Kathleen Weir Vale

National competitive bidding received a trial run 5 years ago in San Antonio. Among the participants back then was Hope Medical Supply Inc. The co-owner of the company— Kathleen Weir Vale—remembers the experience as being a bit unnerving and thinks providers in the rollout MSAs this year can expect similar challenges. Or worse. "Back then, the most important thing was knowing what our costs were to know how low to bid and still survive," she says.

Hope Medical Supply began in 1941 as an ambulance service. It was not until a decade later that it started supplying medical gases and equipment to hospitals and doctor's offices. The company in the 1960s added to its mix high-tech equipment, instrumentation, and supplies for hospitals and long-term care facilities. It opened a branch in Corpus Christi, Tex, in 1976 and became a full-service provider in the 1990s, offering wheelchairs and mobility products, oxygen and respiratory, and aids to daily living—including bariatric products and wound care.

When the company took part in Medicare's 2001- 2002 competitive bidding demonstration project, it submitted quotes on three of five available product categories: oxygen, hospital beds, and manual wheelchairs (the two that Hope Medical passed up were nebulizer medications and orthotics). Every bid the company submitted turned out to be a winner.

Not all San Antonio providers enjoyed clean sweeps as did Hope Medical Supply, but everyone who bid came away with at least a small piece of the action.

Still, many companies struggled financially because of this project, although Vale says they tended to be outfits flitting around the margins of the industry—chiefly, corner drugstores dabbling in wheelchairs and physician's offices offering the odd HME product as a convenience to patients.

One provider that won had tendered its bid after the submission deadline. Medicare would have rejected it on grounds of tardiness but for the very vocal protests of the bidder. "Medicare relented and allowed the bid because it wanted the demonstration project to succeed," says Vale.

Providers this time around should not expect any such accommodation. "For one thing," says Vale, "there now are many, many more lines of business involved, and there are a whole lot more rules to deal with."

Quite true, says Jeff Baird, JD, who frets that many providers will fall prey to misconceptions surrounding national competitive bidding. One of these has to do with provider capacity. "A provider might tell Medicare he can handle 10% of his MSA's capacity for a particular product category, but there is no guarantee that this amount of business will be his," Baird explains. "CBIC [Competitive Bidding Implementation Contractor] and CMS are primarily concerned about beneficiary access. They want to make sure there will be a sufficient number of companies in the MSA with sufficient capacity to meet the beneficiary demand for each product category. When a provider submits a bid, that provider is representing that it has the capacity to handle 10% of the beneficiaries for, say, oxygen equipment. CBIC might adjust that based on claims history. But what will happen is, when all the contracts are let, CBIC may say these 12 companies together have the capacity to take care of all the beneficiaries in this MSA's CBA. Now, if XYZ Home Care is not particularly good at marketing, it might attract only 5% of the business. On the other hand, if it's really good at marketing, it might end up handling 15% of the business."

Vale makes the point that bids need to fall within reasonable bounds. Take a discount that is too much or too little on your pricing and your bid will be deemed unserious. At bottom, though, she believes the bid a provider submits amounts to "little more than a crap shoot because Medicare, frankly, is interested in reducing the number of providers. They apparently feel there are too many providers for them to manage. That makes it difficult for them to manipulate the industry the way they'd like.

"I don't think we would be in this mess today—and having to deal with national competitive bidding—if Medicare in the 1970s and 1980s had just been more selective in handing out supplier numbers. They didn't do any due diligence. All they did was issue numbers to anybody who filled out the request form."