were improperly and unfairly disqualified from the process because of missing data. Many of these disqualified bidders can show that they did in fact provide the proper data to CMS and should not have been disqualified.

--Home care providers that have been offered contracts need more time to assess the economic impact of the newly established single payment amounts in each competitive bidding area to properly estimate their ability to serve the area.

--The bid evaluation process and contracting process have far exceeded the projected implementation timeline, leaving little time for suppliers to prepare for increased demand for services and educate the affected beneficiaries, providers and referral sources.

--Errors have consistently occurred throughout both the bidding period and contract award process. Due to the magnitude of the issues at stake with this program, the association strenuously calls on CMS to be fully transparent and allow for an assessment of the application of financial standards criteria, data that illustrates the calculation of the single payment amount for HCPCS codes in each competitive bidding area, and how many suppliers actually participated in the bidding process.

One such error appears to be a CMS “bait and switch.”

Like many HME suppliers who received a disqualification letter for round one of competitive bidding, Richard Pennington, vice president of Alliance Medical of Ontario, Calif., was astonished by the news. Particularly because, according to Pennington, on page 2 of CMS' initial request for bids from May 31 of last year, which was available through the CBIC Web site, CMS said, “beginning 10 business days before the bidding window ends, suppliers will be notified if there are any missing hard copy attachments.”

But Pennington discovered that on Sept. 13, 2007, a short time before the round one bid window closed on Sept. 25, 2007, page 2 was altered.

“When you go to their Web site now and you look for their RFBs, this original has been removed and it has been replaced,” said Pennington. “The second page is a revised page. When you look at that second page, item No. 4 has been stricken. Now No. 4 says 'the system will remain open for at least 15 days after the bidding window ends to allow bidders to check the completion status of their electronic bids and verify receipt of hard copy documents by the CBIC.'”

Pennington took his complaint to the CBIC, which he said refused to provide any documentation on what Alliance Medical submitted. So he contacted his congressman. And VGM.

Pennington met with Rep. Joe Baca, D-Calif., on Monday. “This is a travesty what they're doing to us,” Pennington said. “My complaint is that you gave me the rules, I followed the rules, and you changed the rules after I was done submitting my bid, which I did on July 20, 2007… In my heart, I don't think it's right.”

Waterloo, Iowa-based VGM's John Gallagher, vice president of government relations, agreed, saying that two other providers also have come forward with copies of the original RFB.

“Obviously CMS changed the Web site from the original,” said Gallagher, who advised providers who feel they were unfairly disqualified from round one to speak out immediately.

As for VGM, Gallagher said, “the approach that we are taking is two-fold. First is getting members of Congress involved. The other part is that many of these [providers] had lawyers and accountants put their packets together. That tells us that CMS has people looking at the packets who don't really know what they're looking at … It's a violation of due process, so we're looking at it from a legal standpoint.”

On Thursday, NAIMES President and CEO Wayne Stanfield confirmed that the organization is indeed teaming up with VGM and Greenville, S.C.-based Health Law Center to weigh the possibility of legal action that would “stop CMS from implementing round one of the national competitive bid for DME.”

“Suppliers were excluded, without recourse, for a myriad of technical reasons, many of which have proven to be errors within CMS' own evaluation process,” a NAIMES press statement said.

NAIMES has sought the counsel of a Washington, D.C., law firm to determine the feasibility of seeking relief in federal court, Stanfield said, and attorneys have advised the group that there are constitutional concerns within the law, as well as the regulations.

Meantime, the organization is asking "any supplier who was excluded because of technical reasons to step forward and share your story with us and your willingness to become plaintiffs in this case." NAIMES said it will select suppliers with the strongest cases from each of the 10 CBAs to participate in the lawsuit.

VGM's Last Chance for Patient Choice has committed initial funding for the effort, and NAIMES said it will make a decision on whether to go ahead with the suit possibly early this week.

Amarillo, Texas-based Brown & Fortunato is also “researching the possibility of filing lawsuits on behalf of HME companies whose applications were rejected because of an alleged failure to submit financials when, in fact, the companies did submit financials. If lawsuits are filed, then they will likely request an injunction,” according to Jeffrey S. Baird, chairman of the law firm's Health Care Group.

However, Baird said, “Before filing these types of lawsuits, we must first address the “Judicial Review” section of the [Medicare Modernization Act], which says, in part: 'There shall be no administrative or judicial review under section 1395ff of this title, section 1395oo of this title, or otherwise, of … the awarding of contracts under this section.' The legal question is whether this prohibition extends to the situation where an application is rejected as a result of the CBIC's mistake.”

Since providers started receiving notification letters from CMS just over a week ago--telling them they had won a contract, might win a contract or had been disqualified--email alerts from AAHomecare, VGM, NAIMES and various state and regional associations have encouraged disqualified providers to step forward.

With CMS' 10-day deadline for accepting or rejecting the round one contracts set for April 3, the organizations and other industry leaders are urging individual providers to contact the CBIC, CMS and their congressmen with complaints.

"By switching to a system that rewards a small number of low bidders, Medicare is turning the home medical equipment sector from a system that competes on quality and service to a system that treats home care like a commodity," said AAHomecare President Tyler Wilson. "Service has always been an integral component of home care, and that concept is being lost under the competitive bidding process."

To read AAHomecare's letters to CMS and those on Capitol Hill, visit the association's Web site at www.aahomecare.org.

To add a complaint to AAHomecare's list, click here to fill out the association's “Competitive Bidding Feedback Form,” or contact Alex Bennewith, senior manager for government affairs, at alexb@aahomecare.org.

To alert VGM about a round one bid complaint, send information/documents via fax to 800/568-7039.

To report an issue to NAIMES, which is seeking information from providers who were disqualified in every CBA, send an email, including all contact information, to yourfuture@dmehelp.org. Information may also be faxed to 434/572-6889.

To view the weighted average savings by CMA, click here.

AAHomecare to CMS: Don't Adopt Proposed Standards, Do Mandate Inspections
ARLINGTON, Va.--Calling them “overly prescriptive,” the American Association for Homecare last week urged CMS not to adopt its proposed supplier standards for Medicare DMEPOS enrollment and instead institute tough onsite inspections for new suppliers.

“We support efforts to eliminate fraud from the DMEPOS benefit, but we oppose adopting overly prescriptive standards that have proven to be only modest deterrents to criminals yet create operational inefficiencies for suppliers and can result in less access for beneficiaries,” AAHomecare said in a 16-page letter addressed to Kerry Weems, CMS' acting administrator. “Instead, CMS should ensure that all new suppliers undergo a rigorous onsite inspection and are accredited before receiving a Medicare billing number. We also encourage CMS to hold its contractors accountable.”

Should CMS adopt any of the standards, however, AAHomecare called on the agency to delay their implementation for one year.

“Many of the changes CMS is proposing are significant, and suppliers will need adequate time to organize their businesses to comply,” said the letter, signed by Tyler Wilson, AAHomecare president. “We strongly recommend a transition period of at least one year to allow suppliers adequate time to come into compliance with the new requirements.”

The comments were in response to CMS' Jan. 25 proposal that would revise and expand the existing supplier standards and add a handful of new requirements. In its announcement, CMS said concern over “easy entry into the Medicare program for qualified or even fraudulent providers or suppliers has led us to increase our efforts to establish more stringent controls on provider and supplier entry.”

Since the proposed standards were revealed, industry stakeholders have called them oppressive and detrimental to HME businesses and beneficiaries.

In its argument against the proposal, AAHomecare took issue with, among other things, CMS' intent to prohibit subcontracting.

“This requirement will no doubt limit the ability of some suppliers to participate in competitive bidding,” the organization said. “This is especially true with respect to the oxygen product category, inasmuch as many suppliers currently outsource the furnishing of some oxygen modalities and oxygen equipment.”

AAHomecare also challenged CMS' plan to prohibit unsolicited telephone contact with beneficiaries.

“A literal interpretation of the proposed rule would prohibit a supplier from contacting a beneficiary to arrange for delivery of an item of DME pursuant to a physician's verbal or written order unless one of the exceptions in the proposed rule applied,” the organization said.

The association also opposed establishing minimum hours of operation and raised a number of issues regarding proposed standards related to signage, physical service location and business telephone numbers.

To view AAHomecare's complete comments on the proposed supplier standards, go to www.aahomecare.org.

For a review of CMS' proposed expansion of the supplier standards, check HomeCare Monday's special series by Neil B. Caesar, president of the Health Law Center in Greenville, S.C., running each week from Feb. 4 through March 24. Visit the HomeCare Monday archives at www.homecaremonday.com.

Pricing Announcement Opens the Door to New M&A Activity for HME
ATLANTA--While many HME providers felt they had missed the opportunity to sell their businesses, the release of pricing for round one of competitive bidding may have opened the door for some, say merger-and-acquisition specialists.

Over the past several years, the primary reason for the fall-off in HME M&A activity has been the “uncertainty of future top-line revenue and the bottom-line impact associated with competitive bidding,” said Jonathan Sadock, managing partner of Paragon Ventures, Wayne, Pa. Simply put, buyers didn't have “the necessary data to accurately price acquisition targets.”

But with the round one bid rates established, he said, “buyers will be able to predict the revenue and profitability of the HME business enterprise. Contract-holders will become more attractive as acquisition candidates because their revenue streams and profitability will become more stable and predictable.”

While the announcement of payment amounts may offer some insight on the direction acquisitions take, however, it is still no guarantee.

“I think there will be some spotty reactive activity either on the part of winners or losers, but it won't exactly be a groundswell,” said Bob Leonard, managing director for Pittsburgh-based The Braff Group. “We're already looking at all kinds of activity--winners buying losers and losers buying winners--but it's really too early to tell what the ultimate reaction will be.”

As far as the overall HME market, Leonard said, the round one announcement removes one level of uncertainty: “At least in those markets you know the pricing parameters so you can model what an acquisition might look like.”

But, he continued, “the problem we see is the overhang of the oxygen cap. That's still kind of an imponderable with the continued threats to reduce the rental period from 36 months to 18 or 13. So even though you know where pricing under competitive bidding may be set, the specter of what will happen with the cap is going to limit people's enthusiasm to jump into the market in a big way.”

“The range of possibilities everyone is focusing on is so wide,” added Richard Glass, president of Tarpon Springs, Fla.-based Steven Richards & Assoc. “We are looking at what the pricing will be in the first round, the oxygen rental cap and potential lowering of reimbursement for stationary oxygen. When you apply these types of changes, the results of company valuations sway.”

And for some--particularly small companies that are not accredited--he pointed out, the sales forecast remains pretty glum.

“It is a buyer's market for companies that are not accredited and did not or will not choose to bid,” said Glass.

Although the financial repercussions of competitive bidding and the oxygen cap have not yet been felt, he noted, buyers who are looking for a five-year investment are looking closely at the ramifications.

“This leads to a strong disconnect between sellers and buyers as the sellers look at their cash flow and think it looks pretty good,” Glass said. “On the other hand, buyers look at a company and ask how much they are going to make on it in the future and if they are going to be right and not wrong about that amount. The range of possibilities on how much you can make on an acquisition in the future are tremendous.”

According to Sadock, companies that are Medicare-dependent operations with revenues of less than $5 million and sub-$1 million earnings will find it difficult to gain interest from buyers in the current environment.

“If you analyze the profit-and-loss and balance sheets of these companies, you can see that a 15- to 20-percent reduction in top-line revenue can effectively wipe out their earnings. It becomes a losing proposition with little opportunity for neither buyer synergies nor the ability to mitigate risk from declining reimbursement. There just isn't enough fat in the business to overcome the earnings weaknesses caused by competitive bidding price decreases,” he explained.

However, as competitive bidding extends into rounds two and three, location will become less significant because the impact will be increasingly payer-specific, not MSA-specific, according to Sadock.

“Ultimately, competitive bidding will affect all providers to the extent that they bill Medicare and the impact of the payers that contract at a 'Medicare-related' schedule. If CMS enacts inherent reasonableness based on the result of the first round of competitive bidding, coupled with the accreditation requirements, they would realize their cost savings and provider reduction goals far sooner and at less cost,” he said.

Adding to the state of flux, Sadock said, “some of the actual rules regarding the new competitive bidding contracts have not been clearly defined, implemented nor challenged. The book is being written as we speak. There has been much speculation, analysis, interpretation and wrangling but little definitive, hang-your-hat-on-it clarity on specific M&A issues.”

For example, he said, “traditionally, if an acquirer purchases the stock or membership interests of a company in its entirety, they in essence step into the shoes of the existing ownership. If it is in an asset transaction, then there will be turbulence and the difficulty of assignment of the [National Supplier Clearinghouse] number will be exacerbated.

“With the first-round competitive bidding winners and the rates now announced has come significant new activities on the M&A front. Many of these questions are being worked on right now as buyers and sellers look at how the actual rates will affect their valuation.”

No matter what the circumstances of an individual HME, the M&A experts advise providers to be realistic. No business will command the same market premium that it might have a few years ago.

“The market has matured significantly in the past 24 months, and buyers are aware of competitive bidding and its potential effects on the earning power of these businesses,” said Sadock. “For some businesses, there are specific opportunities that will come to bear because of the competitive bidding process. It is critical to understand these opportunities and the factors that contribute to or detract from the total economic value of your specific business model.

“We are updating valuations on many providers--winners and losers--based on the new information and are urging all providers to avail themselves of an objective, professional and realistic valuation before entering the market.”

”Providers [in round one] need to explore their options,” said Leonard. “If they are not bid winners, they need to figure out if they can subcontract in order to participate or what source other than Medicare they can pursue, because, sadly, for three years, they are out of the game. Once some of the facts come to light, then everybody can more logically sit back and review the options for their business.”

Concluded Glass, “Once the smoke clears, the market will definitely pick up. There is a backlog of people who want to sell and a backlog of those who want to buy once they know what the rules are going to be. We just need to find out what the parameters end up being.”

Medicare Funding Warning Issued for Third Consecutive Year
WASHINGTON--For the third year in a row, its trustees are warning that, unless Medicare makes some major changes, the program's Part A hospital fund will soon be singing its swan song.

In the recent release of the long-term financial reports for Social Security and Medicare, trustees said the outlook for both programs remains grim, and, with a Medicare funding warning now in place for the third year in a row, advisors say the next president must propose legislation to cut the share of Medicare costs borne by the government.

“As the baby boom generation moves into retirement, these programs face progressively larger financial challenges,” said Treasury Secretary Henry M. Paulson Jr., one of the trustees, in press reports. “If we do not take action soon to reform Social Security and Medicare, the coming demographic bulge will jeopardize the ability of these programs to support people who depend on them.”

In their report, the trustees said Social Security's trust fund will become insolvent by 2041, while Medicare's hospital insurance trust fund will be out of money by 2019. Both dates are the same as those predicted last year.

Each year, the trustees' report stirs debate on Social Security and Medicare reform, but, as the choices lawmakers face to save the programs--benefit cuts, higher payroll taxes, higher premiums for seniors--are unpopular, any action has been tabled.

This year, President Bush sent Congress a proposal to cut the programs, but Democrats who control both chambers are expected to ignore his legislation. Still, lawmakers might select some provisions from the proposal to curb Medicare spending--including cuts to oxygen and power wheelchairs--and include them in the Medicare bill that Senate Finance Committee Chair Max Baucus, D-Mont., is expected to introduce in July.

“Working to make payment systems across Medicare more accurate and reasonable, coupled with systemic reforms to increase quality and slow the growth of costs, will be necessary to fix what ails this vital program,” Baucus said in a March 25 statement.

To view a summary of the trustees' report, click here.


Newsmakers
Joe Randall, senior vice president, Nielsen Business Media, is returning to the leadership role for the company's Medtrade portfolio, which includes Medtrade and Medtrade Spring. Randall's involvement in the Medtrade events began in 1984. Since 1997, both trade shows have been part of his overall responsibility for Nielsen (formerly VNU). Medtrade Spring is set May 6-8 in Long Beach, Calif., and Medtrade is scheduled Oct. 28-30 in Atlanta. Randall takes over the position from Kevin Bird, who left the organization to pursue new opportunities.

The Roho Group has announced Rebecca Long as its new director of corporate accounts. Long, who joined the Belleville, Ill.-based cushion and mattress manufacturer in 2004, will be responsible for specified accounts for both the company's medical and consumer divisions as well as pursuit of new OE partnerships. She previously held the position of director of consumer sales.

Mike Giesken has joined the management team at Strongsville, Ohio-based Roscoe Medical as national sales director. With more than 20 years in sales management experience, Giesken will be responsible for the company's sales operations and implementing programs that focus on partnering with HME customers to help them attain profitability goals.

Sara Bauer has been promoted to vice president of education for the VGM Group, Waterloo, Iowa. She has been with the member services organization since 1998 and was actively involved in the managed care division, Homelink, before moving to VGM Education. A member of the American Society for Training & Development, Bauer has developed training programs for VGM employees, providers and participating vendors. VGM Education has direct responsibility for the group's annual Heartland Conference, set for June 9-12 in Waterloo.

Coming Up
The VGM Group will host its Competitive Bidding Seminar Series in Columbus, Ohio, April 1 and in Detroit on April 3. For more information on the day-long seminar and additional April dates and times, call 800/642-6065 or visit www.vgm.com.

The American Telemedicine Association (ATA) will host its 2008 Annual Meeting in Seattle, Wash., April 6-8. For more information, call 202/223-3333 or visit www.americantelemed.org.

The New York Medical Equipment Providers Association (NYMEP) will host its Annual Meeting in West Point, N.Y., April 7-8. For more information, call 518/436-9637 or visit www.nymep.org.

Esentially Women will host its Focus on the Future Annual Conference and Trade Show in Albuquerque, N.M., April 7-9. For more information, call 800/988-4484 or visit www.essentiallywomen.com.

Permobil will host its Powersurge rehab conference for its certified provider network in Nashville, Tenn., April 8-9. For more information, call 800/736-0925 or visit www.permobil.com.

The Pacific Association for Medical Equipment Services (PAMES) will host its Annual Convention in Vancouver, Wash., April 8-9. For more information, call 503/253-9691 or visit www.pames.org.

The Southern Medical Association will host its 16th Conference on Sleep Disorders & Pulmonary Medicine April 10-13 in Hilton Head Island, S.C. For more information, call 800/423-4992 or visit www.sma.org.

The American Occupational Therapy Association (AOTA) will host its Annual Conference and Expo April 10-13 in Long Beach, Calif. For more information, call 301/652-2682 or visit www.aota.org.

The Big Sky Association of Medical Equipment Services will host its Quarterly Meeting April 11 in Butte, Mont. For more information, call 406/777-7301 or visit www.bigskyames.com.

The Midwest Association for Medical Equipment Services (MAMES) will host its Spring Convention and Exhibition April 16-18 in Omaha, Neb. For more information, call 651/351-5395 or visit www.mames.com.

The National Registry of Rehabilitation Technology Suppliers (NRRTS) and National Coalition of Assistive and Rehab Technology (NCART) will host the CELA '08, Continuing Education and Legislative Advocacy Conference, April 23-25 in Dulles, Va. For more information, call 800/976-7787 or visit www.nrrts.org.

Louis Feuer of Dynamic Seminars and Consulting will present a teleconference on "Creative Marketing Strategies" April 25. For more information, call 954/435-8182 or visit www.dynamicseminars.com.

The Indiana Association for Home and Hospice Care will host its Annual Conference in Indianapolis, Ind., April 29-30. For more information, call 317/844-6630 or visit www.ind-homecare.org.

To revisit this news any time during the week, go to www.homecaremonday.com.

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