DALLAS Embassy Suites by Hilton October 7, 2015

Transcription

1 DALLAS Embassy Suites by Hilton October 7, 2015

2 My Contact Information: Mark Higley, Vice President - Regulatory Affairs mark.higley@vgm.com O: C:

3 8:30 am 9:00 10:30 am 10:30 10:40 am 10:45 Noon Noon 1:00 pm 1:15 2:30 pm 2:30 2:40 pm 2:45 4:00 pm Today s Schedule Registration opens Preparing for the Round Bid: Procedures, Checklists & Strategies! Break Tips, Tools and Strategies to Optimize your Business in 2016 Lunch Competing Forces Within: Balancing Sales with Successful Reimbursement Break The 2016 rural roll-out, bundling, acquiring contracts and the MPP Methodology.

4 Please download this entire program (PPT converted to PDF): FSS-Sessions2016.pdf

5 Session #1 Preparing for the Round Bid: Procedures, Checklists & Strategies!

6 The Round Two Recompete in Texas: Quick predictions

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8 To achieve Medicare savings for DME, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 required that CMS implement the CBP for certain DME. The first completed CBP round the round 1 rebid operated in nine competitive bidding areas. CMS reported total savings of more than $580 million at the end of the round 1 rebid s 3-year term due to lower payments and decreased utilization.

9 What GAO Found GAO found that a similar percentage of bidding suppliers between 30 and 43 percent were awarded contracts in the round 1 rebid, round 1 recompete, and round 2. GAO found that the single payment amounts (SPA) for 28 high utilization Healthcare Common Procedure Coding System (HCPCS) codes common to the round 1 rebid, round 1 recompete, and round 2 generally decreased through all CBP rounds as compared to the average Medicare 2010 fee-for-service payment for the same codes

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14 Factors: 1. Respiratory Equipment and Related Supplies and Accessories (includes oxygen, oxygen equipment, and supplies; continuous positive airway pressure (CPAP) devices and respiratory assist devices (RADs) and related supplies and accessories) 2. Standard Mobility Equipment and Related Accessories (includes walkers, standard power and manual wheelchairs, scooters, and related accessories) 3. General Home Equipment and Related Supplies and Accessories (includes hospital beds and related accessories, group 1 and 2 support surfaces, commode chairs, patient lifts, and seat lifts)

15 For many Round 2 recompete bidding companies, these product categories combine products not typically furnished by the supplier in the today s marketplace. For example, HMEs furnishing oxygen and oxygen equipment do not necessarily furnish CPAP devices and RADs.

16 The combining of product categories (e.g., oxygen and CPAP) might result in a reduction in the amount of out-of-area bidders, who, in previous rounds, bid CPAP in virtually all areas of the country. Delivery of CPAP supplies have seen, arguably, an increase in dropshipments. Now that the bidding supplier must also offer oxygen and oxygen equipment in the same CBAs (requiring comparably more in-home service), I anticipate a decrease in the number of out-of-area contracts offered (with a resulting increase in reimbursement/single payment amounts). There are also about 17% less traditional HME supplier locations in the marketplace. Note this FOIA report:

17 (Source: PDAC) Supplier Type Code Supplier Type Code Description Count of Suppliers with Active Med ID (11/01/2010) Count of Suppliers with Active Med ID (11/01/2011) Count of Suppliers with Active Med ID (11/01/2012) Count of Suppliers with Active Med ID (11/01/2013) Count of Suppliers with Active Med ID (11/01/2014) 54 MED SUPPLY COMPANY 9,438 9,503 8,880 8,222 7,881 A6 MEDICAL SUPPLY COMPANY WITH RESPIRATORY THERAPIST 2,109 1,972 1,941 1,876 1, MEDICAL SUPPLY COMPANY WITH ORTHOTIC-PROSTHETIC MEDICAL SUPPLY COMPANY WITH ORTHOTIC PERSONNEL MEDICAL SUPPLY COMPANY WITH PROSTHETIC PERSONNEL B3 MEDICAL SUPPLY COMPANY WITH PEDORTHIC PERSONNEL B1 OXYGEN & EQUIPMENT MEDICAL SUPPLY COMPANY WITH REGISTERED PHARMACIST TOTAL 13,163 13,088 12,454 11,679 11,326

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20 The timeline Until we somehow stop this madness by legislation, CMS is required by law to recompete contracts under the DMEPOS Competitive Bidding Program at least once every three years. The Round 1 Recompete contract period expires on December 31, On April 21, 2015, CMS announced plans to recompete the contracts for the Round 1 Recompete, which will go into effect January 1, 2017

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22 Round includes the following categories of items and services: Enteral Nutrients, Equipment and Supplies General Home Equipment and Related Supplies and Accessories (includes hospital beds and related accessories, group 1 and 2 support surfaces, commode chairs, patient lifts, and seat lifts) Nebulizers and Related Supplies Negative Pressure Wound Therapy (NPWT) Pumps and Related Supplies and Accessories Non-invasive Pressure Support Ventilators* - Removed from Round on 6/4/15 Respiratory Equipment and Related Supplies and Accessories (includes oxygen, oxygen equipment, and supplies; continuous positive airway pressure (CPAP) devices and respiratory assist devices (RADs) and related supplies and accessories) Standard Mobility Equipment and Related Accessories (includes walkers, standard power and manual wheelchairs, scooters, and related accessories) Transcutaneous Electrical Nerve Stimulation (TENS) Devices and Supplies

23 A New Registration System - EIDM (CMS Enterprise Identity Management) I presume most of you have already registered, but, if not, here are some basics: Before you can access the on-line DMEPOS Bidding System (DBidS), you will need to register in EIDM to receive an EIDM User ID and establish a password. You will then need to add the DBidS application to your EIDM profile. An authorized official (AO) in the Medicare Provider Enrollment, Chain and Ownership System (PECOS) should register ONE time in EIDM with ONE active Provider Transaction Access Number (PTAN) in DBidS (*). Go to the EIDM Reference Guide at 17_EIDM_Reference_Guide.pdf/$File/14_R12017_EIDM_Reference_Guide.pdf (*) Unless your organization has separate entities, such as subsidiaries, that are bidding in a separate CBA and product category competition(s). If one of these two exceptions apply, you should then register a different PTAN for each type of bid.

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25 What s new in DBidS this round Location information will be pre-populated with your enrollment data (address, National Provider Identifier (NPI), Taxpayer Identification Number (TIN), etc.) from PECOS. You can easily add locations that have the same TIN or different TINs that are associated with your business organization since this information will also be pre-populated with data from PECOS. You will not have to enter location information other than the toll-free number on your bid(s). You can sort and/or filter many of the tables in DBidS. You will be able to copy your expansion plan (if applicable) and manufacturer information from one bid to another.

26 You will be able to select manufacturer, model name, and model number from pre-populated drop-down lists in most instances. The status page will alert you to important information such as your total number of bids and the current status of your bid, whether it is complete and if not complete, what is missing. You should check this page often to confirm the status of your bid (s). If you have an incomplete or pending Form A or Form B, you will be sent an alert during the last week of bidding to remind you to complete and approve your Form A and complete and certify Form B.

27 You will be receiving a Preliminary Bid Evaluation this round After bidding closes, you will receive an from the CBIC that the preliminary review of your bid(s) has been completed and a notification of the findings is posted in DBidS. This notification will inform you if your bid(s) is eligible for further consideration and, if not, what enrollment requirement(s) (active PTAN, accredited, licensed, commonly owned or commonly controlled) was not met by the close of the bid window. This notification will give you the opportunity, if applicable, to verify that your location(s) met the identified enrollment requirement(s) by the closing of the bid window. This preliminary evaluation does not include the review of your required financial documents, which is a separate notification process. For more information, see the Preliminary Bid Evaluation fact sheet at _Preliminary_Bid_Evaluation.pdf/$File/14_Fact_Sheet_Preliminary_Bid_Evaluation.p df

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29 NO more multiple state CBAs Nsf/files/14_R2017_ZIP_Codes.pdf/$File/14_R2017_ ZIP_Codes.pdf

30 Best advice? Read the RFB Instructions!

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32 Registration errors seen so far: Registering more than one PTAN. The exception is if your organization has separate entities such as subsidiaries or commonly owned and/or commonly controlled organizations that are bidding in a separate CBA and product category combination. If this exception applies you should then register a different PTAN for each type of bid. Bidding against yourself. Remember, commonly owned or controlled bidders cannot bid for the same product category in the same CBA. The AO s name does not match exactly with PECOS enrollment records. The BAO and EU(s) attempting to register before the AO has completed his/her registration. Using an incorrect user ID and/or password to log into DBidS. Changing your contact information ( , phone number, etc.) and not updating your records in PECOS PROBLEMS WITH REGISTRATION? CALL THE CBIC AT (They are MUCH more helpful this time around )

33 Remember You can add locations or remove locations from your contract at any time during the contract period! To add or remove locations, use Location Update Form on the CBIC website ( Each location (PTAN) identified on your bid must meet the applicable state licensing requirements to furnish the items in the product category in the CBA. You must have a current copy of the applicable state license(s) on file with the NSC and in PECOS by the close of the bid window. There is a licensure directory at ders~national%20supplier%20clearinghouse~resources~licensure% 20Information~7GLS4M6340?open&navmenu=

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37 Change of Ownership (CHOW) If a CHOW occurs before the bid window closes and you have already entered information in DBidS, you must update your information in DBidS to reflect the CHOW by the close of the bid window. If you have already submitted your hardcopy documents, you must resubmit them by the close of the bid window to reflect the CHOW transaction. You must also notify the NSC of the CHOW in accordance with the supplier standards.

38 If a CHOW occurs after the close of the bid window but before contracts are awarded, your bid will be evaluated based on the information you provided in DBidS and in your package of hardcopy documents as of the close of the bid window. Information submitted about a new owner after the bid window closes will not be used to evaluate your bid. If you are considering or involved in a CHOW during bidding, I recommend that you contact the CBIC with any questions and/or concerns regarding your individual situation.

39 What s commonly owned/controlled? Two or more suppliers are considered commonly owned if one or more of them has an ownership interest totaling at least 5 percent in the other(s). An ownership interest is the possession of equity in the capital, stock, or profits of another supplier. Commonly controlled suppliers are those where either one or more of the supplier s owners are also an officer, director, or partner in another supplier. You may not bid against yourself for the same product category in the same CBA. Therefore, if you are a commonly owned or commonly controlled supplier, you must submit one bid that includes all commonly owned or commonly controlled locations (identified by PTAN) that would furnish competitively bid items in the same product category in the same CBA.

40 What if I have a location OUTSIDE the bidding CBA? IF the commonly owned locations located outside of the CBA will also furnish items in the product category to beneficiaries in the CBA in which you are bidding, THEN you must also be included on the bid. This information should be completed in Form A under the locationspecific section. This issue can be complicated! I would recommend reading closely the Common Ownership or Common Control fact sheet here: es/14_fact_sheet_common_ownership_common_control.pdf/$fil e/14_fact_sheet_common_ownership_common_control.pdf

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43 Placing your bid the basics You will be asked to select all CBA and product category combination(s) for which your business organization will be bidding.

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45 Form B is the Bidding Form Form B includes the bidding forms for each CBA and product category. You will complete a separate Form B for each CBA and product category for which you bid. You will be required to provide historic information about your experience in the CBA and product category. (This may be estimated!!) You will also provide the number of units for the high use HCPCS codes in each product category that you furnished to all customers, Medicare and non-medicare, in the CBA during the past calendar year. You will also be required to identify the manufacturer and model (at lest one) of the products you plan to make available to beneficiaries in the CBA. If you are awarded a contract, this information will be available to the public on the Medicare website,

46 The bid form is prepopulated with item descriptions, bid types, item utilization weights (which are NOT necessarily representative of the importance of the particular HCPC item to the overall category; we will discuss this shortly) and the CURRENT MEDICARE FEE SCHEDULE amounts (versus any current single payment amounts from a previous round!!) that serve as the bid limits. Total Estimated Capacity is number of units per HCPCS code that you estimate you will (versus can ) furnish throughout the entire CBA for one year. Again, we will discuss this capacity ; it is no guarantee that you will be reimbursed for this amount nor is it a cap of when you may cease offering the item to beneficiaries.

47 Common mistakes I ve seen when completing a bid: #1 (by far!): Bidders submitting bid amounts that do not meet the definition of a bidding unit. Only oxygen is bid in rental months. I recognize that hospital beds (for example) are furnished as a monthly rental item. However, the definition of a bidding unit for a hospital bed is the purchase of one (1) new unit. Bidders incorrectly enter a rental amount instead of a purchase amount for the hospital bed in DBidS and are disqualified as the bid is not bona-fide (too low)!! I will demonstrate a formula to equate the purchase to a rental later on

48 #2: Commonly owned and/or commonly controlled suppliers bidding against each other in the same CBA and product category. (See my link for Commonly Owned and Commonly Controlled Suppliers.) #3: Bidders not carefully reviewing their bid amounts for accuracy (e.g., ensuring no keying error(s) when entering bid amounts). The VGM Bid Prep worksheets (next topic) will help mitigate this risk! #4: Bidding too low for one or more (and frequently low utilization/low impact) HCPC codes and being challenged by a bona-fide bid letter. Again the VGM worksheets can help!

49 #5: Not taking advantage of the covered document review deadline and being disqualified as the result of missing hardcopy documents. #6: Errors in tying the various financial documents together. #7: Improper credit score submission. #8: Submitting documents in an improper manner ==================================================== So let s review and discuss some financial documents issues! First of all the next slides are visuals of what you ll need (depending on business type); and don't worry the links in this presentation are live and will take you to the original pages.

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54 After bidding opens for Round (it is October 15, 2015) all bidders must submit the required financial documents listed below Tax return extract for the most current year filed (must be either a 2013 or 2014 tax return) Financial statements that correspond with the tax return extract: Income statement Balance sheet Statement of cash flows Current credit report with a credit score (report must contain name and date) Note!: Bidders whose financial documents are received on or before the covered document review date (CDRD), November 16, 2015, will be notified if any of the required financial documents below are missing.

55 Financial submission mistakes to avoid! Mismatches between financial statements. For instance, the net income on the income statement and the net income on the statement of cash flows do not match. Ending cash balance on the statement of cash flows and the ending cash balance on the balance sheet do not match. These two fields must match. Balance sheet not balancing. Total assets must equal the sum of total liabilities and owner s equity. Tax return extract for a different time period than financial statements. For instance, submitting a 2013 tax return with 2014 financial statements.

56 Financial statements and tax return extracts are at different organizational levels. For instance, the submitted financial statements are for the subsidiary while the submitted tax return extract is for the parent company. Please see RFB for more information on parent/subsidiaries. Credit report without a name and/or a preparation date. Statement of cash flows that do not specify whether cash flows are from operating activities, financing activities or investing activities. Statement of cash flows that do not contain a cash reconciliation, which contains a beginning cash balance, ending cash balance, and a net increase/decrease in cash.

57 Hardcopy Document Package Checklist

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59 FAQ #1: Can I use my personal credit report? Maybe. If your organization s credit report is not available, a personal credit report with a numeric score and the name of the principal business owner is acceptable as long as it is prepared by an acceptable credit reporting agency no earlier than 90 days prior to the opening of the bid window. However, a personal credit report with score is not acceptable from bidders filing a regular C corporation tax return (Form 1120), except in cases of newly formed corporations.

60 FAQ #2: What type of company report do I need? Credit reports must include your company s name and a date along with a numerical score. The only exception is an alpha score from Standard & Poor s. Any other forms of gauging credit other than a numerical score (such as arrows indicating relative value of credit or the number of days beyond term) are not acceptable. In addition, a credit summary does not qualify as an acceptable credit report. See me if you have questions as to what level of report (and by $$) is acceptable.

61 FAQ #3:) My credit score/financials are less than optimal. (I think I am not alone in this industry ) Any suggestions? I agree with your observation. In general, the financials of many bidders that I have met with are (arguably) unimpressive. This can be due to a number of a factors, one of which is that it is hard for suppliers to generate a profit from the low Medicare reimbursements.

62 Mitigating Poor Financials : 1 Strategy A financial statement must be tied to the bidder s most recently filed tax return. Most of the bidders in the Round will submit their 2014 financials. If the bidder s 2014 financials are substandard (and many are due to the current bid programs, audits, and other reimbursement pressures), then there is a risk that the bid will be disqualified because of poor financials.

63 Let s say that in 2014 the bidder was hit with some out-of-the-ordinary events that caused its financials to look bad. Because of the electronic bid format, as a general rule, the bidder cannot submit 2015 financials and projected 2016 financials that will help the bidder cure the 2014 financials.

64 Having said this, there is potentially a method to back door the actual 2015 and 2016 projected financials into the bid packet!. Form B, Section 2 is entitled Expansion Plan. It says, in part: Can you increase your current capacity for this product category in the CBA? If yes, you must complete an expansion plan. (*) (*) Important Note: This applicable ONLY to suppliers with relatively substantial financial documentation/credit score concerns. Generally I dissuade use of the expansion plan option unless the supplier is bidding our of area or into a new product category. I will comment on this later.

65 This section allows the bidder to include supplemental information for increased staffing, financing/funding levels, facilities (e.g., square footage), inventory (including method of tracking inventory), distribution methods (e.g., vehicles, mail order) and additional information regarding expanding capacity.

66 The bidder can enter as much information as it would like to support its ability to increase capacity If there is not enough space for the bidder to enter its information in this section on DBids, then the bidder is permitted to submit hard copies of the information to the CBIC, but the bidder must remember to title the documentation appropriately ( Supplemental Financial Plan Information ) and to put the bidder number on every page.

67 Excerpt from RFB Instructions: Submit ONLY the required documents. Do NOT include other documents such as bank references, personal statements of corporate stockholders, advertising materials, or bank statements. Only required documents will be evaluated; supplemental documents will be disregarded.

68 The instructions state that the only exception to prohibition against submitting supplemental documents is additional information that explains the organization s business structure or provides additional details about information reflected in your required financial documents. This section enforces the point that any supplemental information submitted must be titled appropriately to avoid being discarded by the reviewers.

69 Again take advantage of the CDRD!! Suppliers whose financial documents are received by the covered document review date (CDRD) are notified if any individual financial documents are missing and have an opportunity to submit the missing documents. This process is only to determine if individual financial documents are missing and is not a review of the accuracy or completeness of individual documents For Round , the CDRD in November 16. Bidders whose financial documents are received by the CDRD will be notified of which, if any, financial documents are missing within 90 days after the CDRD. The notification will alert you only of what is missing NOT whether the financial documents are accurate, acceptable, or in accordance with the RFB instructions. The notification will provide you with the date by which the CBIC must receive the MISSING financial document(s).

70 Before we (finally) get to bidding strategy some house keeping a la submitting your bid After the Bid Window Closes bids will be evaluated based on the information provided on Form A and Form B in DBidS and in the package of hardcopy documents. The CBIC must have all of the following on or before bidding closes for your bid to be evaluated and considered for a contract: 1. A completed and approved Form A, 2. A completed and certified Form B, and 3. A complete package of required hardcopy documents. Once the bid window closes, all bids are considered final and cannot be amended. You may continue to view your DBidS status page after the bid window closes to verify whether your bid is complete, approved, and certified by the AO or BAO. However, no changes can be made to the bid after the bid window has closed except to the extent permitted by the covered document review date process (see the Covered Document Review Date fact sheet on the CBIC website for more information).

71 Acknowledgement in DBidS of a complete bid does not mean that the bid is accurate or otherwise meets CMS criteria. The DBidS status page indicates whether your hardcopy document package was received on time by the CBIC. If your document was received after the bid window closes, DBidS will not acknowledge receipt of the document(s), and the Hardcopy Document Receipt indicator will remain NO. AOs and BAOs will receive an from the CBIC when this review is complete. You will then be able to log into DBidS to view your results. This preliminary evaluation does not include the review of your required financial documents, which is a separate notification. CMS reserves the right to seek clarification or corrections from a bidder, if necessary.

72 The VGM Bid Preparation Worksheets! Download the worksheets: BidPreparationAndImpactAnalysisRound xls Download the instructions: CompetitiveBiddingBidRound1-2017ImpactAnalysisWorksheet.docx

73 Note: There are official CBIC Bid Preparation Worksheets available Not yet released for Round 2 Recompete watch for updates from me, How is the composite bid is determined? Why do just a few HCPC codes affect the overall composite bid?

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78 How to Use the Worksheets The worksheets are divided into columns. Each item is identified by its Healthcare Common Procedure Coding System (HCPCS) code and followed by a description of that code. The HCPCS code is listed in the first column and a description of that code is provided in the next column. Review the code description column to determine the specific number of products in a unit. In most cases, a unit is described as a single product; however, in a few cases, a unit may be more than one product, such as for diabetic test strips. In this case, a unit is 50 strips.

79 The column labeled Definition of a Bidding Unit indicates whether to submit a bid on a rental or purchase basis for the item. In order to ensure you submit your bid correctly, you will need to look at both the description of the code and the definition of a bidding unit. For example, for enteral nutrients HCPCS code B4150, the code descriptor indicates that 1 unit = 100 calories of enteral formula, and the bidding unit indicates that the bid is on a purchase basis. Therefore, you are submitting a purchase bid for one unit consisting of 100 calories of enteral formula.

80 The column labeled Weight provides, according to CMS, the relative market importance of that item to other items in the product category. Items with a high number have a greater market importance than items with a low number. I will debate that interpretation shortly

81 The worksheets provide reference data that shows historic utilization information. We anticipate a 2014 Beneficiary Count column to show the number of beneficiaries in the bidding area who received the item in 2014, and the 2014 Allowed Units column shows the number of units that Medicare paid for in 2014 in the bidding area. Remember: This information detailing the allowed units and beneficiary count is background information provided as a courtesy for those bidders that want recent information about the number of items paid for by Medicare in the area and the number of beneficiaries in the area who have received these items. This background data is provided for informational purposes only.

82 The Bid Limit column shows the current fee schedule amount for the item. Bids must be at or below the fee schedule amount. Once more!! the bid limit reverts to the 2015 fee schedule; HME providers should NOT be confused with the current Round 2 (or Round 1 recompete) single payment amounts

83 Key Dynamics of the Bidding Process

84 Strategies & Tactics for Calculating Bid Rates It is critical for HME providers contemplating entering a bid for the Round to understand: the key dynamics of the bidding process, and; develop a strategy for calculating bid rates. This section will explain the statistical methodology that CMS uses to evaluate the bids.

85 The Root of the Problem We learned from the flawed bidding approaches of providers who participated in the failed first round, the rebid and Round 2. These companies may have known their costs before they bid -- but many never completely understood HOW to bid. The great majority of these HMEs were not awarded contracts, and not only because they bid too high. Many were excluded due to preventable miscalculations, omissions, and, in my opinion just stupid mistakes. Let s get started!

86 Unless the auction methodology changes or there is a delay by Congress, the (flawed) Bid Evaluation Process for your recompete is the same as Round One Re-bid!

87 CMS calculates expected beneficiary demand in the CBA for the items in the category using past utilization statistics. CMS calculates total supplier capacity that would meet the expected demand in CBA Supplier-estimated input of capacity (subject to verification/edit) is used to determine this CMS establishes a composite bid for each supplier that submits bid for product category

88 What is a Composite Bid? Here is how the RFB describes it!: To allow comparisons among bidders, CMS will establish a composite bid for each supplier for each product category Composite bid is based on the sum of each item s bid amount times its weight for the entire product category Weight of an item is based on volume, which is utilization of the individual item compared to other items within the product category

89 The Composite Bid How it s calculated, and how it should drive your bidding strategy.

90 The Bid Evaluation Process CMS rationale for the use of a Composite Bid: Composite bids allow CMS to compare all suppliers bids submitted for the entire product category This allows Medicare to select the suppliers with the lowest expected cost for the entire product category. Array composite bids from low to high Calculate pivotal bid for category

91 Again The CBIC offers Bid Preparation Worksheets that looks something like this

92 But let s simplify (and enlarge) the worksheet a bit to demonstrate how the composite bid is determined. We will demo CPAP from a previous round.

93 HCPCS Code Bid Weight Bid Limit Bid Amount Weighted Bid A $4.80 E $5, A $32.36 A $ A $36.68 A $25.71 A $11.79 A $ E $ E $1, A $63.14 A $17.66 A $14.00 E $2, A $60.46 E $5, E $96.84 A $17.62 A $ A $35.73 % of Composite Bid CMS Will Provide This Information on the Bid Information Sheet Cumulative % of Composite Bid

94 HCPCS Code Bid Weight Bid Limit Bid Amount Weighted Bid A $4.80 $3.84 E $5, $4, A $32.36 $25.89 A $ $85.17 A $36.68 $29.34 A $25.71 $20.57 A $11.79 $9.43 A $ $ E $ $ E $1, $ For this example, we bid 20% below Bid Limit for all codes A $63.14 $50.51 A $17.66 $14.13 A $14.00 $11.20 E $2, $1, A $60.46 $48.37 E $5, $4, E $96.84 $77.47 A $17.62 $14.10 A $ $87.54 A $35.73 $28.58 % of Composite Bid You Will Provide CMS/CBIC With This Information Cumulative % of Composite Bid

95 HCPCS Code Bid Weight Bid Limit Bid Amount Weighted Bid A $4.80 $3.84 $1.28 E $5, $4, $0.04 A $32.36 $25.89 $2.99 A $ $85.17 $9.12 A $36.68 $29.34 $1.83 A $25.71 $20.57 $1.02 A $11.79 $9.43 $0.43 A $ $ $5.72 E $ $ $6.62 E $1, $ $24.00 A $63.14 $50.51 $1.11 A $17.66 $14.13 $0.25 A $14.00 $11.20 $0.14 E $2, $1, $10.10 A $60.46 $48.37 $0.06 E $5, $4, $4.44 E $96.84 $77.47 $0.04 A $17.62 $14.10 $0.00 A $ $87.54 $0.02 A $35.73 $28.58 $3.52 % of Composite Bid Cumulative % of Composite Bid CMS Will Calculate Weighted Bids Based on Your Bid Amount

96 HCPCS Code Bid Weight Bid Limit Bid Amount Weighted Bid A $4.80 $3.84 $1.28 E $5, $4, $0.04 A $32.36 $25.89 $2.99 A $ $85.17 $9.12 A $36.68 $29.34 $1.83 A $25.71 $20.57 $1.02 A $11.79 $9.43 $0.43 A $ $ $5.72 E $ $ $6.62 E $1, $ $24.00 A $63.14 $50.51 $1.11 A $17.66 $14.13 $0.25 A $14.00 $11.20 $0.14 E $2, $1, $10.10 A $60.46 $48.37 $0.06 E $5, $4, $4.44 E $96.84 $77.47 $0.04 A $17.62 $14.10 $0.00 A $ $87.54 $0.02 A $35.73 $28.58 $3.52 % of Composite Bid Cumulative % of Composite Bid Weighted Bid = Bid Weight X Bid Amount

97 HCPCS Code Bid Weight Bid Limit Bid Amount Weighted Bid A $4.80 $3.84 $1.28 E $5, $4, $0.04 A $32.36 $25.89 $2.99 A $ $85.17 $9.12 Once eligibility is determined, this Composite Bid is the ONLY thing used to determine who is offered a contract! A $36.68 $29.34 $1.83 A $25.71 $20.57 $1.02 A $11.79 $9.43 $0.43 A $ $ $5.72 E $ $ $6.62 E $1, $ $24.00 A $63.14 $50.51 $1.11 A $17.66 $14.13 $0.25 A $14.00 $11.20 $0.14 E $2, $1, $10.10 A $60.46 $48.37 $0.06 E $5, $4, $4.44 E $96.84 $77.47 $0.04 A $17.62 $14.10 $0.00 A $ $87.54 $0.02 A $35.73 $28.58 $3.52 Composite Bid: $72.72 % of Composite Bid Cumulative % of Composite Bid CMS Totals Weighted Bids to Calculate Composite Bid

98 Final Bid HCPCS Code Bid Weight Bid Limit Weighted Bid Amount Bid A $4.80 $3.84 $ % % of Composite E $5, $4, $ % A $32.36 $25.89 $ % A $ $85.17 $ % A $36.68 $29.34 $ % A $25.71 $20.57 $ % A $11.79 $9.43 $ % A $ $ $ % E $ $ $ % E $1, $ $ % A $63.14 $50.51 $ % A $17.66 $14.13 $ % CMS Does Not Show You This!!! A $14.00 $11.20 $ % E $2, $1, $ % A $60.46 $48.37 $ % E $5, $4, $ % E $96.84 $77.47 $ % A $17.62 $14.10 $ % A $ $87.54 $ % A $35.73 $28.58 $ % Composite Bid: $72.72 Cumulative % of Composite Bid

99 HCPCS Code Bid Weight Bid Limit Final Bid Amount Weighted Bid A $4.80 $3.84 $ % E $5, $4, $ % A $32.36 $25.89 $ % A $ $85.17 $ % A $36.68 $29.34 $ % A $25.71 $20.57 $ % A $11.79 $9.43 $ % A $ $ $ % E $ $ $ % Certain Codes Represent The Bulk of Your Chances of Being Awarded a E $1, $ $ % A $63.14 $50.51 $ % A $17.66 $14.13 $ % A $14.00 $11.20 $ % E $2, $1, $ % A $60.46 $48.37 $ % E $5, $4, $ % E $96.84 $77.47 $ % A $17.62 $14.10 $ % A $ $87.54 $ % A $35.73 $28.58 $ % Contract Composite Bid: $72.72 % of Composite Cumulative % of Bid Composite Bid

100 HCPCS Code Bid Weight Bid Limit Final Bid Amount Weighted Bid % of Composite Cumulative % of Bid Composite Bid E $1, $ $ % 33.00% E $2, $1, $ % 46.89% A $ $85.17 $ % 59.43% E $ $ $ % 68.53% A $ $ $ % 76.39% E $5, $4, $ % 82.50% A $35.73 $28.58 $ % 87.34% A $32.36 $25.89 $ % 91.45% A $36.68 $29.34 $ % 93.97% A $4.80 $3.84 $ % 95.74% A $63.14 $50.51 $ % 97.26% When placed in order of importance, you can see that > 90% of your chances of winning rest on less than ½ of the codes A $25.71 $20.57 $ % 98.66% A $11.79 $9.43 $ % 99.26% A $17.66 $14.13 $ % 99.60% A $14.00 $11.20 $ % 99.79% A $60.46 $48.37 $ % 99.86% E $5, $4, $ % 99.92% E $96.84 $77.47 $ % 99.97% A $ $87.54 $ % 99.99% A $17.62 $14.10 $ % % Composite Bid: $72.72

101 HCPCS Code Bid Weight Bid Limit Final Bid Amount Weighted Bid % of Composite Cumulative % of Bid Composite Bid E $1, $ $ % 33.00% E $2, $1, $ % 46.89% A $ $85.17 $ % 59.43% E $ $ $ % 68.53% A $ $ $ % 76.39% E $5, $4, $ % 82.50% A $35.73 $28.58 $ % 87.34% A $32.36 $25.89 $ % 91.45% A $36.68 $29.34 $ % 93.97% A $4.80 $3.84 $ % 95.74% A $63.14 $50.51 $ % 97.26% A $25.71 $20.57 $ % 98.66% A $11.79 $9.43 $ % 99.26% A $17.66 $14.13 $ % 99.60% A $14.00 $11.20 $ % 99.79% A $60.46 $48.37 $ % 99.86% E $5, $4, $ % 99.92% E $96.84 $77.47 $ % 99.97% A $ $87.54 $ % 99.99% A $17.62 $14.10 $ % % Composite Bid: $72.72 Notice that the most impactful codes aren t necessarily those with the highest Bid Weight or Bid Limit. It s the correlation between the two that s most important.

102 HCPCS Code Bid Weight Bid Limit Final Bid Amount Weighted Bid % of Composite Cumulative % of Bid Composite Bid E $1, $1, $ % 37.85% E $2, $1, $ % 50.73% A $ $85.17 $ % 62.36% E $ $ $ % 70.81% A $ $ $ % 78.10% E $5, $4, $ % 83.76% A $35.73 $28.58 $ % 88.26% A $32.36 $25.89 $ % 92.07% A $36.68 $29.34 $ % 94.41% Notice what happens when your bid for E0601 is changed from $ to $1, Composite Bid jumped from $72.72 to $78.40 A $4.80 $3.84 $ % 96.04% A $63.14 $50.51 $ % 97.46% A $25.71 $20.57 $ % 98.76% A $11.79 $9.43 $ % 99.31% A $17.66 $14.13 $ % 99.63% A $14.00 $11.20 $ % 99.80% A $60.46 $48.37 $ % 99.87% E $5, $4, $ % 99.93% E $96.84 $77.47 $ % 99.97% A $ $87.54 $ % 99.99% A $17.62 $14.10 $ % % Composite Bid: $78.40

103 Final Bid % of Composite Cumulative % of HCPCS Code Bid Weight Bid Limit Weighted Bid Amount Bid Composite Bid E $1, $ $ % 32.34% E $2, $1, $ % 45.95% A $ $85.17 $ % 58.24% E $ $ $ % 67.17% A $ $ $ % 74.87% E $5, $4, $ % 80.86% A $35.73 $28.58 $ % 85.60% A $32.36 $25.89 $ % 89.63% A $36.68 $36.31 $ % 92.69% A $4.80 $4.75 $ % 94.83% Instead, what if we simply raise the irrelevant codes to 1% below Bid Limit Composite Bid moved from $72.72 to $74.20 A $63.14 $62.51 $ % 96.68% A $25.71 $25.45 $ % 98.38% A $11.79 $11.67 $ % 99.10% A $17.66 $17.48 $ % 99.51% A $14.00 $13.86 $ % 99.74% A $60.46 $59.86 $ % 99.83% E $5, $5, $ % 99.91% E $96.84 $95.87 $ % 99.97% A $ $ $ % 99.99% A $17.62 $17.44 $ % % Composite Bid: 74.20

104 The Conclusion from this Analysis is that your bid strategy should be focused on a small number of HCPCS codes within a given Product Category. The majority of included HCPCS codes have such a minimal impact on the bid determination as to be practically irrelevant. Discounting items with small Bid Values will not likely help you win a bid but will almost certainly hurt you when the winning bid rate (fee schedule) is determined for each of the HCPCS codes within the Product Category.

105 How Much Are Winning Bidders Paid? Once the winning bidder pool has been set, CMS can determine Single Payment Amounts By HCPC code, the Single Payment Amount is set at the median bid of all winning bidders

106 You now have the links to actual bid worksheets AND our what if worksheet tool to allow you to note and evaluate the true weight of each code. The worksheet tool will include warning colors for codes with high weights and also for bids that may trigger a bona fide (e.g., too low) challenge and/or prevent typos. Again here are links: BidPreparationAndImpactAnalysisRound xls

107

108

109

110

111 So.what ARE the key codes by category? (They are highlighted in RED on your worksheets, but let s a peek now )

112 Enteral The undiscounted composite bid for Dallas is $1.40 As an example, if you desires to discount the Enteral category 30%, you must have a discounted composite bid that is approximately equal to $.98. There are 17 codes of which you must bid. There are only 6 codes that move the composite bid by at least 5%:

113

114 General Home The undiscounted composite bid for Dallas is $ As an example, if you desires to discount the General Home category 30%, you must have a discounted composite bid that is approximately equal to $ There are 63 codes of which you must bid. There are only 4 (!!) codes that move the composite bid by at least 5%:

115

116 Nebulizers The undiscounted composite bid for Dallas is $21.60 As an example, if you desires to discount the Nebulizers category 30%, you must have a discounted composite bid that is approximately equal to $15.12 There are 17 codes of which you must bid. There are only 3 (!!) codes that move the composite bid by at least 5%:

117

118 NPTW The undiscounted composite bid for Dallas is $ As an example, if you desires to discount the NPTW category 30%, you must have a discounted composite bid that is approximately equal to $ There are ONLY 3 codes of which you must bid. There is only 1 code that counts at all!!!!

119

120 Respiratory The undiscounted composite bid for Dallas is $91.54 As an example, if you desires to discount the Respiratory category 30%, you must have a discounted composite bid that is approximately equal to $64.08 There are 5 oxygen Payment Classes and 23 codes of which you must bid for a total of 28. There are only 2(!!) codes that move the composite bid by at least 5%:

121

122 Standard Mobility The undiscounted composite bid for Dallas is $ As an example, if you desires to discount the Standard Mobility category 30%, you must have a discounted composite bid that is approximately equal to $ There are a whopping 153 codes of which you must bid (and most don t count at all!!!!) BUT there are only 5 (!!) codes that move the composite bid by at least 5%:

123

124 TENS The undiscounted composite bid for Dallas is $95.30 As an example, if you desires to discount the TENS category 30%, you must have a discounted composite bid that is approximately equal to $66.71 There are only 5 codes of which you must bid. And, in TENS only- most DO count! (4):

125

126 My Contact Information: Mark Higley, Vice President - Regulatory Affairs mark.higley@vgm.com O: C:

127 Session #2 Tips, Tools and Strategies to Optimize your Business in 2016!

128 Tips, Tools and Strategies to Optimize Your Business in 2016 VGM Fall Seminar Series 2015

129 Tips, Tools and Strategies 1. Become much better at operations/best practices 2. Market trends 3. Payer consolidation 4. Utilizing Data 5. Growth strategies 6. Population of opportunity

130 Your Market

131

132

133 HME Operations Healthcare struggles with operations Focus on perfecting processes within your core business Execute reliably and consistently Growth Differentiation Manage expenses Understand your market Leverage all the best ideas and resources of your team, your peers, competitors, vendors, experts and other industries Don t be afraid to outsource where it is a better option Get control of your AR Measure Results

134 Operations Utilizing Data We are in a world of big data You must be able to measure the health metrics of the patient population in your core You should be utilizing data on the input side and the outcome side Know where your business is and where more can be found. Measuring Results Identify the key performance metrics in the core business Relentlessly track results Reach most of the time you can do dramatically better

135 Operations Get Bigger Most HMEs are too small Scale in your core presents many financial advantages Incremental dollars drive profit Optimizing Technology Technology is your friend in optimizing the core Some opportunities include: Playmaker CRM Billing reimbursement and audit prevention tools Workflow management Paperless office Billing and operating system Fleet management

136 Benchmarking Retail Real Retail, 5% HME Retail, 30% None, 65%

137 Lincare s Product Mix Average duration of an O2 patient Other, 8% months months months Specialty- PT/INR, NIV, NPWT, 27% Oxygen, 41% CPAP, 17% Enteral/Infusion, 7%

138 Benchmarking 2007 Other, 7% Patient Pay, 2% Commercial, 40% Medicare, 38% Patient Pay 8% 2014 Other 6% Medicare 28% Medicare Advantage, 4% Medicaid, 9% Commercial 31% Medicare Advantage 10% Medicaid 17%

139 Lincare Payer Mix 2014 Patient Pay, 6% Commercial, 31% Medicare, 52% Medicaid, 11%

140 Benchmarking

141 How Lincare Compares to you 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% Sales, billing, corp Del & Equip clinical Brach ops, CSRs % 6.7% 5.0% 9.9% % 6.5% 4.7% 8.9% % 6.3% 4.7% 8.8% % 5.8% 4.2% 9.1%

142 Benchmarking

143 Expenses and Profit as a % of Revenue

144 Personnel Costs - % of Rev 36.0% 35.0% 34.0% 33.0% 32.0% 31.0% 30.0% 29.0% 28.0% 27.0% 35.3% 34.0% 31.0% 29.5% Apria Lincare Hanger DME

145 DSO Hanger USPT Apria Lincare

146 Liquidity Days Cash Need Available Lincare Apria Rotech Hanger

147 Key Metrics Personnel costs as a percentage of revenue Branch operations costs as a percentage of revenue Cost of goods/products as a percentage of revenue Days to: bill, collect, deliver Per unit cost on key activities: Intake, Billing a claim, Delivery, Sales/business generation Key volume metrics, like masks per patient per year, percentage of orders filled, accessories as a percentage of base Revenue per patient Lifetime value of a patient equipment type Length of stay

148 Market Trends Do it yourself healthcare Consumers taking care of own care Balancing privacy and convenience 5 million records compromised last year High cost patients spark cost saving innovations 1 percent of patients generate 20 % of healthcare spend in the US Open everything to everyone Data transparency

149 Market Trends Getting to know the newly insured 10 million adults gained coverage due to ACA State Medicaid expansion Redefining health and well being for millennials Health system want to engage, attract and retain By 2030 will make up 75% of US workforce Born between Partner to win Collaborative efforts

150 Patient Pay- Collect Up Front! O&P Hospital or clinic based retail Pain Relief Specialty athletics Home Modifications Specialty Vehicles Home monitoring Accessories ecommerce Self-Health Market Trends

151 Market Trends The growth of deductibles 4% in 2005 to 55% in 2015 Consumers are making more cost conscious choices Shopping for care Low cost alternatives- urgent care and retail clinics Patient Pay Collect from patient up front Increase cash pay product mix

152 Can you match the service to the line in the chart? Cardiac Mom-Baby PCP visit Cancer Convenient Care Healthcare service line volumes over time one health center

153 Can you match the service to the line in the chart? Cardiac Mom-Baby PCP visit Cancer Convenient Care

154 Market Trends Growth of ACO s 626 in US as of May 2014 covering 20.5 million lives Expect more health system owned payer groups Intensity of rivalries Fight over patients, physicians and payer contracts Reduced inpatient procedures Generates 6-10 times higher revenues compared to outpatient

155 Market Trends Shift from fee-for-service to population health 90% of payers, 81% of hospitals have agreements 2/3 of payments by 2020 Huge growth in IT spending Largest capital investment 4% revenues spent Huge cost over the next several years Competition for physicians Large demand, small supply Rural area s struggling US physician shortage will be more than 130,600 by 2025 The need for trained specialists to care for aging with double by 2025

156 New is Necessary Many core HME products are in mature portion of lifecycle, or beyond New products have always been a key part of successful HME story New customer targets are also an opportunity Orthotics and Prosthetics Infusion therapy Retail Home/Vehicle modification New HME products like NIV, chest compression

157 Payer Consolidation Few control the many 60% of the health insurance market served by 10 plans In 40% of 388 US metros, 1 insurer controls 50% of commercial insurance market

158 Dollars in Billions The Big 5 $130.5 $73.9 $58 $48.5 $34.9

159 Recent Mergers In 2015, two large mergers were announced:

160 Aetna/Humana New company: 33M members and 2015 revenue of $115B Louisville-based Humana began as a single nursing home in 1961, is now the 2 nd largest player in Medicare Advantage Medicare s private managed-care option enrollment 3x in past decade Will continue to grow with surge of baby boomers entering Medicare Deal gives Aetna access to tech and ancillary services acquired/developed by Humana to manage cost/quality of care for chronically ill Medicare beneficiaries

161 Aetna/Humana Humana is now the most widely available Medicare Advantage option nationally The combined company would have 4.34M Advantage members with the addition of Humana s 3.2M enrollees

162

163 Aetna 33 states as Medicaid MCO 28 Medicare Advantage Markets

164 Humana 44 states as Medicaid MCO 44 Medicare Advantage Markets

165

166 Anthem/Cigna New company: 56M members and revenue of $115B At the heart of the merger is Anthem s desire to expand their government business, particularly in the Medicare Advantage market The combined company would have 1.1M Advantage members (well behind Aetna/Humana s 4.34M) Long term strategy to build its Medicare business through the biggest strength of Anthem and Cigna their large employer-group business More than 80% of revenue will come from commercial contracts with employers across the country Anthem s goal: retain their massive pool of workers and their families aging into Medicare

167 Health Insurer M&A How do Health Insurer mergers affect you? Narrower provider networks Response to rising costs Narrowing of physician network now, but same model applies to other networks Home health, DME, custom rehab Narrowing of networks contributes to decrease in patient satisfaction Health Insurers looking to drive costs down What does that do with your rates?

168 Mergers won t stop: Health Insurer M&A AHA is fighting Health Insurer mergers, but what are Health Systems doing themselves? They re following the same M&A trend as Health Insurers ACA didn t initiate this trend, but its policies have certainly ignited it

169 Utilizing Data as part of growth strategies

170 Why should you get my business? Patient Health Outcomes as sales/marketing tool Hospitals/Health Systems/Payers searching for ways to reduce costs and avoid readmissions Bundled payments HRRP Hospital Readmission Reduction Program Integrated provider networks HME s can play a large role as transitional care providers

171 Metrics Hospitals Care About Targeted sales/marketing outreach to hospitals presenting transitional care solutions: Compliance rates/programs for patients Timely delivery for discharges Length of stay by disease state Readmission rates Readmission data available on hospitals: Readmission-Rates/92ps-fthr

172 Identifying growth opportunities with data Reimbursement pressures forcing HME s to get bigger and more efficient Key targeting strategies: Grow your core business respiratory, rehab, sleep Find new products to grow revenue and diversify your business Data can help focus sales/marketing on key physician targets Are you reaching potential with your referral sources? Who should we target for our new product rollout?

173 Utilizing your EMR Tracking physicians you receive referrals from by product and volume When was last referral When was last sales contact What is volume change year-over-year Other physicians in their office Triaged list of sales/marketing plans based on value to your business

174 COPD? Who is Diagnosing? PRIMARY SPECIALTY PRACTITIONERS FACILITIES CLAIMS PATIENTS PROCEDURES CLAIMS PER PRACTITIONER PATIENTS PER PRACTITIONER Internal Medicine 86,635 60,524 5,839,303 2,481,458 * Family Practice 83,246 67,735 5,218,748 2,241,095 * Pulmonary Disease 11,794 25,220 3,030,825 1,192,010 * Emergency Medicine 32,469 12,548 1,410,036 1,008,300 * Cardiology 20,843 17, , ,792 *

175 Who writes for CPAP? PROCEDURES PER BUCKET PRIMARY SPECIALTY PRACTITIONERS FACILITIES PROCEDURES PRAC CPAP ANY 136,716 7,846 5,564, CPAP Pulmonary Disease 9,110 6,669 2,254, CPAP Family Practice 46,738 6, , CPAP Internal Medicine 33,629 5, , CPAP Neurology 3,530 4, , CPAP Nurse Practitioner 10,544 4, , CPAP Otolaryngology 4,271 3, , CPAP Sleep Medicine 338 2, , CPAP Physician Assistant 7,000 3, , CPAP Cardiology 4,669 2, ,

176 Targeting your sales force with claims data Are we reaching our potential with current referral sources?

177 Identifying Cross Selling Opportunities Are we offering all services to current referral sources?

178 Who are physicians in your market that work with your competitors?

179 Maximizing Sales Force Output How much does a sales call cost? Cost of Sales Rep $100, (including benefits) Days worked/yr Avg 200 Calls/workday Cost per touch $75.00 (not counting operating expenses) Increase the value of each call a Rep makes by targeting those physicians that provide the best opportunity for growth

180 Segmenting & Engaging Referral Source Prospects Segmenting Referral Source Prospects Targeting groups of physicians based on potential value / relationship Value, segment and assign sales opportunities Create targeted sales/marketing plans for each segment to optimize contacts with key prospects Targeted focus on key referral sources allows more resources to target account w/ multiple mediums Direct mail Inside sales calls In-person visits Follow up calls

181 Fish where the fish are!

182

183 RETAIL IS AN OPTION Hundreds of HME Suppliers are investing in Retail Programs In the next 3-5 years there will be a regional HME Caretailer with more than 5 locations Boomers have more wealth than any other generation before it, they will pay for care, comfort and convenience Branding your business is more important than ever

184 Traditional Retail Science The five core retail competencies: Store experience and design Product sourcing and merchandising Financial analysis and projections Operations and training Marketing and advertising

185 People will spend money on Holistic/ All Natural Products Quality products (better and best) Comfort Items Image items (aesthetics are big-time important) Tag along Accessories Athletic Performance Products Everyday Active and Recovery Products Safe at Home Senior Products

186 Boomers want an experience With Consumers paying more for their own healthcare we must focus on an experience where they want to spend their money with you! Our Product expertise will set us apart, we must know our products very well and match them expertly to the consumers needs We need to upgrade customer service so we can educate on a complete product packages to increase our average ticket sales We need to take advantage of the trusted relationship we already have with existing customers We are viewed as companies that only have products for the very sick, Boomers do not get sick or old.

187 Creating the Cash Model! Most times the best person to run your Cash/Retail is not your current employees and most likely not current ownership! Knowing that it requires a model that is an180 degrees different mindset from your current third party model To be a successful Caretailer requires an all in management team With the right people in place, many Caretailers can break even in 6-9 months

188 The Best Marketers Win With cash becoming a prominent payer for healthcare, we must focus on marketing direct to the consumer Website marketing and analysis should be a major focus and investment The #1 marketing target should be females between the age of We are seeing more HME with dedicated Retail Marketing Managers than ever before Think about being a marketing company that happens to provide HME

189 THINK DIFFERENTLY Analysis Market Data and better collect data on our activities Set Benchmarking goals for each department of your organization Explore a partnership type relationship with your targeted Health Care Systems Diversify your offerings to higher margin products and payers Develop a cash/ retail/ Caretailing program Market like never before

190 VGM CAN HELP!!! Market Data focused on utilization where you do business! Caretailing, from market analysis and forecasting, showroom design and set up, product selection, in-store operations and marketing Government Relations and Regulatory Experts Homelink! VGM Fulfillment! Audit Expertise! Web Design, maintenance and WEB MARKETING Services Insurance and Surety Bonds Financing/Leasing Employee Education, Billing and Reimbursement Off the shelf Marketing, Fleet Management HEARTLAND CONFERENCE

191 Population of Opportunities

192 Population of Opportunities

193 Population of Opportunities

194 My Contact Information: Ryan Ball Director, VGM Market Data (866) / (319) Ryan.ball@vgm.com

195 Session #3 Competing Forces Within: Balancing Sales with Successful Reimbursement

196 Competing Forces Within: Balancing Sales with Successful Reimbursement

197 Learning Objectives Examine the different internal MOTIVATION in deciding when a product is ready to be delivered Identify the NON-NEGOTIABLE REQUIREMENTS for Medicare reimbursement Illustrate the different OUTCOMES of these decision Implement a protocol to ensure a SUCCESSFUL reimbursement outcome

198 Employee Motivation/Agenda/Measurable Identify what motivates each employee (how each is evaluated) Identify possible conflicting motivations Understand how to address these for the best overall outcome for the company

199 DELIVER THE PRODUCT? NO YES

200 Employee Motivation/Agenda/Measurable Service the patient timely Sales volumes - pressure from management for revenue End of month sales quotas Claims paid Successful audits Commission

201 Non-Negotiable Requirements Aren t all requirements..requirements How could some requirements be negotiable Interpretation of requirements Motivation (what makes that person look good) What is best for the company as a whole (long term)

202 Non-Negotiable Requirements Why Gray AREAs? Wanting to see it a certain way due to motivation?

203 Non-Negotiable Requirements Medical necessity (coverage criteria met) All least costly alternatives ruled out with objective measurements (manual muscle test, range of motion, saturation, pain scale, etc.) Legible identifier (all documents) Proof of receipt dates of the required documents (date stamp) Face to face (chart note from ordering practitioner in the format of other entries) Home assessment Assignment of benefits (AOB) Supplier standards (i.e. warranty information, etc.) Delivery ticket (detailed)

204 Non-Negotiable Requirements - PMDs LCMP evaluation signed, dated and co signed and dated with concurrence by ordering practitioner ATP assessment signed and dates (no attestation must show work) LCMP non financial attestation Home assessment Purchase option letter for base and capped rental accessories (even as a replacement) 7 Element order Detailed Product Description (DPD)

205 Non-Negotiable Requirements Respiratory Properly completed CMN/DIF Good test results (blood gas study, sleep study) Patient and/or caregiver education provided Capped Rental or Inexpensive Routinely Purchase Letter Detailed Written Order (WOPD) (detailed)

206 Common Scenario You know the patient qualifies for the item ordered BUT. You obtain the documentation but something is something is missing/wrong? You contact the clinician and let them know that based on the documentation provided the patient doesn't meet the coverage criteria for the item ordered and explain why. They say, I'll write an addendum to address the missing or incomplete information.

207 Addendum / Amendment How to best handle addendum/ amendments AVOID them if possible! Be Proactive! Invest in PROACTIVE education for physicians (other involved clinicians) Cheat sheets (condensed guides) Live training (brief ideally 1-2 hours but anything is better than nothing) NOT forms or templates or examples

208 What is the purpose of an addendum/amendment? Correct an error Add additional information (as a clarification referring back to original encounter) Address something that was found to be either not clear or missing (as a clarification) from the examination / evaluation notes

209

210 Outcomes Which Path Will You Choose?

211 Write OFF $ Outcomes Which Path Will You Choose? Rush delivery Denial Appeal Audit recoupment Appeal Resources (reactive) No chance to obtain what is required (DOS / no pressure)

212 Outcomes Which Path Will You Choose? Deliver ONLY When 100% READY Proactive (up front PRIOR to delivery) Opportunity to obtain what is required SUCCESSFUL Reimbursement (no Audit worry)

213 Implement a Protocol for Successful Reimbursement Ensure everyone involved understands the requirements and are acting in the best interested of the company Assign someone within as the final decision (give them the authority to make these decisions without question) Don t allow delivery until all requirements are met PROACTIVELY ADDRESS COMPETING FORCES WITHIN

214 Contact Information Ronda Buhrmester, CRT VGM / US Rehab O: F: ronda.buhrmester@vgm.com Dan Fedor VGM / US Rehab O: F: dan.fedor@vgm.com

215 Session #4 The 2016 rural roll-out, bundling, acquiring contracts and the MPP Methodology.

216 The Affordable Care Act amended the Medicare Modernization Act statute to mandate use of information from the DMEPOS competitive bidding program to adjust the fee schedule amounts for DME in areas where competitive bidding programs are not implemented by no later than January 1, 2016.

217 Introduction On October 31st, 2014, the Centers for Medicare & Medicaid Services (CMS) released a final rule (CMS-1614-F) which affects all durable medical equipment suppliers in the United States. The Rule establishes a new reimbursement methodology that makes national price adjustments to payments for Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) items currently paid under Medicare fee schedules. This affects all HCPCS codes currently included in the Round 1 and Round 2 geographic competitive bidding areas.

218 Reimbursement for these items will be reduced to an amount based on the current competitive bid single payment amounts. Today I will explain the various regions within the United States that CMS has created (see next slide, Texas suppliers are included in the Southwest region); with each region having its own unique regional single payment amounts. Examples of the new reimbursements will be offered for high utilization DME items, as well as a link to a calculator which includes all affected items.

219

220 For the competitive bid DME items, the final rule phases in, over 6 months, a new reimbursement rate for non-competitive bidding areas (CBAs). On January 1, 2016, the reimbursement rate for these claims (with dates of service from January 1, 2016 through June 30, 2016) will be based on 50 percent of the un-adjusted (current) fee schedule amount and 50 percent of the adjusted (reduced) fee schedule amount which will be based on the regional competitive bidding rates. Starting on July 1, 2016, reimbursement rate will be 100% of the adjusted fee schedule amount which will be based on regional competitive bidding rates.

221 Industry stakeholders, including VGM, AAHomecare and the state associations are attempting to delay and/or mitigate the implementation on January 1, 2016 of this Rule. We argue that the application of payment rates, set by a competition, to non-cbas is flawed and will disrupt Medicare beneficiaries access to the DME items they need. In CBAs, suppliers accept contracts for DME items at a lower rate because there will be a reduced number of suppliers that can operate in that bid area.

222 Suppliers try to make up for the drastic payment cuts through increased volume of beneficiaries served. As a result of CMS final rule, suppliers - such as those in attendance today- in non-competitive bid areas will receive the same drastic payment cuts set in CBAs, without exclusive contracts or increase in volume of business. The industry also has data that indicates providing DME items in rural areas have a higher cost than in urban areas.

223 Today I will clarify the background, final rule detail and proposed implementation of the program. All of you will receive estimates of the new regional single payment amounts via an electronic link. While the industry will not give up on its fight against competitive bidding, DME staff personnel must be aware to the likely continuance of the program and prepare accordingly.

224 Once more, the Affordable Care Act amended the Medicare Modernization Act statute to mandate use of information from the DMEPOS competitive bidding program to adjust the fee schedule amounts for DME in areas where competitive bidding programs are not implemented by no later than January 1, CMS estimates that by applying bid rates throughout the entire United States it would save over $7 billion over FY 2016 through This obviously affects the many non-metro regions of Texas!

225

226 Summary Beginning January 1, 2016, CMS will implement the Patient Protection and Affordable Care Act s directive to adjust payments nationwide based on DMEPOS Competitive Bidding Program ( CBP ) pricing, starting with fourteen categories of DMEPOS items. Unlike prior CBP rounds, which offered suppliers exclusive contracts in large metropolitan areas in exchange for reduced reimbursement, under the 2016 DMEPOS fee schedule CBP updates, the reduced rates will apply to suppliers nationwide, without exclusive market share. While CMS views this expansion as a source of great savings for Medicare, DMEPOS suppliers argue that reduced payments will not even cover their costs.

227 The CBP currently is employed in 109 CBAs in 43 states, plus a national mail order program for all states and territories. The average savings from the latest CBP rounds show significant reductions from then-existing DMEPOS fee schedule amounts: The Round 1 CBP Rebid, initiated in 2011, achieved a 32 percent average reduction; Round 2, initiated in 2013, achieved a 45 percent average reduction; and the Round 1 Recompete, also initiated in 2013, achieved a 37 percent reduction. As I noted previously, CMS is required to recompete contracts at least once every three years, and has now initiated a recompete for Round 2. For the items included in these CBP rounds, the lower payments amounts established by competitive bidding will be used beginning in 2016 to set nationwide payment amounts that apply outside the geographic areas of the CBAs.

228 Under the Final Rule, CMS stated it attempted to accounts for regional variations in costs, establishing Regional Single Payment Amounts ( RSPAs ) calculated for each of eight regions. CMS calculates the RSPA for each region using the unweighted average of the SPAs for a DMEPOS item from all CBAs that are fully or partially located in that region, regardless of population. CMS also states that the unweighted average avoids giving undue weight to SPAs in more heavily populated areas. CMS then uses the average of each RSPA, weighted by the number of states in that region, to calculate a national average RSPA.

229 Let s look at this more closely Once more CMS will adjust fee schedule amounts for states in different regions of the country based on previous competitive bidding round pricing in these regions. The regional prices would be limited by a national ceiling (110% of the average of regional prices) and floor (90% of the average of regional prices). There were originally three possible Regions in the proposed rule (see next). Again, Texas suppliers here today service the Southwest BEA region.

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231 CMS determines a regional price for each state equal to the average of the single payment amount for an item or service from the CBAs that are fully or partially located in the same region where the state is located. CMS determines a national average price equal to the average of the regional prices.

232 Adjust fee schedules annually using CPI-U Revise the SPA each time there is a new round of bidding. BUT to be clear, the current RSPAs have already been determined using Round 2 (e.g., Atlanta) and Round 1 recompete (e.g., Miami) single payment amounts. And, CMS Joel Kaiser has suggested that if the Round 2 recompete SPAs are determined prior to the roll out, these prices will be used.

233 Although we believe that the costs of furnishing items and services in rural areas are different than the costs of furnishing items and services in urban areas, there is no evidence to support a statement that the difference in costs is significant. However, in order to proceed cautiously on this matter in the interest of ensuring access to covered DMEPOS items and services, we are proposing to phase in the price adjustments, as explained below, so that we can monitor the impact of the adjustments as they are gradually phased in. What this means: One half the reductions take effect January 1, 2016; the remainder on July 1, 2016.

234 While not released We have the current SPAs in all markets from the current programs. As CMS has provided us the methodology to determine the regional payment amounts (RSPAs), and has confirmed that the BEA regional array will be utilized, we can hence estimate the RSPAs for Texas and the other regions now (*). (*) This assumes the R2RC prices are not determined in a timely manner; if they are, then the following estimates may not be accurate

235 Summary of Provisions As noted, the new adjusted pricing for DMEPOS CBP items will begin on January 1, This will be a phase-in process over 6 months, allowables will be reduced by 50% on 1/1/16 and 100% on 7/1/16. CMS finalized a pricing methodology for non-competitive bidding areas. A rural area will be defined as a postal zip code that has more than 50 percent of its geographic area outside of a metropolitan area (MSA) or a zip code that has a low population density area that was excluded from a competitive bidding area. The payment amount will be 110 percent of the average of the SPAs of all the areas where CBPs are implemented. Let s look at Texas:

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237 Counties in an orange metropolitan area but not included in any CBA are paid at the RSPA. Texas is in the Southwest region. Using the averages of the E1390 oxygen single payment amounts in the of all CBAs in this region, the reimbursement would be $ on January 1, 2016, and then $94.56 on July 1, 2016 for Texas.

238 The yellow rural areas in Texas, however, will be reimbursed at the adjusted fee schedule amounts based on 110 percent of the national average RSPA. As noted earlier, CMS has adopted an expanded definition of rural areas eligible for this provision. The array of ZIP codes defined as rural will be released sometime in late Thus, the RSPA in rural areas in Texas for E1390 is $

239 Can we see (now) the likely RSPAs? Yes! AAH Regulatory Council has created a document which includes the high utilization codes. Go to:

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241 And we have developed a calculator for ALL bid codes This is the URL: REGIONS.xlsx Click on it from any device and save. Let s take a look!

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243 You can select your area

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245 Lastly, how about a state that has NO CBAs?? CMS dubs these states as rural or frontier In this case the SPA would again be 110% of the national average.

246 Continuing Concerns of Non-Bid Areas Application of Bid Rate Information When will CMS publish the RSPAs, rural rates and interim (Jan-Jun 2016) rates? When will CMS publish zip codes that are rural? How will rural rates be identified on the state fee schedules? Will a modifier be used?

247 How will providers identify rural areas on claims (Will there be a rural rate modifier? Will the DMEMAC systems automatically determine reimbursement based on the patient s zip code)?

248 Also from the Rule (and this issue is especially troubling) ) (Source:) Frequently Asked Questions on Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) 2015 Medicare Payment Final Rules (CMS-1614-F) Adjusting DMEPOS Payment Amounts Using Competitive Bidding Information 42 CFR (g) 2Q. When CMS uses competitive bidding information to adjust the DMEPOS fee schedule amounts in accordance with the methodologies established under this rule, would the bid limits for competitions under the competitive bidding program(s) that begin after the adjusted fee schedule amounts are implemented be based on the adjusted fee schedule amounts?

249 2A.Yes. This issue is discussed in the November 6, 2014, Federal Register at 79 FR The payment amounts that would be adjusted in accordance with sections 1834(a)(1)(F)(ii) and (iii) of the Act for DME, section 1834(h)(2)(H)(ii) of the Act for orthotics, and section 1842(s)(2)(B) of the Act for enteral nutrients, supplies, and equipment shall be used to limit bids submitted under future competitions and DMEPOS competitive bidding programs (CBPs) in accordance with regulations at (f).

250 Section 1847(b)(2)(A)(iii) of the Act prohibits the awarding of contracts under a CBP unless total payments made to contract suppliers in the competitive bidding area (CBA) are expected to be less than the payment amounts that would otherwise be made. In order to assure savings under a CBP, the fee schedule amount that would otherwise be paid is used to limit the amount a supplier may submit as their bid for furnishing the item in the CBA. The payment amounts that would be adjusted in accordance with sections 1834(a)(1)(F)(ii) and (iii) of the Act for DME, section 1834(h)(2)(H)(ii) of the Act for orthotics, and section 1842(s)(2)(B) of the Act for enteral nutrients, supplies, and equipment would be the payment amounts that would otherwise be made if payments for the items and services were not made through implementation of a CBP. Therefore, the adjusted fee schedule amounts would become the new bid limits.

251 Can we fight this?? Yes, and a potential legislative remedy exists. First of all, here is our basic argument

252 Although CMS recognized the geographic variation in costs and adopted a formula for higher reimbursement for rural areas, the Final Rule makes no adjustment to account for the fact that suppliers will no longer have the advantage of an exclusive contract and increased market share to accompany those prices. Under the prior CBP rounds, CMS only awarded contracts to the lowest bona fide bids needed to meet projected beneficiary demand; if a supplier s bid for an item was not accepted for a specific CBA, the supplier generally could not receive Medicare reimbursement for those items provided to beneficiaries within the CBA.

253 This system promised an increased market share for those suppliers whose bids were accepted, allowing them to survive on thinner margins by increasing volume. The Final Rule maintains the pricing established through prior CBP rounds, but by expanding nationwide and not limiting the suppliers authorized to receive reimbursement, no supplier will receive the anticipated market share and volume increase on which those prices were premised.

254 Additionally, CMS has not presented data demonstrating that its adjustment for rural and frontier states is sufficient to support the increased costs of doing business in those areas. In the Proposed Rule, CMS noted that previous legislation had required studies of the costs of furnishing DME in different geographic regions. After review of the 1996 study of DME supplier product and service costs, CMS concluded that the general consensus among those that participated in the study was that there was no conclusive evidence that urban and rural costs differed significantly or that the costs of furnishing DME items and services were higher in urban areas versus rural areas or vice versa.

255 The absence of conclusive evidence supporting significant cost differences is not the same as the presence of conclusive evidence that cost differences do not exist, however. Ultimately, therefore, the reduced pricing has the potential to reduce beneficiary access to DMEPOS in rural and frontier areas.

256 CMS final rule also limits the bid ceiling for future rounds of competitive bidding to payment rates set by previous rounds of bidding. Currently, bid limits are set by the fee schedule, which allows for adjustments for inflation. CMS has indicated that it plans to continue competitive bidding for DME items far into the future. Decreasing the bid ceiling limit over many years, while medical inflation continues to rise, will set artificially low rates, which will hamper competition.

257 Ever decreasing bid limits will make it impossible to set market prices through an auction process, without negatively impacting beneficiary care. Congress required CMS to save money compared to the (unadjusted) fee schedules, because taken to its logical conclusion, CMS plan would eventually result in suppliers paying the government to provide items and services.

258 DMEPOS Rule Relief Legislative Specifications: Establish a 30 percent adjustment to address increased costs suppliers incur in non- CBAs to be applied to average regional single payment amount as determined by the methodology set forth in 42 C.F.R (g) (79 Fed. Reg (November 6, 2014)), as well as an update mechanism. CMS has already agreed to grant a 10 percent adjustment of the bid rates to rural suppliers to replace the loss of volume. 30 percent would be equitable due to loss of volume and maintaining patient access.

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260 Provide for a four-year phase-in of the national price adjustments to the DMEPOS fee schedule set forth in 42 C.F.R (g) (79 Fed. Reg (November 6, 2014)) when implementing them. This will allow suppliers ample time to alter their market base and adjust to the new reimbursement rates. Mitigating this program is key for allowing the long-term fix to replace competitive bidding entirely.

261 Establish in statute the bid limit ceiling for competitive bid contracts that begin on or after January 1, 2017 at the unadjusted fee schedule payment rates as of Jan 1, The current bidding system requires the bidding rates to begin at winning rate from the last bidding session. The bid limit will be reduced with every bidding session making reimbursement rates consistently lower and unattainable.

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263 Lastly We are developing a financial calculator that you may wish to utilize to estimate the effect of the two-phase reimbursement decreases in Somewhat simply stated, you input your current Medicare FFS percentage of business (by product category affected by this Rule) and the software will suggest the effect on the top - and bottomline. Various what if scenarios are being developed. Look for it this fall!

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265 Bundling on the horizon?

266 Next: Bundling Also within CMS-1614-F, CMS is adopting with revisions its proposal to test a limited phase-in of bundled payments for certain types of DME subject to competitive bidding, under the auspices of the CMS Center for Medicare and Medicaid Innovation's demonstration authority.

267 This is a limited phase in (12 areas) of bundled monthly payment amounts for the equipment, supplies, accessories, maintenance and repairs for (then proposed) enteral nutrition, oxygen, standard wheelchairs, hospital beds, CPAP/RAD in place of capped rental policies. CMS will move forward with a bundling for power wheelchairs and CPAP in up to 12 markets. CMS did not move forward with bundling for: oxygen, standard manual wheelchairs, enteral nutrition, RADs, and hospital beds.

268 CMS will initially test this payment model in no more than 12 CBAs in conjunction with competitions that begin on or after January 1, 2015; any expansion of the program would follow program evaluation and future notice and comment rulemaking. Under this policy, the SPA for the monthly rental of DME will be based on bids for the monthly rental of DME and all item and service associated with the rental equipment, including all related supplies, accessories, maintenance, and servicing.

269 The SPA is based on bids submitted and accepted on a monthly basis for each month of medical need during the contract period. Separate payment for replacement of equipment, repair or maintenance and servicing of equipment, or for replacement of accessories and supplies necessary for the effective use of the equipment would not be allowed.

270 CMS is also adopting various special transition policies, grandfathered supplier provisions, rules regarding repair and maintenance of beneficiaryowned power wheelchairs, and rules to ensure that bids submitted for items paid on a continuous rental basis are less than would otherwise be paid. CMS will provide advance notice to suppliers and beneficiaries about any special payment rules to be included in a CBP.

271 CMS Rationale

272 Hypothetical CPAP Reimbursement in NON-bid area: TOTAL: $6,238.67

273 How the bundled payment demo will work:

274 How the bids will be set for the demo:

275 Question to CMS: How will bid limits be established for competitions involving the special payment rules? (for CPAP): Per section 42 CFR (b)(4), the bids submitted for CPAP devices paid on a bundled, continuous monthly rental basis cannot exceed the 1993 fee schedule amounts for CPAP devices, increased by the annual fee schedule updates (i.e. up to the year in which the competition begins). See chart next slide. Medicare paid on a bundled, continuous monthly rental basis for CPAP devices from 1989 thru 1993.

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277 The next steps: Based on the final rule, CMS seeks to phase in the initial round of the bundled payment demo as early as 2017.

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279 The Comparator CBAs :

280 Questions for CMS: When will bundling occur? The Preamble states in conjunction with Round 2 recompete and not before 2017? What will be the length of the bundling contracts? Need more information on timing and process of how CMS will or has developed bundles. Specifically the items to be included and the calculation used to determine the ceiling payment amount for the bundle to be bid. Will there be opportunity for input on PMD and CPAP bundles? How much advance notice, given radical new rules? Does the CPAP bundling require adherence to current PAP supply utilization guidelines?

281 CMS must adjust the bid ceiling to account for increased repair responsibility post ownership transfer, how will CMS do that? For the up to 12 new CBAs, is the intention to do CPAP and PMD together or will they be separate; for example 4 CPAP and 8 PMD? Will CMS develop new HCPCS codes for the bundle of services, creating one for CPAP and one for PMD? How will secondary payers/medicaid be able to pay co-pays given new codes and a bundle that has no cap? Current managed care contracts have established limits that do not consider a never ending co pay. If new codes are not established for a bundled rate how will claims be processed if Medicare is the secondary payer?

282 The final rule indicated medical documentation issues would be addressed outside of the rule. How and when will they be addressed? Current Medicare requirements restrict a beneficiary s ability to change suppliers regardless of how the payment is structured. One of the cited goals in the final rule is to allow beneficiaries to easily change supplies and this is not the case as the documentation requirements stand today. In the new CBAs for the bundles, what happens when the contract period ends or the patient moves out of the CBA? Does the supplier pick-up equipment? Does the patient then receive the title? How frequently (monthly, quarterly) will the following be measured and publically reported?

283 In the competitive bidding programs using a bundled, continuous rental basis, does the supplier have to provide maintenance, servicing and repairs for the reasonable useful lifetime of the item? No, the beneficiary can change suppliers. Suppliers must keep the item in good working for each month the supplier furnishes the item to the beneficiary. How is the cost of maintenance, servicing and repairs incorporated under the two separate special payment rules? The cost of maintenance, servicing and repairs is included in the supplier bids used in calculating the single payment amounts.

284 In the competitive bidding programs using a bundled, continuous rental basis, what happens if the contract period ends and the contracts are not re-competed or the patient moves out of the CBA to an area where the special payment rules do not apply? The payment method would revert to the DMEPOS fee schedule developed under the standard payment rules and a new capped rental period of continuous use would begin the item assuming medical necessity for the CPAP device or power wheelchair is established based on new medical necessity documentation

285 How can I acquire a bid contract??

286 The Carve Out Up to now, the rule has been that when selling assets, a contract supplier cannot carve out a portion of its competitive bid contract. A recent CMS rule (1614-F the same as Rule which included the nationwide rollout of competitive bid reimbursements and bundling) has changed this.

287 And then, lastly, we are continuing to see 100% asset purchases, partial asset purchases, 100% stock purchases, and partial stock purchases ( the 5% transaction ).

288 THE CARVE OUT On July 11, 2014, CMS published a proposed rule entitled Revision to Change of Ownership Rules to Allow Contract Suppliers to Sell Specific Lines of Business. The rule was finalized on November 6, Interestingly, only one comment from the DME industry was filed. The new rule, found at 42 CFR (d) (4), states:

289 THE CARVE OUT For contracts issued in the Round 2 Recompete and subsequent rounds in the case of a CHOW where a contract supplier sells a distinct company, (e.g., an affiliate, subsidiary, sole proprietor, corporation, or partnership) that furnishes a specific product category or services a specific CBA, CMS may transfer the portion of the contract performed by that company to a new qualified entity, if the following conditions are met:

290 THE CARVE OUT (i) Every CBA, product category, and location of the company being sold must be transferred to the new qualified owner who meets all competitive bidding requirements; i.e. financial, accreditation and licensure; (iii) All CBAs and product categories in the original contract that are not explicitly transferred by CMS remain unchanged in that original contract for the duration of the contract period unless transferred by CMS pursuant to a subsequent CHOW;

291 THE CARVE OUT (iv) All requirements of paragraph (d)(2) of this section are met; and (v) The sale of the distinct company includes all of the contract supplier's assets associated with the CBA and/or product category(s); and (vi) CMS determines that transfer of part of the original contract will not result in disruption of service or harm to beneficiaries.

292 THE CARVE OUT What Has Been Occurring Up To Now Up to now, a competitive bid ( CB ) contract could be transferred by one of the following ways: ABC, Inc. is awarded a CB contract that covers multiple product categories in three CBAs. ABC sells all of its assets to JKL, Inc. Through the novation process, the CBIC transfers ABC s entire CB contract to JKL.

293 THE CARVE OUT ABC only sells its assets that are associated with ABC s CB contract. This is a partial asset sale. Through the novation process, the CBIC transfers ABC s entire contract to JKL. In other words, up to now, ABC s CB contract could not be carved up.or split up..or subdivided. The entire CB contract would stay with ABC or the entire CB contract would go over to JKL.

294 THE CARVE OUT What The Final Rule Appears To Be Saying Assume that ABC, Inc. is awarded a CB contract that covers multiple product categories in multiple CBAs. Assume that ABC has common ownership with XYZ, Inc., DEF, Inc. and GHI, Inc. As commonly-owned entities, XYZ, DEF and GHI are added to ABC s CB contract. Assume that ABC s CB contract includes Negative Pressure Wound Therapy ( NPWT ) in CBA #1. Assume that XYZ is handling the NPWT in CBA #1. The final rule allows XYZ to sell all or a portion of its assets to JKL, Inc. Pursuant to the novation process, that portion of ABC s CB contract (pertaining to NPWT in CBA #1) will be transferred to JKL..and ABC will retain the balance of the CB contract. In other words, the rule allows for a carve out of ABC s CB contract.

295 THE CARVE OUT There are ambiguities associated with the final rule. (i) First ambiguity The rule indicates that XYZ must be a separate legal entity (e.g., a corporation or LLC). This is exemplified by the fact that distinct company is used two times. But then the rule lists examples of distinct companies. One example is a sole proprietor. A sole proprietor is not a legal entity (i.e., it is not a corporation or LLC). A sole proprietor is simply an assumed name (a dba ).

296 The Effect on Bidders The rule may affect (i) how some bidders submit bids and/or (ii) their actions after the competitive bid ( CB ) contracts are awarded. For example, in the past it has been common for ABC, Inc. to submit a bid for multiple product categories in multiple CBAs. ABC would be awarded one CB contract. ABC would be stuck with the entire contract. It would have to keep the entire contract or ask the CBIC to transfer the entire contract. In other words, ABC was either totally in competitive bidding or totally out of competitive bidding. In light of the rule, as a Round 2 Recompete bidder, ABC may want to do one or more of the following:

297 Before it submits its bid, ABC may want to form several commonly owned legal entities. When ABC submits its bid, it will include the commonly owned entities. If ABC is awarded a CB contract, then Commonly Owned Entity #1 can handle one product category/cba combination, Commonly Owned Entity #2 can handle a different product category/cba combination, and so on and so forth. Then ABC can spin off the commonly owned entities, along with that portion of the CB contract associated with each entity s product category/cba combination.

298 Alternatively, ABC may want to wait to form commonly owned legal entities until after ABC is awarded the CB contract. ABC can ask the CBIC to add the commonly owned entities to ABC s CB contract. Each commonly owned entity will be limited to a specific product category/cba combination. Then ABC can spin off the commonly owned entities, along with that portion of the CB contract associated with each entity s product category/cba combination.

299 In issuing the rule, CMS said the following: New exception adopted because CMS believed requiring a transfer of the entire contract to a successor entity in all circumstances may be overly restrictive, and may be preventing routine merger and acquisition activity. For CMS to approve the transfer: Every CBA, PC, and location of the company being sold must be transferred to the new owner. All CBAs and PCs in the original contract that are not explicitly transferred by CMS must remain unchanged in that original contract for the duration of the contract period unless transferred by CMS pursuant to a subsequent CHOW.

300 All requirements in 42 CFR (d)(2) must be met. We proposed that the sale of the company must include all of the company s assets associated with the CBA and/or PC(s). CMS must determine that transferring part of the original contract will not result in disruption of service or harm to beneficiaries.

301 No transfer will be permitted if CMS determines that the new supplier does not meet the competitive bidding requirements (such as financial requirements) and does not possess all applicable licenses and accreditation for the product(s). In order for the transfer to occur, the contract supplier and successor entity must enter into a novation agreement with CMS and the successor entity must accept all rights, responsibilities and liabilities under the competitive bidding contract.

302 ACQUIRING BY PURCHASE: 100% ASSET PURCHASE

303 100% ASSET PURCHASE Assume that XYZ Medical Equipment, Inc. is awarded a CB contract. XYZ cannot sell its CB contract to ABC. However, XYZ can sell 100% of its assets to ABC and ask the CBIC to transfer the CB contract to ABC.

304 Here is how it works: On 11/1/15, ABC and XYZ sign a letter of intent for ABC to purchase 100% of XYZ s assets. On 11/1/15, XYZ will send a notice to the CBIC informing it of the pending sale and of the fact that ABC and XYZ will want ABC to take over XYZ s CB contract.

305 Cont d: On 12/1/15, XYZ and ABC will sign an Asset Purchase Agreement, a Bill of Sale, and a Novation Agreement and will submit the Bill of Sale and the Novation Agreement to the CBIC. The Novation Agreement states that if the CBIC approves the transfer of the CB contract, then ABC will assume XYZ s obligations under the CB contract as if ABC was the original party to the contract.

306 Cont d: Also on 12/1/15, ABC will send in documentation to the CBIC that shows that ABC qualifies to be a contract supplier. If ABC previously submitted this documentation when it bid on the round covered by XYZ s CB contract, but ABC s bid was denied only because ABC bid too high, then ABC does not need to submit additional documentation.

307 Cont d: Assume that ABC submitted a bid for the round covered by XYZ s CB contract, but that ABC s bid was disqualified for reasons other than the bid price. On 12/1/15, ABC will need to submit documentation that cures the problems that led to the disqualification.

308 Cont d: On 1/1/16, the CBIC will notify ABC and XYZ whether or not the CBIC approves the transfer of the CB contract. If the CBIC approves the transfer and signs off on the Novation Agreement, then XYZ s PTAN will be removed from the CB contract and ABC s PTAN will be added to the CB contract.

309 When a Bill of Sale is executed, then it means that assets are transferred. Likewise, when a Bill of Sale is executed, then the purchaser pays money for the assets. XYZ is placed in the unenviable position of transferring its assets before CBIC approval. ABC is placed in the unenviable position of paying money before CBIC approval.

310 In order to protect XYZ, a right of rescission will be included in the Asset Purchase Agreement: if the CBIC does not approve then the assets will go back to XYZ. In order to protect ABC, the purchase proceeds will be placed in escrow. If the CBIC approves, then the proceeds will be released from escrow to XYZ. If the CBIC does not approve, then the proceeds will be released from escrow back to ABC.

311 The dates set out above are just examples. The rules say that XYZ must notify the CBIC of the sale at least 60 days before closing. The rules further say that the parties must execute and submit the Novation Agreement at least 30 days before closing.

312 From a practical standpoint, if XYZ notifies the CBIC of the sale on 11/1/15, and the parties submit the Novation Agreement and Bill of Sale on 11/8/15, then the CBIC may approve the transfer of the contract in mid-november. Further, if the CBIC does approve, the effective date of the transfer of the contract will be made retroactive to the date of the Bill of Sale.

313 PARTIAL ASSET PURCHASE

314 PARTIAL ASSET PURCHASE Instead of purchasing 100% of XYZ s assets, ABC can purchase those assets of XYZ that are associated with XYZ s CB contract. XYZ will retain the balance of its assets. XYZ will continue to own and run its business that is not associated with the CB contract that ABC is taking over. All other requirements, pertaining to a 100% purchase, remain the same.

315 100% STOCK PURCHASE

316 Assume that John Smith is the sole stockholder of XYZ. Smith sells all of his stock to ABC. As a result, XYZ (a contract supplier) becomes a wholly-owned subsidiary corporation of ABC (a noncontract supplier).

317 ABC cannot bill its Medicare CB patients through its subsidiary, XYZ. Even though ABC owns XYZ, they are still separate entities (with different tax ID numbers). Subject to patient choice, ABC can refer its Medicare CB patients to XYZ.

318 Because ABC and XYZ will be commonly-owned, XYZ can ask the CBIC to add ABC s PTAN to XYZ s CB contract. The 60 day notice does not have to be given to the CBIC. A Novation Agreement is not required. XYZ will need to update its 855S with the NSC to show that ABC is XYZ s new owner.

319 PARTIAL STOCK PURCHASE

320 PARTIAL ASSET PURCHASE If ABC purchases 5% or more of XYZ s stock, then under CB rules, ABC and XYZ will be commonly owned. Assume that ABC purchases exactly 5% of XYZ s stock. XYZ will update its 855S to show that ABC is a 5% owner of XYZ.

321 Once the NSC s records show that ABC is a 5% stockholder of XYZ, then XYZ will ask the CBIC to add ABC s PTAN to XYZ s CB contract. This is accomplished by XYZ filing a Contract Supplier Location Update form with the CBIC.

322 XYZ can request that ABC s PTAN be added to a specific CBA/product category combination. For example, XYZ can ask that ABC s PTAN be added only to that portion of the CB contract associated with the Phoenix CBA/oxygen product category.

323 Assume that the CBIC grants XYZ s request and adds ABC s PTAN to XYZ s CB contract. ABC will bill and collect under its own PTAN. ABC will not bill through XYZ.

324 If the CBIC alleges that either ABC or XYZ breached the contract, then the CBIC will likely terminate the entire contract meaning that neither ABC or XYZ is a supplier in the CB program.

325 It is unlikely that ABC will be responsible for recoupment actions against XYZ and vice versa. In the future, if ABC and XYZ desire to bid for the same product category in the same CBA, then they will have to submit one bid for both companies. This is because they are commonly owned.

326 MPP The future of the bidding program??

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