Simple Math: 9.5 Percent Cut Simply Doesn’t Work for Complex Rehab

ATLANTA–Even as HME providers are gearing up for a 9.5 percent reimbursement reduction in 10 product categories Jan. 1, complex rehab stakeholders are racing against the clock to get the segment exempted from the cut.

The problem is, it will take an act of Congress to do it–and Congress is in recess until September.

“Congress is really in session for only another four weeks [after lawmakers return],” said Seth Johnson, vice president for government relations for Exeter, Pa.-based Pride Mobility Products and a member of the American Association for Homecare’s Rehab and Technology Council.

When the nation’s federal legislators return to Washington after their August break, they will work on appropriation bills and perhaps another economic stimulus package; then, because it is an election year, “they are going to be gone for the remainder of the year,” Johnson said. “There’s going to be legislation that moves through very quickly. That’s why time is of the essence for us to communicate this with legislators.”

At issue is the effect a 9.5 percent cut will have on the complex rehab industry. The cut, which was mandated by H.R. 6331, delayed competitive bidding for at least 18 months and also exempted complex rehab from any future competitive bidding project. But the 9.5 percent cut includes the project category, which is known for its slim profit margins, a fact documented by the recent study produced by the University of Rochester’s Simon Business School.

According to the study, which surveyed companies ranging in annual revenue from $250,000 to $21 million, those in the small sector (less than $5 million) had a pretax profit of 3.44 percent; companies in the medium category ($5 million to $10 million) averaged 6.87 percent in profit; and large companies ($10 million and above) had profits averaging 4.83 percent.

The study, which garnered a 20 percent response rate, reported that 53 percent of the complex rehab providers fell into the “small” category; 42 percent were in the “medium” category; and five percent were large companies.

“When the average net profit is between 2 and 4 percent, and you take 9.5 percent out of that, it’s simple math. We simply cannot afford to provide all the products and services we offer if the 9.5 percent reduction goes into effect,” said Gary Gilberti, president of the National Coalition for Assistive and Rehab Technology and owner of Chesapeake Rehab in Baltimore, Md.

And it’s getting worse. Fuel and payroll costs are increasing and so are shipping costs, which manufacturers tack on to their charges, stakeholders point out. As well, there is the customization of a complex rehab product.

“There is a service component to what we provide,” said Gilberti. “You can go to Wal-Mart and buy a walker, you can go online and buy a piece of equipment, but it doesn’t get delivered, set up, all those added-on services … A custom wheelchair has to be custom fitted, put together, the electronics adjusted.”

The 9.5 percent reduction doesn’t take any of that into consideration.

“At the end of the day,” Gilberti said, “it is going to be about access. Some people might say this is a reimbursement issue, but if companies cannot afford to provide those products, they aren’t going to provide them and then it will become an access issue.”

Johnson agreed, noting, “The 9.5 percent cut is going to create the same impact as competitive bidding, because [complex rehab providers] don’t have the 9.5 percent to give.”

That message has to get to Congress, he maintained. Toward that end, members of RATC, NCART, the Rehabilitation and Engineering Assistive Technology Society of North America and other stakeholders have been meeting to develop a strategy and “ensure we are carrying a common message when we talk with legislators, consumer groups and other clinicians,” Johnson said. “It is very important how it is carried to legislators on the Hill.”

“We do run the risk of Congress looking at us as looking a gift horse in the mouth,” said Jim Greatorex of Black Bear Medical in Portland, Maine. “I do feel that people in DC feel they have done quite a lot for us [in delaying competitive bidding] and for us to be coming back and asking for more–it’s going to take some tact.

“But I do think we have something we can point out to them nicely,” he continued. “We’ve already had our prices and codes adjusted in 2006. The Simon report … certainly shows that ‘lucrative’ and ‘complex rehab’ are not words you use in the same sentence.”

Whether or not the Simon report will play a large role in presenting the message is a point of discussion.

“The Simon study is one of the data pieces that is really a critical component to this advocacy effort because it provides very recent data–2007 data,” Johnson said. “It clearly shows that the pre-tax profits are way below 9.5 percent.”

“It’s simply one of the tools we are going to have to use,” said Gilberti. “At face value, it shows the everyday challenges we have as providers.”

Sharon Hildebrandt, executive director of NCART, said she sees the study as being useful in communicating with clinicians and consumers. “It demonstrated the percentage of the expense that goes into the evaluation and the assembly and delivery,” she said. “We have always maintained that [rehab providers] have specialized staff and must do evaluations and put the products together; those are not product expenses.”

The Simon study, she said, is “another tool we can use in explaining to them how a complex rehab company operates and what their constraints are.”

For his part, Mark Schmeler, Ph.D, OTR/L, ATP, professor and researcher in the University of Pittsburgh Health & Rehabilitation Sciences department, and new president of RESNA, said he valued the study, and its findings support his opinion that “9.5 percent is a pretty drastic cut given that there was a cut a few years ago.

“But I think we need to be cautious how we present it,” he said, noting that it’s “a good pilot study, but not very scientific,” and there is much left open to interpretation. He doesn’t, he said, want to open the industry up to potshots from CMS, a possible outcome of attempting to use the Simon study to change the industry’s status.

Schmeler said the Simon study is a “snapshot” of where the industry is today; another independently funded, more in-depth survey is under way by researchers at the University of Buffalo and Georgia Tech, and it should provide a “more systematic look at the time and resources it takes to provide complex rehab.”

The problem is, Schmeler said, it will be two or three years before it comes out. So the Simon study is the most current available. Still, while he champions the fight to get complex rehab exempted from the 9.5 percent cut, the Simon study might not be the ticket to achieve that, Schmeler said.

“This is not the proof in the pudding we think we have,” he said. “We need to take what we have and be cautious about how we present it.”

Whatever the strategy–and Greatorex believes one could be settled on as early as this week–there is some concern that the time limitations might be too tight to get anything done this year. Johnson and others, however, think it is critical that the industry tries. There may be opportunities this session for a bill to pass exempting complex rehab and the cost of the exemption is unlikely to be a stumbling block, Johnson said.

“The cost to eliminate this 9.5 percent reduction is between $7 million and $9 million a year,” he said, noting that if Congress did a technical correction, the industry would not have to find a way to make up the difference. “It’s basically budget dust. There’s not much of a concern right now about the cost in eliminating that because it’s so small.”

So rather than waiting for a new Congress to undo the reduction, now is the time for the industry to move, he said. “We have no choice. We really have an obligation to communicate with Congress in a clear manner what the impacts will be of this reduction before they happen.” Greatorex agreed. “I do feel like there is an opportunity. If we all work together and find the best way to approach it, I think we’ve got a good chance,” he said.