BIRMINGHAM, Ala., Feb. 15, 2013—It has been said that the anticipation of an event or action is worse than the actual event. When I was a kid I was terrified the first time I rode the “Scream Machine” at the Six Flags amusement park. It was a giant roller coaster, 173 feet tall, and in its heyday it was the fastest looping roller coaster in the world, reaching speeds up to 68 mph. I had knots in my stomach as I waited my turn to ride. Finally I climbed in the car for what I thought would be the ride of my life. It was—the twists and turns were fun and thrilling, it was awesome. When the ride was over I wanted to ride it again and again. The anticipation and the knots in my stomach were all for naught. Waiting to ride on the Scream Machine was far worse than the ride itself.
The Durable Medical Industry (DME) waited in the turnstile of the Centers for Medicare & Medicaid Services (CMS) thrill ride—or house of horrors—of what they call competitive bidding. Providers with knots in their stomachs and many sleepless nights anticipated the results from Round 2. Round 1 was and is an absolute runaway roller coaster off its tracks, so the anticipation of Round 2 was agonizing. The wait is over, and the results have proved to be far worse than what was anticipated. The payment amounts are on average 45 percent under the current Medicare allowable. DME providers who were offered contracts, and providers who were not offered contracts, are all asking the same question: “What are we going to do and how are we going to stay in business?” I have received communications from bid winners and non-bid winners, and they all ask the same thing—“What can I do?”
The best strategy is to plan ahead. I am going to assume that many DME providers did, in fact plan ahead as much as possible, based on information gained in Round 1. Providers need to implement an immediate action plan to help soften, and in many cases salvage what they can from the effects of Round 2. I have listed six things that can be done to help providers work their way through the twists and turns of Round 2.
Communication is the name of the game—Don’t let your referral sources (in other words, your friends) find out from someone else the devastating effects of Medicare’s off-track tactics to cut costs. Communication is most likely the best tool for getting through the rough ride that lies ahead for many providers. DME providers—whether they were awarded a contract, were not offered a contract, or will decline a contract—need to communicate with their staff, patients, referral sources, vendors and legislators as soon as possible. Providers need to realize that they are still, and will be, a valued resource in the marketplace. I recommend a simple fact sheet highlighting the main parts of Round 2 and how it will affect Medicare beneficiaries and the referral process. Do this as soon as possible! Being known as a resource to those you serve is an invaluable commodity.
Know your numbers—The only thing that has changed as a result of competitive bidding is that providers are getting paid less. The cost of doing business with Medicare has not changed. Providers have to figure out how to provide for Medicare beneficiaries in Round 2 for almost half of the reimbursement. Basically do more with less. There may be as many as 20 to 30 or more providers who were awarded contracts. In other words, providers will still have to compete for referrals, get proper documentation and provide some kind of service to beneficiaries. Providers need to know how much it costs to do business in the Competitive Bid Area (CBA). Providers need to know what percentage of their Medicare patients are currently inside the area. One company reported that only 30 percent of their oxygen patients lived inside the CBA, and by knowing this they can calculate the reduction in revenue and make necessary adjustments to manage these patients based on what it costs. Providers will certainly have to make cuts somewhere in order to make the numbers work. It all starts with knowing your numbers.
Focus on managed care and commercial insurance contracts—I have heard providers say “We still have our managed care contracts.” Not so fast! Many managed care contracts, particularly Medicare HMOs, base their fee schedule on a percentage of the Medicare fee schedule. These plans fee schedules can be 60 to 80 percent of the current Medicare fee schedule. Commercial insurance plans have a tendency to take a hard look at the Medicare fee schedule to possibly pattern reimbursement after Medicare. Providers can’t afford to take an additional cut to the plans they participate in. Providers need to communicate and know their numbers to create a dialog with these plans. Providers should and must approach these plans armed with the facts. Insurance plans need to know the negative effects of inadequate reimbursements.
Focus on retail—Why retail? After a 45-percent reduction in the Medicare fee schedule, need I say more? Whatever profit margin you once benefited from will be reduced. Providers have been hearing “go retail” for years. Now is the time to act. As the DME industry continues to evolve with changes in Medicare reimbursement and, most assuredly, commercial insurance plans, providers must look at more options to generate revenue. Providers need to start a dialog with their vendors about what retail programs vendors offer. It does not matter who pays for what, patients will still need equipment. Retail sales could be a way to make up for lost revenue.
Grandfather—A short-term solution, grandfathering will give suppliers that did not win a contract revenue from existing patients when the new rates go into effect. Grandfathered providers will be allowed to finish up the rental period for any setup that began prior to implementation of the new rates for capped rental items like beds, CPAPs and manual wheelchairs. On a good note, providers that grandfather the patients they have in the CBA will be paid at the rate they started out with—only capped rental items, not the bid amounts. If providers grandfather oxygen patients, they must accept the standard payment amount awarded to contract suppliers.
Find new payers—There are many opportunities for providers to capitalize on when it comes to finding new payers. Providers who in the past chose not to participate with hospice contracts may need to take a second look at these contracts as a source of revenue. Get connected with a group of providers through a purchasing group. The MED Group is a group purchasing and business solutions organization that helps providers lower their purchasing costs. In addition, The MED Group offers the option of additional payer agreements with third-party payers that many providers may not have access to. CMS recently announced 106 new Medicare Accountable Care Organizations (ACOs), which could prove be a viable option for providers. Alan Morris, director of Alternate Care Programs at VGM Group, Inc., said “this proves that performance-based payer models like ACOs are gaining serious momentum, and that this presents a significant opportunity to DME providers.”
So stop screaming and get to work! DME providers need to work fast and smart to adapt to the changes that are coming. Start communicating with everyone connected to your organization. The more they know, the more they can help.
About the author: Jonathan Temple is president of Oxymed and can be reached at 205-401-6358 and www.oxymed1.com.