2007 Forecast Survey

In a frustrating exchange during a CMS Home Health, Hospice and DME Open Door Forum in November, provider Mike Marnhout, president and CEO of Lexington, Ky.-based Bluegrass Oxygen, phoned in to ask whether the agency could designate the 10 metropolitan statistical areas in which competitive bidding will begin next year.

An agency official responded that while CMS hopes to name the cities it has selected “as soon as possible,” he also said the locations could not be released before the final rule on competitive bidding is issued — and at press time, that hadn’t happened.

“This is just ludicrous,” Marnhout said after the call. “You can’t budget for what you need to do for next year, you can’t do anything about your game plan. You don’t even know what product lines are going to be included.”

Marnhout’s company has a location in Cincinnati, one of the cities on CMS’ hot list for where the bidding program could roll out. “It’s going to be dog-eat-dog in those 10 MSAs,” he continued. “As a businessperson, what are you supposed to do?”

Indeed. Marnhout’s comments reflect those of numerous home medical equipment providers who participated in HomeCare’s Forecast Survey for 2007. While most said they plan to stay in the business, their exact business plans for next year, lacking essential information about the government’s DMEPOS competitive bidding program, aren’t quite as firm.

About the future, they said in essence, we might as well ask the Magic 8 Ball.

“Reply hazy, try again”

You remember the Magic 8 Ball, that fortune-telling toy we all had as kids (it’s still made by Mattel). Ask any question, and it had the answer: “Yes,” “No,” “Without a doubt.” Based on their comments, owners and managers from the 405 home care companies that took part in our survey might judge those responses useful compared to the official information they say they’ve received about competitive bidding.

Some providers in rural areas and those in New York, Chicago and L.A. — excluded from the bidding program until 2009 — reported they aren’t thinking just yet about how it will affect them until they gauge how the first round goes next year. But just under half of the companies responding to the survey (49 percent) told us they currently operate in at least one or more of the 22 cities that have been targeted as possible bidding areas in 2007 — and they’re worried.

“Decision-makers at CMS don’t understand the impact they have on us,” said one respondent. Without further details about the DME bid soon, others pointed out, they won’t have the ability to compete. Small providers said they wouldn’t have enough time to form networks, which some believe is their “only hope,” and others said getting accredited and gearing up to submit a bid could be an insurmountable problem in such a short time frame.

“CMS and legislators are still out of touch with the reality of the DME business,” one survey participant observed.

Plus, bidding on Medicare business isn’t their only concern. In fact, getting ready to bid ranked No. 2 on providers’ list of challenges for next year; their biggest worry, they said, is keeping costs under control.

Changes to Medicare’s oxygen payments/policies came in third, followed by keeping up with legislation/regulation; Medicare’s DME rental cap (shortened to 13 months under the Deficit Reduction Act); and Medicare coverage/pricing for power mobility devices. Rounding out the worry list, providers said changing their business models to adapt to coming conditions presents another big hurdle.

“It is certain”

Another important item providers mentioned for next year’s to-do list is getting accredited. At that same November Open Door, CMS advised that companies wishing to participate in competitive bidding in 2007 should gain accreditation early in the year.

That may be okay for more than half of the respondents (52 percent), who said they are currently accredited. That’s an increase of 9 percent over survey results in 2005, when only 43 percent of providers said they were accredited.

However, that leaves 48 percent of HME companies without the accreditation they need to move forward doing Medicare business. Of those, a quarter said they have already begun the process. About half said they plan to apply in 2007 and another 11 percent in 2008. Some said they wonder with the rush that’s sure to come whether they will have enough time to complete accreditation before bidding begins.

Thirteen percent of the surveyed providers said they don’t plan to apply for accreditation. Interestingly, that number mirrors the 13 percent who indicated they plan to remain in business only through 2007.

But 56 percent of the survey group told us their companies definitely plan to enter competitive bidding, despite the fact that 60 percent said they don’t feel prepared. Another 29 percent said they’re not sure yet whether they will bid or not.

“Most likely”

For those home care pros who plan to hold on through the bidding roll-out and beyond, buying intentions remain much the same as over the past several years, and in much the same numbers. More than 80 percent of these providers told us they would be in the market for manual wheelchairs, which garnered the top spot on the 2007 product shopping list. Seventy-seven percent will be looking for ambulatory aids, beds and nebulizers, and three-quarters will be searching for bath products.

These determined companies plan to grow business mainly by adding patients, increasing retail sales and entering new product areas.

After all, surmised one, there’s some good news about CMS’ estimate that, once the bidding program is fully implemented, there could be 50 percent fewer Medicare providers than there are now: “If the stories are true about 50 percent of the businesses in our industry going away, then there’s the opportunity of [our] getting a piece of that 50 percent pie and taking care of more customers!” he explained.

“If someone wants to spend the money and hang in for two to three years, there will be very little competition,” echoed another. But some providers simply seem to be keeping their fingers crossed: “If we survive, we’ll do great,” one said. Penned another from Texas, “I just hope Houston is not chosen as one of the MSAs.”

“Ask again later”

Data for the survey was gathered in late October and early November, as the industry was reeling from CMS’ new power mobility fee schedule and taking stock of the agency’s final rule on oxygen. So those issues certainly had an effect on the way some respiratory and mobility providers answered our questions.

While mobility providers had little time to consider the full impact of PMD reimbursement changes as survey results were being collected, there was a wide range of responses to a question about how their companies would adjust. “Patients’ families will just pay cash for the items,” one provider thought, while a number responded they would have to curtail service. Others said they would either downsize, “just not do it” or go out of business.

And when asked what mobility product they thought would produce the most growth next year, manual wheelchairs out-powered power chairs, which have been providers’ mobility growth favorite for the past three years.

Respiratory companies’ plans in adapting to changes in oxygen policy and payments spanned an even greater spectrum of response. With only days to consider the impact of CMS’ final rule, issued Nov. 1, the following is a representative sample of the ways these providers said the Deficit Reduction Act’s 36-month oxygen rental cap would affect their business:

• “It will have a horrible effect. I don’t want to lose all my assets. We’ll be shifting away from oxygen slowly.”
• “I must downsize and relocate.”
• “[We’ll offer] less service and the cheapest products available.”
• “We’ll become more formulary-driven.”
• “We’ll become more productive to offset the impact of the cuts and generate greater market penetration through increased marketing/sales efforts.”
• “Fewer deliveries, more home fills”
• “We will implement a new business model for delivery and maintenance.”
• “We will lay off half our drivers or more as Medicare wants us to see [patients] half as many times.”
• “There will be more customer confusion … more time wasted by the CSR explaining the latest changes to [beneficiaries]. It will take a larger capital investment in new technologies to maintain our patients.”

Here again there were the hopeful answers: “I don’t believe the 36-month cap will survive,” one provider wrote. And the more pragmatic: “We’ll sharpen our pencils once again when we realize the actual impact at that time.”

“Cannot predict now”

Our survey group as a whole, however, was somewhat optimistic about the year ahead. With median revenue at $3.5 million this year, slightly more than half of these providers (53 percent) predicted an increase for 2007. The average estimate was an 8.8 percent gain.

On the other hand, 24 percent think they’ll see a flat year, and 23 percent said their bottom lines are headed down. Those latter numbers have jumped dramatically over results from last year, when only 19 percent said their revenues would remain the same and only 10 percent said they were looking at a decline.

Medicare reimbursement cuts are the culprit of course, providers said, and when competitive bidding hits, most believe payments are bound to get worse. Seventy-seven percent said they think DME bidding will reduce reimbursements by 10 percent or more.

Beyond uncertainty about the outlook for HME, however, one respondent maintained that “our industry is growing in spite of itself. Everyone is getting older, and HME is needed.”

At least for now, said another, “I still have a job. I still have the company and we can still provide the services we do — for the moment.”

2007 Product Shopping List

About this survey:

Data were collected Oct. 31-Nov. 7, 2006. Of 405 HME companies participating, 49 percent operate a single location. Fifty-four percent reported revenue under $3 million, while 10 percent indicated revenue of $25 million or more. Respondents’ companies have been in business for an average 14 years. Not all respondents answered every question, and some totals may add to more than 100 percent due to multiple responses. Survey methodology conforms to accepted marketing research methods, practices and procedures. For a complete copy, visit www.homecaremag.com.

About the Future

If you could tell Congress anything about the industry’s current situation, what would it be?

Nearly 300 individual providers spoke their minds in answer to this question. A sample of their responses follows.

“Allow any willing provider to provide under competitive bidding”

“Allow custom rehab equipment at a reasonable reimbursement”

“Capped rental of O2 will ultimately hurt patients”

“Competitive bidding is going to limit patient access”

“Competitive bidding as it is currently structured will be a disaster”

“Consider first the patient’s needs, not a line item on a budget”

“Ease up. We’re part of the solution, not the problem”

“[Health care costs] will rise more rapidly if patient care in the home falters”

“If this is so easy, come show me how to live on what you want to pay”

“It is sad when older people cannot get what they need for daily living. They will get stuck with the cheapest available product or nothing.”

“Listen to small independent suppliers”

“Our viability as a long-term solution to rising health care costs depends on good, sound policy and fair reimbursement. Instead, we are being squashed like a bug”

“Patient care should not be compromised via cuts”

“Recognize the value of the goods and services our industry offers”

“Reconsider your gap-filling payment methodology”

“Reform health insurance in America”

“Send help”

“Stop competitive bidding”

“Look at the whole hospital-to-home model to see what a valuable resource HME is to overall patient care”

“It’s time to get rid of the crooks without destroying the reputable companies.”

“You require a service model business with accreditation and standards [but] reimburse based on a commodity product model”