Respiratory and Sleep Funding Outlook

School of Hard Knocks

Respiratory providers learn from competitive bidding Round One so they can come back strong in Round Two.

Round Two of competitive biddingIn mid August, Round Two of competitive bidding reared its head above the hopes of an entire industry that it would somehow disappear and never be heard from again. As predicted, the Centers for Medicare & Medicaid Services (CMS) recently confirmed that Round Two product categories are:

  • Oxygen, oxygen equipment and supplies
  • Standard (power and manual) wheelchairs, scooters and related accessories
  • Enteral nutrients, equipment and supplies
  • Continuous positive airway pressure (CPAP) devices and respiratory assist devices (RADs) and related supplies and accessories
  • Hospital beds and related accessories
  • Walkers and related accessories
  • Negative pressure wound therapy pumps and related supplies and accessories
  • Support surfaces (Group 2 mattresses and overlays)

And if CMS’s broad schedule for the Round Two rollout stays on track, the industry will see the bidding schedule, the bidder education program and the bidder registration period all hit come this fall, with bidding beginning some time in the winter of 2012.

Along with Round Two product categories, CMS also announced the 91 metropolitan statistical areas (MSAs) affected by this round of competitive bidding. (Note that if you are planning to bid, CMS suggests that you update your contact information, get licensed and get accredited. More information can be found at

This news secures competitive bidding as the industry’s most pressing concern when it comes to funding challenges and the future of the industry. So if Round Two wasn’t on respiratory providers’ radar, it probably is now, making it a good time to look at the recent past to peer into the near future.

And what better what to do that than to talk to Round One providers. Respiratory & Sleep Management decided to go to the frontlines and spoke with providers who are still reeling from Round One’s first strike to learn how Round Two providers can ready themselves for the next wave of bidding wars and what that could mean for an already embattled industry.

What we Learned from Round One

Georgie Blackburn, vice president, government relations and legislative affairs, BLACKBURN’S, took a big Round One hit and is still recovering.

“Our participation in Round One has been an epiphany,” she says. “Losing the ability to provide oxygen, CPAPs, beds, and walkers to our Part B Medicare patients was disturbing, but more disturbing was the change in discharge planning protocols that occurred shortly after the program initiated. First, facilities had to put in place discharge planning policies that enhanced productivity. If a supplier in a CBA had a majority of the awards, it was more efficient to simplify things and direct staff to call that company regardless if the beneficiary was Medicare Part B or covered under another payor source.

“The goal was to make ordering easier for their discharge planners,” she explains. “They were already thoroughly frustrated that they could no longer call their provider of choice. Retaining the referrals we could accept became our goal. Good service has again paved the way. Second, other contractors followed with pricing discounts, following the Medicare template. The combination of reduced referrals and reduced payments across the board is a deadly combination.”

Blackburn says she fears that with Round Two, the industry will again low ball the bids if they are not able to repeal or replace the program through H.R. 1041 (a bill to repeal competitive bidding) or at a minimum, reform the methodology before Round Two commences.

Unlike Blackburn, Sam Jarczynski, president, Rx Stat Inc., says Round One of competitive bidding didn’t have a big effect on his business. They bid and won several sleep areas but only accepted the competitive bid for Orlando. The others, he said, just weren’t worth it. Rx Stat didn’t win any diabetic or oxygen markets.

His concerns for Round Two? “If it happens it will be very bad for most providers,” Jarczynski says. “Many DMEs do not realize that they will be out of business if competitive bidding continues. The ones that can stay open will see their reimbursements get cut substantially and will go out of business soon after. If you ask most providers in the Round Two areas, they are not real concerned yet. It is like audits — they do not pay attention until it is too late.”

Joel D. Marx, chairman of Medical Services Company, says approximately onehalf of his business fell within competitive bidding areas. As a result, there were some big changes at his company.

“Round One has caused us to rethink how we staff these areas,” says Marx. “We have effectively flattened the organization, eliminating some managerial positions while maintaining those that have direct patient contact. Financially, there has been a considerable reduction in margins within the competitive bidding area, which we have tried to offset by expansion and acquisition in other geographic markets.”

There are many areas of concern regarding the manner in which Round One was carried out. For Marx, that includes a lack of transparency, use of inappropriate bidder capacity calculations, use of the median pricing vs. a market clearing price, requiring bidders to stand behind bids (i.e., requirement to contract if you win a bid) and allowing beneficiaries non-assigned privileges with contracted providers if they wish or out-of-network options.

“The respiratory and sleep sectors will continue to be the focus of unwarranted attacks by Medicare,” Marx says. He adds that he doesn’t see any relief in Round Two without focused, dedicated, unified efforts by the entire industry. The additional documentation and compliance issues associated with the sleep sector layered on top of the reduced competitive bidding pricing make it exceptionally difficult to service this patient population at the level they deserve, he says.

Darlene Weeks, vice president, clinical services and sales for Care Medical, says her company was not affected by Round One of competitive bidding, but Round Two looks to impact her business significantly. She points out that overall, the industry is seeing continuing decline in reimbursement from Medicaid as well as some private payers. And Weeks warns that in the DME industry, most payers follow Medicare’s lead. When Medicare lowers their reimbursement rates, most payers follow suit.

“What is so hard to understand is how CMS or Congress thinks it is possible to gather all of the documentation required to provide a PAP device (if you actually want to get paid for it) while cutting the reimbursement at the same time,” says Weeks. “We are being asked to do much more and get paid much less. No business in America can operate with that type of business model.

“Unfortunately, while it is a devastating blow to the small business owner, it is much worse for the Medicare recipient,” she adds. “What this means for many will be limited access to care. When the nationals close their stores in the rural areas and the small businessman has been put out of business, there is no one left to provide the PAP for the patient. They will usually not drive two hours to go to the city to get their PAP, so they will be left untreated.

“That will lead to a higher and moredifficult-to-manage level of hypertension, diabetes, heart disease and strokes, all which will cost the Medicare system significantly more than the PAP device would, had it reimbursed at a level where the small business owner could afford to provide it in the rural area,” she continues. “It is not just a PAP. It is all the diseases caused by untreated OSA. It is a snowball effect.”

Weeks hopes that the industry has learned from Round One and will not submit bids so low that no one can provide the equipment and be profitable. She feels that if CMS follows their own guidelines for the bid process, median bids will be the ones accepted. So if ever there is a time when the industry needs to stand together, it is now.

“If everyone submitting a bid submits a reasonable rate for the contracts being bid on, we have a reasonable chance of the final bid allowable being reasonable,” Weeks says. “I believe it is out of fear of not winning a bid that many providers submitted bids that are unsustainable.”

Fixing what’s Broken

Of course, the industry is holding out hope that competitive bidding may be replaced, repealed or reformed. The questions of how and when have speculative answers, some based on the hard work of legislators and industry champions, and others seemingly on the denial of a reality starting to take root. As Round Two approaches, respiratory and sleep providers continue to explore ways to fix a program they view as harmful to their survival.

Blackburn thinks change is possible, due in part to two legislators fighting for the industry via their bill, H.R. 1041, which calls for the repeal of competitive bidding, as long as there is prompt provision of an alternative under the Repeal and Replace initiative.

“We have two outstanding legislators, Congressman Glenn G.T. Thompson and Congressman Jason Altmire, both from my state, who understand that this program as presently designed cannot sustain itself,” she says. “They have 145 other legislators [as of this writing] who agree. If our industry can speak with one voice on the replacement strategy, we can get the job done. Any program that services the elderly and disabled must be good for the budget, the beneficiary and the provider. It is possible to do that, but not under the current CMS methodology.”

Weeks wants to see an appeal of competitive bidding, but doesn’t think the climate in Washington, D.C., is favorable for this outcome or that the DME industry’s funding outlook is understood.

“The biggest problem as I see it is that our legislators know nothing about our industry,” Weeks says. “They have no idea what it takes financially or how many man hours is required to be in compliance with all the legislated requirements. Many of them still think the cost of providing oxygen or PAP is pretty much the cost of the equipment. That is our fault. We have known this was coming for several years, but as an industry we have done very little to educate Congress.

“I know it is the dirty word that many people don’t want to talk about: politics,” she explains. “But as I see it we really have two choices: We can get involved and fight like mad to make our Congressmen and Senators understand our business or we can roll over and play dead. I, for one, am not ready to give up on an industry I have been a part of for well over 20 years and that I believe in so passionately. We can make a difference but it will take all of us. Invite your Congressman or Senator to spend the day with you at your office. Don’t keep them in the executive offices talking all day but let them shadow some of your Respiratory staff and the billing staff. Let them see and understand how hard we work and how much time is required to meet the standards they have legislated.

“It may not be as effective as we would like for every legislator, but I cannot help but believe it would be effective for many,” she adds. “What we have been doing is obviously not working. What do we really have to lose? We cannot afford to sit back and let AAHomecare do all the lobbying for us. We can be our own lobbyist, right from our own businesses.”

Other Threats

As far as respiratory and sleep funding challenges go, competitive bidding may be No. 1 on most providers’ list, but it is far from being the only challenge. For Scott Lloyd, cofounder and president, Extrakare LLC, audits of PAP, oxygen and nebulizer claims are having a big impact on his relationships with certain referral sources.

“There are other suppliers that are routinely dispensing from orders that lack the required medical documentation to ensure coverage,” he says. “Because we require this documentation before dispensing an order, some referral sources choose to use other suppliers. We do our best to educate these referral sources but will not accept these orders and jeopardize our cash flow and ability to continue to serve our other patients by creating an adverse audit environment.”

For Blackburn, in her state of Pennsylvania, she remains concerned about medical assistance allowables, and all independent contracts that appear to be following the competitive bid pricing or model. She says they cannot allow the current competitive bid model to drive healthcare provisions in the home for the future. The foundation is poor.

Heading off Funding Challenges

As Round Two looks more and more like a reality, Marx said his organization is continuing to look for opportunities outside Round Two areas as well as increase the use of technology to drive down costs.

“For a number of years we have moved toward a non-delivery model for oxygen,” he says. “We provide high staffing commitments up front in training the patient and set up to reduce the face-to-face contact in the future. We still provide routine therapist contact; however, it is often by phone. All our vehicles have GPs, netbook computers and printers that we use to distribute ASAP orders to the delivery techs in the field. They all carry additional equipment and paperwork to provide patient setup ‘on the fly.’ This provides improved service levels and reduced delivery costs back to the office.”

Blackburn says, “The only way to counter the cuts is by doing more volume, finding new business lines, building new referral sources, not depending upon Medicare business within your model and staying optimistic. The fact of the matter is our population is aging, and our services are needed. We’ve concentrated on what we can do, not what we can’t do.”

Regarding the industry’s future funding challenges, Weeks sees this as an opportune time to fight for change.

“The current economic state of our country could actually help us make our case to our legislators,” she says. “Unemployment is a huge problem for us right now and everyone in Congress is particularly mindful of this right now. Explaining how national competitive bidding and the burdensome level of documentation has caused businesses to close and will cause many others to close as Round Two and then Round Three, etc., are implemented.

“Now may be the perfect time to talk,” Weeks continues. “Many have predicted there will be 50 percent fewer DME providers once national competitive bidding is fully implemented. How many people does that add to [lawmakers’] local unemployment rate? That is concrete information that just may get our legislators’ attention. This is our industry and we can take it back.”

This article originally appeared in the Respiratory & Sleep Management October 2011 issue of HME Business.

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