Weeks: Round 1 HMEs Could Be ‘No-Profit Zones’

MELBOURNE, Fla. — What if “winning” home care providers
simply refused to participate in competitive bidding? After all,
CMS can offer the pen, but signing on the dotted line is a
different matter.

“No one will force providers to sign contracts, just like no one
forced them to make these ridiculous bids,” said Wallace Weeks,
founder and president of Weeks Group, Melbourne, Fla. “This whole
thing can only happen because providers allow it. If providers
refused to participate, competitive bidding can’t be implemented,
and we wouldn’t have to lobby for repeal.”

The provocative words from veteran consultant Weeks reflect a
growing fallout from the recently released Round 1 bid
rates, which saw an average cut of 32 percent across the
affected categories. Based on industry averages, Weeks estimated
that average net income (from all products and all payers) in
competition areas would fall to -9 percent of revenue. “If
non-Medicare payers continue to mark their fee schedules to
Medicare, as they have done in recent years, the average net income
could fall to -16 percent of revenue,” he warned.

“Said another way, competitive bidding area suppliers will, on
average, be no-profit zones.”

The message from Weeks is essentially that business as usual
can’t be done at the announced rates. Even ruthlessly efficient
companies will have to find ways to cut costs.

Asking for a CMN just once is a taste of the seemingly minor
details that can add up to lower costs.

Weeks noted that some product lines have a higher profit
potential due to length of service, and this feature allows many
payments to amortize fixed costs. “For example, if you deliver an
oxygen concentrator, and you get paid 25 times while that
concentrator is out, you still only delivered it one time,”
explained Weeks. “You did intake one time and you collected one
CMN. If you have a product that is delivered and it is out there
three months, you still have the same delivery costs as the one
with 25 months. You still had the same CMN and intake costs, but
you only had three payments by which to amortize those fixed
costs.”

That’s just the beginning, Weeks said. Round 1 providers “have a
few months of running room before Jan. 1, and they can identify
their lost business right now. If they are going to lose this
revenue, they are also going to lose the need for some of the
people and some of the assets they currently have that are
associated with the lost business.”

That means, said Weeks, that HME providers caught in the coming
revenue nosedive need to make some tough decisions now. “They need
to determine their most valuable people to have left and not wait
until the last minute to reduce headcount. That way they’ll keep
some of their expenses down [related to unemployment insurance],”
he advised.

Providers should “take that same look at assets to see where
they might cut deals to offload them,” he added. “Even if providers
choose to grandfather patients, companies are likely to have assets
they can’t use. They need to begin planning for that now.” For
example, Weeks said, if a company is going to lose 30 to 40 percent
of its business, there will probably be delivery vehicles that are
no longer needed.

If managers wait until January when Round 1 is implemented to
survey the landscape rather than doing the hard thinking now, Weeks
said, it could be too late: “It takes a month or two to put a plan
together, and then a couple of months to get traction in the
execution of the plan, and then all of a sudden they are four to
six months behind where they could have been — and the whole
time they will have been losing revenue.”

Providers also must examine what their new breakeven sales level
will be “and figure out — once they have identified all of
the resources, both human and physical, they can let go of —
how they will achieve that new breakeven level,” he said.

Most providers who sign a bid contract will be unprofitable, a
situation that Weeks deemed as much worse than expected. “The 32
percent is beyond worst case,” said Weeks. “And the [rates for]
diabetic supplies are totally off the charts.”

Diabetes products and supplies
took the biggest hit under competitive bidding, with a 56
percent decrease from current allowables. For these providers and
others, Weeks does not anticipate salvation in lower manufacturer
prices, especially since most companies have already been offering
reasonable rates.

“Manufacturers have been doing a good job in our industry of
removing costs. There is room for improvement by working with
providers to use technology to lower costs. However, manufacturers
can’t drop prices 30 percent. I don’t think they have the room to
do that at all since they have already taken prices down.”

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