Competitive Bidding Review - Missing Cash Flow Statements

1. Competitive Bidding – Oxygen Cap – PMD – SCHIP – Doc-Fix ITS NOW OR NEVER John Gallagher The VGM Group 22 April 2008

2. Before we begin… A MOMENT OF SILENCE GO IRISH 2008 IS A New YEAR! I do need tickets….

3. CBIC REVIEW Subject: Competitive BiddingWe are writing in response to the concerns you raised regarding your bid(s)submitted for the first round of the Medicare Durable Medical Equipment,Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive Bidding Program.Asrequested, we have reexamined your bid(s), and have confirmed that 2 yearsstatements of cash flow are missing.  Therefore, we continue to be unable toaccept these bid(s).When the program begins on July 1, 2008, Medicare will not reimburse you forfurnishing these competitively bid items to Medicare beneficiaries withinthe competitive bidding area(s). You will be responsible for informingbeneficiaries who seek to purchase these items from you that you are not acontract supplier for these items within the competitive bidding area(s).However, you may still receive payment for maintenance and servicing ofbeneficiary owned items in accordance with 42 CFR 414.408(k). In addition,this decision does not prevent you from becoming a grandfathered supplierfor certain rental items and oxygen and oxygen equipment, as set forth in 42 CFR414.408(j).This decision does not prevent you from participating in any futurecompetitions under the Medicare DMEPOS Competitive Bidding Program.Sincerely,Competitive Bidding Implementation ContractorPalmetto GBA   

4. THREATS TO THE DME INDUSTRYLong Term vs. Short Term • National Competitive Bidding Answer = HR 1845 (Tanner / Hobson) S. 1428 (Hatch / Conrad) • Oxygen Cap @ 36 months Answer = HR 621 (Price) S. 1484 (Roberts) • Medicare Reform Legislation (“DOC-FIX”) June 30 - 2008 w/ O2 cap @ 18 mon. & PMD Answer = NO ADDITIONAL CUTS TO DME Contact your Congressman & Senator today!!

5. Develop Triple Track Approach to Combating: National Competitive Bidding – Oxygen Cap – PMD Reimbursements - Legislative – Develop a “champion” for the industry Grass-Roots – Coordinate Grass-Roots activity at Provider Level – BECOME THE “PROVIDER LOBBYIST” Legal – Develop legal effort to delay, impede and or defeat NCB

6. LCPC LEGAL ACTION IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS – DALLAS DIVISION HEWITT v. LEAVITT IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OHIO – EASTERN DIV. SHINKLE, ZILLMAN & PREMIER MEDICAL SUPPLY v. LEAVITT

8. Judge Rules for San Diego Labs in Medicare Competitive Bidding It’s a major win for three San Diego laboratories in their legal challenge to the Medicare Part B Laboratory Competitive Bidding Demonstration Project being implemented in the San Diego-Carlsbad-San Marcos metropolitan statistical area (MSA). Late last Friday afternoon, U.S. District Court Judge Thomas J. Whelan ruled that he would hear the labs’ arguments in their case against the federal Centers for Medicare & Medicaid Services (CMS).After reviewing legal briefs from CMS and the labs, Whelan ruled on Friday that: 1) the court has jurisdiction over the labs’ claims in the case; 2) the labs have standing in the case; and, 3) at least some of the claims are ripe for review.Sharp Healthcare, Scripps Health, and Internist Laboratory originally went to Federal District Court last January seeking a temporary restraining order (TRO) to delay or stop the implementation of the Medicare Part B Laboratory Competitive Bidding Demonstration Project pilot in the San Diego MSA until the court can rule on several challenges to the federal program. At that time, the judge declined to issue a TRO, but did call for both parties to submit briefs on several key points involved in this case.“The judge resolved these issues in our favor fairly convincingly,” said attorney Patric Hooper of Hooper Lundy & Bookman in Los Angeles, who represents the labs. “The easiest thing for the judge to have done in this case would have been to get rid of it on jurisdictional grounds. The fact that he did not suggests to us that he sees at least some merit in the case.”Hooper will be in Whelan’s court on Tuesday, April 8, to argue that the court should issue the temporary restraining order.Among the most significant statements in Whelan’s 8-page ruling were those involving his decisions concerning arguments that federal attorneys representing U.S. Health and Human Services (HHS) Secretary Michael Leavitt had made in legal briefs. The March 3 issue of The Dark Report pointed out how the federal attorneys had misrepresented selected facts to the judge in arguing their case against the laboratories’ request for a TRO.For example, Leavitt had argued that if the labs are not named winning bidders, they can use HHS’ administrative review procedures rather than pursue their case in court. In his ruling released last Friday, Judge Whelan said, “… contrary to the secretary’s contention, if plaintiffs lose, they cannot submit claims to Medicare and, therefore, will not be in a position to obtain administrative review.”Finally, Judge Whelan’s ruling and willingness to hear additional evidence in this case does provide some confirmation that the flaws and biases the CMS officials built into the Medicare Part B Competitive Bidding Demonstration Project may well violate federal law and the Constitution. (DARK Daily, 06/04)

9. Breaking News A U.S. District Court judge in Southern California has granted Sharp Healthcare, Scripps Health and Internist Laboratory a preliminary injunction that temporarily halts HHS from moving forward with a competitive-bidding demonstration project. Read more soon at modernhealthcare.com. Also see today's Daily Dose.

11. DUE PROCESSConstitutional Law • Exactly what are the legal options? A lot depends on the range and scope of statutory language that currently prohibits judicial relief for competitive bidding. Baird has heard that CMS is aware of the documentation problem, and he is “cautiously optimistic” that CMS will direct the CBIC to rectify the problem. Such a correction could mean that wronged companies would be reconsidered for contracts. “But as a safety valve, we are researching whether or not we can bring one or more lawsuits against the CBIC and/or against CMS,” says Baird. “The question again becomes, how far does the prohibition against judicial relief extend? I can understand the prohibition would apply to the number crunching by the CBIC and the judgment calls. However, it is difficult for me to accept that the prohibition against judicial relief would apply when the CBIC makes a monumental mistake. So that is what we are researching – whether or not if we brought such a lawsuit, would the lawsuit be halted or blocked by the statutory language, or can we argue that the very blatant mistake by the CBIC falls outside the prohibition. We’ll know the answer here in a couple of days. Assuming that we feel we can credibly go into court, that will be our safety net in the event that the CBIC and CMS does not do the right thing.”

12. D - I - D D = DELAY ROUND 1 NCB ALTMIRE LETTER& W&M / E&C Committee Hearing I = IMPEDE ROUND 2 NCB REVISED TANNER – HOBSON Robert Morris University Study Katzman Study in Southern Economic Journal Grassley request for GAO action D = DEFEAT NCB and TRANSFER of Title O2 SENATE FINANCE and WAYS AND MEANS Committees

16. Surety Bonds CMS Analysis; Added cost of Surety Bonds will result in reduction in the number of DMEPOS suppliers • In 2005 there were roughly 16,000 suppliers who billed the Medicare program less than $1,000 • In 2005 there were 13,000 suppliers who billed between $1,000 and $4,999. • CMS predicts that as many as 30,000 suppliers currently enrolled in Medicare would stop serving Medicare beneficiaries – 22% would come from rural areas.

17. Senators Introduce Medicare Fraud Legislation S. 2603 - Medicare Fraud Prevention Act of 2008 Late last week, Sen. Mel Martinez (R-Fla.) has introduced the Medicare Fraud Prevention Act of 2008, S. 2603. Five Senators joined Martinez in introducing the legislation: Sen. John Cornyn (R-Texas), Sen. Norm Coleman (R-Minn.), Sen. Lamar Alexandar (R-Tenn.), Sen. David Vitter (R-La.), and Sen. Jim DeMint (R-S.C.). The bill would amend the Social Security Act “to provide increased civil and criminal penalties for acts involving fraud and abuse under the Medicare program and to increase the amount of the surety bond required for suppliers of durable medical equipment.” Specifically, the legislation would: • Double the civil fines for Medicare fraud and abuse. • Quadruple the maximum criminal fines for felony convictions from $25,000 to $100,000. • Double the maximum criminal fines for misdemeanor convictions. • Increase the maximum criminal sentence from five years to a ten-year maximum. • Increase the surety bond requirement for DME suppliers from the $50,000 (proposed by CMS in 1998) to $500,000. I discussed this with Dan Smith who is working on the bond for opur VGM Insurance office. He advises that our pricing will run between 2-4% of the surety bond depending on the size of the company and the company’s credit history. This would mean that the pricing would be between $10,000 and $20,000 for a $500,000 bond.

22. WAYS & MEANS COMMITTEECHARLES B. RANGEL (NY) - Chairman

23. ENERGY & COMMERCE COMMITTEEJohn D. Dingell (MI), Chairman Ratio:  31-26

24. IT’S NOW OR NEVER TO GET INVOLVED DO WE CHOOSE TO FIGHT?

26. TWO sets of CB Language

32. SUMMARY OF PROPOSED LEGISLATION Purpose: To provide all with an agreed package framework for the three main issues in controversy. Must quickly move legislation to avoid draconian effect on Durable Medical Equipment (DME) infrastructure of small business and local providers and protect the Medicare Beneficiaries they now serve. This proposal must be kept as a complete package. 1. Elimination of the transfer of ownership provisions for oxygen that was included in the Deficit Reduction Act (DRA) and takes effect Jan 1, 2009. Should be a no cost item but utilize # 2 as the “pay-for” if any is needed. 2. To address Congressional concerns of stationary equipment (concentrator) cost and Provider concerns of not being reimbursed for service provided – provide for a “Flip” in the fee schedule. The “flip” would consist of a reduction to an $75 fee for stationary concentrators and an increase to a $145 fee for portable services and equipment (that fee would continue beyond the 36 month stationary equipment cap). This would provide roughly $1.5 billion in savings. 3. Delay implementation of CB Round Two until CMS conducts an impact analysis on beneficiary access to quality products / services after first round (10 MSAs) and reports back to Congress. Must also prohibit HHS from applying CB to the rest of MSAs (e.g. next 70 or beyond) or applying current bid rates to non-MSAs unless specifically authorized by Congress.  To provide a “pay-for” on the delay, some have proposed utilization of an extension to the current CPI freeze as necessary to cover the cost of the delay (but only that cost). CBO seems to consider savings on CB at $1 billion per year. If the delay could be structured to review the entire three (3) year period of Round one contract the cost should be scored at roughly $3 billion. The CPI Freeze if scored properly should provide that funding for a 3 year period.

33. SENATOR VOINOVICH (R-OH) to request meeting with Administration • Have interested Senate offices contact Dana Smullen in Sen. Voinovich's office. She can be reach at 202-224-8114, or via email at dana_smullen@voinovich.senate.gov,

36. ACTION STEPS NEEDEDTODAY • ACTION STEPS NEEDED by each state/regional medical equipment association and by HME providers (regardless of CBA area or location).

37. PAMS Releases Results of a New Study on the Economic Impacts of Competitive Bidding; Local Press Reports • The Pennsylvania Association of Medical Suppliers (PAMS) released a new study that raises issues about the impact of CMS’ national competitive bidding. Conducted by Robert Morris University economic professors Brian O’Roard, PhD and Stephen Forman, PhD, JD, MPA, the study evaluated the likely economic consequences of competitive bidding and concludes “uncompetitive” and “poor public policy.”To read more on the studies conducted by the Robert Morris University professors or to view the supporting materials, visit the PAMS Website.The following articles are courtesy of John Shirvinsky, executive director of PAMS.

39. Katzman Study • . . . CMS format will likely result in an inefficient supply of medical equipment, increased prices on a number of goods, and potential problems for beneficiaries in obtaining equipment. • Using preliminary results from actual CMS  Demonstration Projects, empirical evidence is provided that supports these predictions. While we applaud CMS’s attempts to reduce medical expenditures and its initiative of implementing competitive bidding as a means to this end, we strongly urge a restructuring of the bidding process.

41. VGM HOST GRASSLEY FUNDRAISER • Raised $70,000 • 50 + in attendance Fundraiser for Chairman Baucus (D-MT) 24 March 2008 Helena, MT RAISED $24,000