Contingency Planning for Medicare Competitive Bidding

1
Contingency Planning for Medicare Competitive
Bidding

• Mike Tootell
• Harvard Medical Device Congress
• March 29, 2007

2
Necessary Disclaimer

• Speaking as individual
• Not representative of
• Abbott Laboratories
• Medicares Program Advisory and Oversight
  Committee
• AdvaMed

3
Concept of Competitive Bidding

• Philosophical reversal for Medicare
• Traditional
• Any Willing Provider who accepts Medicare
  rules and rates may participate
• New concept
• Competition between providers will reduce rates
• Competition will eliminate fraudulent billers
• Competition will provide efficient market pricing
  to Medicare market.

4
DME experiment

• The law has been passed and will go into force
  unless repealed.
• Medicare Modernization Act requires small initial
  steps
• 10 of 272 Metropolitan areas in 2007,
• Perhaps 10 of 55 DMEPOS product groups
• Implications of this concept should not be
  underestimated.

5
Political History

• HCFA tried in 1990s to set up competitive
  bidding among managed care organizations
• Each initiative defeated by Congressional
  intervention
• Baltimore (1996) Denver (1997) Phoenix and
  Kansas City (1999)
• National competitive bidding program for Part B
  infusion drugs (2005).
• undersubscribed

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3 Medicare DMEPOS demonstrations

• 1998 2002 Polk County Florida 2 bid
  cyclesSan Antonio Texas 1 bid.
• Oxygen equipment and supplies
• Hospital beds and accessories
• Enteral nutrition
• Urological supplies
• Surgical dressings
• Wheelchairs
• General Orthotics
• Saved 20

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Medicare Modernization Act (2003)

• Authorized Competitive Bidding in 10 Metropolitan
  Statistical Areas in 2007
• 80 MSAs in 2009
• Nationwide in 2010

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Proposed Rule issued May 1, 2006

• Inadequate detail on core issues
• Establishes process for selection of product
  groups and designated Metropolitan Statistical
  Areas
• Indicates likely selections without locking down
  final decisions
• No exclusion by site-of-service
• Anticipate SNFs will need to bid for own patients
• Mail order companies can bid as providers

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Bidding Process

• Suppliers qualify to bid
• Clean Medicare/Medicaid record
• Meet Quality Standards, confirmed by
  accreditation
• Meet soft financial standards
• Complete detailed application
• Provide bids by HCPCS code
• No distinction between types of suppliers
• Market basket calculated, bidders ranked
• Capacity calculated, cut off bid determined
• Payment rate becomes the median (midpoint) of
  winning bids.

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10 of these 19 MSAs will be included in Phase One
(2007)

• Largest in each DMAC
• Miami, Cincinnati, Pittsburgh, Riverside
  California
• Next likely qualifiers
• Dallas, Houston, Charlotte, San Juan Puerto Rico,
  Atlanta
• Other potential candidates
• Tampa, Kansas City, San Francisco, Cleveland,
  Detroit, Seattle, Baltimore, Philadelphia,
  Phoenix, Boston
• AdvaMed pointed out statistical problems in
  calculation, which (if corrected) may change site
  selection.

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Huge geographic variation within some MSAs

• Riverside California MSA is larger than West
  Virginia
• Cincinnati MSA covers counties in three states
• Atlanta MSA includes 20 counties

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Riverside, CA - MSA
13
Cincinnati - MSA
14
Atlanta, GA - MSA
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Possible product groups (2003 data)

• Oxygen supplies and equipment 2.4 B
• Wheelchairs
  1.9 B
• Diabetic Supplies
  1.1 B
• Enteral nutrition 676 M
• Hospital Beds
  373 M
• CPAP
  205 M
• Support Surfaces
  194 M
• Respiratory Assist Devices 134 M
• Lower Limb Orthoses 123 M
• Walkers
  97 M

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Medicare expects to save

• 1.7 billion 2008 2012
• In 2009, competitive bid results can be used to
  reduce national rates.
• 2008 Medicare budget contains many larger,
  controversial items

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March 23, 2007 status

• Awaiting publication of the Final Rule
• Web sitemap launched
• Political support uncertain
• Replacement of key Republican members of Congress
  (advocates of competitive solutions) by unknown
  Democrats.
• Democratic Congressional health agenda is
  uncertain.
• Failure to implement competitive bidding will
  require Congressional action.

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Accreditation requirement wobbly

• May, 2006 --Proposed rule. Bidders could be
  granted a grace period if not accredited at time
  bid is due. Would be excluded if the supplier
  failed to gain accreditation.
• January Transmittal Required all suppliers to
  be accredited by April 1, 2007.
• February Reversal withdrew Transmittal.
• Current status Suppliers must be accredited or
  in process of becoming accredited to submit a
  bid. Watch Final Rule for details.

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Lobbying initiatives are intense

• Coalition to Ensure Beneficiary Access
• Manufacturer coalition to seek repeal
• American Association for Home Care
• Reintroduce Hobson-Tanner bill
• Protect small suppliers.
• Multiple requests for exceptions and exclusion by
  various industry groups

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Critical unresolved issues

• Which product groups, which initial cities?
• Will reimbursement be based on median value of
  winning bids, or the maximum cutoff bid?
• Will capacity be determined aggressively or
  inclusively?
• Will differences in sites of service be
  recognized?
• How quickly will competitive prices be imposed on
  the remainder of the US marketplace?

21
CMS aware of limitations in Proposed Rule

• MSAs are not homogenous
• Could over look underserved neighborhoods
• HCPCS codes are not designed for bidding
• One code covers 1 billion in products
• Many modifications to proposed rule support
  request for another round of public comment.

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Nevertheless
Business Decisions Must be Made Now
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Assumptions for Planning

• Assume Final Rule resembles Proposed Rule
• Assume Congress does not interrupt
• Assume no distinctions between sites of service
• Common bid per city by all players
• Mail order, local HME companies, national HME
  companies, buying groups, skilled nursing
  facilities, local pharmacies, new provider
  networks

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Assumptions

• Assume initial accreditation does not create
  meaningful hurdles
• Final Quality Standards impose very modest
  requirements.
• Accreditation to these standards will not limit
  participation.
• Innovative and newly formed companies can easily
  qualify with appropriate attention to the
  process.

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Market dynamics will vary by product group

• Oxygen and respiratory products
• National and regional companies vs. local
  hospital-based companies vs. niche suppliers.
• Demonstration project oxygen savings 16 -19
• Wheelchairs
• Bidding complicated by product diversity
• Multiple manufacturers with incompatible parts
• Bidding will force product interchangeability
• Mixture of international, national and local
  providers

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Market Dynamics Enteral nutrition

• 60 of Medicare Part B enteral nutrition is
  provided in Skilled Nursing Facilities
• enterals are included in Part A per diem for up
  to 100 days,
• can be separately billed after Part A benefit
• SNFs may bid for own patients after Part A
  benefit is completed.

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Enteral market is complex

• HME dealers, including many GPO members
• Nursing homes caring for own patients
• Nursing home suppliers caring for SNF residents
• Competitive bidding can disrupt fabric of
  contracts and patient care plans.

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Tootell Best Guess timeline

• Accreditation process on fast track, enrollment
  slow.
• Final rule will be released any day now.
• Intense provider education, RFP, bids through
  spring and summer.
• Selections announced fall, 2007, effective
  December, 2007.
• Fast track for phase 2, effective Jan 1, 2009.

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Able suppliers preparing now

• Remove accreditation hurdle now!
• despite CMS uncertainty.
• Identify MSA boundaries.
• Identify likely competitors.
• Review results of commercial insurance and HMO
  competitive bids, particularly in HME markets.

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Expectations

• Demonstration projects resulted in winning bids
  20 below national fee schedule
• Survey of 450 suppliers. Respondents expect 15-
  20 bid necessary to survive competitive process.
• Demonstration projects eliminated 35 - 48 of
  bidders
• Polk I 14/30 did not qualify in any category
• Polk II 10/26 did not qualify
• San Antonio 28/75 did not qualify

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Identify Competitors

• Widen definition of competitors
• Companies not in current direct competition in a
  market niche may submit bids.
• Mail order, HME, retail pharmacies
• Companies geographically separated, but within
  the same MSA, will submit competing bids.

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Identify likely Irrational bidders

• Companies dependent on Medicare business
• Companies that use Medicare products as loss
  leaders, to attract other business
• New companies created to participate in
  competitive bidding

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Evaluate each business

• How important is Medicare revenue?
• Medicare Revenue/Total Revenue
• Medicare Contribution Margin/Total Margin
• How important are Medicare referrals?
• How would loss of Medicare referrals impact other
  referrals?
• Classic financial pro forma What if analysis.
• Business model if successful bid
• Business model if not successful

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Watch for the Final Competitive Bidding
Regulation
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Medicaid programs watching.

• Minnesota Medicaid has competitively bid oxygen
  for several years.
• Pennsylvania 2006 proposal would have replaced
  1100 suppliers with 15 mega-suppliers.
• Proposal stopped by legislative action.
• New Jersey has proposal ready.
• Michigan law passed Senate, died in House.
  Reintroduced 2007.

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Thank you

• Mike Tootell
• Director, Health Policy
• Ross Products Division, Abbott Laboratories
• Michael.Tootell_at_Abbott.com
• 614-624-7654