GAMES 2008 ANNUAL CONVENTION AUGUST 4-6, 2008 THE KING & PRINCE RESORT St. Simons Island, GA

1. The Medicare Improvements for Patients and Providers Act (MIPPA):Effects & Concerns to the HME Industry GAMES 2008 ANNUAL CONVENTION AUGUST 4-6, 2008 THE KING & PRINCE RESORT St. Simons Island, GA

2. Presented by… Mark J. Higley Jane W. Bunch CEO/President -Jane's Healthcare Consulting, Inc. Vice President/Development - VGM Group, Inc.

3. Introduction • Seth Johnson provided an excellent Washington update yesterday in which the Medicare legislation and related issues were summarized. • Today, Jane and I would like to expand on several of those issues and open the floor to specific questions and comments as it may affect Georgia providers. • Accordingly, please feel free to “raise your hand” and comment/inquire as your thoughts and concerns!

4. Topics for Open Discussion • Do all providers here today prefer competitive bidding to go away completely or is there any chance a revamped program would be supported by some industry stakeholders? • Should Round One contract winners be compensated for “damages”? • If the competitive bidding delay is not permanent (that is, the Round One RFB will initiate again in 2009 or 2010) how do you believe providers will bid? Higher? Even lower than the average 26% from the terminated Round One contracts?

5. We’ll open this up in about a half hour…but first a summary of the issues

6. As you reviewed yesterday, The Medicare Improvements for Patients and Providers Act (MIPPA) of 2008 was enacted on July 15, 2008. • This new law has delayed the Medicare DMEPOS Competitive Bidding Program. While there were no Georgia “Round One” metro areas affected by the program, three MSAs were selected in “Round Two”. 

7. Three Georgia/TN MSAs are included in the now-delayed “Round Two”… • #7: Atlanta-Sandy Springs-Marietta • #86: Augusta-Richmond County • #89: Chattanooga, TN-GA

11. The enactment of “MIPPA”… • On June 24, the House approved H.R. 6331 by a veto-proof margin of 355-59 • And, on July 9 by a decisive 69-30 margin, senators voted to invoke “cloture” on the Medicare Improvements for Patients and Providers Act of 2008 (Obama voted yes. McCain did not vote). • As expected, President Bush vetoed the bill. But, on July 15 the House and then the Senate easily overrode the president's veto.

12. While the majority of our industry interest centered on the competitive bidding program… • The main rationale for the Medicare bill’s enactment was to stop a scheduled 10.6% payment cut for doctors practicing in the Medicare program. • Why was it scheduled? Because Congress mandated a complex Medicare payment system (covering approximately 8,000 medical services delivered by doctors in Medicare), and that payment is annually updated by a formula called the Sustainable Growth Rate (SGR). This formula ties Medicare payment increases for physicians to the growth of the general economy.

13. In other words… • The Medicare physician payment is tied to a variety of external factors utterly unrelated to the supply and demand for medical services, such as, for example, the impact of price fluctuations in the international oil market. • In any case, under this congressionally ordained formula, the Medicare doctors are automatically scheduled to get a cut in payment this year of 10.6%, and perhaps twice as much next year.

14. While it was hard to find anyone on Capitol Hill who favored the 10.6% cut… • Congressional leadership in the House and the Senate would not allow anyone to offer legislative solution to that problem. • For example, Sen. Chuck Grassley (R-IA) had proposed a 1.1% increase but it never got it to the Senate floor • Senate Minority Leader Mitch McConnell (R-KY) asked for unanimous consent under Senate rules to pass a 30-day extension of current physician reimbursement in the hope of arriving at a compromise, but Senate Majority Leader Harry Reid (D-NV) objected.

15. In any case, the “Doc Fix” is law: • On July 1, 2008, payments for physicians’ services scheduled to be cut by 10.6 % under the Sustainable Growth Rate (SGR) formula that determines doctors’ fees for Medicare outpatient services will not occur. • The AMA and other physician groups warned that doctors would likely respond by refusing to accept new Medicare patients. • The MIPPA averts this cut through the end of 2008, and it increases physician fees by 1.1 percent in 2009.

16. Of Specific HME Stakeholder Interest...SEC. 154.DELAY IN AND REFORM OF MEDICARE DMEPOS COMPETITIVE ACQUISITION PROGRAM.

17. Delays rounds one and two of the bid program for 18 to 24 months • Terminates contracts awarded under round one and restart the contracting process in those areas in 2009. • The round two contracting process would begin in 2011. • CMS cannot apply bid rates in non-bid areas until round two is completed.

18. Exempts high-end rehab power wheelchairs and related accessories • Excludes complex rehabilitation wheelchairs (Group 3 and higher), and related accessories when furnished with such wheelchairs, from competitive bidding.

19. Require bidding process improvements • Requires CMS to notify bidders about paperwork discrepancies and give suppliers the opportunity to correct within a reasonable time frame. • Provides CMS the authority to subdivide MSAs with more than 8 million people. • Exempts rural areas and MSAs with a population of less than 250,000 from competitive bidding for at least five years.

20. Requires that suppliers who bid on diabetic testing supplies offer brands that cover at least 50 percent of the market by volume (does not apply to round one). • Before using its authority to adjust prices in non-bid areas, CMS must issue a regulation and consider how prices set through competitive bidding compare to costs for such items in non-bid areas. • Requires HHS’ Office of Inspector General to verify the calculations used to determine the pivotal bid amount and winning bid amounts.

21. Revamps quality measures • Requires that all suppliers to be accredited by Oct. 1, 2009. Ensure that all suppliers, whether they are billing Medicare directly or are a subcontractor to another supplier, be subject to accreditation. • Requires contracting suppliers to disclose all subcontracting relationships to CMS.

22. Excludes physicians and other practitioners from DMEPOS accreditation requirements until CMS develops provider-specific standards. Allow CMS to waive physician accreditation if the agency determines they are subject to other mandatory quality requirements. • Establishes a separate ombudsman within CMS to handle supplier and beneficiary issues related to the competitive bidding program.

23. And…Section 144 (related to COPD issues) repeals the transfer of oxygen equipment to beneficiaries required by the DRA • The title transfer was currently set to take effect Jan. 1, 2009. • MIPPA will repeal the transfer of ownership of oxygen equipment. 

24. After the 36th continuous month during which payment is made for oxygen equipment, the supplier will continue to maintain ownership of the equipment. Payments for oxygen contents will be made after the 36th month. • However, rental payments for oxygen equipment are still subject to the 36-month cap. • Maintenance and servicing payments after 36 months are still under development by CMS.

25. CMS: • “CMS will look into issues related to the repeal of the oxygen equipment transfer to beneficiaries enacted in the new law, including issues of maintenance and service payments that occur once the 36-month rental cap is reached, and respond soon.”

26. Outstanding O2 Issues with CMS Remain! • Determining billing instructions for maintenance and servicing payments • Program instructions for carrier discretion regarding replacement/repair determinations • Dissemination of information on FDA and DOT regulations of oxygen as a medical gas • Access to critical claims processing data for same and/or similar equipment

27. Provider confusion?? • ‘(ii) PAYMENTS AND RULES AFTER RENTAL CAP- After the 36th continuous month during which payment is made for the equipment under this paragraph-- • ‘(I) the supplier furnishing such equipment under this subsection shall continue to furnish the equipment during any period of medical need for the remainder of the reasonable useful lifetime of the equipment, as determined by the Secretary; • ‘(II) payments for oxygen shall continue to be made in the amount recognized for oxygen under paragraph (9) for the period of medical need

28. The section is referring to oxygen (e.g. O2) and NOT equipment… • “Paragraph 9” is a reference to the Social Security Act: Sec. 1834. [42 U.S.C. 1395m] (a) Payment for Durable Medical Equipment.— … • (II) Payments for oxygen and maintenance and servicing.—After the supplier transfers title to the equipment under subclause (I)— • (aa) payments for oxygen shall continue to be made in the amount recognized for oxygen under paragraph (9) for the period of medical need; and

29. So…if H.R 3661 is “budget neutral”…what is the cost to our industry? • Includes an offset to pay for the bid delay…

30. “(2) BUDGET NEUTRAL OFFSET-” • In January 2009, the product categories included in round one would be reduced by 9.5 percentnationwide. • Items that had been subject to the reduction would receive a 2% payment increase in 2014, except in any area where a competitive bidding contract is in effect or CMS has otherwise adjusted payment rates. • Items that are not in a bid area would receive the full CPI update in 2010, 2011, 2012 and 2013. In 2014, these items would receive the CPI update plus 2%.

31. Notes… • Does not affect diabetic supplies furnished by retail suppliers because they were not covered by the bidding program. • Complex rehab seating and other “related accessories” will only be eligible for the 9.5% payment reduction when they are supplied to Medicare-eligible beneficiaries using power wheelchairs. • This is an important distinction, since it means that seating and other accessories are not subject to the reduction when supplied to users of manual wheelchairs or other products not included in the product categories that will see an allowable reduction beginning on January 1, 2009.

32. Thus, Round One “Winner” Contracts are Terminated • ‘(I) the contracts awarded under this section before the date of the enactment of this subparagraph are terminated, no payment shall be made under this title on or after the date of the enactment of this subparagraph based on such a contract, and…,

33. Vague Reference to “Damages” & Potential Payment (!) • …to the extent that any damages may be applicable as a result of the termination of such contracts, such damages shall be payable from the Federal Supplementary Medical Insurance Trust Fund under section 1841;

34. Also applicable to Round One… • ‘(II) the Secretary shall conduct the competition for such round in a manner so that it occurs in 2009 with respect to the same items and services and the same areas, except as provided in subclauses (III) and (IV); • ‘(III) the Secretary shall exclude Puerto Rico so that such round of competition covers 9, instead of 10, of the largest metropolitan statistical areas; and • ‘(IV) there shall be excluded negative pressure wound therapy items and services.

35. Accreditation Reminder… • As a result of MIPPA delaying the original competitive bidding timelines, the special accreditation deadlines previously established for the second round of the program have been cancelled.  • Specifically, prior to enactment of this new law, suppliers must have been accredited or have applied for accreditation by July 21, 2008 to be eligible to submit a bid for the second round of competitive bidding and must have obtained accreditation by January 14, 2009 to be eligible for a second round contract.  Both of these deadlines have been cancelled and no longer apply.

36. The deadline of September 30, 2009 that was previously established by which all DMEPOS suppliers must be accredited is still in effect.

37. Round One Notifications… • How exactly does the agency plan to handle all that is involved? Here is what we know so far: • In a July 16 fact sheet, CMS said Medicare beneficiaries may now use any Medicare supplier for DME. If a beneficiary changed suppliers when competitive bidding started, they can either continue to use the new supplier or choose another supplier. The original DME payment rates in effect prior to July 1 are reinstated retroactively.

38. The agency said all Medicare households in the 10 round one CBAs will be notified of the delay directly in a letter from CMS by the end of July. • A posting on www.medicare.gov tells visitors that Congress has acted to delay the competitive bidding program and directs beneficiaries to a listing of local suppliers. “Medicare is continuing to make sure you can get the supplies and services you need,” the posting says. • “We will post more information about the new program in the future ...We are sorry for any inconvenience this has caused.”

39. All information on competitive bidding has been removed from both the CMS competitive bidding Web site (www.cms.hhs.gov/DMEPOSCompetitiveBid) and the CBIC Web site (www.dmecompetitivebid.com). • CMS told providers to be aware that any published MLN Matters articles affected by the new law “will be revised or rescinded as appropriate.”

40. Quick Summary… • The law terminates contracts under round one and will restart the contracting process in 2009, delaying program implementation for 18 months. The round two contracting process begins in 2011. Payment adjustments in non-bid areas may not take effect until round two is completed. • In 2010 through 2013, all items would receive a Consumer Price Index (CPI) update. • In 2014, items that had been subject to the 9.5 percent reduction would receive an additional 2 percent update over the CPI except in areas where competitive bidding contracts are already in place.

41. Litigation Update • Bottom Line: Despite Delay, Lawsuits Still Relevant • In the wake of the delay, the urgency of pending lawsuits is undoubtedly diminished. However, legal remedies still have a role to play. • Of the four separate competitive bidding lawsuits still pending, none have succeeded (so far) in efforts to nab a temporary restraining order and/or injunction to halt the bidding program.

42. In the suit brought by Brown & Fortunato and funded by VGM’s Last Chance for Patient Choice (LCPC), attorney Jeffrey Baird attended a 2-hour hearing in front of a federal judge in Dallas in July • Baird: “They argued for a temporary restraining order (TRO). The judge determined we did not have the standing to pursue at that time. And she denied the TRO. We still have our lawsuit pending and we have actually already filed a motion for preliminary injunction. We may come back and ask for a hearing on this depending on what happens legislatively.”

43. Despite the likely legislative delay, Baird says that he will keep the lawsuit going and go after a permanent injunction sometime in the future. • “We’ll ask for a hearing on a permanent injunction sometime before the delay period is up.” We would only consider dismissing our lawsuit if competitive bidding were done away with. Because right now competitive bidding may only be delayed, and that means it’s going to rear its ugly head again in 18 to 24 months. We don’t want to have to go through this again in 18 to 24 months.”

44. LCPC Cleveland Litigation Update • COURT DENIES PRELIMINARY INJUNCTION IN CLEVELAND MEDICARE COMPETITIVE BIDDING CASE (Cleveland OH, June 30, 2008) • Though the Court based its ruling on several different grounds, the Court primarily found that the suit did not establish that the challenge to the CMS rules and procedures would succeed.

45. Interview with VGM Counsel Jim Walsh: • “Since we have a legislative delay we will be dismissing without prejudice our Ohio lawsuit the week of August 4th. By dismissing it without prejudice we have the right to re-file it at a later date if need be. While we would have liked to continue all cases to a conclusion we felt that it would not be wise to spend the money necessary to support multiple litigation efforts at this time.

46. The suit was filed based on some underlying legal questions that have not been resolved. Going forward, is there a concern about not seeing the suit through on that basis? • [Comments From Jim Walsh]     Yes....but we have had much more success legislatively and will work that side until we hit a roadblock there. If need be we will refile the lawsuit.

47. What would make you consider refiling the suit? A lack of satisfaction with a new NCB program? • [Comments From Jim Walsh]     It is highly unlikely that any amount of tinkering with a "compete to keep a franchise by lowering service/product quality program" (which was what we were offered and what will probably be re-offered in a year) would be acceptable to the industry. If we see that they are doing that same thing again we will probably seek both legislative and judicial relief.

48. “We are still considering keeping the Texas case going so that we have an avenue to secure additional information from CMS and a small chance of getting judicial relief before the delay period runs out. The cost of this single case may be low enough for us to keep the pressure on and not go over our budget.” • “Everyone understands that the recent legislative action is just a delay in the competitive acquisition program and that it cost us dearly to get it....some 9.5% of gross billings to CMS for all program categories....and we do NOT want to have to go through this process regularly.”

49. “Fall-out” from the short term of Round One… • In the weeks following competitive bidding’s July 1 implementation in 10 cities, CMS held two teleconferences to field questions on the program. In both, agency officials were deluged with calls from providers, beneficiaries and referral agents who said they are witnessing the pitfalls of competitive bidding firsthand.

50. Numerous callers complained about lack of complete information, misinformation and ever-changing information resulting in a loss of business or the inability to service their clients. Flustered CMS officials did not have many answers. • In addition, several callers expressed distress about the lack of providers for complex rehab, specifically in Dallas, where one caller said only one complex rehab provider--The Scooter Store, which, the caller pointed out, does not have a history of providing complex rehab--was included in CMS information mailed to beneficiaries.