In or Out

If you’re in the nebulizer medications business, chances are you’re asking for how long.

The beleaguered industry has long fallen victim to Medicare cuts, but in the latest hit, Medicare is proposing to slash reimbursement from dollars to mere cents for two brand-name drugs — Xopenex and DuoNeb — eliminate coverage of many drugs altogether and trim the dispensing fee.

It’s not a pretty picture for home medical equipment providers who deal in nebulizer medications, and some industry-watchers say there could be a mass exodus from the business.

But wait … that may not be the answer, say two top consultants. There might, in fact, be opportunity yet.

THE REAL DEAL

Ask Mickey Letson about the climate in the nebulizer medications field today and you’ll get a wry chuckle. “The climate has not really changed in the 18 years I’ve been in it,” says the co-owner of Letco Companies, a Decatur, Ala.-based wholesale supplier of respiratory equipment, medications and supplies for pharmacies. “It’s always been chaos. There is always someone calling, ‘The sky’s falling.’”

Indeed, he adds, when he first got into the business, “the first person who came to see me said, ‘You don’t want to be in this business; it’s about to collapse.’ Well, then it collapsed once a year. Now, it collapses four times a year.”

There’s a slump each quarter when the average sales prices — the pricing model for nebulizer medications — change, stakeholders say. So the newest blows, while perhaps creating a more uncertain business environment, have had the effect not of panic but of resignation, according to Dexter Braff of The Braff Group, a merger and acquisition firm in Pittsburgh.

Still, some providers are trying to unload their neb med businesses, with disappointing results. Even though that sector generates profitability for some providers and provides access to other patients, such as those on oxygen, “from a merger-and-acquisition standpoint, the buyers are ascribing little or no value to [it],” Braff says.

So, since you aren’t likely to sell it off for a profit, advise both consultants, take a good, hard look at your nebulizer medications business before you let it go. It could have more potential than you think.

“This is an important product for beneficiaries,” Braff says. “If utilization of the product goes down substantially, the federal government has another problem: They are going to see more patients in the hospital. The question is, if utilization doesn’t go down, who is going to end up with the service? That’s a potential opportunity for those folks who can do it.”

And, adds Letson, the future might not be as grim as it now might appear.

“They always say history repeats itself,” he says. “I would say what we are going to see is somewhat of a repeat of our history because there are some drugs ready to enter the market next year. We haven’t had a new drug in three or four years now. The entire cycle will start all over again. I think you will see a revitalization of neb meds in the first quarter of next year.”

Letson predicts a lot of people who got out of the market may re-enter it when they hear about the new medications.

While both Braff and Letson say some providers might be better off jettisoning the neb meds aspect of their business, they caution against basing such a decision simply on declining reimbursement. Following, they share some insights into what to consider as you try to figure out if your company and the neb meds market are still a good fit.

BRAFF: LOOK AT THE BIG PICTURE

• Don’t get out of the market simply because you’re making less of a profit than you used to. “You need to evaluate the entire landscape,” Braff says. He knows it will not be easy. “It’s not an easy task when you are working with pretty thin margins. A supposition here and an assumption there can turn a profit line into a loser and a loser into a profit line,” he says. As well, there aren’t that many “pure-play” providers out there to give a sense of what the market is or could be, he says. But if you’re to make a savvy decision about your future in neb meds, it’s important to come as close as you can to a complete and accurate picture of your business.
• Know your return on investment, not just in reimbursement but also in the ancillary long-term effects. “Pharmacies could use [neb meds] as a loss leader. They could use it to get people in to buy their prescriptions or their Metamucil,” says Braff. HME providers could be reaping benefits of nebulizer patients who later become oxygen patients. “The question is,” he says, “do people want to absorb a lot of resources in their organization for that marginal profit and that downstream oxygen patient?”
• With thinner margins, consider how you are allocating your capital. “That’s what a provider has to ask,” says Braff. “Where is the best allocation of capital in my organization? If I reallocated all those assets [from the neb meds business] elsewhere in my organization, can I get a better return both in income and equity allocation?”
• Be aware that with buyers consolidating and no new entries in the field, a situation is created “where really strong providers can find ways to capture economies of scale,” says Braff. “When there are fewer providers out there, you can afford to provide lower levels of service because there is less competition.”
• If you stay in the market, do it in a big way. “You have to find ways to capture the very best prices,” says Braff, “so you’ve got to be buying in volume, you have to have the most efficient intake system. Don’t lose your patients; you want good patient retention.” Remember, he points out, it always costs more to replace patients than to retain them.

LETSON: STUDY YOUR OWN BUSINESS

• Study all the facets of your neb meds business. “A lot of people have talked themselves into exiting the business without sitting down and saying, ‘Let’s look at our overall profitability,’” says Letson. “They’ve heard about this 85 percent cut and said, ‘I can’t handle that.’ But is it really an 85 percent cut?” The only way you’ll know is by studying the various aspects of your business.
• Make the most of the business you have and be proactive to the changes in the market, not reactive. “If you react, you just barely get your transition completed when July rolls around and you have a new set of rules,” Letson says. “A great part of the key is being proactive. Your marketing dollars to pick up more patients are much lower today. When you call at a physician’s office, you no longer find yourself behind three other people selling the same product you’re selling. “A lot of people have gone into their cocoon and ceased marketing,” he continues. “We are telling our customers, ‘market, market, market.’ When you don’t market, physicians assume you aren’t doing [neb meds] anymore.”
• Recognize that if you stay in the market, you will be operating at a lower price per patient. “Most of my customers are operating at a lower price per patient than they were 18 months ago,” says Letson. “But we have some that are thriving, and they are making more money than they were 18 years ago.” That’s due, he says to business growth and overall operating efficiencies.
• Be proactive with the prescription the physician writes. “Some [neb meds] are better covered than others, and some will absolutely cost you money,” explains Letson. Providers need to know — and market to the physician — what each medication does for each patient, he states. “From that perspective, you have to be a better, more educated [provider] to be a better performer in the market.”
• Remember that opportunity exists because there’s a large population of people who need nebulizer medications. “If everyone exits, what’s going to happen?” asks Letson. “You can’t go to Walgreens or Wal-Mart and get this.”

AAHomecare to CMS: Withdraw Nebulizer Draft LCD

The American Association for Homecare has urged CMS to withdraw its nebulizer draft Local Coverage Determination, contending that it is not supported by conclusive medical evidence.

In March, the DME Program Safeguard Contractors proposed the following coverage changes in a draft LCD:

• Payment for levalbuterol will be based on the allowance for albuterol.
• Payment for DuoNeb will be based on the allowance for separate unit dose vials of albuterol and ipratropium.
• Coverage of amikacin, atropine, beclomethasone, betamethasone, bitolerol, dexamethasone, flunisolide, formoterol, gentamicin, glycopyrrolate, terbutaline and triamcinalone will be eliminated because there is inadequate support in the medical literature for administration using a DME nebulizer. Coverage will be limited to: acetylcysteine, albuterol, budesonide, cromolyn, dornase alpha, iloprost, ipratropium, isoetharine, isoproterenol, levalbuterol, metaproterenol, pentamidine, and tobramycin.
• Maximum milligrams/month for budesonide are defined.

One of the biggest problems with the coverage draft, AAHomecare said, is the decision to pay no more for Xopenex and non-compounded combined albuterol and ipratropium bromide than the Medicare payment amount for different, generic drugs.

According to the association, there is an abundance of literature available that provides evidence of the therapeutic differences between branded and generic drugs. However, the PSCs only provided data from 22 references, AAHomecare said.

“Such a selected literature search provides a slanted view of two of the primary drugs used for several years to treat the fourth-leading cause of death, chronic obstructive pulmonary disease (COPD),” the association said.

Neither providers nor beneficiaries will be able to “subsidize the financial loss generated by the cost of the drug,” AAHomecare said, adding that “if implemented as currently written, the draft nebulizer LCD will essentially eliminate the physician’s ability to effectively prescribe medically necessary drugs that they believe will serve the Medicare beneficiary’s health and well being in accordance with best clinical practice and current standards of care.”

An estimated one million Medicare beneficiaries require home inhalation therapy, based on Medicare expenditures from 2003 and 2004, and about a half million currently require either DuoNeb or Xopenex, according to the association.

“The absence of published science with regard to the drugs proposed to be eliminated from Medicare coverage does not equate to an absence of medical necessity on the patient’s part,” AAHomecare said.

“The proposed LCD should be withdrawn until such time that conclusive medical evidence does exist to support the proposed changes,” the association summed up. “We strongly encourage the DME PSCs to refrain from making any changes to these critical areas of the nebulizer LCD.”

CMS’ comment period on the draft LCD concluded May 8.