Some Thoughts, Observations and a Few Surprises on the “Round 2 Recompete”

Posted on in HME Government Issues

By Mark Higley, VGM Regulatory Affairs

I’ve been following this so-called competitive bidding program since 2003 and have somehow scored the most dubious distinction of being considered an “expert” on the program. Expert? No, not really. But, I do call ‘em like I see ‘em, and that’s what I offer today.

Let’s start with a few basics that you already know: On March 15 CMS announced the new reimbursements “single-payment amounts” and began sending contract offers to bidders. The new payments go into effect July 1. The payments, by HCPC code/category in each CBA, are available within four regional spreadsheets by clicking here and then clicking on the Round 2 Recompete & National Mail-Order Recompete tab. The “winners” of the contract offers are also there, albeit only in PDF and not easily sorted. Go to our page, and download a copy in Excel.  

CBIC’s Palmetto GBA estimated the overall weighted average “projected savings” for the Round 2 Recompete is 49 percent as compared to the 2015 fee schedules. You likely are aware the bidding forms had a column labeled “bid limit” for each code; these amounts mirrored the current fee schedule. Overall, and perhaps bluntly stated, the HME community accepted prices at half off the price ceiling they theoretically could have received.     

Compare to Previous Programs

The first attempt, “Round One” in 2008 (in 10 metro areas), resulted in a 26 percent reduction from the fee schedule. However, the program was quickly quashed and “rebid” in 2009 (with only nine metro areas), resulting in a net 32 percent reduction. The same nine areas bid again for the 2014 contract; this time taking 37 percent of the fee schedule. And, the 91 Round Two metro areas of 2013 took 45 percent off.

You see the pattern here.

Even while the program rules allow bidding entities to “start from the top” (that is at the current fee schedule), it’s obvious most companies looked at the current program payment amounts and discounted from there. The result? About 10 percent lower reimbursements from round to round.   

And now, to make bad news worse, CMS is proposing for future bid rounds that the “bid limit” ceiling mirror the current single-payment amounts. Somewhat simply stated, the bid reimbursements in effect today will now be the official Medicare fee schedule. And, the program rules require suppliers to offer bids below that fee schedule. 

Understand the problem here? You don’t need be a math whiz to see what an additonal round or two would do to reimbursements. That’s why we must continue our efforts to support the House and Senate bills, which would replace the bid ceiling for future rounds of bidding with the unadjusted fee service rates from Jan. 1, 2015, rather than CMS’ current plans to cap future bid ceilings at the previous bid rates. And, perhaps of equal importance, the legislation delays implementation of the second phases of reimbursement cuts for HME items in non-bid areas from July 1, 2016 until at least Oct. 1, 2017. Click here to see more.

Some Other Observations

CMS touts that “small suppliers” – those with gross revenues of $3.5 million or less – make up 56 percent of the 12,000 or so contract offers to the 637 companies (and program rules require that percentage to be at least 30). So, more than half of the business goes to these smaller independents? No way. Read that first sentence again…contract “offers.” This isn’t a government set-aside. This isn’t a guarantee of procurement dollars. This only means about half of the opportunities went to small businesses. Some will never get a referral. The larger players will continue to reap the majority of the reimbursement dollars.   

CMS’ fact sheet also included the statement “all suppliers that are offered contracts went through a thorough vetting process and are accredited and meet financial and applicable licensing standards.”

Whew…I’ve got to watch what I say here. We have dozens of tenured, multi-faceted, full-line and successful HMEs being denied contracts due to – most frequently – “not meeting financial requirements,” an undefined and non-transparent poison pill that has removed some of the industry’s most stellar providers of excellent patient care and service.

Some have ostensibly failed certain “financial ratio” standards (also undefined). Others are disqualified due to simple (but obvious) typos or “tying” errors from one statement to another. Many have requested the CBIC undertake a review. This issue is beyond the scope of this article, but if you are in this situation, I may be able to assist/consult.

And then we have the start-up, limited credit availability, strip mall renter (yes, we have many, many pictures) that are awarded a contract without CBIC challenge. Some have won the majority of bids in the entire state. Or region. You get the picture. I recognize and accept your frustration with this “vetting” process.

Then there is the CMS statement with regard to beneficiary access to the contract offerees: “12,181 contract offers will be made to 637 Round 2 Recompete bidders. Of these offers, 93 percent are to bidders who currently furnish items in the awarded area or within the product category. I can only imagine the collective gasps emanating out of those HME providers who have actually reviewed the contract awardees. Okay, I’ll be fair. The CMS statement is, per se, accurate. But, note the agency’s use of the word “or”! 

A Look at the Numbers

So, let me emulate CNN’s stat guy, John King a la “let’s look at the numbers”

Observation 1: Suppliers have to be accredited in the product category to be offered a contract. That “checkmark” under the 80-plus product categories within the CMS supplier directory data file satisfies the requirement and is the (mathematical) driving factor in the 93-percent statement. 

Observation 2: We have received via email more than a dozen (and unsolicited) contract offers analyzed by various VGM members. Some metro CBAs are virtually (shockingly?) void of local suppliers in the majority of product categories. Our former intern (now full-timer – we are happy and thankful to say) Collin Brecher is reviewing all of the 117 competitive bidding areas by contract awardee location, and then mapping them. Let me offer a preview:

Omaha- Standard Mobility
# of Contracts – 16
# of Out of State Providers – 8

Average Distance – 335.20 miles

This is a 50 percent “in-state” versus “out-of-state” example. It is the statistical mode of all offers. In other words, “50-50” is approximately the most common array among all the 117 bid areas. 

Let’s look at another:

Boise- Respiratory
Numbers of Contracts: 17
Out of State: 8

Average Distance – 241.92 miles

Similar approximate out-of-area percentages (at about 50), but come on. Let’s be realistic. This category is, arguably, not in the same patient care level as standard mobility. It’s oxygen therapy, CPAP and higher-end respiratory devices. These are not canes or walkers; these are not drop-ship appropriate.  Some of these patients require therapy 24/7; many are afflicted with a terminal illness. 

Look to VGM CONNECT for additional metro area/CBA mapping analysis such as those above. And, stay tuned to next week’s CONNECT for FAQs relative to this Round.