Understanding the Realities of Competitive Bidding Regulatory

1. Understanding the Realities of Competitive BiddingRegulatory/Compliance Update Presented to NCAMES by Mark Higley The VGM Group

2. As HME providers are most aware, last May CMS published its proposed rule to phase in the competitive acquisition program, or �competitive bidding� for DMEPOS under Medicare Part B.  To the concern of the industry, the proposed regulation did not provide definitive answers to the most pressing questions about the program, the cities and the products included in the initial rollout.

3. Finally, on April 2, 2007, CMS 1270 F (the �Final Rule�) was released. Number of pages: 401. The bid area boundaries (by ZIP code) and the Product Categories (by HCPC Code) were posted on the Competitive Bidding Implementation Contractor (CBIC) website shortly thereafter Official site: http://www.dmecompetitivebid.com

4. Bidding Opened May 15 � Many Providers In CBAs Are Not Prepared! All suppliers submit bids using an internet application. There is an initial registration on the internet application to get a USER ID and password. The initial registration process requires the �authorized official� (see Section 15 of the CMS 855S) to complete the information. Many bidding HMEs have not yet completed the initial registration process. They must do immediately!

5. May�15, 2007 - Bid period opened June�30, 2007 - Registration Deadline (Last day to register to get user IDs and Passwords ) July�13, 2007 60-day bid window closes 8/31/2007 - Last day for first round bidders to obtain accreditation.

6. Late September 2007 CMS concludes bid evaluation and begins contracting process. December 2007CMS announces winning suppliers for first round. 1/1/08-4/1/08CMS conducts intensive beneficiary and referral agent education campaign. 4/1/2008 New program begins

7. The �Authorization�� Section 4319 of the Balanced Budget Act of 1997 (BBA) authorized up to five demonstration projects for Medicare Part B items, excluding physician services. CMS implemented demonstration projects on competitive acquisition of DMEPOS at two sites: Polk County, Florida and the San Antonio, Texas, Metropolitan Statistical Area (MSA). The demonstrations took place from 1999 to 2002.

8. What does CMS �expect��.

9. CMS report: �The demonstration projects revealed that substantial savings could be realized through the implementation of competitive acquisition, without compromising the quality of the products being supplied. Based on these demonstrations, CMS estimates potential savings of 20% on DMEPOS if competitive acquisition for these products is successfully implemented throughout the country. Statistical data indicated that beneficiary access and quality were essentially unchanged.�

10. Bottom line� CMS states the program is projected to produce savings of $1 billion in 2010 The savings is based on the estimation that competitive bidding will reduce DME spending by 12.9 percent below fee-for-service among the 70 percent of DME costs assumed to be subject to the program by 2010. The 12.9 percent figure is based on contractor�s modeling over 90 MSAs. Many industry groups have disputed the projected savings, contending Medicare reimbursement cuts in recent years -- particularly surrounding oxygen and power mobility devices -- make the billion-dollar projection unrealistic.

11. Current �problems� with the Bid Many hundreds of suppliers � the majority with relatively lower capacities � are �low-balling� with the assumption of increasing the likelihood of their bid acceptance! Many others are misinformed. Example: �My bid must be at least 20% below the current allowable�:

12. �CBSS joke of a system� (*) �Mark - What is the protocol for contacting an individual capable of addressing the multitude of problems with this terrible excuse for a submission system? �I mean Mark, realistically how are we supposed to meet a July 13th deadline. �Here it is June 14th I�ve started early and the system is freezing on me continuously. The system has given me on multiple computers in my network, JavaScript on top of JavaScript errors, error 500s during updating of pages aside other problems��� (*) Actual text message from HME provider to me on 6/14/2004

13. �Their help desk is reading from a script which is more frustrating then it is pathetic.� Who can we absolutely blast with emails, calls, and faxes beside Mr. Kuhn about this government train wreck. It has taken hours on top of hours just to finish one category properly�.�

14. Which Areas Are Affected? CMS began with a list of the fifty largest Metropolitan Statistical Areas (MSAs) based on 2005 population. CMS then selected 25 that had the largest total allowed Medicare charges for DMEPOS in calendar year 2005. The 25 MSAs were to be ranked according to two criteria: allowed DMEPOS charges per beneficiary, and the number of DMEPOS suppliers per beneficiary receiving DMEPOS items.

15. �MSA Surprises� Cleveland AND Cincinnati AND Pittsburgh No Houston No Atlanta Orlando vs. Tampa San Juan

16. �Which areas affect NCAMES members? The CBAs are defined by ZIP codes. Many rural ZIPs, that would be included in the official U.S. Census Bureau MSA, were deemed non-competitive and hence not included within the CBA. Providers may find the actual ZIP codes affected on the CBIC site. Maps of the CBA are also available.

18. Mail-Order CBA

19. CBA ZIP Code Detail

20. Mail Order ZIP Code CBA varies� check the web site!

21. Mail Order

22. Implementation The competitive bidding program will be phased in over several years: The 10 CBAs announced, with 70 more CBA�s in 2009, and at least 10 others in 2010. Payment under the first round of the competitive bidding program will go into effect in April, 2008.

23. Product Categories for NCAMES Oxygen equipment and supplies Respiratory assist devices and CPAPs Standard power mobility devices Complex power rehab Diabetic supplies (Mail Order Only) Enteral nutrition Hospital beds and accessories Walkers Negative pressure wound therapy devices

24. Supplier Eligibility All bidders must be accredited (or be in the process of becoming accredited) by a CMS approved accreditation organization Abide by final quality standards, including financial, business, and customer service standards, in addition to product-specific standards. CMS will require evidence of financial resources to support potential market expansion. CMS will also analyze certain financial ratios of bidders.�

25. Supplier �Capacity� If a supplier estimates that it can furnish more than 20 percent of the expected beneficiary demand for the product category in the CBA, CMS will lower that supplier�s capacity estimate to 20 percent. This capacity adjustment is necessary to ensure that at least 5 suppliers furnish the items per product category. According to CMS, �sufficient contract suppliers in the CBA to provide beneficiaries with variety and choice.�

26. Supplier Capacity In an unlikely scenario, CMS will award at least two contracts if there are less than five suppliers meeting the requirements and these suppliers have sufficient capacity to satisfy beneficiary demand for the product category calculated. The provisions do not apply to regional or nationwide mail order CBAs.

27. Bidding Bidding by product categories requires bidders to submit bids on multiple items (by HCPC code) within the product category. CMS will aggregate these individual bids into a composite bid in order to compare bidders with each other. The �composite bid� would be equal to the weighted sum of the bids for the items in the product category.

28. The Bid Process Competitive bidding items will be included in product categories and identified by HCPCS codes. Suppliers may choose to bid on one, some, or all of the product categories, but if they bid on a category, they must bid on each item included in the category. Bidders who bid at or below the �pivotal bid� are winning bidders, assuming they meet accreditation and other requirements. CMS will use the median price (the �middle� bid) of the bids submitted by the winners

29. The �Pivotal Bid� This is the point where beneficiary demand is met by supplier capacity. Generally, all bids above this point (in $$) are non-contract, or losing, bidders. CMS will evaluate the composite bid of all eligible bidders for an entire product category, and begin with the lowest bid, and add subsequently higher bids until the capacity is met. CMS states this will offer the lowest expected costs to Medicare for all items in a product category.

30. Confused over the �composite bid� or �pivotal bid� terms? Let�s use an example�

31. Respiratory Assist Devices and CPAP Category Bidding Example (*) Assume CBA Capacity = 100

32. Apply HCPC Weights

33. Sum Weighted HCPC Bids To Obtain Composite Category Bid

34. Determine Capacity of each Supplier (Units) � Capacity of CBA is 100

35. Select Lowest Composite Bid - Add Additional Suppliers- Until Capacity Reached

36. 3 Suppliers Reach 100% Capacity. At this point, the Pivotal Bid is met. (All Bids over $130 are excluded)

37. These 3 Suppliers Receive the Median Of Each HCPC Code

38. The five bids received for CPAP ranged from $80 to $90. However, with the pivotal bid and median taken into account, the winning bidders all receive $82.

39. Exception In the Example For simplicity purposes, this example did NOT take into account the �20%� maximum capacity discussed a few minutes ago.

40. The Bid Weights The HCPC weights and �bid limits� (current Medicare fee schedule) are now available for review on www.dmecompetitivebid.com. Many industry stakeholders (MED Group, VGM, Invacare, Roho, Nestle, et al) have developed electronic/spreadsheet-type tools to assist providers

41. �Commonly Owned� Special rules apply to commonly-owned suppliers (defined to mean that one supplier has an ownership interest of 5% or more in another supplier) and commonly-controlled suppliers (defined to mean that an owner of one supplier is an officer, director or partner in another supplier).

42. If two or more suppliers are commonly-owned or controlled, they may submit only one bid to furnish a product category in a particular CBA. All commonly-owned or controlled suppliers that are located in the CBA, and all commonly owned or controlled suppliers that are not located in the CBA but that will furnish the product category to beneficiaries within the CBA, must be included in the bid.

43. Small Supplier �Target� In the Final Rule CMS changed the definition of a �small supplier� to be a supplier that generates gross revenue of $3.5 million or less (compared to the proposed rule�s $6 million in revenues.) CMS set a target number of 30% for small supplier participation.��Small suppliers must meet all bidding requirements. �

44. CMS will review whether the number of small suppliers whose bids are at or below the pivotal bid is less than the 30% CMS target number. If the number of small suppliers is lower, CMS will offer small suppliers whose bids were most close to, but above, the pivotal (cutoff) bid, the option of accepting a contract to furnish the product category at the contract amount.� Many HMEs are confused by this �target��NOT the same as the SBA small business set-aside!

45. Important Note! The �30%� target requires 30% of the winning bidders to be designated as �small suppliers. This does NOT suggest that 30% of the Medicare payments in any product category will be directed to small suppliers. Effectively, there is no guarantee of any minimum percentage directed to small suppliers.

46. If a supplier declines the bid� If one of the successful bidders decides not to accept a contract, then a contract will be offered to the supplier whose composite bid was the lowest of the unsuccessful bids

47. Payments� CMS will pay the supplier 80% of the �single payment amount� for the item in the CBA where the beneficiary maintains a permanent residence. The remaining 20% will be the beneficiary�s coinsurance responsibility. The payment amount will remain in effect for the full three-year term of the contracts; they will not be adjusted for inflation. Contract suppliers will be required to accept assignment. Suppliers may still use ABNs for items for which Medicare might not pay.

48. Beneficiary/Travel Rules Beneficiaries who live in a CBA will be permitted to obtain DMEPOS only from contracted suppliers. Beneficiaries whose permanent residence is outside a CBA but visit a CBA also will be required to utilize contracted suppliers. If the area that the beneficiary is visiting is not a CBA, or if the area is a competitive bidding area but the item needed by the beneficiary is not included in the competitive bidding program for that area, they must obtain the item from a supplier that has a valid Medicare supplier number. In either case, payment to the supplier will be paid based on the bid amount for the item in the competitive bidding area where the beneficiary maintains a permanent residence.

49. Grandfathering/Transitioning Monthly rental oxygen: Arrangements entered into before the start of a competitive bidding program can be continued. The supplier must agree to accept the competitive bidding price. Losing suppliers cannot take on new patients for these items. Inexpensive/routinely purchased items furnished on a rental basis, items requiring frequent and substantial servicing, and capped rental items: Grandfathered supplier may continue furnishing these items in accordance with existing rental agreements.

50. Allows beneficiaries to continue to rent items from their existing supplier, even if that supplier has lost its contract status under a subsequent competitive bidding program.

51. CMS� intent is to drive all business for competitively bid products to the contract supplier. Beneficiaries who visit the competitive bidding area and need products included in the bidding program would be required to obtain them from a contract supplier. Conversely, beneficiaries who live in a competitive bidding area and need competitively bid equipment when they visit other areas can obtain the equipment from any Medicare supplier. However, Medicare will only pay the competitive bidding contract amount for the item.

52. The proposed rule required winning bidders to accept every beneficiary in the CBA no matter how many months rental they have remaining on their equipment. CMS refers to this as a beneficiary protection in the event the beneficiary has a supplier who loses the bid and does not agree to the grandfathering terms. However, the final rule somewhat mitigated supplier concern relative to the monthly rental issue�

53. For oxygen, CMS allows suppliers that must begin furnishing oxygen equipment after the rental period has already begun to a beneficiary who is no longer renting the item from his or her previous supplier (because the previous supplier elected not to become a grandfathered supplier or the beneficiary elected to change suppliers) will receive at least 10 rental payments for furnishing the equipment. If the beneficiary transitions to a new contract supplier, the oxygen and oxygen equipment must be returned to the original supplier that owns the equipment.

54. For capped rentals, CMS allows suppliers furnishing items to a beneficiary who is no longer renting the item from their previous supplier (because the previous supplier elected not to become a grandfathered supplier or the beneficiary elected to change suppliers) to receive 13 monthly rental payments for the item, regardless of how many monthly rental payments Medicare previously made to the prior supplier (assuming the item remains medically necessary). At the end of this new 13 month rental period, the contract supplier will still transfer title to the capped rental item to the beneficiary.

55. Important Exception� This rule does not apply when a beneficiary who is renting a capped rental item from a contract supplier elects to obtain the same item from another contract supplier, because the grandfathering provisions only apply to those situations in which a beneficiary had been previously receiving the item from a non-contract supplier. A new contract supplier would be paid rental only for the duration of the rental period.

56. Grandfathering Other Items CMS: �We do not believe we have authority to allow grandfathering for other DMEPOS, such as glucose testing supplies and enteral nutrition, equipment, and supplies.�

57. Other Payment Provisions If Medicare is the secondary payor for a beneficiary who resides in a CBA, and the primary insurer requires the beneficiary to obtain items from a supplier that is not a contract supplier, then Medicare may pay the secondary payment to the noncontract supplier. If a beneficiary receives an item covered under competitive bidding from a noncontract supplier within a CBA, and payment is not grandfathered, then the beneficiary will have no financial liability to the supplier.

58. �Specific Brand� A physician may prescribe a particular brand of an item, or a particular mode of delivery, if it is determined the brand or mode of delivery would avoid an adverse medical outcome for the beneficiary. The supplier must either provide the brand/mode prescribed or consult with the physician to find an appropriate alternative brand/mode and obtain a revised prescription, or, alternatively, assist the beneficiary in locating a contract supplier that can furnish the prescribed item.

59. �Specific Brand� Payment Medicare will pay the supplier only the single payment amount. The regulations specify that there is no extra payment for a specific brand or mode of delivery ordered by a physician.

60. Repair and Maintenance Repair and maintenance of competitively bid items, including replacement parts, may be provided by any supplier with a Medicare billing number. Payment for parts and labor will be generally as it is now, unless a part that is needed is itself a competitively-bid item (such as a wheelchair battery), in which case the single payment amount will apply.

61. �Education and Outreach� 1/1/2008 - 4/1/2008 CMS will conduct intensive beneficiary and referral agent education campaign. These resources will include customer service support and ombudsmen networks. The claims processing system will also be used as a vehicle for information relating to this program. An instructional Webinar for suppliers is now available on www.dmecompetitivebid.com.

62. Examples of Beneficiary Education� Q: Will I have to get my equipment or supplies from a different supplier? A: You may have to change suppliers. However, if you are currently renting equipment or oxygen, you may have the choice to stay with your current supplier if they choose to continue to furnish the rented equipment. In certain cases, your doctor or other health professional can supply needed equipment or supplies to you if it is part of your treatment. Whether you have to change suppliers or not, you will still be able to get the Medicare-covered equipment and supplies that you need when you need them.

63. Example:Q: How will I know what supplier to use? To find out if your zip code is included in a Competitive Bidding Area (CBA), you may call 1-800-MEDICARE (1-800-633-4227) or you may search CBAs and zip codes at www.medicare.gov.

64. Inherent Reasonableness?? NCB will generate a rich HME database even if it doesn't result in substantial cost savings. CMS will have detailed information on what bidders in the first 10 MSAs are willing to charge and, by implication, how low they can go and still stay in business. CMS could use the data to impose an inherent-reasonableness standard on the entire industry.

65. CMS: �Opportunity to Create Networks� Small suppliers (<$3.5 million in revenue) may join/form networks if they do not service the entire Geographical area of the CBA. � Networks must comply with all applicable laws, including the federal antitrust laws.� The small suppliers forming the network must have market shares that do not exceed 20 percent of the expected beneficiary demand for the product category.� No more than 20 small suppliers may participate in a network. Relatively few Networks have formed due to limited timeframes and competition issues.

66. Other Final Rule Changes or Clarifications Proposed CPI increases over three year period removed: �No Payment Adjustment to Account for Inflation� Starting in 2009 CMS has the authority to adjust payment amounts in non-bid areas based upon bid amounts in bid areas CMS will not require that repairs of beneficiary-owned competitively bid items be performed by contract suppliers. This policy will also apply to maintenance services required by the DRA. After considering generally negative comments, CMS removed the �rebate program.

67. Change of Ownership If a contract supplier is acquired by or merges into a non-contract supplier, and the noncontract supplier meets the requirements for contract suppliers, CMS may award a contract to the acquiring supplier. CMS believes that a supplier should not automatically become a contract supplier by merging with or acquiring a contract supplier. In any case, a contract supplier must notify CMS if it is negotiating a change in ownership 60 days before the anticipated date of the change.

68. Physicians/Practitioners, SNFs & Hospital-based Suppliers The Final Rule permits physicians and certain nonphysician practitioners to furnish certain competitively bid items to their own patients without submitting a bid and being selected as a contract supplier. HOWEVER�. SNFs & NFs must bid (and compete to serve their own patients!) CMS: We believe it is appropriate to include them in the same bidding process as other suppliers because the statute requires us to conduct bidding for items in which we expect savings. Hospital-based suppliers also must bid

69. Accreditation Timeline In order to participate in the Medicare DMEPOS Competitive Bidding Program, suppliers must meet quality standards and be accredited by a CMS-approved Deemed Accreditation Organization.� Suppliers that are interested in bidding under the new program must be aware of two key deadlines: Suppliers must be accredited or be pending accreditation to submit a bid.� CMS cannot accept a bid from any supplier that is not accredited or that has not applied for accreditation.

70. Suppliers will need to be accredited to be awarded a contract.� The accreditation deadline for the first round of competitive bidding is August 31, 2007.� Suppliers must be accredited before this date to be awarded a contract.� Suppliers should apply for accreditation immediately to allow adequate time to process their applications.

71. Recognized National Accreditation Organizations Joint Commission on Accreditation of Healthcare Organizations Community Health Accreditation Program Healthcare Quality Association on Accreditation National Board of Accreditation for Orthotic Suppliers/Board of Certification in Pedorthics (merged) Accreditation Commission for Healthcare Inc. Board for Orthotist/Prosthetist Certification National Association of Boards of Pharmacy Commission on Accreditation of Rehabilitation Facilities American Board for Certification in Orthotics and Prosthetics Inc. The Compliance Team Inc.

72. Bidding has opened!!!! The initial registration process requires the authorized official, (see Section 15 of the CMS 855S) to complete the information required in the internet application. The authorized official's information must match the information on file at the National Supplier Clearinghouse.

73. To Register� https://applications.cms.hhs.gov/ Suppliers must have the USER ID and password before they can enter a bid into the competitive bidding internet application.

74. Assistance� Access a user guide for the Individuals Authorized Access to CMS Computer Services (IACS) application before attempting initial registration. This guide can be found on the Competitive Bidding Implementation Contractor's website at http://www.dmecompetitivebid.com/cbic/cbic.nsf/(pages)/home. Or, call the CBIC helpdesk on 1-877-577-5331.

75. The Competitive Bidding Application Process: Four Forms CMS-10169A � Form A: Application CMS-10169B � Form B: Bidding Sheet per category bidding on CMS-10169C � Form C: Medicare DMEPOS Competitive Bidding Program Contract Supplier Quarterly Report CMS-10169D � Form D: Competitive Bidding Program Beneficiary Survey

76. Process for Submission of Required Documents

77. Irrespective of whether the bid is submitted electronically or by mail, the supplier must sign the certification statement identified on the application and submit that with the hardcopy financial documents. All documents must be postmarked by 9:00 p.m., July 13, 2007, and mailed to : CBIC PO Box 907 Augusta, GA 30999

78. Additional information required� Supplier Financial Statements Suppliers Credit Report and Score Signed legal contracts between all network members, if applicable Signed letter of intent to enter into an agreement if supplier plans to expand capacity through use of subcontractors Copy of Accreditation Organization�s Certificate of Accreditation, if applicable.

79. Financial Requirements Suppliers that submit corporate tax returns must submit the following documents for the last 3 years: Schedule L from the tax return (balance sheet) Statement of changes in financial position (cash flow) Statement of operations (income statement)

80. Financial Requirements All documents that are not prepared as part of a tax return must be �certified� as accurate by the supplier. (Audited documents are not required.) All documents must be prepared on a accrual or cash basis of accounting Publicly traded companies will submit a copy of their 10-K Filing reports

81. Financial Requirements New suppliers must submit projected financial statements for any year they they do not have past financial information because they were not in business as a DMEPOS supplier and/or did not service the area.

82. CMS� Financial Health� Evaluation The CBIC will use standard accounting ratios (obtained by review of the financial documents that all bidders must submit) to evaluate the �financial health� of the bidder. CBIC will also use the supplier�s credit history in the evaluation.� According to CMS, this will determine whether the supplier will be able to participate in the program and �maintain viability for the duration of the contract period�.

83. A financial ratio is� A relationship � often a percentage - between two of the items selected from the documents bidders will submit.� Ratio analysis is one method in which CMS will evaluate weak and strong points in an HME�s financial (and perhaps managerial) performance. �

84. The current ratio� Current assets divided by current debts It is a measure of the cash or near cash position (liquidity) of the company. Indicates if your company has enough cash to pay current creditors.� The higher the ratio, the more liquid the firm's position is and, hence, the higher the credibility of the firm.� In HME, a current ratio of 1.5 to 2.5 or more generally indicates sufficient liquidity.�

85. Average collection period� Divide accounts receivable by daily sales other than cash. Tells you the length of time it takes your HME to get its cash after billing or making a sale on credit.� The shorter this period the quicker the cash inflow is. HMEs should develop an aging schedule to gauge the trend of collections and identify the slow payers.� Slow collections hinder cash flow and also hurt your profit.

86. In recent years (2005 � 2006) a survey of the average collection period for independently owned HMEs was as follows: DME (E0260, K0001, E0143, Etc.) 66 days Respiratory (E1390, J7619, E7619, Etc.) 48 days Rehab (K0800, K0856, E1010, Etc.) 88 days.

87. Accounts payable to sales�� Dividing the accounts payable of the company by its annual net sales. Gives you an indication as to how much of the HME�s supplier�s (e.g., equipment vendors) money the company is using in order to fund its sales. A low percentage would indicate a healthy ratio. A high percentage indicates the firm may be using suppliers to help finance operations.� Common ratios in HME are from 20 to 30%.�

88. The quick ratio (or acid-test ratio)� Divide �quick assets� (cash and accounts receivable) by current liabilities.� Purpose is to test the company's ability to meet its current obligations.� This test doesn't include inventory to make it a stiffer test of the company's liquidity.� Tells you if the HME could meet its current obligations with quickly convertible assets should sales revenues suddenly cease. In HME, a quick ratio of 1.0 or more generally indicates sufficient liquidity

89. Current Liabilities to Net Worth� Measure of the extent to which the HME is using creditor funds versus their own investment to finance the business (Current Liabilities / Liabilities + Equity). A ratio of .5 or higher may indicate inadequate owner investment or an extended accounts payable period. Care should be taken not to offend your equipment vendors to the extent it affects your ability to conduct day to day business.

90. Return on Sales� This percentage measure of profits after taxes on the year�s sales (profits earned per dollar of sales). The higher this ratio, the better prepared the HME business is to handle downtrends brought on by adverse conditions.�

91. Sales to Inventory or �Inventory Turnover Ratio� Obtained by dividing annual net sales of the company by total inventory. The ratio is regarded as a test of efficiency and indicates the rapidity with which the HME is able to move its equipment, and how fast inventory is moving the cash flow into the business. If ratio is high, it may indicate a situation where sales are being lost because equipment is under stocked and/or customers are buying elsewhere. If the ratio is too low, this may show that equipment inventories are obsolete or stagnant.

92. Working capital� Represents the amount of day-by-day operating liquidity available to a business. Also known as operating capital, it is calculated as current assets minus current liabilities. An HME can be endowed with assets and profitability, but short of liquidity, if these assets cannot readily be converted into cash.� A positive change in working capital indicates that the business has either increased current assets (that is received cash, or other current assets) or has decreased current liabilities, for example has paid off some short-term creditors.

93. �Quality of earnings� Confusing financial metric to many!� Calculated by dividing cash flow from operations into the company�s net annual income plus depreciation. The official definition is �the amount of earnings attributable to higher sales or lower costs rather than artificial profits created by accounting anomalies such as inflation of inventory.�

94. An example may help� An HME can show positive earnings on its income statement while also bearing a negative cash flow. This is not a good situation to be in for a long time, because it means that the HME has to borrow money to keep operating. And at some point, the bank will stop lending and want to be repaid. A negative cash flow also indicates that there is a fundamental operating problem: either the equipment inventory is not selling or billing/receivables are not being collected.

95. Operating cash flow to sales� Percent measuring capability of a HME company�s ability to convert sales into cash.� Important indicator of an HME�s creditworthiness and productivity. If ratio is low, then growth may not be financially possible because the company will not have enough cash flow to increase operations to meet higher demands and sales targets. If the ratio is high, then the company will be able to grow and expand because it has enough cash flow to finance additional production.�

96. IMPORTANT NOTES� All ratios measuring profitability can be computed either before or after taxes, depending on the purpose of the computations.� Acknowledging the CMS requirement, HMEs should recognize that the ratios have limitations.� Since the information used to derive ratios is itself based on accounting rules and personal judgments, as well as facts, the ratios cannot be considered absolute indicators of financial position. Ratios are only one means of assessing the performance of the company and must be considered in perspective with many other measures.�

97. A Bid Application FAQ� The bid application requires that you list the manufacturer, make and model number(s) of the products you intend to provide if you are selected as a winning bidder. Are you locked into only providing those items for the duration of the contract or, if not, what is the process for updating your contract to include new models or manufacturers?

98. Suppliers are not locked into furnishing only these products during the contract period. Suppliers must�report what products they are furnishing on a quarterly basis (See Form C). Suppliers cannot report that�they are offering certain items if they are not providing those specific items to Medicare beneficiaries. Suppliers cannot discriminate against beneficiaries. The items a contract supplier furnishes to Medicare beneficiaries under its contract must be the same items furnished to other customers.

99. �Weight Utilization� May Be Confusing!!! Bids are weighted by utilization and not expenses ($ reimbursed by Medicare). Low cost high utilization items have high weights whereas high cost low volume items have low weights.

100. For example�in CPAP/RAD A7038 (FILTER, DISPOSABLE) is weighted (out of 1.00) -- 0.224623254, and the one unit fee schedule amount is $5.39 E0601(CONTINUOUS POSITIVE AIRWAY PRESSURE) is weighted (out of 1.00) --0.0601943846, and the one unit fee schedule amount is $1,052.60 When the weights are applied within a product category, the effect is to possibly distort the composite bid amount in a way that is not immediately obvious!

101. Bid Submission Timelines Suppliers have until July 13, 2007 to submit bids after the release of the RFB. Suppliers may submit bids 24 hours a day, 7 days a week. During the 60 day window, suppliers may amend their bids as many times as necessary. Once the 60 day window closes, however, no amendments will be allowed. However, some industry analysts suspect that the CBIC may be pressured to extend the bid submission deadline due to numerous systems problems.

102. Editing or �Status� of Your Bid Login to the Competitive Bid Submission System (CBSS) at https://cbss.cms.hhs.gov/ To modify your application or bid: From the homepage, access the appropriate tab (Form A or Form B) at the top of the page.�Then go to the appropriate section heading. Complete the appropriate section you wish to modify and click �Update.� Then access the homepage to review your status.

103. On the Home Page, See �Status� Your Application Status is either� Incomplete � You have not entered data in all of the required fields. Submitted � You have entered data in all the required fields and CBIC is waiting for your hardcopy documentation package. Complete � CBIC has received your Form A hardcopy documentation.

104. Your Bid Status is either� Incomplete � You have not entered all required data for Form B questions and/or the bid sheet. Not Certified � You have entered data in all required fields but have not completed the "Certify" screen. Certified � You have entered data in all required fields and have certified your bid. CBIC is waiting for your required Certification Statement and if applicable, Expansion Letter(s) of Agreement. Complete � CBIC has received all hardcopy documentation and your bid will be considered for evaluation.

105. Use of Subcontractors

106. Suppliers will choose from one of three options in subcontracting agreements: 1). Product line support 2). Geographic access support, 3). Personnel support.

107. The product line support option is for those suppliers who can deliver product to the entire geographic area of the CBA, but may not be able to supply the amount of product to cover all of its customers needs. The geographic support option is for suppliers who do not have the capacity to deliver items throughout the entire CBA. The personnel support option is for suppliers who do not have the administrative personnel to handle the volume of business in the CBA.

108. Probably the best option at this time. (Network formation has been very limited due to minimal bidding window times) Supplier can bid for a product category in a CBA and also becoming a subcontractor to another supplier that submits a bid in the same CBA for the same product category.

109. Example� A supplier can bid to become an oxygen contract supplier and be awarded a contract and still be a subcontractor for another oxygen contract supplier. In addition, a supplier that submits a bid and loses can become a subcontractor to a contract supplier.

110. And� CMS will NOT evaluate subcontractors to determine if they meet the accreditation, quality, financial, and eligibility standards. However, a supplier may not subcontract with any supplier that has been excluded from the Medicare program, any State health program or any other government branch. The subcontractor will not have to submit a bid to be a subcontractor.

111. �Letter of Intent� Required! Clear identification of parties Description of functions/services to be performed by the subcontractors Language clearly indicating that the subcontractor has agreed to supply the items, functions and or services Anticipated length of agreement Signature of each authorized official or each party Language obligating subcontractor to abide by State and Federal privacy and Security requirements, including those provisions stated in the regulation for this program

112. Subcontracting Templates Available from many industry stakeholders The Letter of Intent allows a potential Contractor and Subcontractor to quickly enter into a basic agreement, and then they can finalize the details through a more formal subcontracting agreement. A Letter of Intent is typically the first step in an agreement, and its purpose is to encompass the basic terms of a deal clearly and efficiently. A Letter of Intent will satisfy CMS's request for information regarding subcontractors at the time of the bid.

113. A Subcontracting Agreement Template is required for the purpose of facilitating the subcontracting process and intended to be used to create a binding contract between parties. It may be executed after the winning bidders have been announced.

114. �Can I decline a bid if I win?� Once the payment amount is determined, suppliers are NOT obligated to sign the contract if they perceive the amount as unacceptable. Suppliers that do accept the payment amount are contractually obligated for the entire period (estimated at 3 years).

115. What if our bid is not accepted in one or more categories?

116. To begin, your Medicare patient service in a losing product category will not immediately cease! As noted, there are grandfathering provisions for all items (except glucose testing supplies, enteral nutrition, equipment, and supplies). Oxygen provisions allow reimbursement for the remainder of the rental period (to 36 months) at the new contract rate Capped rental provisions maintain the current fee schedule amount.

117. Beneficiary Choice Beneficiaries may opt to continue renting from the grandfathered supplier (who will furnish on same terms) but they may choose to switch to a contract supplier at any time. Inform your patients that you will continue to provide quality service. However, if you choose to �grandfather� you must do so for all of your current beneficiaries in the product category. You cannot �select� a certain patient population. Grandfathering is applicable if �win� this bidding period, but lose your contract status in the next bid period (2011).

118. Subcontracting Opportunities! Many winning (if not most) bidders will need subcontractors! Contract suppliers must service the entire CBA. If you are not submitting a bid, or desire to mitigate loss of a product category, begin to review the subcontracting regulations. Begin discussions with suppliers now, prepare template legal contracts/Letters of Intent, etc.

119. Provide Non-Bid Products and Services and/or Diversify! The nine product categories applicable to NC/SC are now known. Suppliers may continue to provide to Medicare beneficiaries products not covered in the first round (ex: manual wheelchairs) Seek alternative sources of revenue, such as�

120. Retail Many HMEs undervalue retail sales opportunities Retail/showroom consultants are widely available No delay in reimbursement!

121. Cash sales to Medicare beneficiaries are allowed, but limited!  You must submit claims on beneficiaries behalf when requested Many suppliers have forms beneficiaries sign indicating they did not authorize the claim to be submitted to Medicare. The beneficiary pays cash and eliminates the supplier�s obligation to submit. (However, even if the statement is signed, a beneficiary can later change his mind and require the claim be submitted.)

122. Supplier �Usual Price� Issue Restrictions exist on cash sales! Cannot bill Medicare �substantially more� than retail price. CMS suggests 20% is limit for all non-governmental sources. Suppliers cannot open a separate �retail shop� (under same tax ID) to circumvent the restriction

123. Other Facilities Residents in many long term care facilities (not SNF) may receive Part B as if they were in their homes. If the facility is not paid a per diem rate, suppliers may either bill Medicare directly, or, in some cases, the facility will contract directly with the DME to provide equipment. Hospice. While no patient reimbursement is allowed, hospices may purchase equipment direct, or arrange for a per diem/per bed rental arrangement

124. VA Hospitals & Facilities. These large purchasers routinely send out RFPs for DME. An overview of the VA bid process may be found at www.va.gov/osbdu/library/factsheet/smoothprocessClaims submission information may be found at www1.va.gov/oamm/index.htm

125. Others� State prison systems/ �medical detention centers�. Contact the Department of Corrections in your state at www.corrections.com/links/viewlinks.asp?cat=30 Resort Hotels & Casinos. Suppliers who live in larger marketplaces should consider visiting these facilities. Many have begun providing wheelchairs and scooters and other DME to their guests. Airports. Many airports are served by the local HME for wheelchairs and other equipment.

126. Expand Commercial Insurance Expand into geographic areas not covered by competitive bidding Sell the business to a successful bidder

127. Demonstration Summary: Positive Results Achievable! There were increases in business reported by contract suppliers in both demonstration areas. Participating providers ran more streamlined businesses�resulting in higher profit margins. Providers diversified into new areas that became very profitable. Providers improved efficiencies and performance in collecting AR and secondary collections.

128. Many providers increased third party insurance contracts and business Creative marketing techniques were developed to grow business Better training of employees resulted Compliance improved. Providers were more �audit savvy�.

129. Current Regulatory & Compliance Issue Update

130. The DRA The Deficit Reduction Act of 2005 (DRA) is the first Medicare legislation since the passage of the Medicare Modernization Act in 2003. The DRA achieves $8.3 billion in savings from Medicare programs and $4.7 billion in savings from Medicaid and the State Children's Health Insurance Program.

131. The DRA was passed by the House on December 19, 2005, and the following week, the Senate passed the DRA, with Vice President Cheney casting the tie-breaking vote. The President signed the DRA into law on February 1, 2006.

132. Main Changes for HME Capped rental items now only rent for 13 months Oxygen will rent for 36 consecutive months After rental period is over the title of the equipment transfers to the patient 36 month rental period for Oxygen equipment started on January 1, 2006 for all oxygen equipment

133. Oxygen Contents Payment for stationary and portable oxygen equipment will transfer to beneficiary at the end of the 36 month rental period Medicare will continue to pay for Oxygen contents (liquid or gas) for a long as the equipment remains medically necessary (payments will begin after the 36 month of rental for the equipment and go on for as long as the equipment is medically necessary and the supplier is supplying the portable oxygen)

134. Portable Oxygen Tanks At the end of the rental period the title of the tanks will transfer to the beneficiary Suppliers will be required to �swap out� beneficiary owned tanks just as propane tanks are now swapped out where owners get different tanks each time they need replacement contents The �propane tank swap� method will allow providers to be able to handle recall situations as they currently do

135. Safety Concerns Medicare will also pay for the provider to pick up and store or dispose of tanks and cylinders that are no longer medically needed by the beneficiary Suppliers could submit the bill for the above mentioned service any time after the beneficiary has acquired ownership of the tanks or cylinders

136. Obligation Medicare believes the supplier that furnishes the equipment in the first month, in which the rental payment is made, has an obligation to continue furnishing the item for the entire period of medical necessity, up to the time when the title of the equipment transfers to the beneficiary. The beneficiary should have an expectation that he/she will not be forced to change equipment or suppliers unless he/she wants to This provision was put in place to prevent providers from taking back the rented equipment just before the rental period expires in order to retain title of the equipment

137. Changing Suppliers If a beneficiary changes suppliers the continuous rental period does not start over Suppliers are not required to accept beneficiaries simply because they want to change suppliers

138. Transfer of Ownership Ownership must be transferred to the beneficiary at the 13 (capped rental) or 36 (oxygen equipment) month regardless of whether or not the beneficiary has made all of their co-insurance payments. Transfer of ownership is made on the first day that begins after the 13 (capped) or 36th (oxygen) continuous month in which payment was made

139. This transfer does not apply to backup equipment that beneficiary may have in their home as Medicare has not paid for that equipment The provider must make sure they can legally transfer ownership at the 13th or 36th month (i.e. there is not a lease they paying or some other type of arrangement with the manufacturer that would not allow them to transfer ownership)

140. Beneficiary Disclosure No later than 2 months prior to the title transfer date for oxygen the supplier must disclose to the beneficiary Whether it can maintain and service the equipment after equipment title transfer If they plan to continue to deliver oxygen contents to the beneficiary after equipment title transfer

141. Swapping Equipment Out Suppliers cannot replace newer more valuable equipment used by the beneficiary with less valuable or older equipment from it�s inventory Replacement items must be equipment that is at a minimum, in the same condition as the equipment being replaced (same or equivalent make and model)

142. Maintenance Beginning 6 months after the title of the oxygen equipment transfers to the beneficiary, the supplier can bill for general maintenance and servicing of certain beneficiary-owned oxygen equipment The supplier can bill for this equipment every 6 months The payment will be limited to a maximum of 30 minutes of general maintenance for servicing the equipment

143. Maintenance Labor Payment would be limited to 30 minutes of labor and additional charges for any replacement parts necessary to properly service the equipment during these calls If a supplier services beneficiary owned oxygen equipment more often than every 6 months, or services beneficiary owned capped rental items at any time, only payments for non-routine maintenance and servicing will be made Beneficiaries will be required to pay the 20% coinsurance for each service call

144. Interesting Point Beneficiary can elect to not have maintenance services performed after they have title on the equipment at the 36th month, but it the equipment fails before its useful life is over (at least 5 years of continuous use) you may be liable to replace the equipment at your cost

145. Cancellation of Service The provider must notify the beneficiary at least 2 months before the end of the rental period if the supplier will not longer be maintaining and servicing the equipment and/or delivering oxygen contents once the transfer of the title of the equipment takes place

146. Non-Assigned If a supplier chooses to not accept assignment then he/she can charge any amount over and above the 20% copay for the rental of the DME item May be a way to offset the additional cost of the newer and more feature added items Beneficiary would be responsible for the difference between 80% of the Medicare allowed payment and the amount the supplier charges for the rental of the DME item You must be a non-participating provider to do this

147. Legislative Update: H,R. 621, the Home Oxygen Patient Protection (�HOPP�) Act would amend the Deficit Reduction Act by restoring Medicare treatment of ownership of oxygen equipment to the system that existed before the law was enacted. You can help! Urge your Congressperson to sign on as co-sponsor. To sign onto H.R. 621, contact Keagan Resler in Congressman Price�s office at 225-4501.

148. NPI �Contingency Plan� �As long as covered entities, including health plans and covered health care providers, continue to act in good faith to come into compliance, meaning they are working towards being able to accept and send NPIs on electronic transactions, they may establish contingency plans to facilitate the compliance of their trading partners.�

149. Bottom line�. May 23, 2007 deadline was not enforced Medicare FFS will allow continued use of legacy numbers; it will also accept transactions with only NPIs, and transactions with both NPI and legacy identifiers. After May 23, 2008, the legacy number will NOT be permitted on any inbound or outbound transaction.

150. �Evaluation�� Medicare FFS is now evaluating the number of submitted claims containing a NPI. If the analysis shows a sufficient number of submitted claims contain a NPI, Medicare will begin to reject claims on July 1, 2007, that do not contain NPIs. If a sufficient number of claims do not contain NPIs in the May analysis, Medicare FFS will assess compliance in June 2007 and determine whether to begin rejecting claims in August 2007.

151. CMS releases NPI data noticeProviders may review information on Internet CMS will make the data publicly available on June 28 The data will be accessible by downloading an initial file from a dedicated Web site, with monthly update files also available, and by searching a query-only database Providers who have been assigned NPIs should review their data and make any necessary updates or corrections prior to June 28 to ensure their information is accurate when disclosed by CMS.

152. CMS Discontinues the Unique Physician Identifier Number (UPIN) RegistryEffective June 29, 2007, CMS will discontinue assigning UPINs to Medicare providers

153. CMS-1500 Beginning July 2, 2007, you must use the Form CMS-1500, version (08-05) for paper claims submission to Medicare. Claims received on or after July 2, 2007 using Form CMS-1500, version (12-90) will be rejected. Make sure that your billing staffs use Form CMS-1500 (08-05) for your claims, beginning July 2, 2007!

154. In November 2006, the United States Department of Health and Human Services ("HHS"), Office of Inspector General ("OIG"), released its Work Plan for Fiscal Year 2007 ("Work Plan"). The Work Plan details project areas targeted by the OIG for audit, evaluation and investigation during the federal fiscal year 2007. The Work Plan can be accessed in its entirety on the OIG�s website at: http://oig.hhs.gov/publications/docs/workplan/2007/Work%20Plan%202007.pdf

155. OIG Recommends� Compliance Committee - Convene a compliance committee meeting to discuss the work plan, with particular emphasis on risk areas that impact your health care organization. Document these efforts by keeping written minutes of such meeting. Compliance Program Amendments - Carefully review your compliance program to consider whether amendments to the compliance program should be made. New risk areas identified in the work plan should be added to risk or audit areas set forth in the compliance program. All such compliance program amendments should be documented. Develop a Compliance Risk Assessment Develop a Compliance Work Plan

156. Top 2007 HME Areas� Medicare Payments for Therapeutic Footwear to determine whether therapeutic footwear furnished by individual suppliers was reasonable and necessary for the beneficiaries to whom it was provided. Medical Necessity of Durable Medical Equipment such as power wheelchairs, wound care equipment, and supplies or orthotics. �We will assess whether the suppliers� documentation supports the claim, whether the item was medically necessary, and/or whether the beneficiary actually received the item.�

157. ZX, KX, and KS modifiers: OIG found that suppliers had little or no documentation to support their claims. �This suggests that many of the claims submitted may have been invalid and should not have been paid by Medicare.� Durable Medical Payments for Beneficiaries Receiving Home Health Services to determine whether the items and supplies were reasonable and necessary for the beneficiaries� conditions

158. PSC Audits Each DME MAC Regions has a Program Safeguard Contractor (PSC) that performs both Medical Review and Benefit Integrity (Fraud) audits. In 2007 audits will be both �widespread� (focusing on specific HCPCS codes and/or geographic areas) or supplier-specific. The audits may be conducted either at the time of claim submission (pre-payment) or at a later time (post-payment).

159. Audits For pre-payment audits, The MAC (e.g. Palmetto GBA in Region c) sends a development letter to the supplier on behalf of the PSC (e.g., TrustSolutions in Region C). For post-payment audits, the PSC directly sends the notification letter requesting records. The development/notification letter provides general directions on the type of documentation that must be submitted.

160. Many HME suppliers do not provide all of the information that has been requested. This results in denial of the claim or recoupment of an overpayment. The following tips should assist you!

161. The detailed written order must contain either: A narrative description of the item including all significant options and features that are described in the base code or that will be separately billed using an add-on code; or The manufacturer name and product name/number.

162. For items that are provided on a periodic basis (e.g. supplies, nutrients, accessories, dressings, ostomy/urologicals, etc.) The order must contain appropriate information concerning the quantity used at one time and the frequency of use/replacement. (Check the LCDs, which may provide specific information on the type of documentation required.) Must be signed and dated by the ordering physician

163. Dispensing order If the detailed written order is not obtained prior to delivery of the item, there must be a separate dispensing order. A more general description of the item is sufficient on the dispensing order. This may be either a written order signed and dated by the physician or supplier documentation of a verbal order from the physician which is signed and dated by the supplier

164. A copy of the dispensing order must be submitted only when it is specifically requested in the development letter. If the development letter doesn�t specify a dispensing order, the detailed written order is sufficient for purposes of that audit.

165. Certificate of Medical Necessity If the item requires a CMN, a copy of the CMN must be submitted. The CMN can serve as the detailed written order if it contains all of the information specified for a detailed written order.

166. Patient Medical Records This is the element that is most often missing in the response to development letters! Suppliers must provide a copy of documentation from the patient�s medical record that identifies the condition/diagnosis for which the item is being ordered and other pertinent information relating to the medical necessity for the item. The ICD-9 code submitted on the claim should reflect this condition/diagnosis.

167. The medical record may be: A physician office note; or A hospital, nursing home, or home health note; or A note from a nonphysician practitioner, such as a physical therapist or occupational therapist. The date of the visit must be noted and must be prior to the date of service on the claim. For items that are being newly provided, the date of the visit must generally be within 3 months.

168. For items addressed in LCDs, include copies or laboratory or other diagnostic test results or x-ray reports. For items that are provided on a rental basis, this may include documentation of continued medical necessity � e.g., the continued presence of an ulcer for patients on a Group 2 support surface. The medical record must be in the usual format for that physician�s/provider�s medical records. Supplier-created forms, attestations or similar documents are not sufficient to document medical necessity, even if completed and signed by the physician.

169. Delivery Slips Frequently missing, or incomplete! When items are delivered by the supplier directly to the patient the delivery slip should include: Patient�s name Detailed description of the items being delivered or the brand name Serial numbers, if applicable Quantity delivered Signature of the patient or designee. Date of the signature.

170. Oxygen � Documentation Requests by the PSC If the supplier receives a development letter as part of a pre-payment or post-payment audit, the information provided must include a copy of the report of an oximetry or arterial blood gas test that documents the medical necessity for the oxygen. This would usually be the report that was entered on the most recent CMN which was submitted to the DME MAC

171. It may also be a more recent study, but it must have been performed prior to the date of service on the claim in question. Although a copy of the CMN must also be submitted in response to the documentation request, it is not a substitute for the formal report of the oximetry/blood gas study.

172. The test must have been performed by a provider who is enrolled in the Medicare program and is qualified to bill Medicare for the test � i.e., a Part A provider (hospital or skilled nursing facility), a laboratory, an Independent Diagnostic Testing Facility, or a physician. A test performed by or paid for by the supplier is not acceptable.

173. To conclude�..

179. Thank You NCAMES!