With bid rates for mail-order diabetic supplies shockingly low, moving into footwear could be an offset.
by Greg Thompson

Diabetes statistics are still staggering, and they show
no signs of losing steam. Like so many other booming medical
categories, CMS put mail-order diabetic supplies on its competitive bidding list long
ago. With recently announced bid prices reflecting a whopping 56
percent reduction over previous allowables, it's clear that
bureaucrats in Washington are only too happy to go along with the
drastic reimbursement cut to lower Medicare's costs.

Who can afford these cuts, and what can be done to offset the
effects? The answer to the first question is particularly
mystifying, especially considering that someone submitted the low,
low bids, and presumably that person/organization believed it was
possible to survive at the new rate. While some bid "winners" must
be small providers (with no more than $3.5 million in annual sales
by CMS' definition), long-time diabetes providers are highly
skeptical that anyone but major national chains will be able to
accommodate the new bid amounts.

'Shocking and Ridiculous'

Tim Binkley, president and CEO of Valentines Diabetic Supply,
has methodically built his business into a regional operation
specializing in mail-order diabetes supplies. As a bidder in the
Round 1 rebid, at presstime Binkley had not been offered a Medicare
contract, and he doesn't think he will be, since his bid was
considerably higher than the announced amount.

"The competitive bidding prices are shocking, outrageous,
unbelievable and ridiculous," says Binkley without a trace of
levity. "Diabetic supplies got cut deeper than any other
segment."

Binkley had braced for a sizable 30 to 35 percent cut, but he
concedes that the 56 percent figure caught him off guard.
Considering that diabetes represents the second highest Medicare
expenditure for HME, an act of Congress may literally be the only
remedy. One friendly competitor suggested to Binkley that the
draconian nature of the cuts could actually work in the industry's
favor by catching the attention of lawmakers. He agrees that
legislators may yet understand the situation if political
involvement remains high.

With the coming reimbursement freefall, however, Binkley and
others do not see financial viability for providers affected in
multiple MSAs. "We don't see how anybody can provide [the products]
at that price and provide the kind of service that is required," he
says. "I'm just shocked that we may have underestimated how low
these manufacturers might sell products. Either that or they are
crazy in Washington. Based on what we know — and we have been
buying this stuff for quite a while — I don't think you could
find a manufacturer to sell a product at a low enough price that
you could accept a 56 percent cut in reimbursement."

Like most providers doing Medicare business, Binkley endured a
9.5 percent cut that took effect in 2009. At that time, about 60
percent of Valentines' customers were Medicare recipients, a ratio
that continues today. With three stores in Charlotte, N.C.;
Roswell, Ga. (headquarters); and Birmingham, Ala., the company has
thus far escaped the brunt of competitive bidding. "We have
exposure in Charlotte, N.C., starting January 1, but that alone
will not put us out of business," he says.

But if and when the next 91 MSAs are added to the bidding
program, a slew of Valentines' patients would be affected. "We have
a lot of patients in those proposed MSAs," says Mike Binkley, who
serves as the company's vice president. "In January of 2013, we may
be operating a Subway sandwich shop. At this point, I just don't
know."

Even winning bidders who plan on buying from only the least
expensive manufacturers will also run into a roadblock because they
must be able to provide at least 50 percent of "brand name"
products, Tim Binkley says. "The brand names are more expensive
than the cheaper ones coming out of Asia," reports Binkley. "You
can't buy what I would call a brand name strip at the winning bid
price of $14.50. The only people that possibly could would be a
major national chain with huge volume."

The provision, which came out after bids were submitted, would
likely have altered many bids, and the Binkleys say they probably
would not have submitted anything to CMS if they had known about
that new rule. "Since 48 percent of the winning bidders must be
so-called 'small' suppliers with revenues under $3.5 million, how
can they have the buying power of the major national suppliers?"
Tim Binkley says.

"This is a nightmare," agrees Paula Hardison, manager for
Carolina Diabetic Supply Group. "There is only one brand of strips
that we would be able to deliver to our patients. We pay
approximately $10 for that strip, and we wouldn't be able to
deliver it to the beneficiaries," she says, noting that most strips
range from $16.88 to $24.25 per box. "Right now, we are reimbursed
$30.06 and they only pay 80 percent of that. So now we're looking
at $14.50. That's impossible to work with. The shipping alone costs
$4 to $5 a box."

Hardison, whose company also put in a mail-order bid but was not
offered a contract, says "we couldn't even have considered going
that low. We will never be able to provide service to our patients
at this price." Come Round 2 of competitive bidding, the situation
will become dire, she says. "When it comes to Raleigh [in the
second round], it will affect us and we won't be able to stay in
business."

Hardison worries that Medicare patients could be in jeopardy if
companies attempt to provide the products at the new rate. The
problem is not "just getting the supply out there, but helping
people on the phone, helping them to change their batteries,
testing their meters," she says. "Right now, we ship products today
and they have them usually the next day. How long will
beneficiaries have to wait for these supplies? If they are out,
what are these patients going to do? If we do have to go with that
one brand of strips, they don't always work with the pumps. What
are patients on pumps going to do?"

Officials at Prodigy Diabetes Care also expressed disappointment
with the announced prices.

"We are not sure any provider can support this program for a
long period of time based on these reimbursements," laments Tyler
Kiser, senior vice president of sales and marketing. "In this
industry, pricing is driven by volume. We are not sure anyone will
see any real volume increases with retail being excluded from
competitive bidding."

For its part, Prodigy will forge ahead with plans to introduce
new products, including an insulin patch and a fully audible
insulin pump. "The pump will be ideal for low-vision or blind
diabetics," enthuses Kiser. "It will have the smallest basal
increment available at .009 units. Also, with sophisticated
wireless technology, this pump gives users the option of having a
tube or tube- less connection."

Start at the Bottom

As for help on lower prices from manufacturers in general,
industry consultant Wallace Weeks says don't count on it,
especially since most companies have already been offering
reasonable rates. "Manufacturers have been doing a good job in our
industry of removing costs," says Weeks, founder and president of
the Weeks Group.

"There is room for improvement by working with providers to use
technology to lower costs. However, manufacturers can't drop prices
30 percent. I don't think they have the room to do that at all
since they have already taken prices down. "Providers cannot be
saved by the manufacturer now."

In many cases, providers of test strips and glucose meters are
already offering diabetic shoes, but Weeks says now could be a good
time to make footwear an even bigger part of the overall business.
As with virtually every category, diabetic footwear can be a
profitable Medicare product line if it is managed well with an eye
toward maximum efficiency. "And at least it does not have the dark
cloud over it that test strips do now," adds Weeks.

"Shoes," he continues, "may be a good way for diabetic suppliers
to offset what they will incur from their diabetic strips business,
assuming they are not going to get out of diabetic test strips
altogether."

Diabetic shoes are not entangled in the competitive bidding
program, and Eric Lorenz, president and COO of shoemaker Dr.
Comfort, says there is no indication they will be. He says
providers looking to get into the burgeoning category can rely on a
growing awareness among health professionals who increasingly
understand the benefits of diabetic footwear and inserts.

Dr. Comfort has experienced solid growth over the past several
years, which Lorenz largely attributes to the company's styles. The
increased focus on fashion is a conscious step away from what Dr.
Comfort CEO Rick Kanter once called "the Frankenstein shoes."

"Coming from years of owning his own footwear retail stores,
Rick knew how important style and quality were to people," says
Lorenz. "If they don't like the way they look and feel, they won't
wear them. If they don't wear them, they'll never get the intended
health benefits."

Footwear is no slam dunk, however, and health care attorney
Denise Fletcher of Brown & Fortunato has seen her share of
providers' missteps. According to Fletcher, Medicare Program
Safeguard Contractor TriCenturion has led the way in an effort to
ensure proper documentation for diabetic footwear. "They are really
being sticklers," says Fletcher. "They are looking to see that the
physician has the diabetic plan of care along with all of the
criteria that must be met. They want it all in the physicians' plan
of care."

Fletcher's clients run into trouble when these elements are
simply not in the physician's notes. Meeting the criteria that
documents poor foot circulation is often the main hurdle, and
providers must combat this with proper physician education.

"Providers must make sure physicians understand the criteria for
prescribing shoes and what must be in their notes," warns Fletcher.
"A lot of times providers are not getting these notes ahead of
time, but instead getting the notes when they are audited. I hate
to say it, but you really need the documentation before you put the
equipment or the shoes out. If you don't get it, you may run into
trouble."

Lorenz explains that diabetic shoes require two main documents:
a statement of certifying physician and a prescription. Sometimes
providers get both of these items from the primary care physician,
but other times they get just the statement from the PCP and write
the prescription themselves.

"In either case, when performing an audit on a specific claim,
Medicare not only asks for the statement of certifying physician,
they also ask to see a copy of the certifying physician's patient
notes documenting what is in the statement," says Lorenz. "It is
hard enough for suppliers to maintain their own documentation, let
alone ensure what another physician puts in his file. We do all we
can to help, and it starts with weekly updates to our suppliers. We
also try to help them with forms and sample form letters they can
send to PCPs to help encourage documentation compliance."

Fletcher also points out that, effective as of last month,
providers may no longer drop-ship diabetic shoes. Instead, a second
fitting must be performed. Before the rule, a lot of providers
would simply go out, take an impression of the foot, size the shoe,
then mail the inserts and shoes to patients, Fletcher says. That is
now off limits, and providers must put the actual shoe and insert
on the patient's foot.

"While most of our clients do meet with patients for sizing and
dispensing, many fail to thoroughly document it," says Lorenz.
"Medicare's main objective is to cut down on suppliers who try to
run more of a 'mail- order' business — something clearly
against Medicare guidelines and a practice we certainly do not
support. Those taking all the proper steps simply need to
understand the importance of documenting every step."

The extra scrutiny on footwear is all part of the mindset that
fostered competitive bidding in other product categories. To avoid
a similar situation with diabetic shoes, Fletcher advocates
additional work with legislators to make sure they understand what
goes into putting out shoes to diabetic patients. "They seem to
think that providers are taking advantage of the system, but when
you see that the profit margin is so limited, you realize that you
almost have to have a volume business," says Fletcher. "The
diabetes market is going to continue to grow, and Medicare is going
to continue to see increased costs. They are going to continue to
be aggressive with their audits as a result.

"Medicare does not look at it quite like we do," continues
Fletcher. "One of the medical directors told me that the diabetic
shoe benefit was a narrow benefit, and not many people would
qualify for it. But I see it as a preventive benefit. By putting
people in these shoes, we are going to prevent amputations and all
sorts of other things. There is a cost savings that you can't
really put in dollars. It's the same thing with diabetic supplies.
You can save money by getting these items out there and getting
people to test their glucose like they should. Medicare does not
see that."

Cash Considerations

Despite all the talk of Medicare squeezing reimbursements, there
are plenty of cash-based opportunities in the footwear arena,
especially with ancillary products such as socks and non-diabetic
inserts.

At Juzo USA, compression garments are available to boost the
vital cash market. According to Tom Musone, director of marketing,
the low inventory management associated with compression garments
and diabetic socks typically adds up to solid retail sales.

Considering the undeniable demographic and lifestyle trends
fueling the diabetes epidemic, clinicians are increasingly
augmenting treatment plans with compression therapy and diabetic
socks.

"The current strategy is early treatment using compression
garments or diabetic socks, before it leads to ulcers or possible
amputation," says Musone. "Diabetic socks and support stockings
with mild compression are strictly cash sales, and it is an easy
add-on sale. Medical compression, depending on the state or
patient's insurance, will be cash or insurance. With an existing
referral source, you can generate excellent revenue streams."

Like diabetic shoes, makers of compression garments are
increasingly becoming more aware of fashion preferences,
consciously staying away from thick beige hosiery that looks as
though it is made out of rubber. "Today's compression garments have
a wide variety of styles and options," explains Musone. "Depending
on patients' tastes, a dealer can offer products such as sheer
hosiery, casual athletic socks with performance fibers or men's
dress ribbed socks."

Juzo, he says, also manufactures compression garments and
diabetic socks with silver knitted in the product "for
antimicrobial and odor protection."

Susanne Hopkins contributed to this report.

Experts Interviewed

  • Tim Binkley, president and CEO, and
    Mike Binkley, vice president, Valentines Diabetic
    Supply, Roswell, Ga.
  • Denise Fletcher, JD, Brown & Fortunato,
    Amarillo, Texas
  • Paula Hardison, manager, Carolina Diabetic
    Supply Group, New Bern, N.C.
  • Tyler Kiser, senior vice president of sales
    and marketing, Prodigy Diabetes Care, Charlotte, N.C.
  • Eric Lorenz, president and COO, Dr. Comfort,
    Mequon, Wis.
  • Tom Musone, director of marketing, Juzo USA,
    Cuyahoga Falls, Ohio
  • Wallace Weeks, founder and president, Weeks
    Group, Melbourne, Fla.