Start at the Bottom

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.