Contingency Planning. Medicare Competitive Bidding. for. Mike Tootell Harvard Medical Device Congress March 29, 2007
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1 Contingency Planning for Medicare Competitive Bidding Mike Tootell Harvard Medical Device Congress March 29, 2007
2 Necessary Disclaimer Speaking as individual Not representative of Abbott Laboratories Medicare s Program Advisory and Oversight Committee AdvaMed
3 Concept of Competitive Bidding Philosophical reversal for Medicare Traditional: Any Willing Provider who accepts Medicare rules and rates may participate New concept: Competition between providers will reduce rates Competition will eliminate fraudulent billers Competition will provide efficient market pricing to Medicare market.
4 DME experiment The law has been passed and will go into force unless repealed. Medicare Modernization Act requires small initial steps 10 of 272 Metropolitan areas in 2007, Perhaps 10 of 55 DMEPOS product groups Implications of this concept should not be underestimated.
5 Political History HCFA tried in 1990 s to set up competitive bidding among managed care organizations Each initiative defeated by Congressional intervention Baltimore (1996); Denver (1997); Phoenix and Kansas City (1999) National competitive bidding program for Part B infusion drugs (2005). undersubscribed
6 3 Medicare DMEPOS demonstrations Polk County Florida 2 bid cycles; San Antonio Texas 1 bid. Oxygen equipment and supplies Hospital beds and accessories Enteral nutrition Urological supplies Surgical dressings Wheelchairs General Orthotics Saved 20%
7 Medicare Modernization Act (2003) Authorized Competitive Bidding in 10 Metropolitan Statistical Areas in MSAs in 2009 Nationwide in 2010
8 Proposed Rule issued May 1, 2006 Inadequate detail on core issues Establishes process for selection of product groups and designated Metropolitan Statistical Areas Indicates likely selections without locking down final decisions No exclusion by site-of-service Anticipate SNFs will need to bid for own patients Mail order companies can bid as providers
9 Bidding Process Suppliers qualify to bid Clean Medicare/Medicaid record Meet Quality Standards, confirmed by accreditation Meet soft financial standards Complete detailed application Provide bids by HCPCS code No distinction between types of suppliers Market basket calculated, bidders ranked Capacity calculated, cut off bid determined Payment rate becomes the median (midpoint) of winning bids.
10 10 of these 19 MSAs will be included in Phase One (2007) Largest in each DMAC Miami, Cincinnati, Pittsburgh, Riverside California Next likely qualifiers Dallas, Houston, Charlotte, San Juan Puerto Rico, Atlanta Other potential candidates Tampa, Kansas City, San Francisco, Cleveland, Detroit, Seattle, Baltimore, Philadelphia, Phoenix, Boston AdvaMed pointed out statistical problems in calculation, which (if corrected) may change site selection.
11 Huge geographic variation within some MSAs Riverside California MSA is larger than West Virginia Cincinnati MSA covers counties in three states Atlanta MSA includes 20 counties
12 Riverside, CA - MSA
13 Cincinnati - MSA
14 Atlanta, GA - MSA
15 Possible product groups (2003 data) Oxygen supplies and equipment $2.4 B Wheelchairs $1.9 B Diabetic Supplies $1.1 B Enteral nutrition $ 676 M Hospital Beds $ 373 M CPAP $ 205 M Support Surfaces $194 M Respiratory Assist Devices $134 M Lower Limb Orthoses $123 M Walkers $ 97 M
16 Medicare expects to save $1.7 billion In 2009, competitive bid results can be used to reduce national rates Medicare budget contains many larger, controversial items
17 March 23, 2007 status Awaiting publication of the Final Rule Web sitemap launched Political support uncertain Replacement of key Republican members of Congress (advocates of competitive solutions) by unknown Democrats. Democratic Congressional health agenda is uncertain. Failure to implement competitive bidding will require Congressional action.
18 Accreditation requirement wobbly May, Proposed rule. Bidders could be granted a grace period if not accredited at time bid is due. Would be excluded if the supplier failed to gain accreditation. January Transmittal Required all suppliers to be accredited by April 1, February Reversal withdrew Transmittal. Current status: Suppliers must be accredited or in process of becoming accredited to submit a bid. Watch Final Rule for details.
19 Lobbying initiatives are intense Coalition to Ensure Beneficiary Access Manufacturer coalition to seek repeal American Association for Home Care Reintroduce Hobson-Tanner bill Protect small suppliers. Multiple requests for exceptions and exclusion by various industry groups
20 Critical unresolved issues Which product groups, which initial cities? Will reimbursement be based on median value of winning bids, or the maximum cutoff bid? Will capacity be determined aggressively or inclusively? Will differences in sites of service be recognized? How quickly will competitive prices be imposed on the remainder of the US marketplace?
21 CMS aware of limitations in Proposed Rule MSAs are not homogenous Could over look underserved neighborhoods HCPCS codes are not designed for bidding One code covers $1 billion in products Many modifications to proposed rule support request for another round of public comment.
22 Nevertheless Business Decisions Must be Made Now
23 Assumptions for Planning Assume Final Rule resembles Proposed Rule Assume Congress does not interrupt Assume no distinctions between sites of service Common bid per city by all players: Mail order, local HME companies, national HME companies, buying groups, skilled nursing facilities, local pharmacies, new provider networks
24 Assumptions Assume initial accreditation does not create meaningful hurdles Final Quality Standards impose very modest requirements. Accreditation to these standards will not limit participation. Innovative and newly formed companies can easily qualify with appropriate attention to the process.
25 Market dynamics will vary by product group Oxygen and respiratory products National and regional companies vs. local hospitalbased companies vs. niche suppliers. Demonstration project oxygen savings = 16% -19% Wheelchairs Bidding complicated by product diversity Multiple manufacturers with incompatible parts Bidding will force product interchangeability Mixture of international, national and local providers
26 Market Dynamics Enteral nutrition 60% of Medicare Part B enteral nutrition is provided in Skilled Nursing Facilities enterals are included in Part A per diem for up to 100 days, can be separately billed after Part A benefit SNFs may bid for own patients after Part A benefit is completed.
27 Enteral market is complex HME dealers, including many GPO members Nursing homes caring for own patients Nursing home suppliers caring for SNF residents Competitive bidding can disrupt fabric of contracts and patient care plans.
28 Tootell Best Guess timeline Accreditation process on fast track, enrollment slow. Final rule will be released any day now. Intense provider education, RFP, bids through spring and summer. Selections announced fall, 2007, effective December, Fast track for phase 2, effective Jan 1, 2009.
29 Able suppliers preparing now Remove accreditation hurdle now! despite CMS uncertainty. Identify MSA boundaries. Identify likely competitors. Review results of commercial insurance and HMO competitive bids, particularly in HME markets.
30 Expectations Demonstration projects resulted in winning bids 20% below national fee schedule Survey of 450 suppliers. Respondents expect 15%- 20% bid necessary to survive competitive process. Demonstration projects eliminated 35% - 48% of bidders Polk I 14/30 did not qualify in any category Polk II 10/26 did not qualify San Antonio 28/75 did not qualify
31 Identify Competitors Widen definition of competitors Companies not in current direct competition in a market niche may submit bids. Mail order, HME, retail pharmacies Companies geographically separated, but within the same MSA, will submit competing bids.
32 Identify likely Irrational bidders Companies dependent on Medicare business Companies that use Medicare products as loss leaders, to attract other business New companies created to participate in competitive bidding
33 Evaluate each business How important is Medicare revenue? Medicare Revenue/Total Revenue Medicare Contribution Margin/Total Margin How important are Medicare referrals? How would loss of Medicare referrals impact other referrals? Classic financial pro forma What if analysis. Business model if successful bid Business model if not successful
34 Watch for the Final Competitive Bidding Regulation
35 Medicaid programs watching. Minnesota Medicaid has competitively bid oxygen for several years. Pennsylvania 2006 proposal would have replaced 1100 suppliers with 15 mega-suppliers. Proposal stopped by legislative action. New Jersey has proposal ready. Michigan law passed Senate, died in House. Reintroduced 2007.
36 Thank you Mike Tootell Director, Health Policy Ross Products Division, Abbott Laboratories
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