HOME MEDICAL EQUIPMENT PROVIDERS ARE GENERALLY A RESILIENT BUNCH. The nature of their business almost mandates they be so, so they have become adept at finding a silver lining in even the most foreboding of clouds.

But when the Balanced Budget Act of 1997 authorized the Health Care Financing Administration to test competitive bidding as a way for Medicare to set reimbursement, HME providers began to prepare for a 1,000-year storm. Providers were sure that patient access to equipment and quality care -- let alone patient freedom of choice -- would be severely compromised. No silver lining in sight.

Now, two years after the first bidding demonstration began in Polk County, Fla., a second demonstration is under way in San Antonio. Polk County providers are priming themselves for a second round of bidding. And little has changed regarding the HME industry's views of competitive bidding.

But is competitive bidding the home care industry's "perfect storm" It is still too soon to know, but to hear winning providers in Florida tell it, the forecast remains partly cloudy — with a few silver linings.

American HomePatient Brentwood, Tenn.

AMERICAN HOMEPATIENT broke into the Florida market by becoming a supplier of hospital beds, enteral nutrition and oxygen in the first competitive bidding project. Terry Bennett, area vice president, says his company had little to lose and everything to gain by participating in the Polk County demonstration. Here, HomeCare talks to Bennett, the driving force behind the company's participation in the project, about how it has worked out to date.

HC: What effect has being a winning supplier had on your business?

Bennett: "Because Polk County was actually a new market for us, it didn't have any effect on our current business — all business we got was new business.

"It didn't take us an extremely long time to become profitable, but the main thing that the [demonstration project] did was give us a presence in a market where we didn't have one. Once we were established there, we were able to solicit other business not included in the project. Again, for us it was all upside and really no downside, because we didn't have any existing patient base or any existing revenue."

HC: Do you think your success is unusual compared with that of other winning suppliers?

Bennett: "It's tough to say. We probably aren't having the same issues and problems that a lot of the other winning suppliers might be having simply because we didn't have a presence in this market to begin with. So because we don't have those same issues, it doesn't come up in conversation. We're viewed as one of the outsiders, I guess, but certainly everybody had the opportunity to bid. And to be honest with you, we had no idea if we were even going to get it. It wasn't like something we had to have. We weren't protecting a business."

HC: If participating wasn't a necessity, why get involved in something so many dreaded?

Bennett: "I was insistent that we go through the process because I knew this wasn't going to end here. This was going to go to other places. My goal to start with was to go through the application process, go through the bidding process, learn everything we could about it, submit our information and see what happens. My thinking was that if we didn't get it, we hadn't lost a thing except for time -- and if we do get it, great.

"Another good thing that came from it was that we also have an office in San Antonio and [HCFA] decided to do competitive bidding there, so as a company, we didn't have to refigure how to do it. We had already done it one time, so we just went through the process again."

HC: Is the process easier for a national company than a local independent?

Bennett: "It probably is easier for national companies. They probably have more resources to pull from to put a proposal together, and it does cost money to do that and some local mom-and-pops might or might not have the resources to do that with. As a national company, this is something we would do anyway for managed care or any other large contract so it's just an extension of that."

HC: Was the patient base there for the product categories you were selected to provide?

Bennett: "While we've done very well, the enteral business never materialized, for us anyway. Based on the number of people in that market and the number of people that should be on enteral, we're not finding that market out there. It's a lot slower than what a lot of people's expectations were.

"But in other categories, like respiratory, the business that we expected was there."

HC: Are you going to rebid?

Bennett: "Yes, because now we're in a situation where we want to maintain the business that we have and go forward with it, so now we're not an outsider."

HC: Do you have any advice for winning San Antonio suppliers?

Bennett: "One of the problems you run into is with referral sources, and it's understandable. Nobody likes change. [Referral sources] were used to using certain people and then, all of a sudden, they couldn't and were forced to use a select group of suppliers, whom they might or might not have used in the past. So referral sources might not be extremely open to talking to you. It's normal not to like change, and referral sources tend to fight it. Just be persistent and then do a good job and good follow-up with them to make sure they're satisfied with your services.

"After a short period of time, once they gain confidence that you're going to do a good job for them, you'll start to fit in."

Medical Technology Solutions Tampa, Fla.

MTS IS A winning supplier of surgical dressings, or wound care supplies, in Polk County. President Peter Taylor spoke with HomeCare about his company's experiences with the project. Overall, he says, MTS is satisfied.

HC: Why did MTS choose to participate in the bidding project?

Taylor: "I put a significant investment into this with the knowledge that the worst that can happen is I will still be doing the business in Polk County that I was, and the best thing is maybe I'll gain some incremental business. But more importantly, it's clear that this is the direction that HCFA is going in with respect to [durable medical equipment] and related supplies, so I thought it better to get in on the forefront of the movement rather than running the chance of being run over by it.

"We allocated additional resources specifically for the Polk County demonstration. I hired a dedicated area manager whose responsibility it was to actually go out and educate the various referral sources. I think it's been a fair trade-off."

HC: Has being a winning supplier had much effect on your business?

Taylor: "We've had a very positive view of the demonstration project and we've learned an awful lot, so I'm not trying to diminish what our level of participation has been or our level of satisfaction. But it's almost as if the demonstration worked OK when it could've been really great.

"For this second round, now that I've had almost two years to analyze what's really going on, I can now make some very astute comments that hopefully the [HCFA] project team will take into account and then make some adjustments. I certainly don't think it needs to be overhauled or thrown away, as some providers have suggested. Rather, the real value in this demonstration project [will come] from small adjustments, particularly in the area of education for physicians, home health agencies and long-term care facilities. And then also making it mandatory for those entities -- if they're in the demonstration area -- to do business with a demonstration provider for whatever the product category would be.

"We certainly plan on bidding for round two. With that said as a background, if we were disappointed in any one area, it would be the fact that the volumes that were anticipated for wound care were perhaps not as high as they should have been or, in fact, could have been."

HC: What kind of volume were you expecting?

Taylor: "Well, we only bid on the wound care portion because we functionally specialize in the area of wound care. That's all we do. And as such, we are the leading provider of wound care supplies in the demonstration. So being the segment leader, you would have expected that our volumes would have been higher in terms of the amount of referrals we would've gotten. However, we've not gotten to my knowledge one single referral from any of the efforts of the competitive bid demonstration personnel. Rather, every bit of volume that we've got has been from putting together a highly targeted marketing plan to go out and develop those referrals.

"HCFA had put together what I would consider a robust plan, and maybe it worked in some of the other product segments, but with respect to wound care, the demonstration project left some loopholes in how referral sources can do their business. For instance, nursing homes didn't have to change to a demonstration provider. They could keep their existing provider as long as that provider accepted what the demonstration project reimbursements were. So, from that standpoint, it was somewhat disappointing that, even though we had gone through the bid process, we couldn't count on any long-term care volumes.

"Then you have to look at physicians, outpatient areas of hospitals and home health agencies. And when home health agencies went [to the Prospective Payment System] in October of last year, we were no longer allowed to provide those products under the federal entitlement, so the volume suffered there as well."

HC: Do you believe patient choice and access to quality care are being compromised because of the demonstration?

Taylor: "I don't think patient choice or care has been affected in a negative way at all. They have an ample choice of providers. I think the follow-up lies in how everyone along the wound care continuum gets paid.

"In other words, physicians don't care about the bid process or the project because that's not how they get paid. Home health agencies don't care about the bid process or the project because that's not how they get paid. Hospitals don't care about it because that's not how they get paid. So everyone really only cares about their own reimbursement landscape and not ours. And while the demonstration project in theory should deliver additional benefits to the beneficiaries, in reality nothing changed. If they go to a doctor's office, a doctor is going to do what's in his best financial interest with respect to surgical dressings and not necessarily what would be in alignment with the goals of the demonstration project."

HC: So what needs to be done?

Taylor: "I think the number one thing is education. In other words, every stop along the wound care continuum needs to be educated as to why it's important to channel patient product requirements to a winning demonstration provider. And likewise, they need to address the fact that nursing homes should not be allowed to do business with someone that didn't go through the rigors of the demonstration qualification process."

HC: What advice would you offer for San Antonio bid winners?

Taylor: "Don't bid too low. There are some additional requirements that will cost you some money above and beyond how you normally do business, so they better factor that in. And I truly don't think that price is the ultimate determining factor if a provider is chosen. I think it's a conglomeration of price and service. Obviously price is a factor, but not the only one.

"I know some vendors that would've had to discount to the point where it would have made them unprofitable. If that's the case, then maybe you shouldn't bid. I think you have to take a look at the demonstration like this: I'm going to maintain my business, perhaps increase it, and if nothing else, I'm going to gain quite an education out of it.

"We have quite a bit of managed care experience. We partner with a lot of managed care organizations here in Florida and up and down the East Coast so we were very familiar and comfortable with the whole bid process. For us, it was really just another managed care contract. For someone who doesn't have any managed care experience, it's quite a change. Just don't bid too low."

Med-Services Network Lakeland, Fla.

MED-SERVICES NETWORK is a winning supplier of oxygen in the Polk County demonstration. Like a lot of HME providers, Ed Dimotta, chief executive officer of Med-Service Network, isn't fond of audits. But it's part of this business and his company works hard to keep files and records as required by HCFA and the Joint Commission on Accreditation of Healthcare Organizations. However, Dimotta claims being a winning supplier has put his and other HME businesses under the audit microscope, even for equipment not included in the project.

HC: What has been your experience as a winning bidder in the demonstration?

Dimotta: "Well, it helped us grow our business. But on the other hand, I don't like seeing competitors go out of business just because they didn't get a winning bid. I think the way it should've gone was to make every supplier in the area a demonstration supplier. That would've helped with patient choice, and it would've saved a lot of headaches.

"Maybe I wouldn't have grown my business as much, but at least then [the project] would work. I don't think it's going to work like this. I think [HCFA] will finish this last year and hopefully realize that they're spending the same amount, if not more, than they're saving."

HC: You had mentioned having problems with constant anti-fraud unit audits. What do you mean?

Dimotta: "What they do is take a look at your product mix to see what you're putting out and then look at what equipment you're selling more of or say, 'Hey, you weren't doing lymphedema pumps before.' They look for any item that pops out at them. Then they'll call you and sweet talk you, saying 'Please send us over these 30 files. You've been randomly selected for an audit.' Randomly? . . . I've talked to four DMEs here in town, and we've all been randomly selected multiple times. It's amazing that out of the whole country we were picked so often [here in Polk County]."

HC: Can you give an example?

Dimotta: "January of 1999 [before HCFA selected the bid winners] is when they first came by, saying they were just in town doing inspections and making sure everybody is where they say they are, etc. I said, 'Sure, no problem.' I had just gotten JCAHO accredited, so everything was spotless. They went through some files and said that everything looked great and that if they had found anything, they would have let me know. Then they left. Well, I started getting calls from patients saying Medicare had called them telling them to get a transfer of title for their wheelchair. I would say, 'OK, what's your name -- I'll look it up.'

"As you know, on the 12th month of a capped rental, the patient has the option to continue to rent that chair or purchase it. Now, I mail all my patients a letter asking them which they want to do. If they check off "continue to rent," Medicare and a secondary insurer will pay up to month 15, but they will never own the chair. They lose that option if they choose to continue to rent and so never get the title to that wheelchair.

"So I looked up my records and started reminding patients that they chose to continue to rent. They say that's what they thought, but that Medicare had called and told them to do this."

HC: Who at Medicare?

Dimotta: "I wasn't sure at first. Of course, the first three or four patients to call me didn't get a name or number from the Medicare person that contacted them, but one lady did. She answered the phone for her mom and got the person's full name and number. So I called, and it was this lady from the anti-fraud unit. Of course, she wasn't available, but I had her boss' card from when he stopped by back in January, so I called him. I said, 'Look, you've got your people telling my customers who chose to continue to rent that under no circumstance should they ever let me pick up the wheelchairs and that they should ask for a transfer of title, saying that Medicare had already paid enough for the chair.' His response was that Medicare did pay enough on it. And I said, 'Sir, we do everything by your manual. Your manual states I have to do this, so I do it. Whether you think Medicare has paid enough or not is irrelevant. We have to do what the manual states.'"

HC: What was his response?

Dimotta: "His response was that no one who works for him was calling my customers. So I informed him that I had four phone calls just today and thankfully one person was smart enough to get a name and phone number. He didn't have much to say after that, but then about four hours later he called me back and was all nice, saying that this woman on his staff did call but that she was only doing a survey. I stopped him right there and said, ‘I'm not buying it. You mean to tell me these old ladies all just jumped up and decided to ask for a transfer of title? They didn't even know what it is, but they all knew to ask for a transfer of title. And they all stated that your office told them that Medicare had paid enough on the chairs and not to let us pick up them up. . . He denied it."

HC: Have you heard from him or his office again?

Dimotta: "They just came through here again three weeks ago and hit two other companies in town. And I heard they hit another company in town three months ago."

HC: Do you have any constructive criticism for project administrators?

Dimotta: "Beneficiary education is important. Patients need to have a list of circumstances that outlines what Medicare will pay for, particularly when a patient is on oxygen and is planning to travel. Too many patients misunderstand that while Medicare will pay for oxygen where they will be staying, we're not allowed to give them 15 tanks for the ride there in the car or give them a concentrator that can plug into the car. I think beneficiary education is a major concern."

HC: Do you have any advice for San Antonio suppliers?

Dimotta: "Be careful in the beginning, because everybody is going to be out to cut each others' throats to get patients and you're going to have to watch it. Of course, we realize now more than a year later that you're going to have to turn away customers. You can't take patients when you know you are going to lose money. Keep in mind that this is a business, not a charity, and that you can't please everybody. That's important. You will not be able to please everybody, so service the ones you can and wish the others well.

"And always make sure your files are clean. The fraud investigators started in Tampa and swept across our state, so with the Texas project starting now they should be sweeping through there soon looking for things."

Jernigan's Healthcare Tampa, Fla.

JERNIGAN'S HEALTHCARE is a winning supplier of urologicals and surgical dressings for the demonstration project. Jernigan's has no storefront in Polk County.

Everything it supplies is shipped out of Birmingham, Ala. Because of the company's lack of a physical address in Polk County, Jim Jernigan, chief executive officer and president, says his company faces a challenge educating referral sources about the project and getting new business.

HC: What has been your experience as a winning bidder in the demonstration?

Jernigan: "We've seen some increase in business from it but not a great deal. One of our main problems is that we have sales reps in the area, but we don't have a storefront. Our reps really have to work the doctors' offices to get the referrals to us."

HC: How much of an increase have you seen in your patient base since becoming a winning supplier?

Jernigan: "We might have picked up 30 patients, mostly for urologicals and ostomy supplies. And we ship them usually a 30-day supply, which under Medicare is one catheter, two bags and one insert tray -- not a major bunch of supplies. But in wound care, we didn't see much increase at all."

HC: Why do you think wound care was slower?

Jernigan: "What happens with wound care is that patients will buy supplies outright, and no one ever tells them that they're covered under Medicare. We're the ones who are trying to go out and educate the docs that if they have patients who are homebound and out of their 100 days from the visiting nurse but still have the wound, they can get supplies covered by Medicare home-shipped to them. I don't think physicians were aware of this [when the project started] and most still aren't today even as much as we try to hammer it into them.

"We've been working on doing some education through the HHAs and visiting nurses because now that they've gone to PPS, patients don't know where to go for wound care supplies when nurses leave them. And most local drug stores aren't carrying hydrogel or specialized wound care products, so patients can't just go out and buy that."

HC: Do you think the demonstration has had any impact on patient choice or access to quality care?

Jernigan: "Not much because patients still have a choice. They can come in here and demand that I carry Bard. But if I only carry Kendall and don't want to carry Bard or deal with trying to open up a new manufacturer line, patients can go somewhere else. It's not mandatory that they get their supplies from me.

"I'd like to get some other providers' perspective to see if the project has hurt them or not, but I can't see where it is really affecting the market."

HC: Are you going to rebid so you can continue to be one of the winning suppliers on Polk County?

Jernigan: "We're going to take part in it again. The reason we wanted to be a part of [the first bidding round] was because we wanted to see how the process went and see how profitable it could be for us in case HCFA takes this thing nationwide."