Remember the saying “look to your left, look to your right, one of you …?” Today, that sentence can be finished with “… will be in a competitive bidding area in 2007.” An alternative ending is “… two of you will be in competitive bidding in 2009.”
That's right, one out of three providers in 2007, and two out of three in 2009.
A couple of weeks ago the following message was in my e-mail inbox: “I run a smooth HME respiratory business. Dropping around 8 percent to the bottom line. $2.2 million in annual revenue. Does your group have a strategy in the competitive bidding arena?”
The address indicated that this forward-thinking provider is located in one of the country's 10 largest metropolitan statistical areas (MSAs), where the Medicare Modernization Act has mandated that competitive bidding will begin in 2007. This owner recognizes that making a strategic business change to get ready for competitive bidding could take 12 to 18 months, and that's fast. Many changes take two or three years to implement.
When you think about those time-frames and add a couple of years to the current date, 2007 competitive bidding is almost here. And if a management team really wants to be slow and deliberate, it is time to begin thinking about 2009, when competitive bidding will phase to the nation's top 80 MSAs.
Because of market conditions, there will be considerable profit margin erosion before 2007. Additionally, between now and when competitive bidding begins, any provider's individual marketplace could see dramatic changes. However, elimination of the competitive bidding requirement of the law is not one of them.
So at this early stage, I have four recommendations for getting your business in shape for the competition:
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Prepare to cover the entire competition area. To be prepared, you will have to understand the expenditures for DME in the area: where the biggest pockets of spending are, who is likely to be a rival after competitive bidding and the infrastructure your company will be required to use. Consideration must be given to financing growth and having a management team that can step to the plate.
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Develop controls that will make your operations 20 percent more efficient than they are today. This process should start with your company's values, which, coupled with the environment, will influence your business strategies, be reflected in your policies and procedures and be reliant on a solid management information system that includes activity costs.
The 20 percent goal is driven by five years of a CPI freeze that is likely to erode 13 percent of the profit from Medicare beneficiaries, and by an FEHBP (Federal Employees Health Benefit Plan) adjustment that could hit providers for another 6 percent. All this is before competitive bidding — and who knows what else might come along?
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Be a full-line provider. Bidding on multiple product lines will make you a more valuable provider to Medicare when it comes time for evaluation of suppliers after the bids are opened. It will also give you a better chance to win a spot in the evaluation. However, if you are not currently a full-line provider, make sure your business controls are in place first, then consider executing this strategy closer to competition time.
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Develop enough business away from Medicare to survive if your company is not a winning bidder. This is a defensive strategy and, initially, may even hurt your margins and cash flow. But the efficiencies that you develop will compensate. This does not mean you shoud stop development of Medicare business; it means developing business from other payers more quickly.
Wallace Weeks is founder and president of The Weeks Group Inc., a Melbourne, Fla.-based strategy consulting firm. He can be reached at 321/752-4514 or by e-mail at wweeks@weeksgroup.com.
