Legal Speak

What’s Ahead for Competitive Bidding

Everyone interested in the impact competitive bidding might have on suppliers of respiratory devices and services now has a lot more information to consider. On April 2, 2007, the Centers for Medicare & Medicaid Services (CMS) published the final rule on competitive bidding. That day, CMS also announced the products and metropolitan statistical areas (MSAs) that would be subject to competitive bidding.

Aside from the content of the final rule, many in the industry have spent the last year speculating about the product mix that would be subject to competitive bidding. For suppliers of respiratory products and services, that speculation is over. In addition to oxygen and oxygen equipment, CMS has determined that respiratory assist devices and CPAPs will be among the product categories subject to bidding.

In fact, CMS announced 10 product categories that will be subject to competitive bidding in the first MSAs, including some surprise items, such as walkers. It is not clear whether CMS intends to bid all items in each MSA at the same time, but even if bidding for the items is staggered, including so many items in the new program will make it more difficult to administer for CMS.

Beneficiaries and referral sources also may be faced with trying to coordinate care among several different suppliers. Given the large number of products subject to competitive bidding, suppliers too may find it more difficult to diversify their product mix in a way that lets them offset the impact of competitive bidding on their operations.

The rule is effective as of June 11, 2007, but CMS has stated that bidding would begin by the end of April with contracts awarded in December 2007. The new program would not begin in MSAs until April 1, 2008. Clearly, that is a very aggressive timeline and it is yet to be seen whether suppliers — or CMS — can meet it.

In order to submit a bid, a supplier must be either accredited or in the accreditation process. The bid process will be managed by Palmetto GBA, the competitive bidding implementation contractor (CBIC). The CBIC will publish the RFBs, receive and evaluate the bids, and generally act as the coordinating entity for the new program. The existing Medicare contractors for DMEPOS, however, will continue to process and pay claims, even those submitted by the winning bidders in each of the first 10 MSAs.

Although generally a supplier must submit a bid and win in order to furnish products covered by competitive bidding in the MSA, there is a grandfathering exception for oxygen equipment and capped rental DME such as CPAPs. Under the rule, beneficiaries have the option to continue to receive services from their existing supplier even if the supplier is not a winning bidder. Suppliers that furnish oxygen and agree to be grandfathered must accept the new competitive bidding payment amount for oxygen. For capped rental DME, the grandfathered supplier will be paid at the existing, pre-competitive bidding fee schedule amount. Grandfathering is voluntary, but suppliers cannot use grandfathering to cherry-pick beneficiaries. For a specific item, a supplier must agree to grandfather all of its beneficiaries receiving that item.

Winning bidders, on the other hand, will be required to accept all beneficiaries within an MSA. This means that winners must be prepared to take on beneficiaries in the middle of the rental period for oxygen or a capped rental item.

Many suppliers, especially those that furnish oxygen, wondered how it would be possible to formulate an accurate bid that would account for the impact of the transfer of ownership provisions under the Deficit Reduction Act of 2005 (DRA). The final rule addresses this by providing for an additional payment to contract suppliers that assume beneficiaries transferring from a non-contract supplier. For beneficiaries using capped rental items such as RADs and CPAPs, the supplier can expect to receive payment for 13 months. Suppliers that assume the care of a patient who has been on oxygen for 27 or more months will receive payment for 10 months before title to the equipment transfers to the beneficiary. Importantly, these minimum payment amounts would not apply if the beneficiary transfers from one winning supplier to another.

Even with the volume of information contained within the 400-page final rule, there are many implementation questions that have not been fully answered. Suppliers that intend to submit bids need to make sure that they have read and understand the final rule establishing the framework for the program. Suppliers also must register with the CBIC to ensure they receive program updates, RFB documents and other information related to implementation of competitive bidding. Of course, it is also important to check the CMS Web site to get updates as they are announced.

This article originally appeared in the Respiratory Management May/June 2007 issue of HME Business.

About the Author

Asela M. Cuervo, Esq., specializes in legal/regulatory cases and issues concerning the HME industry, and is a member of CMS' Program Advisory and Oversite Committee regarding national competitive bidding. The Law Office of Asela M. Cuervo, located in Washington, D.C., can be reached at (202) 496-1281 or

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