French author Alphonse Karr said, The more things change, the more they remain the same. Well, in France maybe. But for home medical equipment providers
by Gail Walker

French author Alphonse Karr said, “The more things change, the more they remain the same.”

Well, in France maybe. But for home medical equipment providers in the U.S. this year, the changes have been monumental, they are not over — and things will probably never be the same.

Data for HomeCare's annual Forecast Survey were gathered from mid-August through September. That means respondents answered our questionnaire before the announcement that CMS would reduce its dispensing fees for inhalation drugs next year, before the interim final rule for power mobility took effect, before talk that another oxygen cut might be looming and before agency officials confirmed that supplier quality standards would not be finalized until next spring and accreditors not named until after that.

The unsettling part is that, judging from the survey results, HME providers were already fretting about the uncertainties for their businesses in 2006.

In fact, when we asked participants to single out only one thing as their most pressing business concern, they couldn't, naming instead cost control, reimbursement cuts and competitive bidding as a disturbing trio of troubles. And they added a string of challenges topped by unethical competitors, accreditation, claim denials and processing time, consumer-direct selling by manufacturers and simply keeping up with legislative and regulatory twists and turns.

But reflecting the optimism characteristic of so many HME owners, their worries don't seem to be hindering buying plans. Although the kinds of products providers say they will purchase in 2006 have changed little from previous years, more providers overall told us they will be in the market.

An unprecedented 80 percent said they will purchase nebulizers and ambulatory aids, and more than 70 percent said they will buy beds/mattresses/pads, bath safety products, manual wheelchairs and oxygen concentrators. Rounding out the year's top 10 purchases will be CPAPs/bi-levels, lift chairs, oxygen conservers and patient lifts. Providers explain that, because home patients' needs don't change much, neither do their buying habits as they restock the items that keep getting ordered.

Recent events in the power mobility sector have had an impact on purchase intentions, however. In last year's survey, power wheelchairs and scooters ranked 11th and 12th on providers' shopping list. This time, these vehicles fell to respective positions 19 and 20.

While the drop represents only a 2 percent decrease in the number of providers who said they would purchase this equipment, the figures mirror industry wariness about changes in Medicare's mobility policy, confusion over PMD claims and new codes (now on their third revision) and a lack of confidence in the pricing that may follow.

Still, 41 percent of providers indicated that, of the mobility products they carry, power wheelchairs will show the most growth in 2006.

Survey participants were not conflicted at all about another equipment category. Bariatrics products jumped up six spots on the list, from No. 19 in 2004 to No. 13, indicating that home care companies see growth opportunities for equipment and services to meet the country's obesity epidemic.

Juggling Costs and Cuts

Along with taking advantage of potential in products, providers say they plan to grow business by adding patients, increasing retail sales and expanding into new geographic locations. The demographics look great, they say, with baby boomers getting older every day. In a sad commentary on Americans' health, one provider wrote that “an increased number of individuals needing services — more diabetics, more obesity, more disease” was having a positive impact on his business.

Increased marketing also plays a part in company growth schemes, with 23 percent planning more advertising next year and another 23 percent planning to add sales staff.

Providers are even upbeat about some government changes, citing in particular the move toward mandatory accreditation and CMS' decision to allow home oximetry testing for qualification of oxygen patients. And, as a result of Medicare's new mobility policy, 41 percent of respondents said they expect their scooter business to increase (though 25 percent said they expect their power wheelchair business to go down).

Providers are also happy with some of the internal adjustments they have implemented over the past year to boost profitability, including activity-based costing, upgrades or additions to software, better hiring practices, improved training programs, various productivity-focused initiatives and stronger management in general.

At the same time, HME execs said they are struggling to juggle reimbursement cuts that took effect this year on oxygen and certain DME, plus CMS' ASP+6 percent pricing formula for respiratory meds, against the rising costs of doing business day-to-day. “Our legislators do not understand the value of home medical care and what it costs to provide that care in a quality manner,” said one respondent. “Medicare wants to get our products and services for nothing. It's impossible for a small business to make it,” wrote another.

The summer's fuel price run-up took a toll, providers said, as have costs for information technology, retraining expenses due to staff turnover, higher salaries and benefits costs for employees who do stay onboard and increasing freight charges.

Among a laundry list of other factors that have had a negative influence, providers mentioned fraud and resulting national media coverage, mounting paperwork, slowed cash flow and legal worries. “Even companies that are 110 percent compliant are subject to unfair exposure,” complained one respondent.

Big Bugaboos

Survey participants also expressed tremendous concern with competition — and not just in the form of competitive bidding. They listed “800 numbers from the television,” DME stores in Wal-Mart, competitors that “put out low-quality products” and hospital-based competition that is “getting stronger without even trying.”

They penned the names of mass merchandisers, retail drugstore chains, Internet companies and eBay. Small companies mentioned growing competition from nationals as well as from fellow independents down the street, and one respondent said he is having trouble with companies “that are not Medicare providers who undercut prices for cash.”

And if combating the negatives and countering competition doesn't leave HMEs busy enough, getting accredited to prepare for the biggest bugaboo of them all — competitive bidding — might. Fifty-five percent of the providers completing this year's survey said their organizations are not currently accredited. Of those, 56 percent said they plan to apply within the next 12 months.

The biggest group, 27 percent, said they will post applications to the Accreditation Commission for Health Care (ACHC), while 24 percent said they will work through the process with the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) and 20 percent said they have chosen the Community Health Accreditation Program (CHAP). Another 19 percent said they would apply through various other accreditors including the recently formed Healthcare Quality Association on Accreditation (HQAA).

Interestingly, only 49 percent of providers responding to the survey said they plan to participate in competitive bidding. A number told us they haven't made any strategy changes and intend to stay their present course because they are located in rural areas. “We hope we will not be affected,” was a typical response.

But the attitudes were different from those of providers who listed primary locations in one of the country's largest cities — possible targets on CMS' list for where competitive bidding could begin — or who classified their operations as “urban.” With sites unknown and bid products not yet released by the government, a typical note from this group read simply, “We need more information.”

In another interesting development, most providers on this year's survey (82 percent) told us that — despite reimbursement cuts, policy changes and regulatory red tape — they do not plan to move away from Medicare as a payer. This is a marked decrease from 2004 results, in which 37 percent of providers said they had plans to diversify payer mix to include more managed care and retail sales.

But apparently, even with Medicare generating an average 41 percent of revenues, two-thirds of providers don't think their income will suffer because of dependence on the government program: 67 percent expect their company's bottom line to grow in 2006 by a median increase estimated at 8 percent.

That doesn't mean there won't be some teeth-gnashing and middle-of-the-night jitters about what the New Year holds for HMEs. “We're all worrying a lot!!” emphasized one provider.

Summed up another, “We're just praying we don't get shut out, [and] continuing to do the best possible job to serve our patient base.”

2006 Product Shopping List

(Ranked by percentage of HME providers who intend to purchase)

1. Nebulizers 80.4%
2. Ambulatory aids 80.2
3. Beds/mattresses/pads 79.6
4. Bath safety products 77.7
5. Wheelchairs, manual 72.8
6. Oxygen concentrators 70.8
7. CPAPs/bi-levels 68.2
8. Lift chairs 65.2
9. Oxygen conserving devices 64.3
10. Patient lifts 61.8
11. Portable oxygen systems 59.3
12. Pulse oximeters 54.7
13. Bariatrics 53.8
14. Incontinence 53.7
15. (Tie) Compressed gas regulators 53.1
(Tie) Compression hosiery 53.1
17. Orthopedic softgoods 52.8
18. Nutrition 52.2
19. Wheelchairs, power 51.9
20. Scooters 50.3
21. Diabetes 48.7
22. Ramps 45.3
23. Support surfaces 42.8
24. Wheelchairs, sport/lightweight 41.1
25. Seating and positioning 40.3
26. Scooter/wheelchair lifts 39.8
27. Wound care 38.1
28. Urological/ostomy 37.8
29. In-home oxygen fill systems 37.7
30. Hot and cold therapy 36.8
31. Orthotics/prosthetics 32.0
32. Liquid oxygen systems 30.7
33. Skin care 28.6
34. Pediatric mobility 28.0
35. Pediatric respiratory 26.1

About Products

How does your company intend to buy most of its products for 2006?

Direct from manufacturers 74.4
Through distributors 45.0
Through buying groups 31.1

Just over half, or 55%, of HME companies responding to the survey said they are currently affiliated with or plan to affiliate with a buying group. Other prominent affiliations include those with home health agencies (39%) and hospitals/physicians (35%).

What are your most important considerations when purchasing products?

Price 83.6
Product quality/reliability 75.8
Availability/delivery time 71.4
Maintenance costs/service issues 51.1
Past experience with manufacturer 51.1
Manufacturer service/support 50.0
Customer preferences 37.8
Brand name 28.1
Technological/design innovation 24.2
Referral source preferences 23.1
Manufacturer financing 12.2

What are your suggestions for stopping or curtailing Medicare fraud and abuse?

Since the CMS/OIG crackdown on fraud and abuse of Medicare's power mobility benefit, which began with Operation Wheeler Dealer in December of 2003, many providers have said they're frustrated that only a few bad apples have spoiled the industry's reputation — both with consumers and Congress. This year, we asked providers for their own ideas on how they would curb Medicare fraud and abuse. Their suggestions span a range of solutions and reflect how deeply some providers feel about this industry sore spot.

“Actually get rid of the people committing the act”
“Assign a task force of DME dealers to help police their peers”
“Better computer tracking systems”
“Bigger fines”
“Controls for physicians”
“Cracking down when they are caught. Many people have their fingers slapped and then move on to do it again”
“DMERCs should have straightforward questions for equipment”
“Do something about what is reported”
“Encourage patients to report, because Medicare doesn't take suppliers seriously”
“Have Medicare hire more fraud investigators”
“Have the government hire employees with a brain. Fraud happens right under their noses”
“Hire American Express to process claims. They watch fraud”
“Keep the [power mobility device] CMN”
“Make doctors more responsible for signing forms”
“Make it very difficult to receive a provider number”
“Make Medicare regs understandable”
“Penalize NSC/DMERCs for giving supplier numbers to crooks and for paying crooks”
“Prior authorizations for many products”
“Prosecute and put in jail”
“Spot-checking claims with beneficiaries”
“The DMERCs play a role in identifying fraud and should be more accountable to help stop it”
“Wake up, CMS”

How are you adjusting strategy to prepare for competitive bidding and other coming changes?

Of providers responding to HomeCare's survey, 75 percent told us they have no plans to leave HME now, in the next few years or anytime in the future. But only half — 49 percent — said they intend to participate in Medicare competitive bidding for DME. A representative sample of the ways these companies say they are preparing to remain profitable, whether they enter the impending bid program or not, follows.

“Becoming more efficient”
“By growing”
“Cash products, commercial accounts”
“Cutting costs anywhere possible”
“Doing more with [fewer] employees”
“Dropping unprofitable lines”
“Going retail”
“Hard work”
“Hiring a marketing person”
“Implemented new billing and inventory software”
“Larger percentage of private pay”
“Looking for lower-cost product that has the same quality”
“Looking to increase managed care”
“Making changes in product lines”
“More repairs”
“Moved to larger building with more showroom”
“Moving away from Medicare”
“Moving more to specialty items”
“No longer doing unprofitable business”
“Quality employees”
“Reading as much as we can about previous bids”
“Reducing delivery”
“Strategic alliance”
“Streamline vendors and inventory”
“Supplying only items not covered by competitive bidding”
“Support DME companies that are bidding”
“Taking a wait-and-see attitude while trying to keep informed”
“Too soon to tell. No one knows what to expect”
“We are in a small rural area. We hope we will not be affected”
“Whatever it takes”

About the Future

Which best describes your plans to stay in business?

I have no plans to leave the business 73.9
I plan to stay in business through 2006 5.8
I plan to stay in business through 2007 3.6
I plan to stay in business through 2009 9.7
No answer 7.0

What are the biggest challenges facing your HME company?

Competitive bidding 55.0%
Government reimbursement cuts 44.2
Unethical competitors 36.1
Accreditation 30.3
Claims denials 29.7
Claims processing/payment time 28.1
Manufacturers selling direct to consumers 24.2
Paperwork/administrative activities 24.7
Keeping up with legislation/regulation 21.9
Staff issues 19.4
Local HME competition 18.9
HMEs in Wal-Mart 16.9

How do you plan to grow your business?

Adding patients 67.2
Increasing retail business 38.1
Entering new product areas 33.9
Expanding into another geographic area 31.1
More advertising 23.1
Increasing sales staff 22.5
Changing product mix 17.8
Opening a new location in your area 16.9
Acquisition 14.7
Specializing business 14.2
Expanding your showroom 13.9
Changing payer mix 11.7

About This Survey

Data were collected Aug. 18 through Sept. 30, 2005. Percentages are based on responses from 360 companies. 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 of HomeCare's 2006 Forecast Survey, visit our Web site at and click on the button titled “Purchase Exclusive HomeCare Research.”