Understanding the Realities of Competitive Bidding RegulatoryCompliance Update

1
Understanding the Realities of Competitive
BiddingRegulatory/Compliance Update

• Presented to NCAMES by Mark Higley
• The VGM Group

2

• As HME providers are most aware, last May CMS
  published its proposed rule to phase in the
  competitive acquisition program, or competitive
  bidding for DMEPOS under Medicare Part B.
• To the concern of the industry, the proposed
  regulation did not provide definitive answers to
  the most pressing questions about the program,
  the cities and the products included in the
  initial rollout.

3

• Finally, on April 2, 2007, CMS 1270 F (the Final
  Rule) was released. Number of pages 401.
• The bid area boundaries (by ZIP code) and the
  Product Categories (by HCPC Code) were posted on
  the Competitive Bidding Implementation Contractor
  (CBIC) website shortly thereafter
• Official site http//www.dmecompetitivebid.com

4
Bidding Opened May 15 Many Providers In CBAs
Are Not Prepared!

• All suppliers submit bids using an internet
  application.
• There is an initial registration on the internet
  application to get a USER ID and password.
• The initial registration process requires the
  authorized official (see Section 15 of the CMS
  855S) to complete the information.
• Many bidding HMEs have not yet completed the
  initial registration process. They must do
  immediately!

5
Official Timeline

• May 15, 2007 - Bid period opened
• June 30, 2007 - Registration Deadline (Last day
  to register to get user IDs and Passwords )
• July 13, 2007 60-day bid window closes
• 8/31/2007 - Last day for first round bidders to
  obtain accreditation.

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• Late September 2007 CMS concludes bid evaluation
  and begins contracting process.
• December 2007CMS announces winning suppliers for
  first round.
• 1/1/08-4/1/08CMS conducts intensive beneficiary
  and referral agent education campaign.
• 4/1/2008 New program begins

7
The Authorization

• Section 4319 of the Balanced Budget Act of 1997
  (BBA) authorized up to five demonstration
  projects for Medicare Part B items, excluding
  physician services. CMS implemented demonstration
  projects on competitive acquisition of DMEPOS at
  two sites Polk County, Florida and the San
  Antonio, Texas, Metropolitan Statistical Area
  (MSA). The demonstrations took place from 1999 to
  2002.

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• What does CMS expect.

9
CMS report

• The demonstration projects revealed that
  substantial savings could be realized through the
  implementation of competitive acquisition,
  without compromising the quality of the products
  being supplied. Based on these demonstrations,
  CMS estimates potential savings of 20 on DMEPOS
  if competitive acquisition for these products is
  successfully implemented throughout the country.
  Statistical data indicated that beneficiary
  access and quality were essentially unchanged.

10
Bottom line

• CMS states the program is projected to produce
  savings of 1 billion in 2010
• The savings is based on the estimation that
  competitive bidding will reduce DME spending by
  12.9 percent below fee-for-service among the 70
  percent of DME costs assumed to be subject to the
  program by 2010.
• The 12.9 percent figure is based on contractors
  modeling over 90 MSAs.
• Many industry groups have disputed the projected
  savings, contending Medicare reimbursement cuts
  in recent years -- particularly surrounding
  oxygen and power mobility devices -- make the
  billion-dollar projection unrealistic.

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Current problems with the Bid

• Many hundreds of suppliers the majority with
  relatively lower capacities are low-balling
  with the assumption of increasing the likelihood
  of their bid acceptance!
• Many others are misinformed. Example My bid
  must be at least 20 below the current allowable

12
CBSS joke of a system ()

• Mark - What is the protocol for contacting an
  individual capable of addressing the multitude of
  problems with this terrible excuse for a
  submission system?  I mean Mark, realistically
  how are we supposed to meet a July 13th deadline.
   Here it is June 14th Ive started early and the
  system is freezing on me continuously. The system
  has given me on multiple computers in my network,
  JavaScript on top of JavaScript errors, error
  500s during updating of pages aside other
  problems 
• () Actual text message from HME provider to me
  on 6/14/2004

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• Their help desk is reading from a script which
  is more frustrating then it is pathetic.  Who can
  we absolutely blast with emails, calls, and faxes
  beside Mr. Kuhn about this government train
  wreck. It has taken hours on top of hours just to
  finish one category properly.

14
Which Areas Are Affected?

• CMS began with a list of the fifty largest
  Metropolitan Statistical Areas (MSAs) based on
  2005 population. CMS then selected 25 that had
  the largest total allowed Medicare charges for
  DMEPOS in calendar year 2005. The 25 MSAs were
  to be ranked according to two criteria allowed
  DMEPOS charges per beneficiary, and the number of
  DMEPOS suppliers per beneficiary receiving DMEPOS
  items.

15
MSA Surprises

• Cleveland AND Cincinnati AND Pittsburgh
• No Houston
• No Atlanta
• Orlando vs. Tampa
• San Juan

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Which areas affect NCAMES members?

• The CBAs are defined by ZIP codes. Many rural
  ZIPs, that would be included in the official U.S.
  Census Bureau MSA, were deemed non-competitive
  and hence not included within the CBA. Providers
  may find the actual ZIP codes affected on the
  CBIC site. Maps of the CBA are also available.

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The Charlotte-Gastonia-Concord, NC-SC CBA (Except
Mail-Order Diabetic Supplies)
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Mail-Order CBA
19
CBA ZIP Code Detail
20
Mail Order ZIP Code CBA varies check the web
site!
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Mail Order
22
Implementation

• The competitive bidding program will be phased in
  over several years The 10 CBAs announced, with
  70 more CBAs in 2009, and at least 10 others in
  2010.
• Payment under the first round of the competitive
  bidding program will go into effect in April,
  2008.

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Product Categories for NCAMES

• Oxygen equipment and supplies
• Respiratory assist devices and CPAPs
• Standard power mobility devices
• Complex power rehab
• Diabetic supplies (Mail Order Only)
• Enteral nutrition
• Hospital beds and accessories
• Walkers
• Negative pressure wound therapy devices

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Supplier Eligibility

• All bidders must be accredited (or be in the
  process of becoming accredited) by a CMS approved
  accreditation organization
• Abide by final quality standards, including
  financial, business, and customer service
  standards, in addition to product-specific
  standards.
• CMS will require evidence of financial resources
  to support potential market expansion. CMS will
  also analyze certain financial ratios of
  bidders. 

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Supplier Capacity

• If a supplier estimates that it can furnish more
  than 20 percent of the expected beneficiary
  demand for the product category in the CBA, CMS
  will lower that suppliers capacity estimate to
  20 percent.
• This capacity adjustment is necessary to ensure
  that at least 5 suppliers furnish the items per
  product category. According to CMS, sufficient
  contract suppliers in the CBA to provide
  beneficiaries with variety and choice.

26
Supplier Capacity

• In an unlikely scenario, CMS will award at least
  two contracts if there are less than five
  suppliers meeting the requirements and these
  suppliers have sufficient capacity to satisfy
  beneficiary demand for the product category
  calculated.
• The provisions do not apply to regional or
  nationwide mail order CBAs.

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Bidding

• Bidding by product categories requires bidders to
  submit bids on multiple items (by HCPC code)
  within the product category. CMS will aggregate
  these individual bids into a composite bid in
  order to compare bidders with each other. The
  composite bid would be equal to the weighted
  sum of the bids for the items in the product
  category.

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The Bid Process

• Competitive bidding items will be included in
  product categories and identified by HCPCS codes.
  Suppliers may choose to bid on one, some, or all
  of the product categories, but if they bid on a
  category, they must bid on each item included in
  the category.
• Bidders who bid at or below the pivotal bid are
  winning bidders, assuming they meet accreditation
  and other requirements.
• CMS will use the median price (the middle bid)
  of the bids submitted by the winners

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The Pivotal Bid

• This is the point where beneficiary demand is met
  by supplier capacity. Generally, all bids above
  this point (in ) are non-contract, or losing,
  bidders.
• CMS will evaluate the composite bid of all
  eligible bidders for an entire product category,
  and begin with the lowest bid, and add
  subsequently higher bids until the capacity is
  met.
• CMS states this will offer the lowest expected
  costs to Medicare for all items in a product
  category.

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• Confused over the composite bid or pivotal
  bid terms? Lets use an example

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Respiratory Assist Devices and CPAP Category
Bidding Example () Assume CBA Capacity 100
32
Apply HCPC Weights
33
Sum Weighted HCPC Bids To Obtain Composite
Category Bid
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Determine Capacity of each Supplier (Units)
Capacity of CBA is 100
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Select Lowest Composite Bid - Add Additional
Suppliers- Until Capacity Reached
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3 Suppliers Reach 100 Capacity. At this point,
the Pivotal Bid is met. (All Bids over 130 are
excluded)
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These 3 Suppliers Receive the Median Of Each HCPC
Code
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• The five bids received for CPAP ranged from 80
  to 90. However, with the pivotal bid and median
  taken into account, the winning bidders all
  receive 82.

39
Exception In the Example

• For simplicity purposes, this example did NOT
  take into account the 20 maximum capacity
  discussed a few minutes ago.

40
The Bid Weights

• The HCPC weights and bid limits (current
  Medicare fee schedule) are now available for
  review on www.dmecompetitivebid.com.
• Many industry stakeholders (MED Group, VGM,
  Invacare, Roho, Nestle, et al) have developed
  electronic/spreadsheet-type tools to assist
  providers

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Commonly Owned

• Special rules apply to commonly-owned suppliers
  (defined to mean that one supplier has an
  ownership interest of 5 or more in another
  supplier) and commonly-controlled suppliers
  (defined to mean that an owner of one supplier is
  an officer, director or partner in another
  supplier).

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• If two or more suppliers are commonly-owned or
  controlled, they may submit only one bid to
  furnish a product category in a particular CBA.
• All commonly-owned or controlled suppliers that
  are located in the CBA, and all commonly owned or
  controlled suppliers that are not located in the
  CBA but that will furnish the product category to
  beneficiaries within the CBA, must be included in
  the bid.

43
Small Supplier Target

• In the Final Rule CMS changed the definition of a
  small supplier to be a supplier that generates
  gross revenue of 3.5 million or less (compared
  to the proposed rules 6 million in revenues.)
• CMS set a target number of 30 for small supplier
  participation.  Small suppliers must meet all
  bidding requirements.  

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• CMS will review whether the number of small
  suppliers whose bids are at or below the pivotal
  bid is less than the 30 CMS target number.
• If the number of small suppliers is lower, CMS
  will offer small suppliers whose bids were most
  close to, but above, the pivotal (cutoff) bid,
  the option of accepting a contract to furnish the
  product category at the contract amount. 
• Many HMEs are confused by this targetNOT the
  same as the SBA small business set-aside!

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Important Note!

• The 30 target requires 30 of the winning
  bidders to be designated as small suppliers.
  This does NOT suggest that 30 of the Medicare
  payments in any product category will be directed
  to small suppliers.
• Effectively, there is no guarantee of any minimum
  percentage directed to small suppliers.

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If a supplier declines the bid

• If one of the successful bidders decides not to
  accept a contract, then a contract will be
  offered to the supplier whose composite bid was
  the lowest of the unsuccessful bids

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Payments

• CMS will pay the supplier 80 of the single
  payment amount for the item in the CBA where the
  beneficiary maintains a permanent residence.
• The remaining 20 will be the beneficiarys
  coinsurance responsibility.
• The payment amount will remain in effect for the
  full three-year term of the contracts they will
  not be adjusted for inflation.
• Contract suppliers will be required to accept
  assignment.
• Suppliers may still use ABNs for items for which
  Medicare might not pay.

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Beneficiary/Travel Rules

• Beneficiaries who live in a CBA will be permitted
  to obtain DMEPOS only from contracted suppliers.
  Beneficiaries whose permanent residence is
  outside a CBA but visit a CBA also will be
  required to utilize contracted suppliers.
• If the area that the beneficiary is visiting is
  not a CBA, or if the area is a competitive
  bidding area but the item needed by the
  beneficiary is not included in the competitive
  bidding program for that area, they must obtain
  the item from a supplier that has a valid
  Medicare supplier number.
• In either case, payment to the supplier will be
  paid based on the bid amount for the item in the
  competitive bidding area where the beneficiary
  maintains a permanent residence.

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Grandfathering/Transitioning

• Monthly rental oxygen Arrangements entered
  into before the start of a competitive bidding
  program can be continued. The supplier must
  agree to accept the competitive bidding price.
  Losing suppliers cannot take on new patients for
  these items.
• Inexpensive/routinely purchased items furnished
  on a rental basis, items requiring frequent and
  substantial servicing, and capped rental items
  Grandfathered supplier may continue furnishing
  these items in accordance with existing rental
  agreements.

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• Allows beneficiaries to continue to rent items
  from their existing supplier, even if that
  supplier has lost its contract status under a
  subsequent competitive bidding program.

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• CMS intent is to drive all business for
  competitively bid products to the contract
  supplier. Beneficiaries who visit the competitive
  bidding area and need products included in the
  bidding program would be required to obtain them
  from a contract supplier.
• Conversely, beneficiaries who live in a
  competitive bidding area and need competitively
  bid equipment when they visit other areas can
  obtain the equipment from any Medicare supplier.
  However, Medicare will only pay the competitive
  bidding contract amount for the item.

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• The proposed rule required winning bidders to
  accept every beneficiary in the CBA no matter how
  many months rental they have remaining on their
  equipment. CMS refers to this as a beneficiary
  protection in the event the beneficiary has a
  supplier who loses the bid and does not agree to
  the grandfathering terms.
• However, the final rule somewhat mitigated
  supplier concern relative to the monthly rental
  issue

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• For oxygen, CMS allows suppliers that must begin
  furnishing oxygen equipment after the rental
  period has already begun to a beneficiary who is
  no longer renting the item from his or her
  previous supplier (because the previous supplier
  elected not to become a grandfathered supplier or
  the beneficiary elected to change suppliers) will
  receive at least 10 rental payments for
  furnishing the equipment.
• If the beneficiary transitions to a new contract
  supplier, the oxygen and oxygen equipment must be
  returned to the original supplier that owns the
  equipment.

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• For capped rentals, CMS allows suppliers
  furnishing items to a beneficiary who is no
  longer renting the item from their previous
  supplier (because the previous supplier elected
  not to become a grandfathered supplier or the
  beneficiary elected to change suppliers) to
  receive 13 monthly rental payments for the item,
  regardless of how many monthly rental payments
  Medicare previously made to the prior supplier
  (assuming the item remains medically necessary).
• At the end of this new 13 month rental period,
  the contract supplier will still transfer title
  to the capped rental item to the beneficiary.

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Important Exception

• This rule does not apply when a beneficiary who
  is renting a capped rental item from a contract
  supplier elects to obtain the same item from
  another contract supplier, because the
  grandfathering provisions only apply to those
  situations in which a beneficiary had been
  previously receiving the item from a non-contract
  supplier.
• A new contract supplier would be paid rental only
  for the duration of the rental period.

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Grandfathering Other Items

• CMS We do not believe we have authority to
  allow grandfathering for other DMEPOS, such as
  glucose testing supplies and enteral nutrition,
  equipment, and supplies.

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Other Payment Provisions

• If Medicare is the secondary payor for a
  beneficiary who resides in a CBA, and the primary
  insurer requires the beneficiary to obtain items
  from a supplier that is not a contract supplier,
  then Medicare may pay the secondary payment to
  the noncontract supplier.
• If a beneficiary receives an item covered under
  competitive bidding from a noncontract supplier
  within a CBA, and payment is not grandfathered,
  then the beneficiary will have no financial
  liability to the supplier.

58
Specific Brand

• A physician may prescribe a particular brand of
  an item, or a particular mode of delivery, if it
  is determined the brand or mode of delivery would
  avoid an adverse medical outcome for the
  beneficiary.
• The supplier must either provide the brand/mode
  prescribed or consult with the physician to find
  an appropriate alternative brand/mode and obtain
  a revised prescription, or, alternatively, assist
  the beneficiary in locating a contract supplier
  that can furnish the prescribed item.

59
Specific Brand Payment

• Medicare will pay the supplier only the single
  payment amount. The regulations specify that
  there is no extra payment for a specific brand or
  mode of delivery ordered by a physician.

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Repair and Maintenance

• Repair and maintenance of competitively bid
  items, including replacement parts, may be
  provided by any supplier with a Medicare billing
  number.
• Payment for parts and labor will be generally as
  it is now, unless a part that is needed is itself
  a competitively-bid item (such as a wheelchair
  battery), in which case the single payment amount
  will apply.

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Education and Outreach

• 1/1/2008 - 4/1/2008 CMS will conduct intensive
  beneficiary and referral agent education
  campaign.
• These resources will include customer service
  support and ombudsmen networks. The claims
  processing system will also be used as a vehicle
  for information relating to this program.
• An instructional Webinar for suppliers is now
  available on www.dmecompetitivebid.com.

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Examples of Beneficiary Education

• Q Will I have to get my equipment or supplies
  from a different supplier?
• A You may have to change suppliers. However, if
  you are currently renting equipment or oxygen,
  you may have the choice to stay with your current
  supplier if they choose to continue to furnish
  the rented equipment. In certain cases, your
  doctor or other health professional can supply
  needed equipment or supplies to you if it is part
  of your treatment. Whether you have to change
  suppliers or not, you will still be able to get
  the Medicare-covered equipment and supplies that
  you need when you need them.

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ExampleQ How will I know what supplier to
use?

• To find out if your zip code is included in a
  Competitive Bidding Area (CBA), you may call
  1-800-MEDICARE (1-800-633-4227) or you may search
  CBAs and zip codes at www.medicare.gov.

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Inherent Reasonableness??

• NCB will generate a rich HME database even if it
  doesn't result in substantial cost savings.
• CMS will have detailed information on what
  bidders in the first 10 MSAs are willing to
  charge and, by implication, how low they can go
  and still stay in business. CMS could use the
  data to impose an inherent-reasonableness
  standard on the entire industry.

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CMS Opportunity to Create Networks

• Small suppliers (lt3.5 million in revenue) may
  join/form networks if they do not service the
  entire Geographical area of the CBA.  
• Networks must comply with all applicable laws,
  including the federal antitrust laws. 
• The small suppliers forming the network must have
  market shares that do not exceed 20 percent of
  the expected beneficiary demand for the product
  category. 
• No more than 20 small suppliers may participate
  in a network.
• Relatively few Networks have formed due to
  limited timeframes and competition issues.

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Other Final Rule Changes or Clarifications

• Proposed CPI increases over three year period
  removed No Payment Adjustment to Account for
  Inflation
• Starting in 2009 CMS has the authority to adjust
  payment amounts in non-bid areas based upon bid
  amounts in bid areas
• CMS will not require that repairs of
  beneficiary-owned competitively bid items be
  performed by contract suppliers. This policy
  will also apply to maintenance services required
  by the DRA.
• After considering generally negative comments,
  CMS removed the rebate program.

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Change of Ownership

• If a contract supplier is acquired by or merges
  into a non-contract supplier, and the noncontract
  supplier meets the requirements for contract
  suppliers, CMS may award a contract to the
  acquiring supplier. CMS believes that a supplier
  should not automatically become a contract
  supplier by merging with or acquiring a contract
  supplier.
• In any case, a contract supplier must notify CMS
  if it is negotiating a change in ownership 60
  days before the anticipated date of the change.

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Physicians/Practitioners, SNFs Hospital-based
Suppliers

• The Final Rule permits physicians and certain
  nonphysician practitioners to furnish certain
  competitively bid items to their own patients
  without submitting a bid and being selected as a
  contract supplier.
• HOWEVER. SNFs NFs must bid (and compete to
  serve their own patients!)
• CMS We believe it is appropriate to include
  them in the same bidding process as other
  suppliers because the statute requires us to
  conduct bidding for items in which we expect
  savings.
• Hospital-based suppliers also must bid

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Accreditation Timeline

• In order to participate in the Medicare DMEPOS
  Competitive Bidding Program, suppliers must meet
  quality standards and be accredited by a
  CMS-approved Deemed Accreditation Organization. 
  Suppliers that are interested in bidding under
  the new program must be aware of two key
  deadlines
• Suppliers must be accredited or be pending
  accreditation to submit a bid.  CMS cannot accept
  a bid from any supplier that is not accredited or
  that has not applied for accreditation.

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Deadline Announced for Initial CBAs!

• Suppliers will need to be accredited to be
  awarded a contract.  The accreditation deadline
  for the first round of competitive bidding is
  August 31, 2007.  Suppliers must be accredited
  before this date to be awarded a contract. 
  Suppliers should apply for accreditation
  immediately to allow adequate time to process
  their applications.

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Recognized National Accreditation Organizations

• Joint Commission on Accreditation of Healthcare
  Organizations
• Community Health Accreditation Program
• Healthcare Quality Association on Accreditation
• National Board of Accreditation for Orthotic
  Suppliers/Board of Certification in Pedorthics
  (merged)
• Accreditation Commission for Healthcare Inc.
• Board for Orthotist/Prosthetist Certification
• National Association of Boards of Pharmacy
• Commission on Accreditation of Rehabilitation
  Facilities
• American Board for Certification in Orthotics and
  Prosthetics Inc.
• The Compliance Team Inc.

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Bidding has opened!!!!

• The initial registration process requires the
  authorized official, (see Section 15 of the CMS
  855S) to complete the information required in the
  internet application.
• The authorized official's information must match
  the information on file at the National Supplier
  Clearinghouse.

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To Register

• https//applications.cms.hhs.gov/
• Suppliers must have the USER ID and password
  before they can enter a bid into the competitive
  bidding internet application.

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Assistance

• Access a user guide for the Individuals
  Authorized Access to CMS Computer Services (IACS)
  application before attempting initial
  registration. This guide can be found on the
  Competitive Bidding Implementation Contractor's
  website at http//www.dmecompetitivebid.com/cbic/c
  bic.nsf/(pages)/home.
• Or, call the CBIC helpdesk on 1-877-577-5331.

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The Competitive Bidding Application Process
Four Forms

• CMS-10169A Form A Application
• CMS-10169B Form B Bidding Sheet per category
  bidding on
• CMS-10169C Form C Medicare DMEPOS Competitive
  Bidding Program Contract Supplier Quarterly
  Report
• CMS-10169D Form D Competitive Bidding Program
  Beneficiary Survey

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Process for Submission of Required Documents

• All hardcopy documents required as attachments to
  the electronic bid submission must be sent to the
  CBIC as one complete package. Each document must
  be identified by the suppliers bidder number to
  ensure that this information is placed with the
  correct application.
• CMS strongly recommends that the package be sent
  to the CBIC using a method that can be tracked
  (e.g., certified mail).

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• Irrespective of whether the bid is submitted
  electronically or by mail, the supplier must sign
  the certification statement identified on the
  application and submit that with the hardcopy
  financial documents. All documents must be
  postmarked by 900 p.m., July 13, 2007, and
  mailed to
• CBIC PO Box 907 Augusta, GA 30999

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Additional information required

• Supplier Financial Statements
• Suppliers Credit Report and Score
• Signed legal contracts between all network
  members, if applicable
• Signed letter of intent to enter into an
  agreement if supplier plans to expand capacity
  through use of subcontractors
• Copy of Accreditation Organizations Certificate
  of Accreditation, if applicable.

79
Financial Requirements

• Suppliers that submit corporate tax returns must
  submit the following documents for the last 3
  years
• Schedule L from the tax return (balance sheet)
• Statement of changes in financial position (cash
  flow)
• Statement of operations (income statement)

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Financial Requirements

• All documents that are not prepared as part of a
  tax return must be certified as accurate by the
  supplier. (Audited documents are not required.)
• All documents must be prepared on a accrual or
  cash basis of accounting
• Publicly traded companies will submit a copy of
  their 10-K Filing reports

81
Financial Requirements

• New suppliers must submit projected financial
  statements for any year they they do not have
  past financial information because they were not
  in business as a DMEPOS supplier and/or did not
  service the area.

82
CMS Financial Health Evaluation

• The CBIC will use standard accounting ratios
  (obtained by review of the financial documents
  that all bidders must submit) to evaluate the
  financial health of the bidder.
• CBIC will also use the suppliers credit history
  in the evaluation. 
• According to CMS, this will determine whether the
  supplier will be able to participate in the
  program and maintain viability for the duration
  of the contract period.

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A financial ratio is

• A relationship often a percentage - between two
  of the items selected from the documents bidders
  will submit. 
• Ratio analysis is one method in which CMS will
  evaluate weak and strong points in an HMEs
  financial (and perhaps managerial) performance.
   

84
The current ratio

• Current assets divided by current debts
• It is a measure of the cash or near cash position
  (liquidity) of the company.
• Indicates if your company has enough cash to pay
  current creditors.  The higher the ratio, the
  more liquid the firm's position is and, hence,
  the higher the credibility of the firm. 
• In HME, a current ratio of 1.5 to 2.5 or more
  generally indicates sufficient liquidity. 

85
Average collection period

• Divide accounts receivable by daily sales other
  than cash.
• Tells you the length of time it takes your HME to
  get its cash after billing or making a sale on
  credit.  The shorter this period the quicker the
  cash inflow is.
• HMEs should develop an aging schedule to gauge
  the trend of collections and identify the slow
  payers.  Slow collections hinder cash flow and
  also hurt your profit.

86

• In recent years (2005 2006) a survey of the
  average collection period for independently owned
  HMEs was as follows
• DME (E0260, K0001, E0143, Etc.) 66 days
• Respiratory (E1390, J7619, E7619, Etc.) 48 days
• Rehab (K0800, K0856, E1010, Etc.) 88 days.

87
Accounts payable to sales 

• Dividing the accounts payable of the company by
  its annual net sales.
• Gives you an indication as to how much of the
  HMEs suppliers (e.g., equipment vendors) money
  the company is using in order to fund its sales.
• A low percentage would indicate a healthy ratio.
  A high percentage indicates the firm may be using
  suppliers to help finance operations. 
• Common ratios in HME are from 20 to 30. 

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The quick ratio (or acid-test ratio)

• Divide quick assets (cash and accounts
  receivable) by current liabilities. 
• Purpose is to test the company's ability to meet
  its current obligations.  This test doesn't
  include inventory to make it a stiffer test of
  the company's liquidity. 
• Tells you if the HME could meet its current
  obligations with quickly convertible assets
  should sales revenues suddenly cease.
• In HME, a quick ratio of 1.0 or more generally
  indicates sufficient liquidity

89
Current Liabilities to Net Worth

• Measure of the extent to which the HME is using
  creditor funds versus their own investment to
  finance the business (Current Liabilities /
  Liabilities Equity).
• A ratio of .5 or higher may indicate inadequate
  owner investment or an extended accounts payable
  period.
• Care should be taken not to offend your equipment
  vendors to the extent it affects your ability to
  conduct day to day business.

90
Return on Sales

• This percentage measure of profits after taxes on
  the years sales (profits earned per dollar of
  sales).
• The higher this ratio, the better prepared the
  HME business is to handle downtrends brought on
  by adverse conditions. 

91
Sales to Inventory or Inventory Turnover Ratio

• Obtained by dividing annual net sales of the
  company by total inventory.
• The ratio is regarded as a test of efficiency and
  indicates the rapidity with which the HME is able
  to move its equipment, and how fast inventory is
  moving the cash flow into the business.
• If ratio is high, it may indicate a situation
  where sales are being lost because equipment is
  under stocked and/or customers are buying
  elsewhere.
• If the ratio is too low, this may show that
  equipment inventories are obsolete or stagnant.

92
Working capital

• Represents the amount of day-by-day operating
  liquidity available to a business. Also known as
  operating capital, it is calculated as current
  assets minus current liabilities.
• An HME can be endowed with assets and
  profitability, but short of liquidity, if these
  assets cannot readily be converted into cash. 
• A positive change in working capital indicates
  that the business has either increased current
  assets (that is received cash, or other current
  assets) or has decreased current liabilities, for
  example has paid off some short-term creditors.

93
Quality of earnings

• Confusing financial metric to many! 
• Calculated by dividing cash flow from operations
  into the companys net annual income plus
  depreciation.
• The official definition is the amount of
  earnings attributable to higher sales or lower
  costs rather than artificial profits created by
  accounting anomalies such as inflation of
  inventory.

94
An example may help

• An HME can show positive earnings on its income
  statement while also bearing a negative cash
  flow. This is not a good situation to be in for a
  long time, because it means that the HME has to
  borrow money to keep operating. And at some
  point, the bank will stop lending and want to be
  repaid.
• A negative cash flow also indicates that there is
  a fundamental operating problem either the
  equipment inventory is not selling or
  billing/receivables are not being collected.

95
Operating cash flow to sales

• Percent measuring capability of a HME companys
  ability to convert sales into cash. 
• Important indicator of an HMEs creditworthiness
  and productivity.
• If ratio is low, then growth may not be
  financially possible because the company will not
  have enough cash flow to increase operations to
  meet higher demands and sales targets.
• If the ratio is high, then the company will be
  able to grow and expand because it has enough
  cash flow to finance additional production. 

96
IMPORTANT NOTES

• All ratios measuring profitability can be
  computed either before or after taxes, depending
  on the purpose of the computations. 
• Acknowledging the CMS requirement, HMEs should
  recognize that the ratios have limitations. 
  Since the information used to derive ratios is
  itself based on accounting rules and personal
  judgments, as well as facts, the ratios cannot be
  considered absolute indicators of financial
  position.
• Ratios are only one means of assessing the
  performance of the company and must be considered
  in perspective with many other measures. 

97
A Bid Application FAQ

• The bid application requires that you list the
  manufacturer, make and model number(s) of the
  products you intend to provide if you are
  selected as a winning bidder. Are you locked into
  only providing those items for the duration of
  the contract or, if not, what is the process for
  updating your contract to include new models or
  manufacturers?

98

• Suppliers are not locked into furnishing only
  these products during the contract period.
• Suppliers must report what products they are
  furnishing on a quarterly basis (See Form C).
• Suppliers cannot report that they are offering
  certain items if they are not providing those
  specific items to Medicare beneficiaries.
• Suppliers cannot discriminate against
  beneficiaries. The items a contract supplier
  furnishes to Medicare beneficiaries under its
  contract must be the same items furnished to
  other customers.

99
Weight Utilization May Be Confusing!!!

• Bids are weighted by utilization and not expenses
  ( reimbursed by Medicare).
• Low cost high utilization items have high weights
  whereas high cost low volume items have low
  weights.

100
For examplein CPAP/RAD

• A7038 (FILTER, DISPOSABLE) is weighted (out of
  1.00) -- 0.224623254, and the one unit fee
  schedule amount is 5.39
• E0601(CONTINUOUS POSITIVE AIRWAY PRESSURE) is
  weighted (out of 1.00) --0.0601943846, and the
  one unit fee schedule amount is 1,052.60
• When the weights are applied within a product
  category, the effect is to possibly distort the
  composite bid amount in a way that is not
  immediately obvious!

101
Bid Submission Timelines

• Suppliers have until July 13, 2007 to submit bids
  after the release of the RFB.
• Suppliers may submit bids 24 hours a day, 7 days
  a week.
• During the 60 day window, suppliers may amend
  their bids as many times as necessary.
• Once the 60 day window closes, however, no
  amendments will be allowed.
• However, some industry analysts suspect that the
  CBIC may be pressured to extend the bid
  submission deadline due to numerous systems
  problems.

102
Editing or Status of Your Bid

• Login to the Competitive Bid Submission System
  (CBSS) at https//cbss.cms.hhs.gov/
• To modify your application or bid From the
  homepage, access the appropriate tab (Form A or
  Form B) at the top of the page. Then go to the
  appropriate section heading. Complete the
  appropriate section you wish to modify and click
  Update. Then access the homepage to review your
  status.

103

• On the Home Page, See Status Your
  Application Status is either
• Incomplete You have not entered data in all of
  the required fields.
• Submitted You have entered data in all the
  required fields and CBIC is waiting for your
  hardcopy documentation package.
• Complete CBIC has received your Form A hardcopy
  documentation.

104
Your Bid Status is either

• Incomplete You have not entered all required
  data for Form B questions and/or the bid sheet.
• Not Certified You have entered data in all
  required fields but have not completed the
  "Certify" screen.
• Certified You have entered data in all required
  fields and have certified your bid. CBIC is
  waiting for your required Certification Statement
  and if applicable, Expansion Letter(s) of
  Agreement.
• Complete CBIC has received all hardcopy
  documentation and your bid will be considered for
  evaluation.

105

• Use of Subcontractors

106

• Suppliers will choose from one of three
  options in subcontracting agreements
• 1). Product line support
• 2). Geographic access support,
• 3). Personnel support.

107

• The product line support option is for those
  suppliers who can deliver product to the entire
  geographic area of the CBA, but may not be able
  to supply the amount of product to cover all of
  its customers needs.
• The geographic support option is for suppliers
  who do not have the capacity to deliver items
  throughout the entire CBA.
• The personnel support option is for suppliers who
  do not have the administrative personnel to
  handle the volume of business in the CBA.

108

• Probably the best option at this time. (Network
  formation has been very limited due to minimal
  bidding window times)
• Supplier can bid for a product category in a CBA
  and also becoming a subcontractor to another
  supplier that submits a bid in the same CBA for
  the same product category.

109
Example

• A supplier can bid to become an oxygen contract
  supplier and be awarded a contract and still be a
  subcontractor for another oxygen contract
  supplier. In addition, a supplier that submits a
  bid and loses can become a subcontractor to a
  contract supplier.

110
And

• CMS will NOT evaluate subcontractors to determine
  if they meet the accreditation, quality,
  financial, and eligibility standards.
• However, a supplier may not subcontract with any
  supplier that has been excluded from the Medicare
  program, any State health program or any other
  government branch.
• The subcontractor will not have to submit a bid
  to be a subcontractor.

111
Letter of Intent Required!

• Clear identification of parties
• Description of functions/services to be performed
  by the subcontractors
• Language clearly indicating that the
  subcontractor has agreed to supply the items,
  functions and or services
• Anticipated length of agreement
• Signature of each authorized official or each
  party
• Language obligating subcontractor to abide by
  State and Federal privacy and Security
  requirements, including those provisions stated
  in the regulation for this program

112
Subcontracting Templates Available from many
industry stakeholders

• The Letter of Intent allows a potential
  Contractor and Subcontractor to quickly enter
  into a basic agreement, and then they can
  finalize the details through a more formal
  subcontracting agreement. A Letter of Intent is
  typically the first step in an agreement, and its
  purpose is to encompass the basic terms of a deal
  clearly and efficiently. A Letter of Intent will
  satisfy CMS's request for information regarding
  subcontractors at the time of the bid.

113
Subcontracting Agreement

• A Subcontracting Agreement Template is required
  for the purpose of facilitating the
  subcontracting process and intended to be used to
  create a binding contract between parties.
• It may be executed after the winning bidders have
  been announced.

114
Can I decline a bid if I win?

• Once the payment amount is determined, suppliers
  are NOT obligated to sign the contract if they
  perceive the amount as unacceptable.
• Suppliers that do accept the payment amount are
  contractually obligated for the entire period
  (estimated at 3 years).

115

• What if our bid is not accepted in one or more
  categories?

116
To begin, your Medicare patient service in a
losing product category will not immediately
cease!

• As noted, there are grandfathering provisions for
  all items (except glucose testing supplies,
  enteral nutrition, equipment, and supplies).
• Oxygen provisions allow reimbursement for the
  remainder of the rental period (to 36 months) at
  the new contract rate
• Capped rental provisions maintain the current fee
  schedule amount.

117
Beneficiary Choice

• Beneficiaries may opt to continue renting from
  the grandfathered supplier (who will furnish on
  same terms) but they may choose to switch to a
  contract supplier at any time. Inform your
  patients that you will continue to provide
  quality service.
• However, if you choose to grandfather you must
  do so for all of your current beneficiaries in
  the product category. You cannot select a
  certain patient population.
• Grandfathering is applicable if win this
  bidding period, but lose your contract status in
  the next bid period (2011).

118
Subcontracting Opportunities!

• Many winning (if not most) bidders will need
  subcontractors! Contract suppliers must service
  the entire CBA.
• If you are not submitting a bid, or desire to
  mitigate loss of a product category, begin to
  review the subcontracting regulations.
• Begin discussions with suppliers now, prepare
  template legal contracts/Letters of Intent, etc.

119
Provide Non-Bid Products and Services and/or
Diversify!

• The nine product categories applicable to NC/SC
  are now known. Suppliers may continue to provide
  to Medicare beneficiaries products not covered in
  the first round (ex manual wheelchairs)
• Seek alternative sources of revenue, such as

120
Retail

• Many HMEs undervalue retail sales opportunities
• Retail/showroom consultants are widely available
• No delay in reimbursement!

121
Cash sales to Medicare beneficiaries are allowed,
but limited!

• You must submit claims on beneficiaries behalf
  when requested
• Many suppliers have forms beneficiaries sign
  indicating they did not authorize the claim to be
  submitted to Medicare. The beneficiary pays cash
  and eliminates the suppliers obligation to
  submit.
• (However, even if the statement is signed, a
  beneficiary can later change his mind and require
  the claim be submitted.)

122
Supplier Usual Price Issue

• Restrictions exist on cash sales! Cannot bill
  Medicare substantially more than retail price.
• CMS suggests 20 is limit for all
  non-governmental sources.
• Suppliers cannot open a separate retail shop
  (under same tax ID) to circumvent the restriction

123
Other Facilities

• Residents in many long term care facilities (not
  SNF) may receive Part B as if they were in their
  homes. If the facility is not paid a per diem
  rate, suppliers may either bill Medicare
  directly, or, in some cases, the facility will
  contract directly with the DME to provide
  equipment.
• Hospice. While no patient reimbursement is
  allowed, hospices may purchase equipment direct,
  or arrange for a per diem/per bed rental
  arrangement

124

• VA Hospitals Facilities. These large
  purchasers routinely send out RFPs for DME. An
  overview of the VA bid process may be found at
  www.va.gov/osbdu/library/factsheet/smoothprocessCl
  aims submission information may be found at
  www1.va.gov/oamm/index.htm

125
Others

• State prison systems/ medical detention
  centers. Contact the Department of Corrections
  in your state at www.corrections.com/links/viewlin
  ks.asp?cat30
• Resort Hotels Casinos. Suppliers who live in
  larger marketplaces should consider visiting
  these facilities. Many have begun providing
  wheelchairs and scooters and other DME to their
  guests.
• Airports. Many airports are served by the local
  HME for wheelchairs and other equipment.

126
Other Options ?

• Expand Commercial Insurance
• Expand into geographic areas not covered by
  competitive bidding
• Sell the business to a successful bidder

127
Demonstration Summary Positive Results
Achievable!

• There were increases in business reported by
  contract suppliers in both demonstration areas.
• Participating providers ran more streamlined
  businessesresulting in higher profit margins.
• Providers diversified into new areas that became
  very profitable.
• Providers improved efficiencies and performance
  in collecting AR and secondary collections.

128

• Many providers increased third party insurance
  contracts and business
• Creative marketing techniques were developed to
  grow business
• Better training of employees resulted
• Compliance improved.
• Providers were more audit savvy.

129

• Current Regulatory Compliance Issue Update

130
The DRA

• The Deficit Reduction Act of 2005 (DRA) is the
  first Medicare legislation since the passage of
  the Medicare Modernization Act in 2003.
• The DRA achieves 8.3 billion in savings from
  Medicare programs and 4.7 billion in savings
  from Medicaid and the State Children's Health
  Insurance Program.

131

• The DRA was passed by the House on December 19,
  2005, and the following week, the Senate passed
  the DRA, with Vice President Cheney casting the
  tie-breaking vote.
• The President signed the DRA into law on February
  1, 2006.

132
Main Changes for HME

• Capped rental items now only rent for 13 months
• Oxygen will rent for 36 consecutive months
• After rental period is over the title of the
  equipment transfers to the patient
• 36 month rental period for Oxygen equipment
  started on January 1, 2006 for all oxygen
  equipment

133
Oxygen Contents

• Payment for stationary and portable oxygen
  equipment will transfer to beneficiary at the end
  of the 36 month rental period
• Medicare will continue to pay for Oxygen contents
  (liquid or gas) for a long as the equipment
  remains medically necessary (payments will begin
  after the 36 month of rental for the equipment
  and go on for as long as the equipment is
  medically necessary and the supplier is supplying
  the portable oxygen)

134
Portable Oxygen Tanks

• At the end of the rental period the title of the
  tanks will transfer to the beneficiary
• Suppliers will be required to swap out
  beneficiary owned tanks just as propane tanks are
  now swapped out where owners get different tanks
  each time they need replacement contents
• The propane tank swap method will allow
  providers to be able to handle recall situations
  as they currently do

135
Safety Concerns

• Medicare will also pay for the provider to pick
  up and store or dispose of tanks and cylinders
  that are no longer medically needed by the
  beneficiary
• Suppliers could submit the bill for the above
  mentioned service any time after the beneficiary
  has acquired ownership of the tanks or cylinders

136
Obligation

• Medicare believes the supplier that furnishes the
  equipment in the first month, in which the rental
  payment is made, has an obligation to continue
  furnishing the item for the entire period of
  medical necessity, up to the time when the title
  of the equipment transfers to the beneficiary.
• The beneficiary should have an expectation that
  he/she will not be forced to change equipment or
  suppliers unless he/she wants to
• This provision was put in place to prevent
  providers from taking back the rented equipment
  just before the rental period expires in order to
  retain title of the equipment

137
Changing Suppliers

• If a beneficiary changes suppliers the continuous
  rental period does not start over
• Suppliers are not required to accept
  beneficiaries simply because they want to change
  suppliers

138
Transfer of Ownership

• Ownership must be transferred to the beneficiary
  at the 13 (capped rental) or 36 (oxygen
  equipment) month regardless of whether or not the
  beneficiary has made all of their co-insurance
  payments.
• Transfer of ownership is made on the first day
  that begins after the 13 (capped) or 36th
  (oxygen) continuous month in which payment was
  made

139

• This transfer does not apply to backup equipment
  that beneficiary may have in their home as
  Medicare has not paid for that equipment
• The provider must make sure they can legally
  transfer ownership at the 13th or 36th month
  (i.e. there is not a lease they paying or some
  other type of arrangement with the manufacturer
  that would not allow them to transfer ownership)

140
Beneficiary Disclosure

• No later than 2 months prior to the title
  transfer date for oxygen the supplier must
  disclose to the beneficiary
• Whether it can maintain and service the equipment
  after equipment title transfer
• If they plan to continue to deliver oxygen
  contents to the beneficiary after equipment title
  transfer

141
Swapping Equipment Out

• Suppliers cannot replace newer more valuable
  equipment used by the beneficiary with less
  valuable or older equipment from its inventory
• Replacement items must be equipment that is at a
  minimum, in the same condition as the equipment
  being replaced (same or equivalent make and model)

142
Maintenance

• Beginning 6 months after the title of the oxygen
  equipment transfers to the beneficiary, the
  supplier can bill for general maintenance and
  servicing of certain beneficiary-owned oxygen
  equipment
• The supplier can bill for this equipment every 6
  months
• The payment will be limited to a maximum of 30
  minutes of general maintenance for servicing the
  equipment

143
Maintenance Labor

• Payment would be limited to 30 minutes of labor
  and additional charges for any replacement parts
  necessary to properly service the equipment
  during these calls
• If a supplier services beneficiary owned oxygen
  equipment more often than every 6 months, or
  services beneficiary owned capped rental items at
  any time, only payments for non-routine
  maintenance and servicing will be made
• Beneficiaries will be required to pay the 20
  coinsurance for each service call

144
Interesting Point

• Beneficiary can elect to not have maintenance
  services performed after they have title on the
  equipment at the 36th month, but it the equipment
  fails before its useful life is over (at least 5
  years of continuous use) you may be liable to
  replace the equipment at your cost

145
Cancellation of Service

• The provider must notify the beneficiary at least
  2 months before the end of the rental period if
  the supplier will not longer be maintaining and
  servicing the equipment and/or delivering oxygen
  contents once the transfer of the title of the
  equipment takes place

146
Non-Assigned

• If a supplier chooses to not accept assignment
  then he/she can charge any amount over and above
  the 20 copay for the rental of the DME item
• May be a way to offset the additional cost of the
  newer and more feature added items
• Beneficiary would be responsible for the
  difference between 80 of the Medicare allowed
  payment and the amount the supplier charges for
  the rental of the DME item
• You must be a non-participating provider to do
  this

147

• Legislative Update H,R. 621, the Home Oxygen
  Patient Protection (HOPP) Act would amend the
  Deficit Reduction Act by restoring Medicare
  treatment of ownership of oxygen equipment to the
  system that existed before the law was enacted.
• You can help! Urge your Congressperson to sign
  on as co-sponsor.
• To sign onto H.R. 621, contact Keagan Resler in
  Congressman Prices office at 225-4501.

148
NPI Contingency Plan

• As long as covered entities, including health
  plans and covered health care providers, continue
  to act in good faith to come into compliance,
  meaning they are working towards being able to
  accept and send NPIs on electronic transactions,
  they may establish contingency plans to
  facilitate the compliance of their trading
  partners.

149
Bottom line.

• May 23, 2007 deadline was not enforced
• Medicare FFS will allow continued use of legacy
  numbers it will also accept transactions with
  only NPIs, and transactions with both NPI and
  legacy identifiers.
• After May 23, 2008, the legacy number will NOT be
  permitted on any inbound or outbound transaction.
  

150
Evaluation

• Medicare FFS is now evaluating the number of
  submitted claims containing a NPI.
• If the analysis shows a sufficient number of
  submitted claims contain a NPI, Medicare will
  begin to reject claims on July 1, 2007, that do
  not contain NPIs.
• If a sufficient number of claims do not contain
  NPIs in the May analysis, Medicare FFS will
  assess compliance in June 2007 and determine
  whether to begin rejecting claims in August 2007.
  

151
CMS releases NPI data noticeProviders may review
information on Internet

• CMS will make the data publicly available on June
  28 The data will be accessible by downloading
  an initial file from a dedicated Web site, with
  monthly update files also available, and by
  searching a query-only database
• Providers who have been assigned NPIs should
  review their data and make any necessary updates
  or corrections prior to June 28 to ensure their
  information is accurate when disclosed by CMS.

152

• CMS Discontinues the Unique Physician Identifier
  Number (UPIN) RegistryEffective June 29, 2007,
  CMS will discontinue assigning UPINs to Medicare
  providers

153
CMS-1500

• Beginning July 2, 2007, you must use the Form
  CMS-1500, version (08-05) for paper claims
  submission to Medicare. Claims received on or
  after July 2, 2007 using Form CMS-1500, version
  (12-90) will be rejected.
• Make sure that your billing staffs use Form
  CMS-1500 (08-05) for your claims, beginning July
  2, 2007!

154

• In November 2006, the United States Department of
  Health and Human Services ("HHS"), Office of
  Inspector General ("OIG"), released its Work Plan
  for Fiscal Year 2007 ("Work Plan").
• The Work Plan details project areas targeted by
  the OIG for audit, evaluation and investigation
  during the federal fiscal year 2007. The Work
  Plan can be accessed in its entirety on the OIGs
  website at http//oig.hhs.gov/publications/docs/w
  orkplan/2007/Work20Plan202007.pdf

155
OIG Recommends

• Compliance Committee - Convene a compliance
  committee meeting to discuss the work plan, with
  particular emphasis on risk areas that impact
  your health care organization. Document these
  efforts by keeping written minutes of such
  meeting.
• Compliance Program Amendments - Carefully review
  your compliance program to consider whether
  amendments to the compliance program should be
  made. New risk areas identified in the work plan
  should be added to risk or audit areas set forth