Higley and Gallagher on the State of the HME Industry

Editor’s note: In May 2010, VGM Group, Inc.’s Mark Higley and John Gallagher were tasked with a “straight-down-the-middle discussion” to give HME providers a perspective on the business. With 2018 upon us, we asked Higley and Gallagher to reflect on what they got right, what they got wrong, and look forward as part of HomeCare Magazine’s January 2018 “State of the Industry” edition.

Read the original 2010 article here.

Mark’s Take—Regulatory Notes, Predictions and Comments

In 2010, I began with the relatively new competitive bidding program (CBP) predictions. The 2011 Round One recompete was upcoming in the original nine metro areas, and I made an attempt to “guestimate” whether the new reimbursements would be worse than the 26 percent result from the short-lived Round One.

We sampled numerous HMEs who indicated they took only a slightly higher amount off the fee schedule in this second attempt. I also commented that many providers seemed to ignore MIPPA, which financed the bidding delay via an overall 9.5 percent fee schedule reduction, and suggested we would be looking at an approximate 32 to 35 percent reduction. I got that one right. I also commented that most non-bidding/losing providers would enter into grandfathering and/or subcontracting agreements. Right again—but I’ll be the first to admit that was a bit of a “gimme.”

We’ve been through three more rounds since then. (CBP currently is employed in 130 metro areas in 43 states plus a national mail order program for all states and territories.) The average savings from the latest CBP rounds show significant reductions from then-existing DMEPOS fee schedule amounts: Round 2, initiated in 2013, achieved a 45 percent average reduction; the Round 1 Recompete, also initiated in 2013, achieved a 37 percent reduction.

The most current program, the Round 2 recompete, resulted in an overall weighted average reduction of 49 percent as compared to the 2015 fee schedules.

Didn’t See It Coming

The Affordable Care Act—the ACA amended the Medicare Modernization Act to “mandate the use of DMEPOS competitive bidding payment amounts to downwardly adjust the Medicare fee schedule in all non-bid areas.” This “adjustment” began January 1, 2016, and from then until June 30, 2016, the DMEPOS fee schedule was based 50 percent on the 2015 fee schedule and 50 percent of the “national expansion” rates. Since then, and somewhat simply stated, reimbursements for these products’ rates have been derived from an average of Round 1 and Round 2 CBA current payment amounts, averaged within eight Bureau of Economic Analysis boundaries and applied to the applicable state.

As readers are all too aware, effective July 1, 2016, the DMEPOS fee schedule was reduced again to reflect 100 percent of the national expansion rates, which now included the comparatively lower Round 2 “recompete” single payment amounts in the calculation.

The cumulative cuts to the fee schedule under these fully adjusted rates are substantial, with fees for many items reduced by 50 to 80 percent compared to the 2015 rates.

The Beauty of the Cures Bill

The Cures bill mitigated some of the rural roll-out pain, offering retroactive relief to non-bid HMEs by extending the initial phase of partial reimbursement cuts from ending on June 30 to ending on December 31, 2016, and delayed implementation of the full cuts, which had started on July 1, cut to January 1, 2017, and reimbursed post-July 1 claims for the difference. Bottom line: Unless relief is forthcoming via the not-yet-released “Interim Final Rule” (which suggests the likelihood of a reversion to the blended 50/50 rates and/or a legislative fix), the 2017/2018 reimbursement amounts remain at 50 to 80 percent off the 2015 fee schedule.

Is There Light in the Tunnel?

I think there is—it’s the 2019 bid program. Most HMEs will recall that, on January 31, 2017, CMS announced the next round of Medicare DME competitive bidding that was scheduled to begin January 1, 2019, following the December 31, 2018, expiration of the current Round 1 and Round 2 contracts. Seven days later, Medicare announced a “temporary delay” in moving forward with the next steps of the Round 2019 program “to allow the new administration further opportunity to review the program.” (CMS has also removed the 2019 Bid Program information it posted on January 31, 2017, on both the CMS site and the Competitive Bidding Implementation Contractor (CBIC) websites.)

Many stakeholders suggested that CMS’s delay likely signaled that (then) incoming HHS-Secretary Tom Price wanted to examine the current DME bidding program and possibly make some significant improvements. We will see. In the meantime, I believe HME providers should not only prepare documents and allocate personnel duties for the eventual release of the new 2019 timeline, but be aware of significant new changes to the program, as well as recognize an evolving HME provider mix. The current Round 1 2017, Round 2 Recompete, and National Mail-Order Recompete contract periods continue through December 31, 2018. The Round 2019 contracts were scheduled to become effective on January 1, 2019, and be effective for three years through December 31, 2021. However, the law requires these competitions to be rebid no longer than every three years—suggesting that Round 2019 could begin as late as July 1, 2019.

On Bid Ceiling Adjustments

CMS had published a proposed rule (CMS-1651-P) that was an annual update to the end-stage renal disease (ESRD) bundled payment system, but also included proposed changes to the competitive bidding program.

CMS-1651 is now final. Included within it are adjustments to the 2019 “bid ceiling,” which I opine as very favorable to the HME community. How so? The Affordable Care Act adjustment noted effectively reduced the fee schedule for these items to the average of the regional single payment amounts. In other words, and by example, the Round 1 2017 and Round 2 recompete E1390/Class A oxygen monthly fee schedule was $180.92—and was the “bid ceiling” for each program.

About half of the country (by FFS patient lives in ZIPs falling within a CBA) was covered by the two bid programs, and those HMEs were reimbursed at less than $80. But, until the ACA, the bid ceiling for a future round would remain at the higher amount. Now, post ACA, the fee schedule was reduced to $78.61.

Program rules require bidding under the bid ceiling, which is tagged to the fee schedule. This meant Round 2019 bidders would have to start their bidding at an amount less than $78.61. Readers who have attended any of my sessions will recognize this anecdotal example: In the “good old days,” we had 12-foot deep swimming pools. If they lost water, we could always fill them up with a hose again to 12 feet. Bring in the bidding program rules. The water level is now at 5 feet. We can barely dive in. And, we can’t fill up the pool with our hose. If we have another “round,” the water level could go to 3 feet. And then what happens in three more years? We have dry blue concrete and no water.

I Think You Get It

If we have to bid below the fee schedule every time and the fee schedule is adjusted by the eight regional single payment amounts—eventually there will be no reimbursement. Thus, CMS-1651-P (and now “F” for final) addressed the no-water-in-the-pool issue.

CMS recognized that, under the current statute, the bid limits would be subject to a continuing downward spiral, eventually reaching zero. So, CMS will use, for the 2019 program, the unadjusted 2105 fee schedule amounts for the purpose of establishing limits on bids for future competitions.

To clarify, the bid ceiling has not been removed entirely but raised to the 2015 Medicare fee schedule amounts. HME suppliers get a fresh start. (Note: VGM, AAHomecare and other stakeholders will make concerted efforts to educate the HME community relative to this bid program improvement.)

Surety Bonds

This same final rule implements a bid surety bond requirement. CMS will implement a provision requiring 2019 bidding entities to submit proof of an authorized bid surety bond for each CBA in which a supplier is bidding. The surety bond amount would be set at $50,000 for each CBA associated with the bid. If the bidder is offered a contract for any product category in the CBA, and the supplier’s bid for the product category was at or below the median composite bid rate used to calculate the SPAs, the bid bond would be forfeited, and CMS would collect on the bond if the supplier does not accept the contract. What does that mean? It certainly suggests that there is now a “pay to play” facet to the strategies of 2019 bidding companies. Indeed, as evidenced by the official Medicare Supplier Directory (Accessed here), which includes a current database of all contracted suppliers within a CBA ZIP code, more than half of the current contracts have been awarded to companies out of the state or region. Relatively few of these contractors actually service the local area.

This is just a hypothesis, but I opine that many of the lowest bids were received from non-area bidders. Now that the bid surety bond will be required, per each CBA (there are 130), I further opine there will be a substantial reduction in the number of companies offering a bid.

Let’s Do the Numbers

If the surety company requires a 1 percent fee ($500) per CBA, then, by example, an HME who desires to bid 20 CBAs would be required to submit a payment of $10,000 “just to play,” with no guarantee of a contract. Perhaps this company will reconsider bidding on some or all of the out of area CBAs. Now, to be fair, there are many bona fide and financially secure HME providers that have developed appropriate delivery and patient care mechanisms from across the miles. I recognize there is an additional burden to these companies. But, I am of the opinion that the mitigation of certain less-than-qualified bidding entities from the program will raise the overall bar—that is increase the single payment amounts over the longer term.

Dwindling Providers, Possible Upside

In the 2010 article, I commented on the number and size (by revenue) of the array of HME providers operating in the country. Update: Via Freedom of Information Act (FOIA) inquiries, and access to a Medicare supplier database (Found here), we have the opportunity to review the trends within our HME community. And, the trends are clear: consolidation and company closures.

Let’s look at some FOIA data annually from 2010 (the de facto beginning of the competitive bidding program) through September of 2017. DMEPOS supplier categories are limited to medical supply/rehab companies, oxygen suppliers, and O&P providers; pharmacies and physician/practitioners and other supplier types (e.g., ambulance, mid-wives, etc.) have purposely been withheld to more accurately depict the HME industry. My colleagues at AAHomecare have offered a similar analysis—the algorithm is by products offered (e.g., oxygen, hospital beds and CPAP)—since 2013—and with similar results: By either analysis, the number of “true” have been steadily declining.

In just the past four years, the number of home medical equipment providers and the number of locations have declined by 40+ percent. This is a staggering downsizing of suppliers in any environment. This consolidation is even more egregious when considered in the context of a growing population of seniors brought on by the aging of the baby-boom generation.

The frail, elderly and disabled are the populations that rely upon home medical equipment suppliers to maintain quality of life. Drilling deeper into the home medical equipment consolidation provides a clear correlation between federal policy on the inaccurately named competitive bidding program.

There is, perhaps, one upside: Fewer eligible HMEs, coupled with the rules that allow a new higher bid limit and bid bond requirements that effectively will restrict some inappropriate players, should result in higher Round 2019 single payment amounts, which drive the regional payment amounts, which set the fee schedule for 2019 and beyond.

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John’s Take—Legislative Updates and Commentary

Back in 2010, DME was an easy target for federal agencies to take down, all in the name of eradicating waste, fraud and abuse. While DME has always only been a fraction of Medicare spending, agencies and even members of Congress for years pursued policies recommended by various agencies that would gut the DME industry.

Rather than the professional industry that requires proper training and knowledge that DME is, we were viewed as “equipment jockeys” full of opportunities to make some cash. All of these things happened because the industry had not taken the time to educate members of Congress and build relationships with policymakers. They hadn’t seen the faces of the small business owners caring for patients and employing their constituents, which led to a poor reputation for DME.

The biggest problem that our industry faced was that we had an extremely small bench when it came to elected officials on The Hill who understood the issues and were ready to defend DME and the vital role it plays in health care. Today, we have a much deeper bench of supporters that is proving to be vital to our efforts.

Expansion of the Competitive Bidding Program

Now, the baby has been thrown out with the bath water in the DME industry in both urban and rural America, as quality providers are being lost every day. We have seen the pinch that providers have been put in because of the 36-month cap on oxygen, as they are forced to strict delivery requirements and schedules.

Patients continue to struggle and face the consequences of this policy as access to new equipment and quality care is diminished. With a 42 percent reduction in the number of suppliers who are no longer in business, patients are orphaned. While the first-month purchase option for some chairs and CRT is still in place, a large patient population is still shut out from being able to purchase their standard, group 2 standard powerchair.

The Industry Has Flipped Its Narrative

One of the largest changes at CMS and within the halls of Congress since 2010 is the perceived reputation of the DME industry. For years the industry was viewed as a magnet for waste, fraud and abuse. Now, largely due to the self-policing, the waste and abuse narrative was combated as the VGM Group partnered with The van Halem Group to start the Fraud Eradication Advisory Team (FEAT), the industry has flipped the narrative entirely. Through the diligence and work of this group, actual fraud was identified, halted and prosecuted, leading to millions being returned to the federal government. Major mobility scams, and DME “offices” the size of a closet—billing claims—are long in the past.

As the industry embraced accreditation, it has helped push out several bad actors previously giving the industry a black eye.

What Is Different Now?

When the fight against competitive bidding began, the industry had an extremely small group of supporters in Congress who understood the importance of home based health care and pushed back on harmful policies. Now, due to the education and efforts of many, we have more champions leading the charge on the several other issues the various industry challenges we face. The scope of challenges that providers of all kinds are facing continues to grow.

Home infusion reimbursement models, home modification legislative opportunities, audits, defending CRT problems: The list goes on. Several pieces of legislation are in play right now (and a strong bench of champions) due to the robust grassroots efforts from independent providers.

There are numerous examples of coalition building among grassroots champions, but a few standout in particular, such as Don Jones of Southern Medical Equipment in Alabama, who works closely with the National Federation of Independent Businesses. Another is Regina Gillespie of Best Home Medical in West Virginia and her work to advocate issues with the Small Business Administration.

These relationships and numerous others have directly resulted in several actions by government and non-government agencies for the betterment of the industry. Where does the industry go from here?

Competitive Bidding Reforms

The short-term fix that the industry must focus on is to halt the decrease of providers being forced to close their doors. This can be achieved by urgent passage of H.R. 4229, led by Reps. Cathy McMorris-Rodgers (R-Wash.) and Dave Loebsack (D-Iowa.), which would reinstate January 2016 reimbursement rates. This fix has had strong, bipartisan support from the very start and will quickly stop the bleeding of the quality provider who remain caring for patients. Currently, an Interim Final Rule (IFR) is sitting at the Office of Management and Budget (OMB) that would provide immense relief to providers and must be released. OMB has received several congressional inquiries encouraging the IFR’s release, but we must keep the pressure on OMB to do so.

The long-term fix, which is being worked on through the regulatory process with congressional pressure, is to overhaul the current program. Urban and rural providers struggle to provide quality care under the competitive bidding program, and patients are struggling to receive the supplies that they desperately need. There are some positive strides happening behind the scenes to develop a program that protects patients while saving the Medicare trust fund for generations to come.

Industry leaders remain dedicated to preventing CRT and other products from being included into the competitive bidding program. Even with strong congressional opposition and action to keep CRT out of competitive bidding, government agencies are still recommending additional products be included into the broken program. While we work to overhaul competitive bidding, we must not allow the program to expand further than it already has. In addition to payers and state Medicaid beginning the process of adopting Medicare rates because of the Cures Act, the Medicare Payment Advisory Committee continues to recommend additional products such as ventilators and orthotics into the competitive bidding program. We must remain vigilant in fighting against any expansion of the program.

Infusion legislation to speed up the process of CMS to implement a reimbursement model for drugs to be administered in the beneficiary’s home will be critical to expanding access to these drugs.

Home modification legislation will also provide expanding benefits for America’s seniors as H.R. 1780 would provide a $30,000 tax credit for home modification and safety upgrades. This is a huge opportunity to increase demand for installing grab bars, ramps, railings and much more.

Medicaid Funding Through Block Grants from the Feds

The trend and strong position of the Trump administration is to give states flexibility by allocating block grants for states to administer their Medicaid programs. Medicaid accounts for $545 billion of the $3.6 trillion federal budget, but Medicaid is almost entirely conducted by the individual states. Block grants free state governments and providers from the swath of regulatory requirements to states and providers that comes with the federal dollars. The opportunity comes for proper funding and increased options for the states to decide what they do with federal dollars and not being dictated by the federal government.

The industry needs to be on the front end stressing how dollars spent on DME saves enormous dollars in other areas of health care.

Developing State-Level Relationships

With several challenges on the table, there is a whole host of opportunities to improve the health care sector under the current administration and Congress. The industry must add to its focus the new challenges at the state level. As states continue to search for cost reductions within their Medicaid systems, having relationships with state legislators and governors will be key in protecting the industry from flawed federal policies trickling down to the state level.

Protecting Quality Patient Outcomes

Protecting quality patient outcomes will be at the center of the effort against drop-shipping crucial equipment that requires hands-on care from experts, not dodgy phone support from 8 a.m. to 5 p.m. Monday through Friday.

Furthering state licensure is at the center of quality patient care. Good work has been done by state associations, such as Georgia, the Midwest Association, Tennessee, the Northeast Association, Big Sky region and many other state associations that we can build on.

Meeting Challenges of the Future

Looking back a decade ago, the industry had a lackluster grassroots presence on Capitol Hill and in state legislatures. In 2017 and beyond, our grassroots efforts led by providers and state associations that work day in and day out to grow the support network for DME among elected officials is the industry’s greatest asset. It will require continued time and effort being invested into developing more relationships to show DME is a strong and united force.

At the end of the day, providers are employers, small businesses and depended on by beneficiaries to remain in the comfort of their own home. Many in Congress have changed their tune about the role that the various medical equipment industries play in the health care sector. Now, we have a deep bench of legislative champions who have invested a lot of time into making better policies for DME, O&P, CRT, home infusion and countless other of our diverse groups of industries.

Read our full January 2018 State of the Industry coverage here.