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Contingency Planning for
Medicare Competitive Bidding
Mike Tootell
Harvard Medical Device Congress
March 29, 2007
Necessary Disclaimer
Speaking as individual
Not representative of Abbott Laboratories
Medicare’s Program Advisory and Oversight Committee
AdvaMed
Concept of Competitive Bidding
Philosophical reversal for MedicareTraditional:
• “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.
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The law has been passed and will go into force unless repealed.Medicare Modernization Act requires small initial steps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.
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
3 Medicare DMEPOS demonstrations
1998 – 2002 Polk County Florida – 2 bid cycles;San Antonio Texas – 1 bid.
Oxygen equipment and suppliesHospital beds and accessoriesEnteral nutritionUrological suppliesSurgical dressingsWheelchairsGeneral Orthotics
Saved 20%
Medicare Modernization Act (2003)
Authorized Competitive Bidding in 10 Metropolitan Statistical Areas in 2007
80 MSAs in 2009
Nationwide in 2010
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-serviceAnticipate SNFs will need to bid for own patients
Mail order companies can bid as providers
Bidding ProcessSuppliers qualify to bid
Clean Medicare/Medicaid recordMeet Quality Standards, confirmed by accreditationMeet soft financial standardsComplete detailed applicationProvide bids by HCPCS code
No distinction between types of suppliersMarket basket calculated, bidders rankedCapacity calculated, cut off bid determinedPayment rate becomes the median (midpoint) of winning bids.
10 of these 19 MSAs will be included in Phase One (2007)
Largest in each DMAC Miami, Cincinnati, Pittsburgh, Riverside California
Next likely qualifiersDallas, Houston, Charlotte, San Juan Puerto Rico, Atlanta
Other potential candidatesTampa, 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.
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
Riverside, CA - MSA
Cincinnati - MSA
Atlanta, GA - MSA
Possible product groups (2003 data)
Oxygen supplies and equipment $2.4 BWheelchairs $1.9 BDiabetic Supplies $1.1 BEnteral nutrition $ 676 MHospital Beds $ 373 M CPAP $ 205 MSupport Surfaces $194 MRespiratory Assist Devices $134 MLower Limb Orthoses $123 MWalkers $ 97 M
Medicare expects to save
$1.7 billion 2008 – 2012
In 2009, competitive bid results can be used to reduce national rates.
2008 Medicare budget contains many larger, controversial items
March 23, 2007 status
Awaiting publication of the Final Rule
Web sitemap launched
Political support uncertainReplacement 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.
Accreditation requirement wobbly
May, 2006 --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, 2007.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.
Lobbying initiatives are intense
Coalition to Ensure Beneficiary AccessManufacturer coalition to seek repeal
American Association for Home CareReintroduce Hobson-Tanner bill
Protect small suppliers.
Multiple requests for exceptions and exclusion by various industry groups
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?
CMS aware of limitations in Proposed Rule
MSAs are not homogenousCould over look underserved neighborhoods
HCPCS codes are not designed for biddingOne code covers $1 billion in products
Many modifications to proposed rule support request for another round of public comment.
Nevertheless
Business Decisions
Must be Made
Now
Assumptions for Planning
Assume Final Rule resembles Proposed Rule
Assume Congress does not interruptAssume 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
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.
Market dynamics will vary by product group
Oxygen and respiratory productsNational and regional companies vs. local hospital-based companies vs. niche suppliers.Demonstration project oxygen savings = 16% -19%
WheelchairsBidding complicated by product diversityMultiple manufacturers with incompatible partsBidding will force product interchangeabilityMixture of international, national and local providers
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.
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.
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, 2007.
Fast track for phase 2, effective Jan 1, 2009.
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.
ExpectationsDemonstration projects resulted in winning bids 20% below national fee scheduleSurvey 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 categoryPolk II – 10/26 did not qualifySan Antonio – 28/75 did not qualify
Identify Competitors
Widen definition of competitorsCompanies 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.
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
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
Watch for
the
Final Competitive Bidding
Regulation
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.
Thank you
Mike Tootell
Director, Health Policy
Ross Products Division, Abbott Laboratories
614-624-7654