If I had told you a month ago that you had better odds of picking red or black at a roulette table than surviving round one of competitive bidding, you would have probably thought me crazy. But that was exactly the case.

Like many providers in the first round of competitive bidding, I thought I had a good chance of becoming a bid winner, and foolishly thought I had certain advantages. Accreditation was a requirement, and I had been Joint Commission accredited since 2000.

When the Miami metropolitan statistical area (MSA) was picked in the first round back in April 2007, I immediately looked at the number of accredited providers from the list of approved accrediting organizations. I counted about 70 current accredited companies that provided the full line of DME, as I did.

It took me nearly a year to become accredited when I started the process in 1999. Back then, companies voluntarily became accredited to compete as a top provider. I figured there was no way a single company, certainly not hundreds, could get accredited by the initial July deadline.

Besides that, I enjoyed absorbing information on the subject. I have attended every Medtrade Conference since 1995, and served on the board of my state association, the Florida Association of Medical Equipment Services (FAMES). I have gone to countless FAMES-sponsored seminars, and I am a member of VGM. Even with all that, my company was disqualified in round one.

Lessons from Other Industries

In the early 1990s, I worked for one of the most successful privately owned clinical laboratories in South Florida. At that time, many small labs were able to provide phlebotomists to work in doctors’ offices to draw blood. There were discussions by the American Clinical Laboratory Association (ACLA) that Medicare was to change the rule and effectively change the way clinical lab business was done forever. Many small lab owners said, “That will never happen, Medicare will never do that.”

But near the mid 1990s, that is exactly what happened. I soon entered the arena of DME, but I still stayed in touch with my friends in the clinical lab industry. A few years later, Medicare discussed combining blood tests and reducing reimbursements. Many of the remaining labs thought: “There is no way Medicare will do that … they’ll close down half the labs.” Again, that is exactly what happened. A few years later, two of the three largest national laboratories, Smith Kline and Quest, merged. Many of my friends’ lives changed forever in those years, and I learned to pay close attention to every calculating move that Medicare made.

DMEPOS competitive bidding is based on demonstration projects in Polk County, Florida, and San Antonio. Categories in the Polk County first round were oxygen, hospital beds, enteral nutrition, urological, and surgical dressings. Enteral is one of the most service-oriented items that we provide. Patients typically have problems with feeding bag failures, feeding pump failures, feeding peg problems, and always at the oddest times.

It is no wonder that in the second round of the Polk County demonstration project, enteral feed patients were removed from analysis. In the second round, half of the evaluation was based on urological and surgical supplies. These are typically mail-order items that are simply shipped to the patient’s residence. According to utilization statistics, urological and surgical supplies are rarely handled by providers and are in the lowest percentage of reimbursed items.

The facts of the Polk County demonstration project were released at a packed Medtrade Seminar given by former FAMES President Joan Cross. In the aftermath of the study, many providers said, “That’s ridiculous, the lawmakers will never approve a program based on two items that no one ever supplies.” But again, that is exactly what happened.

It is fair to say that the best rule for survival in competitive bidding is to assume the worst possible outcome, then extrapolate to the ridiculous. The proposed rules for the program (CMS 1280-P) were released on May 1, 2006. Page 112 said, “We recognize the importance and convenience offered by local presence of small suppliers. We propose to take the following steps to ensure that small suppliers have the opportunity to be considered for participation in the program.”

Yet the final rule released in April 2007 gave limited protection for small providers. It actually states that the protection is 30% of the number of bid winners—not 30% of utilization or 30% of the current business. For example, of the 11 winning oxygen providers in the Charlotte, NC, competitive bidding area (CBA) for oxygen, 30% must be defined as small providers. That calculates to only three small providers. Of the 501 oxygen providers in the tri-county Miami CBA, there were only 44 bid winners. The 30% rule protected 15 small oxygen providers in Miami, two power wheelchair providers in San Juan, three enteral providers in Pittsburgh, and five CPAP providers in Cleveland.

According to mail-order diabetic providers, the proposed rule said that their category was not supposed to be in the final rule, but it was. Some very large national companies did not bid in the demonstration projects, but simply purchased bid winners. It was also in the proposed rule that the purchasing of bid winners would not be tolerated, but again that was not in the final rule.

As a result, hundreds of providers in round one bid out of state with this goal in mind. They already did the work to prepare their bid to provide mail-order diabetic out of state, so why not bid on everything? Not only did they bid, but some companies won categories in all nine MSAs within the continental United States. The first line in the RFB still states that “All suppliers must … meet any local or state licensure requirements for the item being bid.”

However, none of the companies that won bids in the Orlando and Miami CBAs (that reside out of state) has physical locations within the state. They did not have occupational licenses in local counties, are not licensed by the state’s Agency for Health Care Administration, and do not have a license from the state’s Department of Health to provide oxygen.

The most common problem with the bid in round one was the disqualification of 63% of the applicants. The majority were because of missing financial documents. Legislators have been made to believe that the majority of DME owners are careless individuals who forgot to put a few pages in a packet of 100 required hard-copy documents. The truth of the matter is that many providers used health care attorneys and successful consultants to assure their bids were prepared properly. The hard-copy documents consisted of merely 13 financial pages.

Whether the pages were in the bid or not is irrelevant. At the time our bid was placed, the Competitive Bidding Implementation Contractor (CBIC) and the RFB stated that bidders would be notified if any documents were missing. This was repeated over and over again in the CBIC’s “outreach” teleconference programs. Not one member of the Accredited Medical Equipment Providers of America (AMEPA) sent an application in after the July deadline. However, days before the deadline, the CBIC extended the bid until September 25. A few weeks before that deadline, nearly 6 weeks after the majority of bidders sent in their bids, the CBIC changed the rule and took away a basic guarantee against the CBIC losing documents. If the industry knew this basic document was going to be taken away, we would have demanded that we be allowed to scan our own documents to the CBIC and review the documents electronically—as we were able to with our bid prices.

Editor’s Note
Read more about competitive bidding in the free archives section of RT: Nuts and Bolts of Competive Bidding.

A disqualification was something no one ever considered. I followed the rules and bid only in the items that I have a history of providing. I did not bid in power wheelchairs, even though I typically provided one a month, because I thought I did not have the utilization history, which we were required to provide to the CBIC. We learned that did not matter because local providers won the bid in categories that they never provided before.

This is only a partial explanation of the problems that bidders faced in round one. The truth of the matter is that bidders may be at the table planning to place their bet on red or black, and only getting a return of half their bet. The demonstration projects had an average of a 20% cut in reimbursement, round one had an average of 26%. What will the average cut be in round two for the next 70 MSAs?

Rob Brant is president of the Accredited Medical Equipment Providers of America (AMEPA), Miami.