“BID ADIEU TO BUCKS"
by Amy Leopard
As a result of a new “competitive bidding” program established by Congress, 325 health care related companies in Northeast Ohio are now faced with the prospect of having to bid for Medicare reimbursements for the products which they market. The authors of the new program have named this region as one of ten which will be required to participate in the first year of the federal plan which, according to the Centers for Medicare and Medicaid Services, is expected to save $7.6 million in the Greater Cleveland area. In year two, 80 more cities across the nation will be added to the program.
In an effort to cut Medicare costs, Congress will invite those companies which offer the lowest prices to be part of the reimbursement program--until officials have selected enough suppliers to handle a particular market. However, this may leave 35% to 50% of the companies which provide health care-related items, such as wheelchairs and oxygen products, ineligible to receive Medicare reimbursements. Johnny P. Miller, of Akron-based Miller’s Rental & Sales, Inc., fears that the new program could cost his company 35% of its business if it is not successful in negotiating the competitive bidding process. Some observers have even said that smaller companies might eventually be forced to close if they are not chosen to receive reimbursements and that this might result, over the long haul, in less competition in the health care products industry.
Under the new rules, companies will not be permitted to bid for reimbursements for just a single product in a line of health care-related items; instead, their bids will be required to cover an entire category of products. This, too, may put smaller companies at a disadvantage, unless they are able to increase their offerings. Amy Leopard, a partner at Cleveland’s Walter & Haverfield LLP, noted that this has created a situation where, “Some suppliers that don’t currently offer everything are looking for contractors to fill in the gaps.”
This has created opportunities for other companies such as Life Gas, of Valley View, Ohio, which provides liquid oxygen to home health care companies. In response to the new federal rules, Life Gas has established a program to supply all forms of oxygen to those that wish to bid for Medicare business. This would enable smaller companies who contract with Life Gas to submit their bid for an entire product line, as the new federal program mandates. Other companies such as Discount Drug Mart, which is headquartered in Medina, are planning to expand their own home health care offerings in order to be eligible for the competitive bidding process. If it is unable to stock some items on its store shelves, the retailer plans to make them available through a catalog.
The new federal program reflects some efforts to enable smaller companies to be considered in the bidding process. It stipulates, in fact, that 30% of those chosen must be small providers. According to Ms. Leopard, “small” companies are defined as those which have revenues of $3.5 million or less. In addition, the rules allow smaller companies to bid collectively, so that they might better compete with larger ones. Some suppliers, however, feel that the 60-day period to submit bids, which extends from May 15, 2007 to July 13, 2007, doesn’t afford small companies enough time to fully comprehend the new bidding process. The result is that some may not be able to determine the lowest reimbursement amounts which would be acceptable to them.
Although the home health aid industry is still opposing the new federal program, it appears that it will, in fact, commence in April, 2008. According to Joseph Lewarski, who chairs the Home Medical Equipment and Respiratory Therapy Council for the American Association of Home Care, "...just about every legislator I’ve talked to is holding the line. They see this as a good way to reduce prices.”
(In order to read the entire article, please see the May 28-June 3, 2007 issue of Crain"s Cleveland Business, Vol. 28, No. 21, published by Crain Communications, Inc.
