"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?"
The following Web links may be helpful in your study of Medicare's DMEPOS competitive bidding program.

Competitive Bidding Useful Web Links

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.