Ripple Effect: Bid Expansion Leads to Stiff Funding Cuts Outside Medicare

Providers serving TRICARE patients are now feeling the effect of CMS’s July 1 implementation of the full bid expansion cuts; patient access hangs in the balance.

Recent cuts by a health plan entirely unrelated to Medicare’s DMEPOS program are starting to indicate how far the impact of the full July 1 nationwide expansion of competitive bidding rates is actually reaching.

HME providers helping beneficiaries of TRICARE, an insurance program serving active duty and retired military personnel and the families, suddenly began seeing rates discounted below national competitive bidding rates for items covered by the bid program. TRICARE’s cuts began for claims after July 1, when CMS implemented the reduced reimbursement per national expansion, and came as a shock to HME providers serving TRICARE patients.

One provider, Tycon Medical Systems Inc., with locations in Norfolk and Portsmouth, Va., started noticing that the reimbursement rates being paid by TRICARE “had just plummeted” starting with claims placed in early July, according to Tycon Vice President and General Manager Chris Smythe. The cuts came as a complete surprise.

“We didn’t realize this was going to happen,” Smythe said.

TRICARE has been a dependable, “black box” for funded patients over the years for providers such as Tycon that serve large numbers of active and retired military service members. While various competitive bidding cuts raged around Tycon, TRICARE offered one bright spot of trouble-free funding, according to Smythe

“We’re in a heavily military area and they’ve always been a good payer,” he said. “We have great relationships around here with referral sources in the area that provide us with TRICARE business. …  So, TRICARE was the last thing we every really worried about.”

The Magnitude of the Problem

TRICARE rates have been tied to the Medicare fee schedule for each state. Prior to the bid expansion, this was not an issue for HME providers serving TRICARE beneficiaries, because the overarching fee schedule had not been impacted by competitive bidding. Once competitive bidding was expanded nationally and the full cuts were implemented on July 1, TRICARE appears to now be basing its reimbursement on the competitive bidding derived rates rather than the prior fee schedule.

However, that’s only half the story. TRICARE’s rates are not only tied to Medicare reimbursement rates, but discounted off those rates.

“So, where a provider might have had a contract with TRICARE that said you were 30 percent below the Medicare fee schedule — and that was okay, given that Medicare competitive bidding was 40 percent [or more] below the fee schedule,” Smythe explained. “When suddenly that fee schedule dropped to competitive bidding rates, now you’re 30 percent below competitive bid rates.

“When most companies are saying that competitive bid rates are unsustainable, 30 percent below that would be laughable — if it wasn’t so dire,” he added.

“CMS’ latest moves have cut pricing for providers by an average of 35 to 60 percent for many items vs. prices in effect at the beginning of the year,” a statement from the American Association for Homecare read. “These rates are already painful enough for home medical equipment providers before taking an additional discount below the Medicare pricing. Depending on the region that processes TRICARE claims, the industry has seen additional reductions from anywhere between 10 to 55 percent on top of the Medicare cuts.”

The Gameplan

Tycon is still trying to determine who it can negotiate with at TRICARE, Smythe says.

“Whenever you’re dealing with a large payer, and especially a large government payer, trying to find someone and who is a decision maker and that can actually make changes can be like pulling teeth,” he says. “Healthnet Federal Services currently manages TRICARE in our area — we’re TRICARE North — but there response is that they don’t set the prices, the government does.”

That ensuring finger pointing has led Smythe to conclude that the best course of action is to spread the word in the hopes that it will create a sufficient outcry to get the issue addressed on a systematic basis.

Of course, deciding what to do in the meantime is a little more difficult.

“Right now, we’re continuing to serve TRICARE, for the moment,” Smythe says. “Until they figure out if they are going to fix this, or whether they are going to keep our contracts at a percentage below the fee schedule, which has now dropped.

“If they don’t change it or fix it or roll it back, we’ll have no choice but to stop serving TRICARE patients, because we’ll be serving them at a loss. … I don’t know of any company that can serve patients at 20, 30, 40 percent below competitive bidding rates.”

Cutting Patients Loose

Other providers have already headed in that direction. Such is the case for Progressive Home Medical in Chandler, Ariz.

“The new TRICARE fee schedule effective July 1 comes with a 61 percent reduction for CPAP devices when compared to the rates in effect last year,” said Kirit Patel, owner of Progressive. “We are now down to $18.41 per month for CPAP.

“As a result, my company has stopped taking all TRICARE, and I know other companies in the Phoenix area are doing the same,” Patel continues.  “Unfortunately, these new reductions are going to leave our veterans with reduced access to medical equipment they need!”

Industry Action

On an industry-wide level, the HME advocates are trying to get TRICARE to understand the impact of its decision to discount off the national bid rates.

“Our association and leaders in the HME community will work with regional offices that oversee the TRICARE contracts to educate them on the impacts of using rates from the flawed competitive bidding program,” said Laura Williard, senior director of payer relations for AAHomecare. “We plan to share what we are hearing from providers across the country regarding the impacts these cuts are having on the military and their families.”

On the legislative front, AAHomecare President and CEO Tom Ryan said TRICARE’s cuts emphasized the immediate need for the industry to engage in a concerted push to advance a reform to the bid expansion.

“This is just the latest example of the disruption that the wider application of competitive bidding-derived pricing is causing across the nation” Ryan said. “These deep reductions in TRICARE rates underscore the urgent need for legislation to pause the latest round of reimbursement cuts so their effects on patients can be better assessed.”

About the Author

David Kopf is the Editor of HME Business.

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