Bush Signs Medicare Reform Bill As Industry Braces for Impact

Washington

After a months-long battle on Capitol Hill, President Bush signed Medicare reform legislation into law Dec. 8.

Among its provisions, The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 mandates a five-year Consumer Price Index freeze for DME beginning this year. It phases in DME competitive bidding in the nation’s top 10 metropolitan statistical areas in 2007 with expansion to the top 80 MSAs in 2009, after which the Department of Health and Human Services could extend competitive bidding nationwide.

Beginning in 2005, the Medicare reform law calls for reimbursement cuts on a string of items, including oxygen, wheelchairs, nebulizers, diabetic suppplies, hospital beds and air mattresses, based on the Federal Employee Health Benefits Program (FEHBP) median. The new law also reduces reimbursement for inhalation drugs from 95 percent to 85 percent of the average wholesale price in 2004, and will move to an average sales price-plus-6-percent reimbursement system in 2005.

As the industry collects itself to adjust to the sweeping changes, some analysts have predicted that the competitive bidding structure could create a logistical nightmare for the Baltimore-based Centers for Medicare and Medicaid Services and HME providers — especially those serving multiple MSAs.

While CMS officials said it is too early to predict the specifics behind making competitive bidding a reality, the law gives the agency $1 billion to be used over the next two years for implementation of the overall reform package. According to former CMS Administrator Tom Scully, who stepped down Dec. 15 (see article, page 16), most reform implementation will be carried out by outside contractors, although the agency has not officially announced such plans.

Although several HME consultants foresee an upheaval of the status quo, they also maintain the industry’s resourcefulness, innovation and resilience will carry business-savvy providers through the next decade.

According to Dexter Braff, president of Pittsburgh, Pa.-based The Braff Group, which specializes in mergers and acquisitions, the reform law is a conglomeration of much of what the industry was hoping to avoid. But, he continued, “This is an industry of survivors.”

Outside of what he calls “fringe dealers,” or those companies without solid business models, providers will “learn how to deal,” Braff said. “They will change their operating model so they can prosper in a more challenging climate.”

That challenge will not necessarily come only from competitive bidding, said Wallace Weeks, president of The Weeks Group, a consulting firm in Melbourne, Fla. Weeks said the new law “makes competetive bidding a small issue” since reimbursement cuts, to be implemented sooner, will have a greater impact.

However, he points out, the scenario could have been worse. “In 2002, we were in a frenetic battle to stop competitive bidding that could have made our companies subject to 17 percent reductions in Medicare reimbursement rates all at once. Even though the [new reform law] will probably remove more dollars from our industry than competitive bidding alone, it will do so over a number of years,” thus giving providers time to “tune up” their businesses.

Michael Barish, president of AnCor Healthcare Consulting, Coral Springs, Fla., agrees. “We’re recommending our [DME] clients take advantage of 2004 when only a freeze [is in effect],” Barish said. “Take a look at our operations and ways to increase productivity and reduce operating costs. The major cuts won’t come until 2005, but if providers aren’t ready for it, it could be a very ugly year for everybody.”

For analysis of DME provisions in the new law, see “Washington Wit & Wisdom,” page 58. For more on Wallace Weeks’ predictions, see “Better Business,” page 60.

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