Don’t Exaggerate Capacity When Submitting Your Bid

As the first round of competitive bidding is about to get under way, there are a myriad of new concepts to grasp. Of them, "capacity" (your market share) seems to be the most benign and largely overlooked. As it turns out, capacity is the key to the whole system. Exaggerating it actually drives reimbursement down.

To see why this happens, you have to understand how CMS will evaluate the bids. First, they will arrange the qualifying bids from lowest to highest, according to price. Alongside the bid price will be the provider's estimated capacity for supplying this product in their MSA. Starting at the bottom, and ignoring price, CMS will go up the list adding capacity numbers and stop when they reach 100%. At that point, they have arrived at the "pivotal" bid.

All of the bids that are higher than the pivotal bid will be excluded. Those below it (the winners) will be averaged and that becomes the new reimbursement. As you can see, capacity is what causes bids to be included in the program, more so than price.

The fear is that providers will miscalculate or, more likely, exaggerate their capacity. If so, CMS will not have to move far up the list to arrive at 100%. Further, since bids are arranged from lowest to highest, an artificially lower number of bids and prices will be averaged to arrive at the new payment amount. In short, exaggerated capacity numbers drive reimbursement down.

The main reason for exaggerating capacity is the mistaken notion that it will matter when competing for business. CMS simply wants to make certain that patients have access to equipment and that 100% of the market is covered. Your capacity estimate does absolutely nothing to affect your ability to bring in more business. The thought of "I have 3% of the market now, but I could do 10%!" will do nothing but harm your business. Winning bidders under the new system are entitled to compete for as much business as the market will allow them, regardless of their capacity estimate.

Your capacity numbers are a key component to the bidding program. Unfortunately, those who do not understand this concept will have a detrimental effect on the outcome. Reimbursement is low enough; we don't need to make it worse.

—Chris Rice is an HME provider in Riverside, Calif (a CBA). He is also the founder and moderator of a free online forum at www.competingbid.com. The forum has information on nearly every HME subject and is "from providers, for providers." Rice can be reached via e-mail: .

Competitive Bidding — 10 Years Later

It is now May 2017 and Barack Obama is serving his second term as President. The 2016 Summer Olympics were a big success. They were held in Chicago during the winter due to global warming.

Retired CMS Administrator Leslie Norwalk says, "Congress mandated competitive bidding and we carried it out. We didn't anticipate the consolidation and how it would affect service levels." Norwalk, now disabled, had to wait 4 months before she got the power wheelchair she needed and suffered further complications as a result.

Legal battles about patient rights ensued along with numerous questions on the bidding process. The fact that CMS wanted to eliminate more than 4,000 suppliers from the first CBAs caused delays. CMS defended their actions by stating they were including a 30% small supplier rule, and that many suppliers were not interested in bidding anyway.

The amount of suppliers going out of business was only about 50%. "Congress had the opportunity to correct their mistake with the Tanner-Hobson Bill of 2007," states Norwalk. The bill would have allowed all accredited suppliers to provide services at the contract price. "Looking back on it, we made some mistakes. We should have just lowered prices 13% and allowed all accredited suppliers to continue billing Medicare. We would have realized our savings immediately without the added administrative and legal costs, which neutralized much of the intended savings." Yes, Leslie, you should have.

—David Krause, AD Medical Inc, Chicago.