What is sub-contracting?

 As you know Medicare awarded contracts to 876 companies in 100 areas of the country. When the program begins on July 1, 2013 these companies will be the only ones who can accept Medicare referrals for most DME items.

As a sub-contractor, you work at the direction of the contractor. Depending on your agreement with them will determine exactly what your responsibilities and payments are. We’ve seen all sorts of arrangements based on the business model of the contractor.

Our observations
In the first round (1.2) of the Medicare Competitive Bidding program there were 364 contractors for ten areas of the country. That meant roughly 30 per competitive bidding area. This time around the number has been drastically reduced. There are 876 contractors for 100 areas of the country. That averages just eight contractors per area!
From this we estimate that the majority of the companies that won were awarded multiple product categories in multiple CBA’s.

To understand why sub-contractors will be so necessary consider the three basic bidding strategies:

1. The contractor that won bid only the area they currently service.
From the results, we believe this was more the exception than the rule. However, even for these companies they now must service the entire CBA. Each CBA covers a very large geographical area.

Just like you, these companies will experience a drastic cut to reimbursement when the program begins. This creates an opportunity for your company to act as a sub-contractor for any geographical area they are unable to cover.

2. The contractor bid their area, and the surrounding CBA’s.
We think this was the strategy for most businesses. This would give them their local market and additional areas to grow into.

Once again, based on the new reimbursements these companies may not want to outlay the cash required to open locations in new markets. Or, they simply may not have the time to do it before July 1. So, this creates an opportunity for the sub-contractor to fill the void.

3. The contractor bid all CBA’s nationwide and planned to sub-contract
We expect that there are companies who will win contracts in most of the CBA’s that have no intention of opening shop anywhere. They will work with sub-contractors to create a network of providers nation wide.

These scenarios have been the most successful for the sub-contractor.