Turning Lemons into Lemonade

The 36-month oxygen cap, the 9.5 percent cut and the revived threat of competitive bidding. Those were the issues on providers’ minds at Medtrade Spring last month as 4,600 HME stakeholders gathered for the annual event, held March 24-26 at the Las Vegas Convention Center.

While facing the reimbursement challenges is tough, providers said, they also said they plan to move their businesses forward — although in very different ways.

Cliff Woolard, president/CEO of Home Med-Equip in Concord, Calif., opened a retail location two years ago that is now in full swing, and he is planning more. “It’s a great revenue source,” Woolard said at the spring expo.

But he also said the company began preparing for substantial Medicare reimbursement cuts several years ago. “In 2004, we began to look at alternative oxygen systems from the standpoint of reducing delivery costs,” he said. “At that point we were heavily leveraged in liquid oxygen. That was our predominant ambulatory oxygen system, so we began the process of evaluating different types of oxygen systems that were out there.”

The company settled on a home filling system, and “when the cap came along, it just proved we had made the right decision in going with the non-delivery method,” Woolard said.

He has now converted 90 percent of the company’s oxygen customers to non-delivery, “so we didn’t take a huge hit,” Woolard said. “The amount our company was impacted by the cap was less than 10 percent.”

Even so, he said, “it’s tough to lose 10 percent of your revenue at the start of the year plus take a 9.5 percent cut plus have the Medicare deductibles. January might possibly have been one of the worst cash flow months in the history of the business, but we made it through and here we are getting ready to start April.”

That’s the good news, Woolard said. The bad news is “there are still other issues related to the cap,” the biggest being how to maintain service to patients who move. And if the cap should be cut further — to 18 months or under — “we probably cannot be in the oxygen business. It’s just that simple,” Woolard said.

While the industry is working to get the cap pulled and get oxygen out of the seemingly continuous cycle of cuts, there could be more coming, according to Tyler Wilson, president and CEO of the American Association for Homecare.

Attendees jammed the association’s Washington Update session to hear details of a Medicare oxygen reform plan hammered out by members of the New Oxygen Coalition. That plan has become “urgent,” Wilson said, as the nation’s health care reform effort picks up speed.

“We are getting clear signals that Congress is set to cut the reimbursement rate once again,” Wilson said, noting new cuts could come out of reducing the oxygen cap from 36 to 18 months and/or simply lowering payments. “I think it is fair to say the home oxygen benefit is under siege, and now is the time for the industry to come forward with a unified proposal that we can take to Capitol Hill.”

Among its major components, the oxygen overhaul plan would eliminate the cap and remove home oxygen from DMEPOS competitive bidding. At press time, members of the NOC and state associations were still discussing several sticking points, but agreed they wanted to put the plan before Congress as quickly as possible.

“The health care reform train is moving forward, and if we’re not on it, we’ll miss our opportunity,” Wilson said.

In the meantime, Laura Hafford said her company, Texas DME of Cleburne, Texas, has taken a completely different approach to get rid of dealing with the cap and protect against the revival of competitive bidding.

Texas DME bid in Round One but didn’t win. “When we saw how all that played out, we decided then we were going to streamline our company and focus on the things we do the best,” said Hafford, explaining the company now concentrates on complex rehab and non-Medicare disposable supply.

“Oxygen wasn’t something we wanted to continue in making our company leaner,” she said, pointing to the impending possibility of a Round One rebid.

The company is now in the process of downsizing, from three locations to one and from 40 employees to 18. “If you have an efficiently run company there is a lot of opportunity for growth,” Hafford said, “but if you are not run efficiently, you can’t grow.”

For his company to absorb the 9.5 percent cut, complex rehab provider Tim Pederson, CEO of WestMed Rehab in Rapid City, S.D., turned that lemon into lemonade.

“Maybe this won’t be the popular thing to say, but the 9.5 percent cut made us a better business,” Pederson said. “It forced us to do things that we wanted to do in the past to maximize efficiency but we didn’t want to go through the pain [to do]. Now that we’ve done those things, we are a much better business.”

As an example, WestMed enacted purchasing formularies for complex rehab and products. “In each product and accessory code we have one or two options for our clinicians to use to fill orders, whereas in the past they could choose anything they wanted,” Pederson said. “Because we simplified that, limiting the variables by limiting choice has streamlined our entire order intake process and our fulfillment process.

“Now,” he continued, “our patient service representatives have fewer balls to juggle when they are creating a chart for these individuals. My clinicians can spec out a product, put it on a formulary sheet printout, mark the proper boxes, put the patient’s name on there and then turn it over to customer service and let them input all the orders.

“Before, my well-paid clinicians were doing administrative drudgery work instead of being productive in what they do. So [the cut] actually made us a better business and a much more effective provider of complex rehab.”

The formulary initiative has been so successful, in fact, that Pederson said he may do the same thing to streamline his company’s respiratory and pros- thetics sectors.

Still others are looking to get into the HME business despite the industry’s current circumstances.

Jeff Parenteau, owner of Sunshine Senior Care in Denton, Md., was scoping out both Medtrade Spring’s educational sessions and the variety of products on the show floor.

“We’re already providing in-home care, from companion care through end-of-life. We’re in a very rural area, and many of our clients are asking us for equipment and supplies and we just end up sending them somewhere else,” Parenteau explained.

“Whenever there are changes in the industry, it may be a negative for people who have already been in the business for 20 years. But if you’re just starting out, there may be opportunities there if you set yourself up to work under the new conditions versus the old conditions.”

Consultant Wallace Weeks of Melbourne, Fla.-based Weeks Group also noted an interest in the industry from what he terms “sophisticated money,” or private equity investors, who were walking the show. “It bodes well for the industry. I think it means they recognize things can be done differently,” Weeks said.

“From time to time, providers are probably going to have to adjust their business to new models that will come into this industry, but the world seems to recognize that the demand is not going away.”