Inside CMS

Medical equipment suppliers may urge lawmakers to use health care reform as a vehicle to dictate how CMS proceeds on round 1 rebids in the controversial durable medical equipment competitive bidding programs if the agency doesn’t address suppliers’ concerns, an industry source told Inside CMS. Calculating capacity and demand within DME competitive bidding areas (CBAs) remained a contentious issue between CMS and the supplier industry following the first Program Advisory Oversight Committee (PAOC) meeting, held June 4.

CMS also announced during the PAOC meeting a preliminary timeline for rolling out the round 1 rebid for DME competitive bidding that pushes implementation to January 2011. Agency officials also signaled that the round 1 bid period, which is required by statute to begin in 2009, isn’t likely to start before Oct. 2, the deadline for obtaining a surety bond that all suppliers must have to qualify for a contract.

Jonathan Blum, CMS director of the Center for Medicare Management, said after the meeting that the agency’s priority now is resolving the capacity and demand calculation to resolve “how the CMS staff are thinking about it versus how the bidders are seeing it.”

“We need to clarify that to make sure everybody’s on the same sort of apples-to-apples comparison,” Blum told Inside CMS. “I think this group wants a lot more explanation that we have to be helping to provide.”

Suppliers that meet CMS’ financial document requirements and are eligible for a contract in a CBA must also meet certain capacity thresholds — which CMS is holding as proprietary information — in order to be included in the overall number of suppliers needed in an area to meet demand.

CMS limits suppliers to accounting for 20 percent of demand in an area, even if they prove they can serve the entire demand. Suppliers won’t, however, be denied a contract if they meet the financial document, surety and accreditation requirements but their financial score doesn’t prove projected capacity. In that case CMS would look to historical capacity.

Industry representatives on the PAOC board were irked by CMS’ policy for suppliers without a history of serving in a certain area. Esta Willman, PAOC member and owner and CEO of Medi-Source Equipment and Supply, suggested leaving suppliers at zero percent capacity regardless of financial documentation if the company doesn’t have historical capacity in an area.

Suppliers not established in an area or suppliers without experience in a product category are still eligible for a contract but must meet a higher threshold and prove they can ramp up their business to meet capacity requirements for that product. If not, the supplier could still receive a contract but CMS would not depend on that company for serving any of the demand, which agency officials said draws in additional suppliers in an area who likely have more experience.

Mark Leita, a spokesman for the Scooter Store, a supplier giant based in Texas, agreed that excluding anyone from the program isn’t ideal. “I have no issues with having new supplier in there,” Leita told Inside CMS. “I think that with the subcontracting arrangements there is the opportunity to grow into a new business, but also allow the people who have previous market share and previous history to participate.”

CMS officials also argue that allowing suppliers inexperienced in a CBA or product category into the competitive bidding program fosters competition in the market by enabling new companies to establish and giving experienced suppliers a chance to expand. Once contract suppliers are in the program, they compete among themselves and are not limited to serving a percentage of the market, agency officials said.

That “seems reckless” and contradicts what DME competitive bidding is supposed to do, said Ruben King-Shaw Jr., former CMS deputy administrator during the Bush administration and now CEO of All-Med Services of Florida and Clinical Medical Services of Puerto Rico.

Doran Edwards, committee member and chief operating officer of Advanced Healthcare Consulting, said that new supplier businesses should only be allowed to subcontract. The idea received applause from DME stakeholders in the audience. It would give the new businesses an opportunity to establish their business while ensuring that only quality suppliers receive a contract, Edwards said.

Walt Gorski, committee member and vice president of government affairs for the American Association for Homecare, said he’s concerned CMS’ calculations drastically underestimate the number of providers needed to serve a CBA. Industry has complained through the competitive bidding process that the program would draw down the number of suppliers too dramatically.

AAHomecare says that a contracting supplier that fails to ramp up its business to serve the 20-percent capacity threshold in a CBA and product category would harm beneficiary access. But CMS said its calculation for the demand in an area “is to err on the side of beneficiary access,” which is why the agency double-trends its demand calculation for a padded estimate.

The demand projections for the re-bid are the same used during the initial round 1 bid period in 2008. The supplier industry is looking to change that as well as the capacity calculations, through legislation if necessary.

But CMS said it developed the calculations with beneficiaries in mind. “These thresholds are there to make sure that we have some quality checks on the capacity,” said Joel Kaiser, director of DMEPOS policy at CMS.

CMS evaluates past DME utilization and trends it forward to the end of the three-year contract period and requires that contracting suppliers meet that demand going into the first year of the program.

The agency calculates demand in a bid by using the average percentage growth in DME fee-for-service enrollment over three years, trends it forward to the end of the contract period and applies that percentage to the demand calculation for each year of the three-year contract period, Kaiser said. CMS also uses actuary projections for growth and utilization per beneficiary to determine a CBA’s demand.

The “padded demand” is important when discussing capacity, Kaiser said. “We think it goes hand-in-hand with discussion about counting capacity and trusting suppliers’ capacity,” he said.

Padding the demand is expected the allow more suppliers in than are needed to meet that demand, which CMS says also allows room for the agency to strip a contract from a provider if it’s not adequately providing in a product category while still ensuring beneficiaries have access.

PAOC members were upset that CMS found bad actors after contracts were awarded. The members suggested several solutions to ensure bidders who receive a contract have been thoroughly vetted and can be trusted. Thomas Milam, general manager and chief operating officer of AmMed Direct, suggested requiring audited financial statements and several others agreed.

Bidders’ credit scores are considered and they’re required to submit invoices, tax and other documents to prove their viability through CMS’ bonafide bid process, but suppliers now only need to submit one year of financial documentation as opposed to the three years of data required in 2008. Because of the financial document submission problems during the first round 1 bid, CMS is now also required by statute to notify bidders of missing financial documents.

To qualify for the program suppliers are also required to obtain accreditation before Oct. 1, get a surety bond before Oct. 2, and follow state and federal licensure requirements. Suppliers will be required to identify companies they plan to hire as subcontractors, but not until after a contract is awarded must the contracting supplier verify that subcontractors also meet these requirements.

There was some discussion during the meeting about state licensure requirements: Some states require a physical location in the state in order to provide DME supplies, which industry representatives said could be an overly burdensome issue for suppliers located in CBAs that cross state borders. The supplier may have a location in just one of the states but is capable of serving the entire CBA and crossing state lines.

As for the round 1 re-bid timeline, bidders should now be registering and obtaining online bid submission identifications and passwords. Bidding is set to begin in the fall with bid evaluation taking place from the end of 2009 through spring 2010, according to CMS’ tentative timeline.

The agency expects to announce contract suppliers by summer 2010 and beneficiary and provider education will begin in fall 2010. If CMS adheres to this scheduled, the agency anticipates implementation by Jan. 1, 2011. — Ashley Richards