Medicaid Competitive Bidding

Medicaid Competitive Bidding

Original Article in the HME Magizne Today by C.A. Wolski


It could be as big a threat as Medicare competitive bidding and Florida legislators are leading the way.


USA While the national competitive bidding debate rages on, one of the test sites for the Centers for Medicare & Medicaid Services (CMS) competitive bidding pilot projects, Florida, has become one of the first states poised to implement Medicaid competitive bidding statewide.

On May 31, Florida awarded exclusive 3-year contracts to provide beds and oxygen to three companies—Rotech, Orlando, Fla; Mercury Medical, Clearwater, Fla; and Care Med Respiratory Services, Tampa, Fla—that competitively bid for the contracts.

Not surprisingly, this program has met with resistance from state and national HME industry groups who argue that it is anticompetitive and will compromise service for Florida’s 2 million Medicaid-eligible recipients. In April, the Florida Association of Medical Equipment Services (FAMES) filed suit against the state to stop implementation of the program. A judgement is expected in August.

Zones of Contention

Florida’s Agency for Health Care Administration (AHCA), which administers the state’s Medicaid program, says that competitive bidding for beds and oxygen is necessary in order to continue offering the current level of service to all those who are eligible and still meet the state’s balanced budget requirement.

For the purposes of the program, the state was divided into 11 zones. According to the request for proposal (RFP)—which provides the blueprint for how the competitive bidding would be administered—there would be one winning contractor per zone. Each bidder had to have at least 50% of its business in Medicaid sales and have a presence in whichever zone it was bidding for. The zones range in size from one to as many as 17 counties.

Under the terms of the RFP, contractors will receive penalties if they fail to provide prompt customer service and be available on a 24-hour basis. The RFP also requires contractors to have a system in place to respond to complaints within 24 hours of their receipt.

However, FAMES president Joan Cross disputes that these requirements will ensure there will be adequate service under the new scheme. “Service is certainly not included for this particular request for proposal because there is no one to compete with,” she says. “If you are the only provider, you can pretty much do what you want…You cannot expect 24-hour service on a competitively bid level.”
Under the RFP, all Medicaid patients must deal with the oxygen and bed contractor approved for their area. There is no grandfather provision allowing patients with long-standing relationships with a particular provider to remain under that provider’s care.

Florida’s Deputy Secretary for Medicaid, Bob Sharpe, says that this is because the federal government, which sets all Medicaid standards and must approve any restrictions in services, has ruled that a personal relationship is not necessary for providing HME services. “[The federal government has] determined that for DME providers, independent laboratories, transportation, and perhaps others, but at least those, there is not what they consider a provider-patient relationship and we do not need federal approval to restrict that network,” he says. “That is the federal read of the situation.”

HME providers who did not win contracts or did not bid for them are not, necessarily, excluded from providing oxygen or beds. According to the RFP, subcontracting of these services is allowed. Again, however, Cross doubts that this provision will help deliver services to Florida’s Medicaid population. “Who is going to subcontract?” she asks. “If you are competitively bidding, you have to pay even less. It is not even a feasible thing to do. At fees as low as some of these people bid, I am not subcontracting. I cannot afford it.”

The program is a necessity, Sharpe says, because Florida, which operates under a balanced budget amendment, is facing a deficit. “Our legislature…has to get the Medicaid budget in line with the revenues that are available, and allocated for that purpose,” he says. “But ultimately, our legislature has to come up with a balanced budget considering all needs. In recent years, part of that balancing comes with reductions in the Medicaid budget. I think if we were to ask our beneficiaries if they would rather the state competitively bid some of their services to try to effect the best price it can or reduce eligibles or benefits, they would prefer competitive bidding.”

The Medicaid budget in Florida, the fifth largest in terms of spending in the country, is increasing by $1.2 billion to $11.2 billion for the next fiscal year, which began July 1. Beds and oxygen account for almost 50% of Florida’s HME spending.

Sharpe adds that the competitive bidding program is no different from what other agencies within the Florida Medicaid and private insurance system are doing. “[Competitive bidding is] a practice commercial insurers use [to] restrict their network,” Sharpe says. “Our Medicaid Health Maintenance Organizations (HMOs) actually do that with DME. So we are only following a practice that is used by other payors and by other parts of our own Medicaid program.”

But Florida HME providers are concerned that the competitive bidding program could force some of the state’s 2,000 licensed HME providers out of business. “People can’t stay in business and [give] free care,” says William “Butch” Vanderpool, president of Health Care Diagnostics Inc, Auburndale, Fla. “There is a cost involved, and there is cost involved in getting good care.”

According to the American Association for Homecare (AAHomecare), during the federal demonstration project in Florida’s Polk County, the average HME provider saw its revenues fall 27%. At least one provider was forced to file Chapter 11 bankruptcy and several others moved out of the demonstration area. “What it really is [doing] is limiting the market,” says Shelagh Foster, director of regulatory affairs for AAHomecare. “It is actually anticompetitive. Calling it competitive bidding is really a misnomer.”

FAMES not only has attempted to stop the bidding process, but it also has offered an alternative to competitive bidding—an alternative, Cross says, that was given as an option along with competitive bidding to Sharpe. “We had actually offered [AHCA] a fee reduction that would save them the exact amount of money they need for the budget,” Cross says. “It is a budget issue. It is not a quality issue. This will actually put people out of business. We have a very low profit margin on Medicaid—about 12% to 13%.” FAMES offered the state a fee reduction of 6.5%.

The offer was not accepted. “That issue surfaced in our special session that ended a few weeks ago, and we actually [delayed] our announcement of award to give the legislature time to debate the competitive bidding for this and other services,” Sharpe says. “Our legislature chose not to ask us to back off of competitive bidding. They fully debated it. They chose not to effect to restore funds or effect a savings in another way.”

When and if the contracts become a reality, FAMES has concerns about their implementation. “The problem we have had is that [AHCA has] kept this so quiet there are still providers out there that do not know about it,” Cross says. “[AHCA] did not send notification to each Medicaid provider.”

To combat the lack of information, Cross asked manufacturer sales representatives she knew to let non-FAMES members they visited know what was happening.

Sharpe says that providers are being notified through a variety of channels, including printed announcements and the agency’s Web site. “We want to make sure that there is an appropriate transition in services,” he says.

Under the provisions of the RFP, contractors are responsible for marketing their services and providing referring sources with the names and addresses of subcontractors. Contractors must also maintain a toll-free number for referral sources to locate subcontractors and for registering complaints from referral sources and patients.

Today Florida… Tomorrow the Nation
Florida’s competitive bidding program may be the prelude to more states adopting similar programs. Texas and North Carolina are both considering competitive bidding programs, and the federal government may be ready to follow suit. CMS has declared that the demonstration projects it conducted in Florida and Texas were successes—realizing a 17% savings to the government. In its criticism of the CMS pilot projects, AAHomecare says CMS failed to take into account increased administrative costs to providers, such as burdensome paperwork and delays in payment. (See “How Is Your DSO?”)

Competitive bidding is included in the Medicare bill the US House of Representatives approved and sent to the Senate. At press time, the Senate was still debating whether or not to include a similar provision in its Medicare bill. But Florida’s Senator Bob Graham (D) had come out as an early supporter of including competitive bidding in the Senate bill.

However, for all the attention devoted to national competitive bidding, Vanderpool fears that the real danger is in the statewide programs, which can be implemented more quickly than national competitive bidding and are harder to organize a mass lobbying effort against. “When we try to stop the national competitive bid with Medicare, we are barking up the wrong tree,” he says. “It is these statewide competitive bids that are going to hurt people, particularly rehabilitation companies, because if you are a rehabilitation company, a huge majority of your business has to be Medicaid. Anybody with a fresh injury will be Medicaid after their hospital stay is over or, eventually, after they lose their current coverage, they will be Medicaid. This means a lot of their care, their power chairs, their daily living aids, gets paid through Medicaid. What kind of quality of life are those people going to have and what are the rehabilitation providers going to do, because they will not be in business.”

C.A. Wolski is associate editor of Dealer/ Provider.