Traditional durable medical equipment companies have averaged 80
to 90 percent Medicare and Medicaid, 10 to 20 percent third-party
pay and maybe 5 percent retail. Today, retail HME businesses are
almost reversed: 50 to 70 percent retail, 10 to 30 percent
third-party, and 20 to 40 percent Medicare and Medicaid.
But given the onset of competitive bidding, this mix might
change again, increasing retail and third-party percentages and
decreasing — or completely eliminating —
Medicare/Medicaid reimbursement. Retail pharmacies with HME
front-end departments already generate approximately 65 to 75
percent retail, while retail-only HMEs are, of course, 100 percent
cash!
The benefit of being an accredited Part B HME provider is that
you can service all Medicare patients. The flip side of being
accredited and billing Medicare is the added expense of doing
business. Many HME companies now have a compliance officer to
ensure their policies and procedures are up to par to pass
accreditation surveys. Their intake and billing staff must have the
proper documentation in every Medicare patient's file and be
prepared for audits at any time. And the list goes on and on.
However, the pricing of Medicare allowable products is probably
the most significant drawback for these providers. Medicare
requires that the posted price on reimbursable products be at
minimum their allowable price. Otherwise, Medicare can audit you
and then charge you back the difference for what you sell the
product at and their allowable price. This ruling restricts Part B
providers from being competitive in their local markets, as they
cannot lower retail prices to match their competitor's sale
prices.
CMS has noted it is aware the extra steps in billing costs more
than accepting cash for any given product, so Part B providers are
allowed to deduct 17 percent from the Medicare allowable price for
all cash sales. Most retail HMEs deduct 20 percent for cash sales
on a regular basis without any issues.
If you conduct an activity-based cost study and document your
cost differential in selling for cash vs. billing Medicare, then
this deduction for cash sales can be as high as 30 percent. Part B
providers post signs around their showrooms stating, “Ask us
for our retail pricing,” “Ask us for our cash
prices” or “Ask us about our sale pricing.” In
this way, their customers are informed they do offer retail cash
prices that are lower than the posted Medicare allowable
prices.
In contrast, retail-only HME businesses that are not accredited
and do not bill Medicare have NO restrictions on the retail prices
they post on their products. Most retail HME showrooms list two
prices — MSRP and “our price” — and then
when they promote a sale they also list a third “sale”
price. This retail pricing system shows customers that they being
offered a lower price than what the manufacturer recommends that is
on par with, if not below, the local competition.
These retail-only HMEs do not have the added costs that most
Part B providers absorb: accreditation, compliance, audits,
warehousing rental equipment, delivery and pick-up of rental
equipment, billing staff and software. But their rent is much more
expensive as they must be located in a visible and accessible
retail location. One benefit of the recession has been that retail
rental rates have dropped in half over the past two years. Most
retail HMEs locate in strip malls or busy retail frontage areas,
and rentals have been averaging $2/ft./mo., or $24/ft./yr.
Many veteran Part B providers have expanded into retail HME
using a hub-and-spoke system. Their older “hub”
locations are still accredited Part B Medicare providers. But their
newer locations are retail-only operations. When a Medicare patient
inquires at one of their “spoke” retail locations for a
reimbursable item, they are simply redirected to one of the hub
locations for billing intake.
The retail locations sell retail products at retail pricing,
while the Medicare locations provide, deliver and bill for Medicare
reimbursable products. In this way, the retail locations do not
lose Medicare patients to their competition and benefit from both
modes of HME operation.
Read more Retail
101 columns.
Jack Evans is president of Malibu, Calif.-based Global Media
Marketing, an HME consulting firm specializing in retail sales,
layout and operations. You can reach him at jevans@retailhomecare.com or
310/457-7333.
