Within the next 3 years, competitive bidding will be a reality for HME providers in the nation’s top 10 metropolitan statistical areas (MSAs): New York, Los Angeles, Chicago, Washington, San Francisco, Philadelphia, Boston, Detroit, Dallas, and Houston. By 2009, it will expand to the top 80 MSAs, and eventually, nationwide (exempting rural areas and those with less dense populations). Given the situation, how will this affect your business as an HME provider? What should you know to adjust your business practices so that accommodating competitive bidding is a success?

Under competitive bidding, CMS will select HCPCS codes for bidding by any supplier that meets agency standards. The lowest bidders will be awarded contracts to provide services exclusively in a certain geographic area (for example, an MSA). This makes it even more important for you to position your business as an expert resource that is best able to meet beneficiaries’ HME needs.

CMS sees competitive bidding as a positive change that will benefit beneficiaries. According to its Web site, the plan has five objectives: implementing competitive bidding to determine appropriate prices for HME; protecting beneficiary access to quality HME; reducing the amount Medicare pays for HME; limiting the burden on beneficiaries by reducing out-of-pocket expense; and engaging with quality suppliers. However, competitive bidding will have other consequences, many of them negative.

Competitive bidding situations present a number of challenges for both HME providers and Medicare beneficiaries. First, the old saying of “you get what you pay for” rings true: reduced prices will likely mean reduced HME equipment and services as well. Providers may not be able to meet beneficiaries’ needs as promptly. For example, someone in immediate need of a wheelchair could have to seek out and rely on the designated company for his or her region (the lowest bidder), then wait on shipping and delivery, even if another provider could provide the wheelchair on the spot. In addition, physicians will not be able to specify brands to promote positive health outcomes and benefits. A provider will need to take this into consideration and compare it with HME equipment he currently has or supplies.
Challenges aside, with competitive bidding looming on the horizon, HME providers need to be thinking now about how to survive in this new climate. Fortunately, there is some lead time to think strategically and adapt. HME providers can learn a great deal about survival in the bidding game from other industries—such as construction—that have been navigating the process for decades.

The Check List
• Check and double check that you are qualified to bid. A mistake or omission could put your company out of the running. In the Texas demonstration, CMS had four criteria: 1) enrollment in the Medicare program with an active NSC identification number; 2) compliance with all state and federal licensure and regulatory requirements; 3) compliance with all Medicare and Medicaid statutes and regulations; and 4) compliance with all Medicare billing guidelines. In addition, you will be required to adhere to CMS’ quality standards.

• Margins are shrinking, so think lean. Work to eliminate excess expense in every part of your organization, from payroll and maintenance to purchasing and supplies. For your business overall, now is the time to cut all frills. Carefully examine your financial statements to see what business expenses are unnecessary or too large. Strive to recruit and retain employees who can be “cross-trained” to fill multiple roles, so you can operate with a small staff. Letting employees go, especially those who have been loyal or outstanding, can be a difficult yet necessary business decision.

• Scout out the competition. By learning more about the other bidders on a project, HME providers can get a better picture of how they compare. Look at competitors’ Web sites, client base, or work history to get an idea of what you are up against. After doing your homework, you may realize that another HME provider bidding against you is not as qualified, experienced. or able to meet the given beneficiaries’ needs. In addition, computer simulations have been developed to help business owners predict the bids for a given project.

• Get your finances in order. HME providers need to be fiscally fit to survive competitive bidding. This means being in a liquid position with limited liabilities and long-term debt. If you are debt-free, a drop in income will not be a fatal blow. Look for ways to eliminate or pay off existing debt. Consider meeting with a financial services provider if you have questions or realize your business is in need of financial help or advice.

• Be in the know. Stay knowledgeable about the latest industry news and legislation on competitive bidding. Read trade publications, and keep in touch with state and national HME organizations. The CMS Web site, www.cms.hhs.gov, is another helpful resource for understanding the current competitive bidding climate. Ignorance will clearly be to your disadvantage.

• Consider partnerships and alliances. If the official competitive bidding program mirrors previous demonstrations, small suppliers may join together to form networks for bidding purposes, as long as their combined market share does not exceed 25%. Look at existing good working relationships you have with fellow suppliers to see if a partnership would be to your advantage.

• Think about ways to generate alternate sources of revenue. This is particularly vital for small providers, who may face limited access to the competitive bidding arena if they are unable to bid against larger, national providers. This can result in a loss of business from the current customer base. Smaller HME providers should formulate a strategy to compensate for the losses incurred if they are not able to maintain current equipment volume and beneficiaries. Consider whether your business is able to provide ambulatory aids or more retail and daily living aids, such as bathroom equipment, diabetic supplies, and support hosiery.

Industry changes can be difficult to understand and fold into current business practices and success. However, the sooner you plan for competitive bidding, the better.

Ed Dressen is an associate of The Corridor Group, a provider of consulting services and educational resources to the home care industry, including home health, hospice, HME, home infusion, and private duty. He can be reached at (913) 362-0600, ext 105 or via regular mail: The Corridor Group Inc, 6405 Metcalf, Ste 108, Overland Park, KS 66202.