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Legislation:

Master Pricing Change Details To Survive - And Succeed

Published on Thu Jan 15, 2004

Will you qualify for an exemption to competitive bidding?

The DME Medicare world is changing, and suppliers that fail to change with it will be left out in the cold when competitive bidding and other pricing changes take effect.

Hoping for a repeal of the durable medical equipment competitive bidding provisions contained in the Medicare Prescription Drug, Improvement and Modernization Act of 2003 is wishful thinking, experts say. "In the long term, competitive bidding appears to be a steadily building force," says attorney John Wester with Sidley Austin Brown & Wood in Washington, DC. "As long as competitive bidding is viewed as a cost-saving step, future efforts to forestall competitive bidding will probably face resistance that is at least as formidable as in 2003," Wester tells Eli.

At most, suppliers may be able to convince lawmakers to limit the items subject to the bidding process, he predicts.

Since there is likely to be no going back on bidding, suppliers had better master the details of the complicated procedure to survive, and thrive, under the new reimbursement system when it takes effect. For 10 metropolitan statistical areas, the program will begin in 2007. By 2009, bidding will take over in 80 MSAs. And the law leaves the potential for a nationwide model by 2009 as well, Wester noted in a Jan. 13 teleconference reviewing the law signed by President Bush in December.

Here are some important details suppliers should consider in their bidding preparations:

  • Grandfathering. Not all Medicare business for bidding items will terminate for suppliers that don't win the bidding contracts, Wester pointed out. Patients receiving oxygen and rental DME won't have to switch to the winning bidder. Instead, relationships with those patients will be grandfathered, according to the law, Wester explained.

  • Exclusions. Inhalation drugs, parenteral nutrition and equipment, and Class III medical devices won't be subject to the bidding process, the law says. Items for which savings aren't expected also will be exempt. And low-density areas are off the hook as well, Wester said.

  • Mergers and acquisitions. There's more than one way to skin a cat, and bidding hopefuls won't have to give up if they don't win a contract right off the bat. The law specifies that if a winning DME company is sold, its successor organization will retain the bidding contract with Medicare. The industry may see strategic acquisitions given the provisions allowing successors a "second bite at the apple" by buying winning bidders, Wester predicted.

  • Challenges. But suppliers shouldn't expect to get a second chance through administrative or legal challenges to decisions on bidding winners, MSA areas or the items up for bid - the Medicare law specifically prohibits those. "Whatever Medicare comes up with will not be subject to challenge, at least without having to overcome this hurdle in the legislation," Wester observed.

  • Assignment and HCPCS. Bidding winners won't find the program a bed of roses. Besides pricey new Medicare participation standards, the program also will require winners to accept assignment on all items and to furnish a specific item in a HCPCS code upon a physician's request, Wester noted. So if a doc picks a brand-name item much more expensive than the one a supplier normally furnishes, the supplier will have to eat the cost.

    Nebulizer Rates To Be Slashed 22% 

    Suppliers won't have the next few years to comfortably plan for the bidding process. Instead, they'll be grappling with drastic cuts to reimbursement for a number of items, including nine items singled out by the new law, and prescription drugs (see Eli's HCW, Vol. XIII, No. 1, p. 4).

    The law specifies that payment rates for certain items will be cut by the percentage difference between payment for the items under the Federal Employee Health Benefit (FEHB) plan and Medicare payments, as spelled out by the HHS Office of Inspector General. Those items, the law says, are "oxygen and oxygen equipment, standard wheelchairs (including standard power wheelchairs), nebulizers, diabetic supplies consisting of lancets and testing strips, hospital beds, and air mattresses..."

    Some of the cuts, which will take place this October, already are known - they are spelled out in June 12, 2002 OIG testimony before the Senate Committee on Appropriations (see chart in this article). The most drastic reductions will hit nebulizers with a 22% cut, and hospital beds with a 20% cut. "These items stand to be fairly hard hit starting in 2005," Wester noted.

    But the cut to oxygen and oxygen equipment has yet to be spelled out, Wester explained in the teleconference. An upcoming OIG report will reveal the amount of difference the watchdog agency found between Medicare and FEHB payment rates, and thus the amount of the cuts for those items.

    And the law leaves leeway for even more items to come under the FEHB reductions, Wester cautioned. "We are waiting for other shoe to drop," he said. "The question is: How broad will any future OIG table be?" he asks.

    Items not affected by bidding or the FEHB cuts will still see a freeze to inflation (consumer price index) updates over the next five years. "These provisions will have a broad impact on suppliers," Wester said. "They are very drastic changes."

    And items may be up for separate cuts under the Centers for Medicare & Medicaid Services' inherent reasonableness authority. Former CMS Administrator Tom Scully promised power wheelchairs (K0011) were first on the list for IR consideration. v

    Editor's Note: The OIG's testimony on FEHB versus Medicare pricing is at http://oig.hhs.gov/testimony/docs/2002/020611fin.pdf.

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