Medical Device Daily Washington Editor

With the Medicare Payment Advisory Commission (MedPAC) routinely claiming that the Centers for Medicare & Medicaid Services pays too much for Medicare, the agency is making use of a number of tools to trim costs from the program.

Among these is a competitive bidding program for durable medical equipment (DME), which CMS unveiled April 2 (Medical Device Daily, April 6).

In a conference call earlier this week, sponsored by the publishers of Medical Device Daily, Eric Sokol, director of the Power Mobility Coalition (Washington), said the new rule “will be a major change in reimbursement” and is the outgrowth of a provision in the Balanced Budget Act (BBA) of 1997, which called for two demonstration projects to test the idea: one in Polk County, Florida, and the other in San Antonio, Texas.

CMS decided after looking at the data from these demos that it could save $1 billion a year by 2010.

Also participating in the call was Stephen Azia, a principal with the law firm of Eastwood & Azia (Washington), who said that the 1997 BBA was written to allow CMS to limit the number of contractors.

CMS is of the opinion, Sokol said, that beneficiary access will not be compromised by the program — adding, “but I guess that remains to be seen.”

All DME suppliers will need to be accredited, “even in the most remote rural areas.” So as to ensure access in rural areas, CMS will allow suppliers to bid for areas outside the locations of their offices.

The current fee schedule is the ceiling for bids and those fee amounts “will not be adjusted for the term of the [three-year] contract,” regardless of any changes to the cost of doing business, Sokol said. Azia noted that “suppliers appeal rights are severely curtailed” because no bid appeals are permitted. However, the bidding process does not apply to after-market servicing of DME.

Bid applications will have to include quality standard information about the bidder, including financial management and information technology capability. Suppliers are permitted to employ either cash or accrual accounting methods.

The 10 metropolitan statistical areas (MSAs) that will serve as sites for the first round include Dallas, Miami, Cincinnati and San Juan, Puerto Rico.

Azia said New York City and Chicago are among the larger MSAs that will be opened for bids in the second round, but the first round sites were chosen for potential savings due to over-utilization, and some areas were not included, due to some extent to the logistical difficulties of rolling out a program in those areas.

CMS started accepting bid applications on May 15 for a 60-day period that ends July 13.

Bidders have until Aug. 31 to obtain accreditation, but Sokol said that “this date could slip if the workload is too great on the accrediting bodies,” of which there are only 10. On an unspecified date in December, CMS will announce the winning bidders, with April 1, 2008, the date when suppliers will first be reimbursed under the new program.

Among the DME items affected by the rule are power mobility devices, oxygen supplies, continuous positive airway pressure devices, diabetic supplies (via mail order only), walkers, wound healing devices, and mattresses.

The program provides opportunities for the smaller fish in the DME industry with a series of small supplier protections. Small firms are defined as those with gross receipts of $3.5 million or less “from all product categories,” Sokol said, and the agency will allow small suppliers to form networks.

“The biggest thing CMS is doing is establishing a 30% target for small supplier participation,” Sokol said, so of the five winning bidders in each area, “at least one will be a small supplier.”

However, each company in the group must be independently eligible, and any such networks are limited to 20 companies, each of which must be accredited. Individual companies within those groups will bill CMS directly.

“Now is also the time to go to your manufacturer to work out the best deal you can,” Sokol said, adding that bidders “really have to know your business” when making estimates of costs and ability to supply the bidding area. A good understanding of one’s costs is probably “the biggest thing.”

Sokol also reminded bidders that they may be able to trim marketing budgets if they win a bid, which can help bring down the amount of the bid.

“Now is the time to develop alternative revenue streams,” Sokol said, assuming that some of its bid proposals are not approved or are not covered by the competitive bid rules.

Congress is not unaware of the program and may work toward legislative modifications.

On May 17, Sens. Kent Conrad (D-North Dakota) and Orrin Hatch (R-Utah) introduced a bill titled the “Medicare Durable Medical Equipment Access Act of 2007” (S. 1428), which is paralleled by the “Tanner-Hobson bill” (H.R. 1845) in the House.

Both bills would exempt MSAs with populations of less than 500,000 and would allow small providers that do not win a bid continue to provide DME at the current set price. The bills would also allow administrative and judicial review of bid awards, and would exempt any items and services unless CMS can show that it will save at least 10% on those items.

However, Sokol said that any such legislation “would have a high cost attached to it” because the expected savings are already figured into budgets, and Congress’s pay-as-you-go approach requires that the sponsors find offsets for the budgetary impact.

Sokol told Medical Device Daily that because bids must include the manufacturer and product serial number of any devices, no alternate 510(k) products are eligible for the program. Any devices that FDA approves after the commencement of a bidding period would have to receive a coverage decision from CMS to be eligible for the bidding period following the coverage decision.

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