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Understanding the Realities of Competitive Bidding RegulatoryCompliance Update


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Title: Understanding the Realities of Competitive Bidding RegulatoryCompliance Update

Understanding the Realities of Competitive
BiddingRegulatory/Compliance Update
  • Presented to NCAMES by Mark Higley
  • The VGM Group

  • 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.

  • 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

Bidding Opened May 15 Many Providers In CBAs
Are Not Prepared!
  • All suppliers submit bids using an internet
  • 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

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.

  • 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

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

  • What does CMS expect.

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.

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.

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

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
  • () Actual text message from HME provider to me
    on 6/14/2004

  • 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.

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

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

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.

The Charlotte-Gastonia-Concord, NC-SC CBA (Except
Mail-Order Diabetic Supplies)
Mail-Order CBA
CBA ZIP Code Detail
Mail Order ZIP Code CBA varies check the web
Mail Order
  • 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
  • Payment under the first round of the competitive
    bidding program will go into effect in April,

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

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
  • CMS will require evidence of financial resources
    to support potential market expansion. CMS will
    also analyze certain financial ratios of

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.

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
  • The provisions do not apply to regional or
    nationwide mail order CBAs.

  • 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

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

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,
  • 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
  • CMS states this will offer the lowest expected
    costs to Medicare for all items in a product

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

Respiratory Assist Devices and CPAP Category
Bidding Example () Assume CBA Capacity 100
Apply HCPC Weights
Sum Weighted HCPC Bids To Obtain Composite
Category Bid
Determine Capacity of each Supplier (Units)
Capacity of CBA is 100
Select Lowest Composite Bid - Add Additional
Suppliers- Until Capacity Reached
3 Suppliers Reach 100 Capacity. At this point,
the Pivotal Bid is met. (All Bids over 130 are
These 3 Suppliers Receive the Median Of Each HCPC
  • 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.

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

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

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

  • 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.

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.  

  • 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!

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.

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

  • 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
  • Suppliers may still use ABNs for items for which
    Medicare might not pay.

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.

  • 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

  • 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.

  • 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.

  • 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

  • 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

  • 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.

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
  • A new contract supplier would be paid rental only
    for the duration of the rental period.

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.

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.

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
  • 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.

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.

Repair and Maintenance
  • Repair and maintenance of competitively bid
    items, including replacement parts, may be
    provided by any supplier with a Medicare billing
  • 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.

Education and Outreach
  • 1/1/2008 - 4/1/2008 CMS will conduct intensive
    beneficiary and referral agent education
  • 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.

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.

ExampleQ How will I know what supplier to
  • 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.

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.

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
  • No more than 20 small suppliers may participate
    in a network.
  • Relatively few Networks have formed due to
    limited timeframes and competition issues.

Other Final Rule Changes or Clarifications
  • Proposed CPI increases over three year period
    removed No Payment Adjustment to Account for
  • 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.

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
  • 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.

Physicians/Practitioners, SNFs Hospital-based
  • 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
  • Hospital-based suppliers also must bid

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
  • 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.

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.

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

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

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.

  • 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
  • Or, call the CBIC helpdesk on 1-877-577-5331.

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
  • CMS-10169D Form D Competitive Bidding Program
    Beneficiary Survey

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).

  • 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

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.

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

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

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.

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.

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.

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. 

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.

  • 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.

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. 

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

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
  • Care should be taken not to offend your equipment
    vendors to the extent it affects your ability to
    conduct day to day business.

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

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
  • If the ratio is too low, this may show that
    equipment inventories are obsolete or stagnant.

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.

Quality of earnings
  • Confusing financial metric to many! 
  • Calculated by dividing cash flow from operations
    into the companys net annual income plus
  • 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

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
  • 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.

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. 

  • 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
  • Ratios are only one means of assessing the
    performance of the company and must be considered
    in perspective with many other measures. 

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

  • 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.

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

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
    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!

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

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

  • 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

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
  • Complete CBIC has received all hardcopy
    documentation and your bid will be considered for

  • Use of Subcontractors

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

  • 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.

  • 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.

  • 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.

  • 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.

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
  • Language obligating subcontractor to abide by
    State and Federal privacy and Security
    requirements, including those provisions stated
    in the regulation for this program

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.

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.

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).

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

To begin, your Medicare patient service in a
losing product category will not immediately
  • 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.

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).

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.

Provide Non-Bid Products and Services and/or
  • 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

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

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
  • (However, even if the statement is signed, a
    beneficiary can later change his mind and require
    the claim be submitted.)

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

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
  • Hospice. While no patient reimbursement is
    allowed, hospices may purchase equipment direct,
    or arrange for a per diem/per bed rental

  • VA Hospitals Facilities. These large
    purchasers routinely send out RFPs for DME. An
    overview of the VA bid process may be found at
    aims submission information may be found at

  • State prison systems/ medical detention
    centers. Contact the Department of Corrections
    in your state at www.corrections.com/links/viewlin
  • 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
  • Airports. Many airports are served by the local
    HME for wheelchairs and other equipment.

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

Demonstration Summary Positive Results
  • 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.

  • 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.

  • Current Regulatory Compliance Issue Update

  • 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.

  • 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.

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

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)

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

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
  • Suppliers could submit the bill for the above
    mentioned service any time after the beneficiary
    has acquired ownership of the tanks or cylinders

  • 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

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

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
  • Transfer of ownership is made on the first day
    that begins after the 13 (capped) or 36th
    (oxygen) continuous month in which payment was

  • 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)

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

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)

  • 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
  • The supplier can bill for this equipment every 6
  • The payment will be limited to a maximum of 30
    minutes of general maintenance for servicing the

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

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

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

  • 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

  • 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.

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

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.

  • 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.

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.

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

  • 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!

  • 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

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
  • 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
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