Weeks: Reimbursement Roof Is Falling

MELBOURNE, Fla.—It might not be teetering on the verge of
complete collapse, but the HME industry is definitely perched on
the ledge of consolidation, according to industry consultant
Wallace Weeks. That means the time is now for providers to choose
their role in the new HME world.    

Weeks, founder of Weeks Group in Melbourne, Fla., said it is
hard to discern the future of HME, but one thing is sure: A sea
change is coming and with it, consolidation. To survive, he said,
providers will need to make some difficult choices.

“The need [for home medical equipment] is not going to go
away and there will always be an industry to serve it,” he
said. “It will just look different. You’ll need
different management techniques and different philosophies to be a
successful participant. You’ve got to make the tough choices
to move the business in the right direction. And that could very
well be away from Medicare.”

Despite the industry’s efforts to educate legislators and
regulators about HME, Weeks is not heartened by what he is hearing
when it comes to Medicare.

“What I am hearing when government officials or Congress
talk about health care reform … is how we are going to pay
for it,” said the industry veteran. “DME keeps coming
to the surface as a source of payment, and that certainly heightens
my concern about where our industry may be headed.

“I think … that our industry is very close to having
the [reimbursement] roof fall on us.”

Providers are already scrambling under a 9.5 percent cut in 10
product categories and the 36-month oxygen rental cap, both of
which took effect Jan. 1. Now, the House and Senate are considering
further cuts to power mobility and possibly oxygen
reimbursements.

“Reimbursements are going to be drastically cut, such as
the probable elimination of all payments for scooters and most
payments for power mobility,” Weeks said, noting that at some
point, it wouldn’t surprise him if Medicare cut out all
reimbursement for standard mobility products. He also noted the
possibility of a shortened oxygen cap. 

An even bigger threat could come as the result of competitive
bidding, and that would be CMS’ establishment of an inherent
reasonableness reimbursement fee.

“If we discount 26 percent (the average reduction from
last year’s Round 1 bid), then that is what inherent
reasonableness is going to be for the whole country,” he
said. “There would be no profitability coming from [almost
any] product category. If it didn’t kill the contracting
providers, it would severely weaken them. The only way it
wouldn’t kill them would be if only a small portion of their
business came from Medicare.”

And it wouldn’t be just the winning providers in the bid
areas that would be affected by the discounted rates, he
said.

“When the 80 [metropolitan statistical areas] are done, at
least 50 percent of the beneficiaries will be covered,” Weeks
pointed out. “How do we argue for the other 50 percent
of providers … in non-competitive bidding areas that
that is an inherently unreasonable fee?”

Even if the average cuts are 15 percent, they are likely not
sustainable, Weeks said. 

“Some [providers] will adjust their business models to be
able to operate in the environment. Many of them will wind up
leaving. That doesn’t mean they will be leaving DME, but
they will leave Medicare,” Weeks predicted. “They may
even wind up leaving a lot of the kinds of equipment and supplies
they currently supply.”

That would suit CMS just fine, he thinks. 

“We have an oversupply of Medicare providers,” Weeks
said. “What Medicare was after to begin with [with
competitive bidding] was eliminating providers, not for the reason
of supply-demand but for the ability to control fraud and
abuse.”

Fewer providers mean fewer providers to police, he noted. That
also means industry consolidation. 

“It will come to that that,” Weeks said.
“There are well-established industry life cycles, and [every
one] ultimately moves to a point that three or four companies are
holding the majority of the market share. It is highly likely to
happen in DME.” 

Consolidation could take place with one company buying another,
companies abandoning their current line of business and some that
outright fail.

“Providers can choose which of the categories they are
going to fit in,” Weeks said. “It’s a matter of
making the tough management choices and executing them,” he
continued. “Sometimes, we have—not just in our
industry, but in every industry—managers who won’t make
these choices; they are doomed to failure. And there are going to
be some.”

Despite the challenges facing HME, there are “a lot of
opportunities,” Weeks said, noting in particular Web-based
cash businesses. “And not every person who needs ostomy
supplies or urologicals or diabetes supplies is a Medicare or
Medicaid patient,” he pointed out. But it will be up to
providers to find and pursue the opportunities that
exist.

“I don’t think anyone is going to choose to
fail,” Weeks said. “But they are going to choose not to
make the tough choices that they need to succeed.”