Face Challenges Confidently

Competitive Bidding on Hiatus: Operating in the “Gap Period”

Wednesday, November 21st, 2018

By: Jeffrey S. Baird, Esq.

From Day 1 of competitive bidding, the DME industry sounded the alarm that the program would be unworkable. Industry stakeholders pointed out:

  • “Low ball bidders” would submit bids in multiple CBAs…with no ability to take care of patients in those CBAs.
  • “Low ball bidders” wanted to “scoop up as many contracts as possible” in order to have “something to sell” to losing bidders.
  • Because of the “low ball bidders,” many legitimate bidders would not be awarded contracts.
  • “Low ball bidders” would drive down reimbursement to a point that contract suppliers (competitive bid “winners”) may not be able to keep their doors open.
  • Because CMS would not disclose the standards it used to evaluate the financial condition of bidding suppliers, many otherwise qualified suppliers would be disqualified…without the disqualified suppliers knowing the basis of their disqualification.
  • Calculation of the Single Payment Amount (“SPA”) would be flawed for a number of reasons, one of which is that half of the winning bidders would be required to accept reimbursement that is less than what they bid.
  • As suppliers shut their doors, access to DME would decrease.
  • As a result of lack of access to DME, (i) patients would end up at the ER and (ii) hospitals would be unable to discharge patients because there would be no supplier to take care of the patients upon discharge.

And then when the SPAs were extended to rural America and other non-CBAs, stakeholders warned that closure of businesses and lack of access would become even more pronounced. Rural suppliers had challenges that their urban counterparts did not have, such as having to drive long distances to serve patients. Stakeholders pointed out that one of the premises of competitive bidding is that because there will be fewer suppliers in CBAs, the contract suppliers would be able to compensate for the low reimbursement with higher volume. However, this logic does not hold true in non-CBAs.

Unfortunately, competitive bidding (with all of its obvious flaws) was implemented and “the carnage began.” Until 2018, it was CMS’s position that competitive bidding was a resounding success and Medicare beneficiaries incurred no problems because of the program. But as is often the case, “the real world intervened.” DME suppliers closed their doors, patients did not have access to DME, and physicians and hospital discharge planners were not happy.

Earlier this year, CMS acknowledged problems with the competitive bidding program. In particular, CMS acknowledged that beneficiaries were having problems accessing DME. As such, CMS published a Proposed Rule that substantively changes the competitive bidding program. These are “substantive” changes…not window dressing. The Final Rule will be published shortly. It is anticipated that the Final Rule will look substantially like the Proposed Rule.

“Gap Period”

The existing Round One 2017 and Round Two Recompete will come to an end on 12/31/18. Competitive bidding will then go on a hiatus for 18 to 24 months beginning with 1/1/19. This hiatus is known as the “gap period.” It is likely that the gap period will last a full 24 months . . . meaning that the next round of competitive bidding (in which the two existing rounds will be combined into one round) will likely start on 1/1/21.

Jumping Back Into The Medicare Market During the “Gap Period”

Assume that ABC Medical Equipment, Inc. is located in a CBA but does not currently have a competitive bidding contract. As a result, assume that ABC’s business model looks like the following:

  • ABC sells non-competitive bid items to beneficiaries for cash.
  • ABC sells competitive bid items to beneficiaries for cash…only after obtaining an ABN.
  • ABC has secured hospice contracts, SNF contracts, Medicare Advantage Plan contracts, and Medicaid Managed Care Plan contracts.
  • In short, ABC has walked away from Medicare fee-for-service (“FFS”).

The question becomes: Should ABC jump back into the Medicare FFS market beginning 1/1/19? Let us examine the “pros and cons.” Medicare FFS is tantamount to an “addiction.” ABC is currently “clean and sober” . . . it is not billing Medicare FFS. As a result of not billing Medicare FFS, ABC may have less gross income, but ABC does not have to deal with audits and does not have to incur the expenses of meeting the many Medicare requirements. To an extent, ABC’s life is “simple” and it is predictable.

When 1/1/19 comes around, ABC may have a reflexive Pavlovian urge to start billing Medicare FFS. Logically, it may not make sense for ABC to do so, but ABC might be saying to itself: “I am a DME supplier. Therefore, I should bill Medicare FFS.” ABC needs to avoid such an emotional response and, instead, look at the issue objectively.

If ABC has been able to sustain its business without Medicare FFS, then ABC should ask itself: “Why should I torture myself by jumping back into the Medicare FFS fray? Why should I fall off the wagon and start feeding my addiction again?” On the other hand, ABC may desire to once again become “one stop shopping” for physicians and other referral sources. Even if ABC only breaks even on Medicare FFS, it may determine that it is worth it because being “one stop shopping” for referral sources will open up increased non-Medicare FFS business.

If during the gap period, ABC loads itself up with oxygen patients, other rental/capped rental patients, and other recurring patients who take products that will be covered by competitive bidding when the program starts up again, then ABC needs to understand that if it is not awarded the upcoming contract, it (i) may lose these patients, (ii) may not be able to take on additional patients covered by competitive bidding, and (iii) may anger referral sources who got used to using ABC as a “one stop shop.” If during the gap period, ABC loads itself up with patients who are purchasing/renting products that normally would be covered by competitive bidding, and if ABC loses these patients because ABC is not awarded the upcoming competitive bid contract, then ABC will still be subject to potential audit liability long after these patients vanish.

During the gap period, perhaps ABC can serve Medicare FFS patients…in a limited way. For example, if it has not already done so, ABC can elect to be non-participating. In doing so, then during this gap period, ABC can provide covered items on a nonassigned basis. This means that ABC can require the patient to pay cash up front. Thereafter, ABC will submit a claim to Medicare on behalf of the patient . . . and Medicare can reimburse the patient for 80% of the Medicare allowable. By providing covered items on a nonassigned basis, then ABC will essentially be treating the patients as cash/retail patients. ABC will not have to deal with receivables from Medicare. In providing covered items on a nonassigned basis, ABC will be subject to potential Medicare audit liability. However, ABC will be getting its cash up front.

Exiting Common Ownership Arrangements

During the existing Round One 2017 and Round Two Recompete rounds, a number of DME suppliers entered into common ownership arrangements. A non-contract supplier would purchase 5% or more of a contract supplier…or vice versa. With the CBIC’s approval, the non-contract supplier would be added as a supplier to the contract supplier’s existing competitive bid contract. With the looming gap period, parties to common ownership arrangements need to ask themselves if they want to unwind the arrangements prior to 1/1/19.

Existing Subcontract Arrangements

During the existing Round One 2017 and Round Two Recompete rounds, a number of DME suppliers entered into subcontract arrangements. Under a subcontract arrangement, (i) a contract supplier might handle intake and other functions expected of a supplier, while (ii) a non-contract supplier will handle the delivery, set-up, and patient education. The contract supplier (“contractor”) would pay the non-contract supplier (“subcontractor”) for its services. With the looming gap period, parties to subcontract arrangements need to ask themselves if they want to unwind the arrangements prior to 1/1/19.

Future Common Ownership/Subcontract Arrangements

If an existing non-contract supplier decides that it will submit a bid for the next round (presumably to start on 1/1/21), then the supplier needs to ask itself what it will do if it is not awarded a contract. In advance of submitting a bid for the next round, the supplier may want to start talking to other suppliers about entering into a common ownership or subcontract arrangement if one of them is not awarded a contract.

Payments in Former CBAs During Gap Period

During the gap period, stakeholders are urging CMS to increase payment levels in former CBAs beyond the SPA + inflation increase. “Any willing supplier” will prevail during the gap period. This will result in a large number of suppliers serving beneficiaries. As such, the fundamental tenet of competitive bidding – fewer suppliers resulting in increases volume – will not exist. As such, it is suggested that payment levels be set at the SPA plus CPI-U increases from 2013 to 2018. CMS proposes to pay for mail-order diabetic supplies at the SPA plus the inflation increase for the preceding 12 months…with an additional increase at the end of each 12 months thereafter. CMS proposes to pay for non-mail order at the current SPA. Stakeholders disagree. Stakeholders recommend an inflation adjustment for non-mail order diabetic supplies.

Rural/Non-Contiguous Areas

CMS proposes to extend the 50-50 blended rates in rural/non-contiguous areas. Stakeholders agree.


CMS asks if it should extend the 50-50 blended rates to non-CBAs that do not meet the definition of “rural” or “non-contiguous.” Industry stakeholders say “yes.” Extending the 50-50 blended rates to all non-CBAs is consistent with Congressional intent. For example, in the 21st Century Cures Act, the retrospective payment relief was for all non-CBAs. That is, the retrospective payment relief was not limited to rural/non-contiguous. CMS admits that the median price does not establish financially sustainable rates in the CBAs. Therefore, it makes no sense to use the median price in non-rural/non-contiguous areas. There are many supplier closures in non-CBAs. The problem is the same in (i) rural areas, (ii) non-contiguous areas, and (iii) remaining non-CBAs.

HR 4229 has 155 House co-sponsors. This provides payment relief to DME suppliers in all non-CBAs, not just those in rural and non-contiguous areas. In a letter to CMS from the West Virginia Congressional delegation, the delegation pointed out that West Virginia lost 38% of its DME suppliers over the last two years. The letter says that the CMS definition of “rural” is unrealistic. According to the letter, the CMS definition of “rural” should mirror rural classifications for rural clinics and critical access hospitals. Access issues go way beyond “rural” and “non-contiguous.”

Jeffrey S. Baird, JD, is Chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or jbaird@bf-law.com.