CMS Strategy to Reduce Provider Numbers Works Too Well

ATLANTA — CMS might want to reduce the number of home
medical equipment providers, but its relentless actions combined
with those of Congress could also have dire consequences for
Medicare beneficiaries, according to HME stakeholders.

“Demand is exceeding supply,” said Wayne Stanfield, president
and CEO of the National Association of Independent Medical
Equipment Suppliers. “The existing providers cannot absorb the
number of patients from providers who have thrown up their hands
and said, ‘I give up.’”

Since the beginning of the year, HME providers have been slammed
with a 36-month oxygen rental cap, a 9.5 percent across-the-board
DME cut, mandatory surety bonds
and accreditation, the resurfacing of competitive bidding and the
requirement that ordering physicians be registered in Medicare’s
PECOS (Provider Enrollment, Chain and Ownership System).

Payment audits have also been stepped up, and numerous
reimbursement threats to such HME staples as oxygen, sleep and
mobility products continue. The House health reform bill (passed
Saturday night) includes 25 sections involving DME, 24 of which
would adversely affect providers.

“Medicare clearly wants to do business with fewer providers,”
said consultant Wallace Weeks of Weeks Group in Melbourne, Fla.
“They are putting barriers to entry and to sustainability in the
industry. Bonding, accreditation, competitive bidding — all
are designed to reduce the number of providers we have.”

The actions are working. Hundreds of providers are collapsing
under the load and either pulling out of Medicare or out of the
industry altogether, according to information compiled by the
Accredited Medical Equipment Suppliers of America. AMEPA has
reported that in Miami, the number of oxygen providers dropped from
401 in April 2008 to 205 in October 2009. Similarly, the number of
oxygen providers in Los Angeles fell from 258 to 120 during the
same period, and in California’s Riverside County, only 21 oxygen
providers were left out of 48 to service patients in a 7,200
square-mile radius.

A recent HomeCare Web poll shows that within a year, a
full third (33 percent) of respondents plan to get out of the HME
business, and another 13 percent plan to exit Medicare.

While CMS may be dealing with fewer providers, it could also be
grappling with more headaches. Already, even before the
implementation of competitive bidding in January 2011, access
issues are surfacing according to CMS itself.

In an Oct. 30 email, a CMS employee said that in “areas within
Montana, a Medicare beneficiary may experience supplier access
issues” in obtaining oxygen, enteral and parenteral nutrition and
power wheelchairs (see “Montana Benes Could Lose Access” in this
issue). The reason: a shortage of providers meeting the agency’s
new surety bond and accreditation requirements.

So far, CMS has remained silent on how many providers have
either withdrawn from the Medicare program voluntarily or had their
provider numbers revoked because of the surety bond and
accreditation mandates. But Stanfield said he believes it could be
about 10,000 — and that would be on top of all those who have
already fallen out of the industry.

“If you look just at the small pharmacy-based suppliers, I am
aware of close to a dozen in a rural area of Virginia that have
pulled their numbers,” Stanfield said.

It isn’t just rural areas that are affected, either. Stanfield
said that in one urban market in California, referral sources are
calling providers to get their patients serviced because the HME
companies they have used for years are no longer in the Medicare
program.

“It’s going to affect providers all across the spectrum,”
Stanfield said.

Left without a Provider to Call On

Neal Hansen can attest to that. His company, Hansen Homecare
Specialty Service in Ketchikan, Alaska, covers Ketchikan, its
environs and Prince William Island. It’s a costly endeavor. The
island is accessible only by ferry, and it costs him $600 just to
get there, Hansen said. He’s already had to cut the number of times
he visits the island, and with any more cuts from Medicare, he
might have to rethink servicing those patients at all, he said.

Then there are the patients in other remote areas of Alaska that
are left without care because their providers have closed up.
Hansen said he would like to help, but right now, he is thinking
there aren’t enough patients to warrant the cost.

So Hansen, who did obtain his surety bond and accreditation,
plans to stay in business by diversifying. He already does business
through the Internet, and it helps that he owns his own building
and employs only family.

“With what we’ve got, we’re doing OK,” Hansen said.

Tactics such as diversification could make the difference for
providers who choose to stay in the business, according to Miriam
Lieber of Sherman Oaks, Calif.-based Lieber Consulting. Lieber, who
spoke last week at the Ohio Association of Medical Equipment
Suppliers, characterized providers who attended the meeting as a
strong group of “survivors,” but even they were wondering when CMS
and Congress were going to ease up.

That’s anyone’s guess, Lieber said. She added that providers
must “either wait out the storm or they walk away.” If they choose
the former, she said, “they mix it up, diversify, cut up the pie.
They have to mix it up.”

The idea is that providers “don’t have all their eggs in one
basket — and definitely not the Medicare basket,” she
said.

Weeks agreed. “Some are choosing just to jettison the Medicare
portion of their business,” he said. “Some are more set now on
diversifying their revenue sources … working on diluting
Medicare as a percentage of their revenues. I’ve been seeing that
for a good two years now.”

Weeks is not surprised that a number of providers are electing
to leave the HME business. In 2004, he recalled, he made a keynote
presentation at Medtrade during which he predicted that by 2010, 25
percent of the industry would be lost.

Then, his prediction was largely based on the fact that “it is
part of the natural evolution of any industry. As industries reach
maturity, they consolidate,” he said. “Customers develop bargaining
power as an industry gets toward the top of its growth stage. That
translates to shrinking margins.” But pushed by regulatory and
legislative actions, however, the HME industry got to that
shrinking point much earlier.

“Most industries don’t have the amount of regulation we have, so
we have some acceleration,” Weeks said.

But both consultants pointed out there is something of a silver
lining to a shrinking industry.

“There’s a bigger piece of the pie for those that remain,” said
Lieber.

“It’s going to cause the top line of those left in the industry
to grow,” said Weeks. The average annual revenue for providers a
few years ago was $1.8 million, but “I think we’re going to see
that average revenue grow to be $3 million per year,” Weeks
said.

Get Out Your Legal Pad

Still, there will be collateral damage from the forced
consolidation, according to Stanfield.

“CMS’ solution to the [access] problem was for the patient to
make sure their supplier was approved or they would have to pay
out-of-pocket,” he said. “That’s really not possible for a senior
who is in no position to do anything about this problem and didn’t
do anything to create it.

“[CMS and legislators] simply don’t realize how much capacity is
being served by very small companies,” he continued. “What is being
missed is that those providers could each have had 10 or a dozen
oxygen patients. But because of the cap arrangements, no one can
take those patients. There are so many moving parts to this that it
is frightening.”

Like the providers in Ohio who wondered when CMS was going to
ease up, Stanfield wonders why such emphasis is placed on an
industry that accounts for only 1 percent of the nation’s total
health care bill.

“It’s astounding that this industry is being crushed like this,”
he said.

CMS says it is taking such actions to counter fraud and abuse,
but Stanfield pointed out there is a much easier way to do that.
“Not one penny can be billed to Medicare without a supplier
number,” he said. “The answer is simple: Don’t give supplier
numbers to crooks.”

Yet the National Supplier Clearinghouse, CMS’ enrollment
contractor, persists in doing just that, he said. “Why is the
contractor still issuing supplier numbers after 16 years when every
single report that has come out has said that they have failed [to
curb fraud and abuse from the front end]?”

Concluded Stanfield, “You could take three people and a legal
pad and do a better job than CMS is doing.”