Subcontracting: 'Everybody's doing it'

YARMOUTH, Maine - Industry attorneys sum up the bulk of the activity in the wake of CMS's announcement of the contracts suppliers for Round 2 with one word: subcontracting.

“It's the biggest thing going on,” said Edward Vishnevetsky, an associate with Munsch Hardt in Dallas. “Providers want to know, how do we create proper subcontracting agreements?”

The interest is coming from both contract and non-contract suppliers, attorneys say, but more often than not, the latter is initiating the activity.

That's because subcontracting is one of the only ways, at this point, for non-contract suppliers to stay in the Medicare game when Round 2 goes into effect in 91 areas on July 1, attorneys say.

“Non-contract suppliers get the benefit of maintaining their relationship with their referral sources and patient base, which can benefit them for other kinds of activities,” said Neil Caesar, president of the Health Law Center in Greenville, S.C. “Everybody's doing it.”

For contract suppliers, subcontracting is a good way to get their foot in the door in areas and/or for products that are new to them, attorneys say.

“They need the subcontractor's referrals,” said Jeff Baird, chairman of the Health Care Group at Brown & Fortunato in Amarillo, Texas. “They know that the subcontractor has hospitals that are loyal to it.”

In the nine areas in Round 1, which went into effect Jan. 1, 2011, subcontracting worked well, attorneys say, but it's more of a tactical move than a profit center.

“Neither party makes much money,” Baird said. “No matter how you slice and dice it, both parties are dividing up a smaller pie.”
In addition to subcontracting, attorneys say they've seen an increase in the number of contact suppliers making acquisitions, mostly through asset purchases.

“I'm seeing a realignment in the industry,” Baird said. “In the CBAs, I'm seeing bigger players that are gobbling up smaller players who were awarded contracts.”

Still, the bulk of the activity remains in subcontracting, attorneys say.

“Whereas in Round 1, there was often a decision to be done with it, the majority of what I'm seeing in Round 2 is strategic moves for sustenance,” Caesar said.

Subcontracting 101

According to the competitive bidding implementation contractor (CBIC), the supplier standards limit subcontracting agreements to:

1.  Purchase of inventory;

2.  Delivery and instruction on the use of Medicare-covered items; and

3.  Maintenance and repair of rented equipment.

Services like intake and assessments, coordination of care, submission of claims, ownership responsibility and product safety must be provided by the contract supplier.