National Competitive Bidding & Washington Update June 2, 2011

1. National Competitive Bidding &Washington UpdateJune 2, 2011 Cara C. Bachenheimer Sr. Vice President, Government Relations

2. 2011 Political & Policy Context in D.C. 2011 and 2012 Budgets Employment & Jobs Deficit Reduction Health Care Reform Repeal and Replace? Amend and Improve? “Doc Fix” Redux The one “must pass” piece of legislation this year (aside from debt ceiling bill)

3. President’s Proposed FY 2012 Budget Announced February 14, 2011 Require Prepayment Review for All Power Wheelchairs $240 million over 10 years. Reduce State Medicaid Program DME rates Based on Medicare Competitive Bidding Program Would tie Medicaid reimbursement rates for HME to the results of the Medicare “competitive” bidding program in the state. $6.4 billion over 10 years.

4. FY 2012 GOP Budget Proposal – April 5 “The Path to Prosperity” Would save more than $6 trillion over 10 years Federal share of Medicaid funding into block grants Transform Medicare into a voucher program Starting in 2022 for those under 55 Seniors would get a credit to buy coverage from private insurers Repeal the health care law (counting $1.4 trillion in savings over 10 years) — but keep the Affordable Care Act's Medicare cuts and retain those savings to keep Medicare solvent

5. 2011 - The Big Issues for HME New Health Reform Law Competitive Bidding Oxygen? Power Mobility Separate Benefit for Complex Rehab Fraud & Abuse

6. Health Reform Law Provisions Impacting DME Industry Patient Protection and Accountable Care Act (PPACA/ACA) Device Manufacturer Excise Tax Power Wheelchair Provisions Competitive Bidding Provisions Payment Reductions Fraud & Abuse Provisions Medicare Commission

7. ACA - Device Manufacturer Excise Tax $20B over 10 years 2.3% excise tax Exempts contacts, eyeglasses, hearing aids Exempts devices generally purchased by the public at retail Secretary of Treasury must determine what devices meet the exemption Effective sales starting January 1, 2013 Tax deductible IRS Guidance (draft?) later this year Bills to Repeal H.R. 436 - Paulsen – 147 co-sponsors H.R. 488 (Gerlach PA +12) & H.R.734 (Bilbray CA +4) S. 17 - Hatch – +15 co-sponsors S. 262 Scott Brown +2 co-sponsors

8. ACA - Standard Power Wheelchairs Eliminated first month purchase option for standard power Does not impact complex chairs Maintains the option for Group 3 and above Payment in months 1- 3 = 15% of purchase price; & is 6% for remaining 10 months K0813-K0829 Effective January 1, 2011 Does not impact Round 1 of the bid program First month purchase option intact for Round 1

9. ACA – DME Competitive Bid Provisions Accelerates bidding program by adding 21 more MSAs to Round 2 By 2016, HHS must bid nationwide OR apply bid rates in non-bid areas

10. ACA - Reductions to DME Fee Schedules Elimination of Additional 2% Payment in 2014 Productivity Adjustment Starts in CY 2011, goes forever Estimated impact: -1% per year Per CMS Final Medicare Physician Payment rule: CY 2011 -1.2% CPI is 1.1% for CY 2011 Therefore – 2011 DMEPOS fee schedules got -.1% “update” (reduction)

11. ACA - Accreditation Issues CMS implemented exemption “Small” pharmacies exempt from mandatory accreditation requirement “Small” = <5% of revenues from DMEPOS Until Secretary develops pharmacy-specific standards Must: Have had Medicare billing number for 5 years No final adverse actions in 5 years Agree to submit documentation required during random audits

12. ACA - Surety Bond Issues Secretary has authority to increase bond amount commensurate with volume of billing, up to $500,000 and, if necessary, impose moratoria on the enrollment of certain groups of new providers or suppliers to prevent fraud. CMS has implemented Secretary could also increase the bond amount for “at risk” suppliers 2011 Bills already introduced to increase surety bond for DMEs e.g., Rep. Cliff Stearns (up to $500,000)

13. ACA - Fraud, Waste & Abuse “Face-to-Face” Exam for All DME Requires a physician “face-to-face” exam for all DME prescriptions Exam must be within 6 months of physician order Secretary can apply the requirement to state Medicaid programs No Effective Date in law CMS implementing HHA requirement April 1, 2011 CMS to issue proposed rule to implement DME provision – When?

14. ACA - Fraud, Waste, and Abuse Mandatory compliance programs for DME suppliers. New enrollment process for providers and suppliers, including an application fee ($505); data matching and data sharing across federal health care programs; increased CMPs; increased authority to suspend payment during creditable investigations of fraud; and new procedures to disclose and repay overpayments. Enrollment Disclosure Requirements: must disclose affiliations with any enrolled entity that has uncollected Medicare or Medicaid debt; Secretary would be authorized to deny enrollment in Medicare if these affiliations pose an undue risk to the program. OIG/CMS Final Rule Effective March 25, 2011

15. OIG-CMS Final Rule Issued February 2, 2011, effective March 25, 2011 Implementing PPACA fraud and abuse provisions Additional provider screening – 3 levels High (fingerprints) – new enrollees Moderate (unscheduled site visits) Limited (verification of Medicare requirements, licensure, database checks) Newly enrolling suppliers – high Guidance for states re termination of providers from Medicaid & CHIP if terminated by Medicare or another state Medicaid or CHIP New application fees ($505)

16. OIG-CMS Final Rule Temporary moratoria on supplier enrollment Rule has criteria CMS will use to impose temporary 6 month moratorium on enrollment by provider type Requirements for suspension of payments How CMS will suspend payment, in consultation with OIG when there is a pending investigation of credible fraud allegation Fraud hotline complaints, claims data mining, patterns identified through audits, false claim cases, and investigations Allegations are considered to be credible when they have indicia of reliability Compliance programs CMS/OIG to do separate rulemaking Guidance re termination from Medicare if terminated by a state Medicaid program

17. ACA - Fraud, Waste, and Abuse Payment: maximum period for submission of Medicare claims reduced from 36 months to not more than 12 months. Also, the Secretary, in consultation with the HHS OIG and CMS, can suspend payments pending an investigation of credible allegations of fraud. Overpayments: The 60 days providers and suppliers have to repay Medicare overpayments is modified to either 60 days after the date on which the overpayment was made or the date the corresponding cost report is due. Providers and suppliers required to repay any Medicare or Medicaid overpayment identified through an internal compliance audit.

18. ACA - Fraud, Waste, and Abuse Section 6406 – Requirement for Physicians to Provide Documentation on Referrals to Programs at High Risk of Waste and Abuse - allows the Secretary to revoke enrollment for a period of not more than one year for each act for a physician or supplier who fails to maintain or does not provide access to documentation relating to written orders of requests for payment for DME (also applies to home health services). Effective July 6, 2010 90-day period of Enhanced Oversight for Initial Claims of DME Suppliers. Effective January 1, 2011 Allows HHS to withhold payment for 90 days and conduct enhanced oversight in cases where the HHS Secretary identifies a significant risk of fraud among initial claims of DME suppliers.

19. PECOS Current – on indefinite hold, although has loose deadline of July 2011

20. IMAC – Independent Medicare Commission 15-member commission of appointees Beginning in 2014, will identify cuts to Medicare, if the plan exceeds a preset rate for growth. Congress would have an opportunity to amend the proposal or pass an alternative proposal with an equivalent amount of budgetary savings.

21. IMAC – Independent Medicare Commission If Congress does not pass an alternative measure, the HHS Secretary will be required to implement the provisions included in the original IMAC proposal. Key Republican priority to repeal.

22. ACA – Accountable Care Organizations CMS Proposed Rule March 31, 2011, ACOs begin January 1, 2012 – 3 year period Goal: Improve Care, Lower Costs via Integrated Delivery Systems ACO shares in cost savings Minimum 5000 beneficiaries Assigned retrospectively based on where/whom received care from Can choose to receive care from non-ACO providers Spending benchmark based on beneficiaries historical expenditures Have become very controversial (AHA, MGMA)

23. CMS Proposed Rule – Supplier Standards • CMS proposed rule April 4, 2011 • Comments due June 3, 2011 • Would revert to pre-August 2010 definition of prohibition on “direct solicitation” • Eliminate CMS’ August 27, 2010 Final Rule expansion of prohibition on unsolicited telephone contacts to include in-person, email and IM contacts; though “ongoing concern”

24. CMS Proposed Rule – Supplier Standards • Contractual Arrangements • Allow DMEPOS suppliers, including DMEPOS bid program contract suppliers, to contract with licensed agents to provide DMEPOS supplies unless prohibited by State law; • Remove the requirement for compliance with local zoning laws • Leave to states to enforce local zoning rules • Modify certain State licensing requirement exceptions • Limited to O&P licensed professionals; minimum hours dna to outpatient PT/OT services

25. Audits..Audits..Audits ZPIC pre-payment ZPIC post-payment DME MACs RACs PSCs State Medicaids, Etc. Increased funding and authorities from PPACA Some upcoming congressional oversight

26. COMPETITIVE BIDDING

27. COMPETITIVE BIDDING - METROPOLITAN STATISTICAL AREAS DME MAC for Jurisdiction A ROUND 1 – GREEN TRIANGLE (9) ROUND 2 – BLACK STAR (70) DME MAC for Jurisdiction B Washington Maine Minnesota North Dakota VT Montana NH Oregon MA Wisconsin New York CT South Dakota  Idaho   RI Michigan NJ Pennsylvania Wyoming    Iowa Ohio  Nebraska  MD Illinois Indiana DE District of Columbia Nevada California   WV  Virginia Utah Colorado Kansas Kentucky Missouri North Carolina  Tennessee New Mexico Oklahoma South Arizona Arkansas Carolina Georgia Mississippi Alabama DME MAC for Jurisdiction D Includes: Alaska, American Samoa, Hawaii, Northern Mariana Islands Texas  Louisiana Florida DME MAC for Jurisdiction C Includes: Puerto Rico, U.S. Virgin Islands ADDITIONAL MSAs PER PPACA

28. 21 Additional MSAs – Announced July 2010 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD Washington-Arlington-Alexandria, DC-VA-MD-WV Boston-Cambridge-Quincy, MA-NH Phoenix-Mesa-Scottsdale, AZ Seattle-Tacoma-Bellevue, WA St. Louis, MO-IL Baltimore-Towson, MD Portland-Vancouver-Beaverton, OR-WA Providence-New Bedford-Fall River, RI-MA • Buffalo-Niagara Falls, NY • Rochester, NY • Tucson, AZ • Honolulu, HI • Albany-Schenectady-Troy, NY • Worcester, MA • Oxnard-Thousand Oaks-Ventura, CA • Springfield, MA • Bradenton-Sarasota-Venice, FL • Poughkeepsie-Newburgh-Middletown, NY • Stockton, CA • Boise City-Nampa, ID

29. ROUND 1 REBID - 2010 CMS PR/Talking Points! 1287 contract offers made to 364 Suppliers in early July 1011 Suppliers Submitted Bids in 9 MSAs for 6215 bids vs. 1005 in 2008 329 signed contracts in 2008 1324 contract offers eventually 76% have experience in bid area in product category 97% have experience with the product 51% are small suppliers 32% average savings vs. 26% in 2008 (prior to 9.5% reduction)

30. Invacare Analysis of Round 1 Bid Winners Analysis of 359 contract suppliers in the 9 bid areas 20.6% have very limited purchasing ability < $10,000 credit On credit hold In collections Meeting with CMS Fall of 2009 Shared how Invacare financially evaluates

31. PAOC Meeting - April 5, 2011 Summer 2011 * CMS to announce product categories for Round 2 * Begin pre-registration education for potential bidders Fall 2011 * CMS to announce Bidding schedule and schedule of education events * Begin bidder registration to obtain user IDs and passwords * Begin bidder education Winter 2012 * Registration ends * Open bidding – 60 day bid window

32. PAOC Meeting - April 5, 2011 Spring 2012 * Bidding closes * Begin bid evaluation process Fall 2012 * Bid evaluation ends * Announce single payment amounts * Begin contracting process Spring 2013 * CMS to announce winners/contract suppliers * Begin contract supplier education program * Start beneficiary, referral agent, and general supplier education program July 2013 * Implement Round 2 and National mail order program contract and prices

33. 167 Economists Dr. Peter Cramton, University of MD, auction expert September 23, 2010 Current program is flawed Bids must be binding commitments Median pricing method encourages low ball bids Composite bid method incentivizes bids that are not related to costs Lack of transparency: bidder’s quantity, quality standards and performance obligations are unclear

34. 167 Economists’ Statement – September 23 “This collection of problems suggests that the program over time may degenerate into a “race to the bottom” in which suppliers become increasingly unreliable, product and service quality deteriorates, and supply shortages become common. Contract enforcement would become increasingly difficult and fraud and abuse would grow.” “Implementation of the current design will result in a failed government program.”

35. Cramton Auction Conference - April 1 Mock Auction Demonstration Descending clock auction Need Rational bidding behavior Need to know your costs Tom Bradley, Chief Medicare Cost Estimator, CBO “Program will fail with near certainty” “Program results in arbitrary pricing” Leavitt-Barker Wash Times Op-Ed, February 25, 2011

36. Last Congress - Meek Bill - H.R. 3790 257 Co-sponsors Bill provided some “pay fors”: Eliminates current CPI increases in 2010-12 and replace with .25% payment cut 2014 – eliminate current 2% CPI bump 2015 - .5% payment cut Complex rehab excluded from cuts Some “taken” by health care law CA – 14 signed on last year Joe Baca (D-43), Brian Bilbray (R-50), Mary Bono (R-45), Ken Calvert (R-44), Susan David (D-53), Sam Farr (D-17), Bob Filner (D-51), Jerry Lewis (R-41), Buck McKeon (R-25), Devin Nunes (R-21), Linda Sanchez (D-39), Adam Schiff (D-29), Mike Thompson (D-1), Diane Watson (33),

37. This Congress: H.R. 1041 Fairness in Medicare Bidding Act Introduced March 11, 2011 by Reps. Glenn Thompson (R-PA) & Jason Altmire (D-PA) 107 co-sponsors None from CA! WQs YOUR Member signed on? Go to www. http://thomas.loc.gov/ Search by bill number: H.R. 1040 Offset of $20B through rescission of unspent federal funds Senate companion bill coming soon

38. Raising the Noise Level on the Hill! CMS Briefings early May Senate Finance Committee House Ways & Means Health Subcommittee House Energy & Commerce Health Subcommittee March 1 Staff Briefing March 15 Press Conference HR 1041 primary sponsors Reps. Thompson & Altmire May 24 House & Senate Staff Briefings Dr. Peter Cramton

39. May 24 Hill Staff Briefings House 60 Staff attended Senate 40 Senate offices attended Dr. Peter Cramton CMS design is fatally flawed There is complete consensus among auction experts Median pricing + non-binding bids = low-ball bids Lack of transparency allows CMS to manipulate prices Result is a government administrative pricing system that bears no relationship to providers costs

40. Support from Consumers/Clinicians AARC The ALS Association American Association for People with Disabilities American Foundation for the Blind Christopher & Dana Reeve Foundation International Ventilators Users Network Muscular Dystrophy Association National Council on Independent Living National Emphysema/COPD Association National Spinal Cord Injury Association RetireSafe Post-Polio Health International United Spinal Association

41. Consumer Impact Report –September 2010 Dobson DaVanzo Consumer Impact Report: “unsustainable price erosion” “eroding competition” “a range of unintended consequences….medical complication, increasing use of hospital, ER, and physician care, and losing their ability to live independently….” The Risks to Medicare Beneficiaries of DMEPOS Competitive Bidding – Considerations for the Round 1 Re-Bid and Beyond Are Choice, Access, and Quality for Medicare’s Most Vulnerable Being Compromised?

42. Reporting Issues with Bid Program www.competitivebiddingconcerns.com Toll Free 888-990-0499

43. CMS Final Medicare Physician Payment Rule Posted November 2, 2010 on CMS web site, effective January 1, 2011. New appeals process for contracts terminated under the bid program. National bid program for mail order diabetic supplies. 21 additional MSAs plus subdividing New York, Chicago and Los Angeles. Addition of Off-the-Shelf Orthotics to Bid Program Exemption if Furnished by Physician. Continuing CMS consideration of payment rules for oxygen and capped rental items for transitioning patients.

44. Proposed Physician Payment Rule Proposed but not finalized policies: CMS was reconsidering the minimum 10 months of rental payments for oxygen under the competitive bid program. CMS also sought comments on whether contract suppliers should get fewer than 13 months of payment for CR items. In Final Rule posted November 2, CMS said it will take comments into account in future rulemaking… Factors: Currently, Oxygen ownership does not transfer at 36 months Standard power chairs will now be capped rental

45. Stark Request to GAO Report on Competitive Bidding for Manufacturers Identify types of DME and supplies that would be appropriate for bidding under such a program. Recommendations on how to structure to promote fiscal responsibility while also ensuring beneficiary access to high quality equipment and supplies. Recommendations on a program could be phased-in and on what geographic level would bidding be most appropriate. In addition to price, recommendations on criteria that could be factored into the bidding process.

46. Stark Request to GAO Report on Competitive Bidding for Manufacturers Recommendations on how suppliers could be compensated for furnishing and servicing equipment and supplies. Compare the program to the current competitive bidding program under Medicare for DME, as well as any other similar Federal acquisition programs, such as the General Services Administration’s vehicle purchasing program. Any other consideration relevant to the acquisition, supply, and service of DME that is deemed appropriate.

47. Oxygen Issues

48. Proposed Changes to Oxygen Policy - July 2010 CMS Proposed Medicare Physician Payment Rule, FederalRegister, 7-16-10 Proposes to revise the payment rules for oxygen to address situations where beneficiaries relocate outside the service area of a supplier during the 36-month rental payment cap period Proposes to change the regulation to require the supplier that furnishes the oxygen equipment and receives payment for month 18 or later to either furnish the equipment for the remainder of the 36-month rental payment period or, if the beneficiary has relocated outside the service area of the supplier, make arrangements for furnishing the oxygen equipment with another supplier for the remainder of the 36-month rental payment period. The supplier that is required to furnish the equipment on the basis of this requirement would also have to furnish the equipment after the 36-month rental payment period.

49. Impact of Proposal? According to CMS, “only 38 percent” of beneficiaries are still on oxygen by the 18th month. “relocation between the 18th to the 36th month is not a common occurrence. Such relocation happens with less than 0.5 percent of the beneficiaries using oxygen equipment.” “between the 32nd and 35th month, relocation happens with the beneficiaries in about 0.06 percent of the time on average.” Good News – in November 2, 2010 CMS Final Rule on Physician Payment – CMS abandoned proposal – but states it will monitor beneficiaries traveling outside service area in months 18-36..

50. New RUL - Oxygen MLN Article – MM7213 New useful life policy for oxygen The “reasonable useful life” (RUL) of the stationary component governs the RUL of the portable Whether portable is provided with, before or after Effective May 8, 2011