Competitive Bidding in Home Care: It’s Here!

Vol. 20 •Issue 12 • Page 8
Home Care

Competitive Bidding in Home Care: It’s Here!

Medicare’s Prescription Drug, Improvement and Modernization Act of 2003 authorized the Secretary of Health and Human Services (HHS) to use competitive acquisition authority (better known as competitive bidding). For home care providers, it changed everything.

Medicare Durable Medial Equipment (DME) competitive bidding has five objectives: determine appropriate prices for categories of DME covered by Medicare Part B; protect beneficiary access to high quality DME; reduce the amount Medicare pays for DME; limit the burden on beneficiaries by reducing their out-of-pocket expenses; and mitigate proliferation of certain DME items by contracting with suppliers that engage in a business model that is beneficial to Medicare and its beneficiaries.

By 2010, the Centers for Medicare & Medicaid Services (CMS) hopes to save $1 billion annually through competitive bidding. Home care businesses and DME providers located in any of the 10 Competitive Bidding Areas (CBAs) selected by CMS must decide now whether to participate. Additionally, providers not located in a CBA must prepare for competitive bidding (CB) because CMS will expand the program to 70 additional areas by 2009.

The current CBAs are:

Charlotte/Gastonia/Concord, N.C./S.C.;

Cincinnati/Middletown, Ohio/Ky./Ind.;

Cleveland and surrounding counties;

Dallas/Fort Worth, Texas, and surrounding counties;

Kansas City and surrounding counties, Kan. and Mo.;

Miami, Fort Lauderdale and Miami Beach, Fla.;

Riverside/San Bernadino/Ontario, Calif.;

Orlando/Kissimmee, Fla.;

Pittsburgh; and

San Juan/Caguas/Guaynabo, Puerto Rico.

The products selected for bidding include oxygen equipment and supplies; standard power wheelchairs; scooters and complex rehabilitative power wheelchairs and accessories; diabetic supplies; enteral supplementation equipment and supplies; CPAP and respiratory assist devices (RADs) and supplies; hospital beds; vacuum assisted closure devices or so-called “wound vacs” and negative pressure wound therapy (NPWT) and supplies; walkers; and support surfaces.

In order to participate in CB, home care providers located in the CBAs must be accredited or have submitted an application to become accredited by one of the 11 organizations approved by CMS by August.

Bidding may begin soon. In order to have successful bidding and stay in business, home care companies must perform an assessment of their costs including all activities required to deliver the services and process claims, in addition to variables associated with the provision of equipment that reduces labor costs.

While determining costs, you must factor in the transfer of ownership of equipment to patients (especially oxygen concentrators historically used for years in some cases for many patients) and changes to purchasing strategies that support replacement of equipment because capped rental DME and oxygen equipment must be transferred after 13 and 36 monthly payments respectively.

Providers must thoroughly familiarize themselves with the intricacies of the final rule. For example, patients who switch providers in the middle of an existing rental period will affect reimbursement.

Newer types of long-term oxygen therapy (LTOT) equipment now available reduce equipment acquisition costs (less devices) and operational expense (labor and delivery costs) while meeting the therapeutic needs of the patient. Although this approach has not been a traditional consideration, it is absolutely essential to reduce delivery and labor costs.

The opportunity at hand is to make your whole supply chain more competitive with the introduction of more advanced practices. Some providers have been successful in lowering the cost of goods sold in anticipation of CB. However, many others have relied heavily on depreciated assets to support their patient base and have not typically replaced equipment routinely. CB will require providers to change this approach.

Today is the time to prepare. Although we must continue to educate policymakers and CMS about the home care industry, developing the framework to be successful in a CBA is more pressing.

To improve your chance of being a successful bidder and, more importantly, stay in business, there are some basic (fundamental) steps that must be taken: activity-based costing and management.

Understand your operation and what it costs to manage and run your business daily. Determine which products you can realistically provide in your geographical area and determine the locations where you can provide specific equipment and services while not breaking the bank or increasing your costs.

Understand the ABCs of all aspects relating to direct and indirect costs associated with the provision of equipment and increase operational efficiency through the use of information technology. After ensuring you are accredited, establish a realistic discount you can give that allows you to realize a good profit margin to support your longevity in the industry.

For more information, access the final rule at:

Vernon R. Pertelle, MBA, RRT, is senior director/assistant vice president for Tri-City Healthcare District, Home Care, Occupational Health & Wellness and Rehabilitation Services, Center for Wound Care & Hyperbaric Medicine. He can be reached at [email protected].