From positive to positively grim, home medical equipment providers told HomeCare they're worried about a deep freeze of their own in 2010.
by Gail Walker (gwalker@homecaremag.com)
Friday, January 1, 2010

Along with the plummeting temperatures that ushered in the New
Year across much of the nation, home medical equipment providers
told HomeCare they're worried about a deep freeze of their
own in 2010.

Most taking part in the magazine's annual Forecast Survey said
they had jumped through the latest regulatory hoops, with more than
90 percent becoming accredited and obtaining surety bonds. And
despite the regulatory headaches, a still-dull economy and HME's
toughening market, providers' product intentions remain strong for
the year.

But unrelenting reimbursement woes, the forward march of
competitive bidding and potential threats under health reform could
worsen business conditions dramatically, some said.

The python-like squeeze has already taken a toll on some HME
companies. Seventy percent of survey participants said rival
businesses in their local markets had closed within the past year.
The bright side for those remaining is that they picked up market
share. "Our goal is to be among the survivors," one provider said.
"As weaker businesses fail, we will do our best to capture their
market share."

Seventy-two percent are confident they could handle the influx
of patients even if half or more of their competitors go under, as
CMS has estimated could happen with competitive bidding.

To keep their companies in the right half of that scenario, the
vast majority (84 percent) said they had adopted new technologies
and/or business practices: Half said they now use DME-specific
software of some kind, 41 percent use document imaging and 30
percent use GPS/routing software. To deal with the 36-month oxygen
cap and the 9.5 percent DME cut, providers said they had increased
efficiency (57 percent), changed their oxygen delivery model (35
percent) and/or changed their product mix (30 percent).

As for the cap, respondents said it has had some dire effects
— not the least of them on patients — but the majority
(59 percent) said they are coping. Another quarter (24 percent),
however, said they don't know how much longer they can continue in
the Medicare oxygen business. A whopping 89 percent consider CMS'
recently announced payments for oxygen maintenance and service to
be inadequate.

"CMS does not fully understand the service and delivery needed
to adequately provide the care needed for these fragile patients,"
one provider commented. Added another, "CMS should read the
standards manuals of the accrediting bodies. If CMS wants this
level of patient care, they should pay for it."

Then there are the day-to-day speed bumps. Providers complained
CMS' recent PECOS requirement, for example, is "another damaging
move by CMS … another hurdle to make things more difficult to
provide much needed services … another poorly planned
implementation … another waste of taxpayers' time …
another way for Medicare to get rid of us."

In aggregate, providers estimated only a third of their
referring physicians were registered in the system by mid-December.
"Again, the DME industry is carrying the burden of holding
physicians' hands and making sure they do what Medicare wants," a
frustrated respondent wrote. "Another rule, another barrier to
overcome."

But overcoming competitive bidding is another matter, and
providers said it remains their biggest concern. In fact, 75
percent of those taking part in the survey said they had contacted
their federal legislators about H.R. 3790, Florida Rep. Kendrick
Meek's bill to stop the program juggernaut. That's the largest
percentage of HME providers ever reporting political involvement in
HomeCare's history of surveying on legislative issues.

Will it be enough? Providers said they're not sure, with many
noting they will continue to fight the program because they are
just plain scared about their prospects if bidding is implemented.
"Reduced reimbursement can usually be dealt with; exclusion from
any participation is fatal," stated one. "If I don't have patients,
I don't have a business," said another.

As for the Round 1 rebid of the current program, scheduled to be
implemented in January 2011, 19 percent of the providers in the
survey said they were bidding. Of those, respondents bid in an
average six categories, 42 percent bid in non-local areas and 20
percent bid in categories they don't currently provide. On average,
these providers said they bid 9 percent below current
allowables.

These Round 1 bidders also had some advice for others
considering a bid in Round 2: "Be careful," warned one. "Three
years is a long time." Cautioned a second, "Don't lowball your bid.
Know your limits since no amount of volume can make up for zero
profit margins." And yet a third, "Pray for H.R. 3790."

Simply "staying in business" was another top concern registered
by providers, whose thoughts about the future ranged from positive
to positively grim:

"I believe that our company is diverse enough to survive."

    • "We are very innovative and flexible as a company. If there is
    an industry when the dust settles, we will be there."

    • "I'm gonna keep on doing what we do best, and that's giving our
    patients the best service possible. I believe once the competitive
    bidding repeal happens, we all will be OK."

    • "My patients don't seem to understand the dire circumstance that
    [both of us] face. I no longer have the cash flow to provide the
    service that has always put the patient first."

    • "The combination of health reform and competitive bidding will
    deeply impact this industry and my business negatively. Ultimately,
    patients will receive [fewer] benefits, less quality of care, poor
    quality of products. In turn they will have less independence to
    stay in the home environment, end up in hospitals and state-run
    home facilities and ultimately cost the country more than the
    current system."

    • "While remaining optimistic that we are in charge of our own
    destiny and our business, the reality is CMS is leading the charge
    and all other payers will follow. So much is still up in the air,
    including competitive bidding. That one program and the intention
    to go national by 2016 will seriously affect our industry, our
    company and our patient base."

    • "Once competitive bidding hits my area, I will go out of
    business."

    • "I don't know that any company in this industry has a
    future."

    On a more hopeful subject, we asked providers how they would
    spend the money if they could invest any amount in their HME
    business. We got a range of answers on this one, too, everything
    from adding inventory and new locations to hiring on expert staff
    to utilizing more technology and more advertising. However, some
    said, with the industry's mounting uncertainties, they would invest
    "not another penny."

    And one funny guy? Well, he said, "I'd relocate to Costa
    Rica."

    2010 Forecast Survey Results

    Market Conditions

    Have any HMEs in your market gone out of business
    in the past year?
    Yes 69.9%
    No 28.8%
    No Answer 1.3%
    If half or more of the HME companies in your market
    went out of business, would you be able to handle the influx of
    patients?
    Yes 72.2%
    No 26.2%
    No Answer 1.6%

    Accreditation/Surety Bonds

    Is your company currently accredited?
    Yes 91.6%
    No 7.8%
    No Answer 0.6%
    Did your company obtain a surety bond?
    Yes 90.9%
    No 7.8%
    No Answer 1.3%

    Competitive Bidding

    Are you bidding in the Round 1 rebid of competitive
    bidding?
    Yes 19.4%
    No 79.9%
    No Answer 0.7%
    Will you bid in any non-local areas?
    Yes 41.7%
    No 56.7%
    No Answer 1.6%
    In how many categories?
    1 11.7%
    2 6.7%
    3 6.7%
    4 6.7%
    5 11.7%
    6 5.0%
    7 10.0%
    8 1.7%
    9 (all) 38.3%
    No Answer 1.5%
    Will you bid in any categories that you don't
    currently provide?
    Yes 20.0%
    No 76.7%
    No Answer 3.3%
    How much lower is your bid(s) than the current
    allowable?
    Less than 5% 28.3%
    5% to 9% 21.7%
    10% to 14% 10.0%
    15% to 20% 15.0%
    More than 20% 8.3%
    No Answer 16.7%
    Have you contacted your U.S. representative in
    support of H.R. 3790?
    Yes 74.8%
    No 23.3%
    No Answer 1.9%
    On a scale of 1-5, how confident are you that competitive
    bidding will be stopped/repealed?
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    Company Revenue

    What percentage of your revenue is generated from
    the following?
    Medicare 38.3%
    Medicaid 16.5%
    Managed care
    (MCOs, HMOs, PPOs, etc.)    		 13.3%
    Private insurer 12.4%
    Retail sales 10.4%
    Commercial/institutional accounts 7.2%
    Other 1.9%
    Will your company's revenue increase, decrease or
    stay the same in 2010 compared to 2009?
    Increase 41.4%
    Decrease 28.2%
    Stay the same 29.4%
    No Anwer 1.0%
    What percentage of your company's revenues are
    derived from ...
    Sales 54.9%
    Rentals 45.1%
    What measures are you taking to deal with the 9.5%
    DME cut/the 36-month oxygen cap?
    Increasing efficiency 57.3%
    Changing oxygen delivery model 35.0%
    Changing product mix 29.8%
    Specializing in a particular business niche 22.0%
    Moving into retail 21.7%
    Changing payer mix 21.0%
    Layoffs 21.0%
    Moving away from Medicare 21.0%
    Expanding 14.9%
    Increasing sales staff 12.6%
    We have made no changes 13.9%

    About PECOS: In aggregate, providers estimated
    only 33% of their physicians and other referral sources were
    registered in the Provider Enrollment, Chain and Ownership
    System.

    Oxygen/Mobility

    Is your company involved with respiratory
    products?
    Yes 76.4%
    No 23.0%
    No Answer 0.6%
    Is your company involved with mobility
    products?
    Yes 67.3%
    No 30.7%
    No Answer 2.0%
    What impact has the 36-month cap on home oxygen
    rental had on your business?
    No effect 7.6%
    Some effect, but we are coping 59.3%
    I'm not sure how much longer I can continue in the
    Medicare oxygen business    		 23.7%
    I've left the Medicare oxygen business 4.7%
    No Answer 4.7%
    Base = respondents involved in
    mobility products
    Do you think CMS' new payments for maintenance and
    service of oxygen equipment will be adequate?
    Yes 4.7%
    No 89.0%
    No Answer 6.3%
    Base = respondents involved in
    mobility products
    What impact would elimination of the first-month purchase
    option for standard power wheelchairs have on your business?
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    Base = respondents involved in mobility
    products

    Technology/Innovation

    What new technologies/practices have you
    adopted?
    Automated inbound/outbound telephone
    technology    		 15.5%
    Bar coding for inventory 20.1
    Business process metrics 15.5
    Document imaging 41.1
    DME-specific software 49.5
    GPS/routing software 30.1
    What is the one new innovation you have implemented that has
    made your company more efficient/saved money/made money?
    • Accountability for managers/staff
    • Accreditation
    • Activity-based costing
    • Added lift/ramp business
    • Added sales staff
    • Bar coding
    • Changed oxygen delivery model
    • Changed intake procedures
    • Consolidated deliveries
    • CPAP supply program
    • Cushions on all wheelchairs
    • Cut staff
    • Document imaging
    • Electronic billing
    • Energy shopping
    • Expanded showroom
    • Going paperless
    • GPS/routing
    • Handheld PDAs to confirm patient receipt of equipment
    • Highly trained employees
    • Increased disposable business
    • Increased repair business
    • Low vision aids
    • Mail order pharmacy
    • Moved to cash
    • Outsourced billing/payroll
    • Patient management
    • Portable oxygen concentrators
    • Reduced overhead
    • Retail sales
    • Signed key distributorships
    • Stopped billing Medicare
    • Streamlined operations
    • Tracked marketing

    2010 Product Shopping List

    1. Manual wheelchairs 79.0%
    2. Beds 73.5%
    3. Ambulatory aids 73.1%
    4. Nebulizers 72.8%
    5. Bath safety products 72.2%
    6. CPAP/PAP 64.1%
    7. Mattresses/pads 63.1%
    8. Bariatric products 62.1%
    9. Bariatric wheelchairs 61.8%
    10. Lift chairs 61.2%
    11. Sleep products 60.8%
    12. Patient lifts 59.5%
    13. Oxygen conserving devices 56.6%
    14. Pulse oximeters 53.1%
    15. Incontinence 52.1%
    16. Stationary oxygen concentrators 51.1%
    17. Portable oxygen concentrators 50.8%
    18. Power wheelchairs 50.5%
    19. Scooters 49.5%
    20. Pressure-reducing support surfaces 49.2%
    21. Seating and positioning 47.9%
    22. Nutrition 46.9%
    23. Compression hosiery 46.3%
    24. (Tie) Compressed gas regulators 43.7%
    (Tie) Wound care 43.7%
    26. (Tie) Diabetes products 41.7%
    (Tie) Orthopedic softgoods 41.7%
    28. Sport/lightweight wheelchairs 40.8%
    29. Ramps 40.1%
    30. Urological/ostomy 39.5%
    31. In-home oxygen fill systems 38.5%
    32. Hot and cold therapy 33.7%
    33. Skin care 31.4%
    34. Pediatric respiratory 30.1%
    35. Orthotics/prosthetics 28.8%

    The Future

    What DME provisions are you most concerned about in
    the House/Senate health care reform bills?
    Competitive bidding for manufacturers 53.1%
    Expansion of Round 2 competitive bidding to 100
    MSAs    		 50.8%
    Excise tax on manufacturers 39.2%
    Application of bid rates nationwide by 2016 35.6%
    Elimination of first-month purchase option for
    standard PWCs    		 31.4%
    Reduction in Medicare claims submission
    period    		 30.4%
    Reduced CPI updates 20.4%
    Creation of an independent Medicare
    commission    		 19.1%
    Accreditation exemption for pharmacies 18.4%
    Increased fraud and abuse measures 18.4%
    What are your current top business concerns?
    Competitive bidding 58.3%
    Staying in business 43.0%
    Oxygen cap and post-cap rules 41.1%
    Health care reform 37.9%
    All the new DMEPOS regulations/audits 34.0%
    Growing business 26.2%
    PECOS 23.6%
    Which statement best describes your future
    plans?
    I plan to stay in the HME business through
    2010    		 15.9%
    I plan to stay in the HME business through
    2011    		 12.9%
    I have no plans to leave the HME business 56.0%
    I plan to exit the HME business within the next
    year    		 4.9%
    I plan to exit the HME business before Round 2 is
    implemented    		 3.2%
    I plan to exit the HME business if bid pricing is
    extended nationwide    		 3.6%
    No Answer 3.5%

    About This Survey

    Data were collected Nov. 19-Dec. 17, 2009. Of 309 HME companies
    participating, 57 percent operate a single location and another 13
    percent operate two locations. Thirty-nine percent of respondents'
    companies employ 10 or fewer people, while 11 percent employ 100 or
    more. Twenty-nine percent reported revenue under $1 million, while
    7 percent indicated revenue of $25 million or more.

    The largest group of companies is located in Jurisdiction C (41
    percent), with 18 percent operating in Jurisdiction B, 17 percent
    in Jurisdiction D and 15 percent in Jurisdiction A. Eight percent
    of participants reported nationwide operations.

    Not all respondents answered every question, and some totals may
    add to more than 100 percent due to multiple responses. Survey
    methodology conforms to accepted marketing research methods,
    practices and procedures.

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