Braving the Storm

As 2008 lurched to a close, many home medical equipment providers got in their last licks in the form of oxygen comments to CMS. The same day those comments were due (Dec. 29), the agency placed its final rule for a $50,000 Medicare surety bond on display. Meanwhile, economic pundits across the nation engaged in heated discussions about a nearly trillion-dollar stimulus package to jolt the nation’s flagging economy.

As if these hurdles were not enough, providers again face a competitive bidding program lurking in the shadows, a 9.5 percent reimbursement cut and a crippling 36-month cap on home oxygen rental. Amidst all the uncertainty, this new year will certainly offer up a familiar theme: challenge. In that spirit, we asked HomeCare’s Editorial Advisory Board members to share advice, wisdom, fears — and perhaps even a dollop of optimism.

For those in the respiratory field, however, hope is admittedly hard to come by. If you’re like many oxygen providers, you may have as much as 40 percent of your business tied up in respiratory. Consultant Alison Cherney says if you are in this situation, it is time to adjust strategy, implementation and expectations.

“How will you make up the expected 15 percent to 20 percent decline in revenue from this typical business?” asks Cherney, who heads Cherney & Associates in Brentwood, Tenn. “You either have to ramp up oxygen or ramp up something else. Providers are doing all sorts of creative things — new product lines such as wound care — and ramping up new payers (managed care) and/or new customers. If you do nothing, your business declines.”

One strategy is to acknowledge the fear while also having the courage to see the opportunity hiding around the corner. At Wisconsin-based Knueppel Healthcare Services, the race is on to cut expenses and scrutinize operations, especially billing and collections.

“We need to look beyond the cuts and find new ways of doing things. It won’t be easy but it beats giving up,” says Cindy Ciardo, CEO. “We are trying to be more creative with our marketing efforts and do things at no or low cost. We have begun to cut some services, and we require higher minimums for free shipping.”

For Ciardo, the 9.5 percent reimbursement cut takes direct aim at her complex rehab business. Similar to other rehab providers, the cut represents a burden that will be difficult to overcome. “We already operate on slim margins for equipment that is highly specialized and extremely time-consuming to provide,” laments Ciardo.

“Once again, CMS fails to recognize the amount of time involved for preparation of the paperwork needed to justify the equipment, the travel expense for the multiple visits to the patient’s home, and especially for the cost and time involved in the assessment, trial, custom modifications, fitting, training and final adjustments needed to provide this type of equipment. It’s called ‘complex’ for a reason.”

For Ciardo and others, the fear is that service will suffer, with off-site visits and free demo equipment being the first to go. With reimbursements down, it will also be more difficult than ever to provide the latest and greatest technology. In the end, that means beneficiaries may suffer.

Is the solution to get out of Medicare? Ciardo says that tactic would ultimately be fruitless for rehab, pointing out that many managed care and commercial insurances set their reimbursement rates below the Medicare allowable.

But as providers seek to cut expenses from already lean businesses, Darren Tarleton, president and CEO of Mobility Warehouse in Stockbridge, Ga., believes the industry’s push toward accreditation can only help to reduce costs and improve efficiency. Beyond accreditation, Tarleton is also optimistic about additional growth in 2009.

“We are always looking for new product lines and services that will increase sales,” he says. “That may mean expanding our showroom floor to accommodate more product, picking up new insurance companies outside of Medicare/Medicaid and decreasing our dependency on Medicare/Medicaid. Contracting with hospices and nursing homes for products and services is an option. It may also mean that we act as a billing service for other providers.”

For his own part, he plans to reduce Medicare dependency to less than 20 percent by 2010. His Medicare revenue hovers around 43 percent today, but that is down from 57 percent in 2007.

“When you depend primarily on Medicare for your revenue stream, who is in control of you company?” asks Tarleton. “As a business owner, I don’t let my employees make the vital decisions. I am not going to let Medicare tell me how to run my company as a whole.”

For providers who have not decreased their dependency on Medicare, cash flow is a major concern. Cliff Woolard, president and CEO of Home Med-Equip Co., Concord, Calif., plans to watch expenses, grow his retail business and continue using natural gas delivery trucks in an attempt to keep the money flowing.

On the oxygen front, Woolard says, “The only silver lining for the oxygen cap is that we changed our modality to [Invacare’s] HomeFill back in 2004. I remember some dealers saying we were foolish to invest in such a product. Now the same people are calling trying to sell their oxygen customers to me.”

Advocacy and Opportunity

Despite the economic gloom pervading the news, Woolard sees it all as an opportunity for home care providers. “It may sound crazy, but I feel that the best days of our industry are ahead of us,” says Woolard. “The demand for our product will only continue to grow. We have the perfect opportunity with the debate focused on health care to influence the powers-that-be about what we really do — providing a service rather than a product.

“I am redeploying an existing employee into a PR position. The position will consist of arranging meetings with our state and federal representatives to explain what we really do, how we contribute to the local economy and why we need their support.”

Consultant Louis Feuer agrees that continuing demand will not be a problem for home care providers. After all, the much-talked-about baby boom generation is not a myth. “The numbers will continue to grow,” says Feuer, president of Dynamic Seminars & Consulting, Pembroke Pines, Fla. “Not every business has that good news on the horizon.”

The problem, Feuer adds, is that despite a stronger push in Washington, the industry has yet to convey the total message to legislators. “I fear and regret that we have never fully explained who and what we are,” he laments. “We never defined all of our costs and the services we provide, and now are left to fight causes that possibly could have been somewhat avoided.

“We allowed delivery costs to be bundled with product costs and maintenance to just be a part of doing business. It is these services that separated us from the catalog business and drove customers and referral sources to our doors.”

Feuer encourages providers to go back to the basics and manage aggressively. “Managing means tracking, monitoring and ensuring you have a continuous quality improvement program,” he says. “Failure to review expenses and review productivity will ultimately be financially dangerous. Staying on top of our billing and collections issues must be a priority as well. We also need to market our services and products in more creative ways.

“We need to reach out to the large senior citizen population who can benefit from the many products we sell,” he concludes.

Consultant Colette Weil observes that other industries have faced similar pressures, but she also acknowledges that HME providers’ heavy reliance on government reimbursement can make things tougher.

“Some forecasters indicate that financial and recessionary pressures on most types of businesses are expected to continue up to three years,” notes Weil, managing director of Summit Marketing, Mill Valley, Calif. “Pages from other industry playbooks show us that firms have instituted selected price increases in retail, expanded sales of add-on products to existing customers, expanded custom contracts and advertised niche products with growth potential.

“At the same time, businesses have selectively discontinued products, dropped unprofitable contracts, changed advertising to target audiences, negotiated vendor terms and modified employee work hours.”

For companies looking to change their ways (and qualify for Medicare) through accreditation, consultant Mary Ellen Conway says it could be too late. The deadline is Sept. 30, 2009, but that deadline, she notes, is deceiving.

“Certainly from an accreditation perspective, providers are in their last nine months for the Sept. 30 requirement, but to meet that requirement they will have to be done by June, not September, says Conway, president of Capital Healthcare Group, Bethesda, Md. “So, another six to seven months is not really going to be enough time to do everything they need to do in the face of shoring up operations, and now trying to get accredited and trying to meet other regulatory demands.”

Her advice if you’re not already in the accreditation process? “Get going — now.”

The Haunting Continues

Unfortunately, the 800-pound gorilla of fraud still sits gleefully in the middle of the home care room. After last year’s unprecedented media coverage on “NBC Nightly News” and in the New York Times, the specter of fraud and abuse still threatens to drive CMS’ DMEPOS agenda.

Neil Caesar, president of the Health Law Center in Greenville, S.C., reminds providers that CMS is still under pressure to weed out the bad guys. “As suppliers seek new ways to expand profits, it is more important than ever to adhere to strict compliance with standards, reimbursement requirements and anti-fraud rules,” he says.

“It often seems that the NSC, CMS and the MACs are holding suppliers to a standard of perfection. This is unfair, but it must be acknowledged,” Caesar continues. “Make sure your 855S form is kept up to date and accurately reflects the activities and services you provide. Understand the licensure and related requirements in every state in which you do business. Stay on top of record-keeping and documentation.

“Even an activity as benign as changing your address can lead to NSC scrutiny,” Caesar warns. “I have had several clients get slammed because they forgot to update their 855 form to delete product categories they no longer provided, but which raised licensure issues in certain states.”

Industry veteran Shelly Prial has seen government attitudes evolve over the years from trust to suspicion. He says Congress now appears unable to recognize how many Americans are being put at risk under the 36-month oxygen cap and new payment regulations.

For Prial, head of Prial Consulting in Melbourne, Fla., the solution is to get patients involved. “Politicians cannot stay in office without votes,” says Prial. “Legislators will consider their next move if they recognize the number of potential votes you can sway.” As a strong supporter of both state and national associations, Prial advocates working with these entities to develop letters patients can send regularly to senators and representatives in Washington.

As for the current economic malaise, Prial suggests that now is the time to remain calm and patient. “Our country is experiencing a recession,” says Prial. “Since the end of WW2 we have lived through many gyrations, but our country has weathered them all. Do not panic, because this is just another problem to face.

“When you accept reality, you will be one-step closer to reaching another goal — survival. There is no gloom or doom about health care in the United States. The concern is that the politicians do not know how to control it. You can assure your future and that of the industry if enough providers participate in these grassroots efforts.”

Forcing the Industry’s Hand

While 2008 was a tumultuous year, industry conditions are arguably even more volatile in 2009. With persistent fraud concerns, reimbursement cuts, accreditation, competitive bidding and a troubled economy all converging in the new year, business adjustments are inevitable.

Miriam Lieber, president of Lieber Consulting, says improving operational efficiencies is now a necessity. “With the cuts to oxygen, HME businesses will be forced to run lean operations to survive or they will simply leave the market,” she says.

“It used to be that oxygen carried the weight for the rest of the products, but with a 36-month cap, 9.5 percent reduction and stringent requirements associated with capped oxygen equipment, [that will no longer be possible]. Operational efficiencies, purchasing prowess and automation initiatives are ways to find the excess cash to continue prospering.

“For some, it will be a survival game,” she says. “Others will find a new niche or diversify payers and continue to gain market share. The smartest workers will thrive.”

L. Jack Clark, founder and principal of Mid-Georgia Respiratory Homecare, Griffin, Ga., is yet another advocate of streamlining for efficiency. Specifically, Clark thinks that appropriate benchmarking can be an important aspect of long-term success and points out that comparisons with other competitors can be quite illuminating. “When you compare your organization, it must be matchable to your specific market conditions,” he warns. “Local market specifics can ultimately highlight opportunities that are more realistic.”

Consultant Wallace Weeks largely agrees with Clark and Lieber, but his sober assessment also advocates a way to leave the business gracefully in case things do not go as planned. “If there is a question about the ability to weather the storm, the business plan should include an exit strategy aimed at maintaining as much equity as possible,” says Weeks, president of Weeks Group, Melbourne, Fla.

“The exit strategy will benefit from identifying some trigger that confirms a hold or sell position. An example might be that maintaining net profit greater than X percent of sales for two years confirms a hold position.”

While extolling the virtues of being prepared for anything, Weeks still believes that providers can certainly succeed in 2009 if they do not lose their cool. “Panic is a luxury reserved for those who do not have responsibilities,” he says.

The antidote to panic is preparation. In that spirit, Weeks advocates that all providers prepare a written business plan with contingencies for the next 24 months. Creating cash flow and profit should be the No. 1 goals. “Elements of the plan should include monthly forecasts of both the income statement and the balance sheet,” advises Weeks. “Without a forecast balance sheet, a provider cannot know what his cash position will be. Those who become short of cash in the next year are all but certain to fail.”

Weeks’ long-term forecast is optimistic, however, and he draws an analogy with the hospital industry in the 1980s. Back in those days, he reminds, consolidation fueled by reimbursement issues whittled the number of hospitals from nearly 11,000 acute care facilities to approximately 6,000 where it has held. Like hospitals, Weeks says, the demand for HME will remain strong, and that’s a reason for optimism.

“Another hope for the industry is that providers collectively see and act on the knowledge that competitive bidding is in the control of CMS for only so long as providers allow it,” opines Weeks.

“Remember that in Round 1 of competitive bidding, there was an insufficient number of bidders for oxygen in San Juan to meet the demand. Providers simply did not offer to provide oxygen for less. As a result, no contracts were offered, and CMS could not lower the reimbursement. Moreover, in Round 1.2, oxygen will not be bid in San Juan. The providers there took competitive bidding away from CMS. When a sufficient number of providers repeat the action of oxygen providers in San Juan, we can be done with competitive bidding,” he says.

Terry Pageler, president of Lenexa, Kan.-based PowerCore, which consults with a number of the industry’s manufacturers, believes that providers who have been slow to adapt must finally bite the bullet and embrace change, despite the fact that most “are myopically concentrated on protecting what has been.”

Case in point, says Pageler, “I’ve been around long enough to have heard (in part, invented) the oxygen ‘non-delivery’ story. Back in the early ’90s when I was with Puritan Bennett — 15+ years ago — we made the case for fewer deliveries with a ‘combo system’ that combined both LOX units and concentrators. The math worked then. Today, with POCs, the business case is absolutely clear. Even at $2,500 per unit. Why is this still a discussion?”

Merger-and-acquisition guru Dexter Braff believes cutting the operating budget must ultimately come as part of a cumulative effort and not from one single element of the business. Paying attention to the details, he says, could be the key to reducing costs.

“Look at health insurance plans and changing deductibles,” says Braff, president of Pittsburgh-based The Braff Group. “When you are buying paper, buy it at a cheaper rate. Literally examine every item and see where you can find a nickel. That’s where the cuts are mostly going to be, because most of HomeCare’s readership is already on board with cutting out the big stuff.”

As for oxygen, Braff says the industry must do everything in its power to get rid of the 36-month cap. “The 36-month oxygen cap is a noose around the industry’s neck that is in fact the noose that will kill it. Why? Because someone somewhere will reduce the oxygen cap from 36 months to 18, or to 13. Once that happens, it is game over.”

Braff says it is reasonable to expect there will be providers exiting the business. But this may indeed provide an opportunity for well-run, cost-constrained companies to pick up additional volume, either by people exiting the business or from strategic partnering/acquiring of a smaller company that at this point simply cannot fight the fight.

“We’re still optimistic about the industry,” says Braff. “However, all bets are off if 36 months becomes 13.”