Time is running out on providers who have yet to apply for participation privileges in the first 10 MSAs, where Medicare's controversial national competitive bidding program will debut. Applying before the deadline of June 30 is crucial, because failure will abruptly end Medicare business for at least the next 3 years—a potentially ruinous position.

However, in this program, the only thing more important than being allowed to bid is winning the bid. And a bid won't stand a chance of winning unless it is properly developed and assembled. "You can't survive if you pull numbers out of thin air, throw them onto a piece of paper, and say, 'OK, this is my bid,' then hope it's low enough to win and, at the same time, be close enough to reality that you can live with it," says Kathleen Weir Vale, co-owner of Hope Medical Supply Inc, San Antonio.

Some providers may try to roll the dice with bids fashioned from applicable HCPCS (Healthcare Common Procedure Coding System) prices minus 10%. This is not a wise idea, say observers. "What providers first should do is acquire an understanding of the products that can be sold, leased, or dispensed to Medicare beneficiaries in the competitive bidding area [CBA], because a requirement for putting in a bid is that you must be able to service the complete geographical area of the CBA," says Jeff Baird, JD, a health care-specialized attorney with the law offices of Brown & Fortunato, Amarillo, Tex.

The next step for providers is to demonstrate financial soundness, Baird adds. Fiscal health, he suggests, is something administrators of the DMEPOS Competitive Bidding Implementation Contractor (CBIC) system will be expecting to see. "That means having up-to-date balance sheet and income statements," says Baird. "Also, you need to consult with your banker about credit lines so that they can be fluent in discussing with CBIC your borrowing capacity."

KNOW TRUE COSTS

Perhaps more key than anything else: get a handle on the true costs of providing specific products or product classes. This is best achieved through activity-based costing methodologies, says Mary Ann Largen, RPh, co-owner and COO of Med Emporium LLC in Charlotte, NC, who recently attended a 2-day bidding seminar in Dallas hosted by The MED Group. "Most people know their product costs, but few know the costs associated with actually providing a product," she says. "In most cases, the associated costs make up 65% to 80% of the total true cost of providing the product."

Velma Goertzen

Things to dissect in an activity-based cost analysis include outlays for insurance, salaries, and utilities. Velma Goertzen, RN, owner of A Step Ahead Consulting, Inman, Kan, recommends you begin by identifying the different categories of activities involved in providing a product to just one patient (examples: billing is one activity, collection is another). "Don't identify activities in more detail than is necessary," she cautions. "You've gone overboard if you count steps like taking the reimbursement check down to the bank for deposit."

Next, compute what it costs each time that activity is performed. Then, chart how many times each of those activities is performed during a day, week, month, or quarter. Multiply that by the total number of patients who are provided with that product, and you then should have a sufficiently clear view of the actual costs involved, Goertzen says.

When analyzing activity-based costs, Goertzen believes it is better to scrutinize products in groups rather than individually. This, she says, can help you avoid pondering matters too deeply and overanalyzing. Kim Brummett, vice president of contracting and reimbursement for Advanced Homecare in Greensboro, NC, believes overanalysis carries with it the risk of arriving at an inflated bid. "If you overanalyze, you can come up with an amount higher than the current fee schedule for a lot of the product categories," she says. "For example, look at walkers. Nobody makes money on those. They're a loss leader. So if you apply activity-based costing to walkers, your bid would be way higher than the current allowable."

Jeffrey S. Baird

It may so happen that some product categories prove easier than others to bid on and win, experts acknowledge. Those that should entail the least effort likely will include beds, enteral, and oxygen—items with few HCPCS codes to deal with, says Brummett. At the opposite end of the spectrum, the product category bound to give the biggest problems is rehab. "Rehab will prove the worst by far because it has hundreds of HCPCS codes," Brummett explains. "Also, the weighting of these products is going to be extremely confounding because there is not an adequate claims history, nothing really to base that on. For example, we now see that batteries will have a 10% weighting in the rehab category. That just makes no sense at all."

TRAPPED BY WINNING

A concern with national competitive bidding is its resemblance to an insect trap humorously referred to as a "roach motel"—winning bidders go in but don't come out. "If you're lucky enough to win a bid, you can't later decide to opt out when the money turns out to be less than what you thought you'd need to survive," Brummett informs. "You're locked into that contract. If you walk away from it (because you're being killed by it), you'll be in breach and will probably be at risk of having your Medicare provider number taken away from you."

Kim Brummett

As well, Brummett laments Medicare's power to adjust winning bids. "You might not be paid what Medicare accepted in your bid," she says. ""Medicare will pay the single price based on the median of the winning bids."

Regardless, Hope Medical's Vale contends that providers in each affected MSA have a duty to exercise great care in working up their bids. "The numbers you submit are going to have an impact on the rest of us in your MSA and, eventually, across the entire country," she warns. "If you low-ball your bid, you're going to be making a bed that all of us will be forced to lie in."

Baird, however, says that ridiculously low-balled bids will never even reach the plate. Both CBIC and CMS already know the manufacturers' costs for each and every product that home care companies will be vying to provide. Thus, if they receive a bid below the cost to make the product, CBIC and CMS will automatically exclude that bid on the grounds that it is frivolous, Baird hints.

Another cause for concern is the possibility that some providers will adopt operational cost-cutting strategies to help strengthen their bids, and then enter the contract before those strategies have had time to work. This will be a temptation because "providers know they'll have a few months between the time they bid and the time they'll need to be optimally efficient," says Brummett. Goertzen thinks it is a mistake to bid before cost-reduction strategies are fully in place. "I'd be uncomfortable with that approach," she confesses. "It is by far the smarter approach to know for sure that your costs have indeed come down to where you've targeted them to be."

Worrisome too is the apparent need for a high degree of precision in estimating revenue and operational capacities as part of the bid process, Baird divulges. Consequences for inaccurate estimates could range from outright disqualification of bids to visits from the Office of Inspector General (as a precursor to fraud charges being filed). Likewise, prospective bidders in the first 10 MSAs could expect those same ramifications if they tell Medicare they will be accredited by August 31 but fail to follow through and obtain credentials by that deadline.

BUTTERFLIES SET FREE

Largen's Med Emporium is nestled squarely within one of the 10 kick-off MSAs, and she admits to being nervous about that. But what's mainly producing butterflies in the pit of her stomach is awareness that many small providers in the Charlotte region have been clueless about the coming of national competitive bidding until a few weeks ago. "To me, that is scary because they are probably going to be submitting bids that have no basis in reality, which will only drag down the market average that CMS will be relying on to structure its future reimbursement formulas," she says. "CMS assures us that ridiculously low bids will be filtered out and won't be added to the pot. But CMS' idea of ridiculously low may be miles apart from mine."

Largen thinks the hassle of bidding and the risks inherent to it will cause more than a few providers to throw up their hands in despair and call it quits. "That is one of CMS' goals," she says. "They want a smaller pool of providers because that will make it easier for CMS to control things."

CMS understands, however, that the providers remaining in the shrunken pool must be high-caliber outfits to avoid enraging Medicare beneficiaries. Happy beneficiaries, good; angry, congressman-letter-writing beneficiaries, bad. "It will cause damage to the Medicare program if CMS achieves cost savings at the expense of quality or at the expense of reductions in the ability of beneficiaries to access services," Largen theorizes.

For his part, Baird says he will be surprised if there does not eventually emerge from all this a provider rankled enough—not to mention fiscally harmed enough—to seek relief by suing the federal government. Even now, Baird is gearing up to challenge in court the constitutionality of national competitive bidding. "The program is a train wreck in progress," he says. "I don't see this as being workable at all. The more I read about it, the more dismaying its prospects appear. It's almost on the level of a farce."

Accordingly, Baird expects to witness a comedy of errors unfold during the rollout of national competitive bidding among the initial batch of 10 MSAs, with an undeterred CMS cavalierly forging ahead on the planned launch of the program in 70 more MSAs. Says he, "There's a possibility that national competitive bidding might not make it that far; it might just collapse under its own weight before then."

Rich Smith is a contributing writer for  HME Today.