Unkind Cut

• By Lunzeta Brackens
• Dec 01, 2008

Complex rehab and mobility providers look for ways to survive a close funding shave.

Living in today’s homecare funding environment these days is a lot like visiting a new barber. You’re not sure what kind of cut you’ll end up with. One segment of the HME industry that perfectly illustrates that dilemma is mobility, and especially complex rehab.

Rehab providers faced cuts in 2006, and less than three years later they find find themselves in a similar predicament. To pay for the delay in the National Competitive Bidding Program, providers were asked to absorb a 9.5 percent cut starting in January. But what happens when there is no place else to cut? What happens to DME’s whose very existence depends on mobility or rehab reimbursement? What are their options?

Before calling it quits on the industry, providers should realize that efforts are being made on the part of the industry to exclude complex rehab from the current cuts, and furthermore eradicate competitive bidding. But in the meantime, there are things that providers should be doing to survive this very difficult funding landscape.

Spotting Potential Problem Areas
“You never know how funding is going to project,” says Georgie Blackburn, vice president of government relations and legislative affairs of Blackburn’s, a regional provider. “We do have a presidential election that perhaps, depending on who’s elected, Medicare Reform, Funding Reform, everything that impacts our business, might be dealt with as a priority or might not, considering the economic landscape. But I do know the 9.5 percent reduction that we had to accept in order to stymie competitive bidding and get the methodology done right had to be accepted by our industry or we would have had a chaotic situation on our hands not only for our businesses, but more importantly for our customers.”

If your product mix is primarily complex rehab in the power modality business, then the cut greatly impacts as much as 20 percent or more of your receivables, Blackburn says.
“I think a lot of providers are not going to be providing rehab at a 9.5 percent cut,” says Melissa Fisher, president of Progressive Medical Equipment in Lenexa, Kansas. “When competitive bidding had gone through, we did win a contract and it was not a 9.5 percent cut.”
There’s no way around sugar-coating it. According to Peggy Walker, RN, Billing and Reimbursement Advisor, U.S. Rehab, the 9.5 percent cut is killing (providers). “We’ve gotten so many cuts, and we’re such a hands-on service part of DME,” she says. “A 9.5 percent cut is really going to hurt the rehab industry and it’s really going to hurt the patients in the end because we’re not going to be able to provide the quality equipment or the time and service.”

Now more than ever, suppliers are going to have to start reevaluating what they do. They’re going to have to reevaluate the service component and will most likely have to start charging a service and delivery fee.
“A lot of times people don’t do that,” Walker says. “They won’t bill if they have to go out and replace something or do something for a client. That’s not going to happen anymore.”

Cara Bachenheimer, senior vice president of government relations at Invacare Corp., agrees that 9.5 percent particularly in high-end rehab is a huge cut. She, like Walker, believes that the first thing that is going to decrease is the level of service: home visits, the number of visits, and the intensity of the services because people aren’t going to be able to afford to provide them.

A fall Medicare provision to eradicate the 9.5 percent cut isn’t something that Bachenheimer believes will be likely. “You need to have both a political will to move it and a legislative vehicle as well,” she says. “And at this point, unfortunately, none of those exists.”

Seth Johnson, vice president of government affairs at Pride Mobility Products, says there is talk of a lame duck session after the elections, but Congress will most likely not have an opportunity to address this issue. Johnson says there’s also talk about a stimulus package being developed.
“Within that package we’ve heard that the states are looking for additional dollars within their Medicaid program, which would provide some type of avenue to attach the language that would provide those parallel exemptions from the 9.5 percent cut,” he says.

The in the Medicare Improvement for Patients and Providers Act specifically excludes Group 3 power wheelchairs from competitive bidding. Johnson says he does believe that there is a likelihood that Group 2 single and multi-power option wheelchairs will be excluded from competitive bidding.

Putting Out the Right Solution
The larger issue is what will it take to get complex rehab excluded from the 9.5 percent cut? Bachenheimer says she believes it will take a couple of different things. If there is a consumer access issue, legislators will pay attention. Bachenheimer says she’s not sure how that would be demonstrated, but an access issue and objective data that isn’t industry generated could drive the point home.

“If we’re successful in engaging the consumer community in this effort then we significantly increase our chances of fixing it,” Bachenheimer says. “But this is still a pay-go world. If there’s a piece of legislation that would cost the government money there would also have to be some kind of provision that’s going to pay for it at the same time. I wouldn’t say it’s an impossible objective, but we need to do things differently than we’ve done in the past. It really needs to be consumer generated.”

One of the reasons why Congress was not receptive to carving out complex rehab from the 9.5 percent cut is because when bids were received in the initial 10 competitive bidding areas, the average cut was 15 percent in terms of the bids. There was an assumption on Capital Hill that the rehab industry could take the 9.5 percent cut because it fell short of the 15 percent.

“I cannot overstate how damaging that is to us on Capital Hill,” Bachenheimer says. “And it will continue to haunt us moving forward.”
Being able to absorb an average 15 percent reduction within complex rehab bids is not necessarily accurate, Johnson says. For example, the industry saw significant improprieties that were being looked at in Riverside, Calif.

There were significant issues that have not been addressed in regards to the manner in which CMS tried to roll out the first round of competitive bidding, Johnson says. There were providers whose bids were part of that 15 percent reduction and probably should not have been accepted because they were not qualified. He hopes that some of these unanswered questions will give Congress and other stakeholders looking at the competitive bidding program an opportunity to determine that those rates aren’t accurate and should not be used as a benchmark for potential savings.

Efforts are being made to change the legislation, but until that comes to fruition providers need to take the conservative approach. Bachenheimer says providers can’t assume that this is going to get fixed and if it does get fixed, it won’t be until later in 2009— that’s the congressional schedule.
“Unfortunately, we’re going to be forced to have to live with this for a while,” she says. “People need to assume that the cut will go into effect because it will, and start making those preparations if they haven’t already.”

Rita Hostak, vice president of government relations for Sunrise Medical, agrees. She says if providers are sitting back and not preparing for the program because they think it’s going to go away, they’re missing the point.
“Reimbursement is going to drop one way or the other,” she says. “So get ready in terms of truly understanding what your costs are and where you can remove costs from your business this is going to be critical…whether you’re getting a break from competitive bidding or not.”
Providers need to keep in mind that if competitive bidding is eliminated there’s going to be some other funding cut to be a pay for.
“So whether that number is coming through a smaller number of providers providing DME at a price that they bid or whether it’s Congress saying ‘OK, we’ll get rid of competitive bidding, but that same dollar amount has to come from this industry in some way,” Hostak says. “And that could be through market basket cuts, or multiple years of CPI increases, or a combination of both.”

There has been discussion within the industry that it might be better not only for consumers but for CMS and the Medicare program to separate complex rehab from other DME and move it into a benefit category of its own. This would ensure higher quality standards and different coverage policies, Hostak says.

If Medicare does move forward with a modified competitive bidding program, providers can rest assured that things won’t be the same. There have already been improvements such as allowing providers to resubmit missing information from bids and ensuring that providers are accredited to provide the actual products and services they were bidding on, which was not the case in round one.

Providers should prepare for the return of the program by becoming accredited if they are not already, Johnson says. Providers also need to look at their total business model and look for ways they can create additional efficiencies.
It’s no doubt that the 9.5 percent cut may drive some providers out of business. Hostak says it will be devastating to providers who she imagines will probably

take a 4 percent hit to their bottom line.
“If you’ve got somebody who was already at a 2 percent profit, and you hit them with another 4 percent, then he’s in trouble,” she says. “I definitely think they’ll be fewer in the industry than there is right now.”

Ways to live through a harsh season
For those who want to stay in business, they’re going to be faced with some difficult decisions as far as the services that they’ll have to cut. Blackburn pointed to numbers released from a national survey titled the “Executive Summary,” which was conducted by the National Coalition for Assistive and Rehab Technology.

The survey displayed a picture of what life would be like in the face of a cutfor those that want to continue to provide complex rehab and for those patients who depend on providers. One hundred and eighty-four companies with more than 550 locations across the U.S. responded. Seventy-seven percent of the companies reported that the cut would impact 20 percent or more of their revenue and 51 percent reported that the cut would impact 40 percent or more of their revenue.

The following 10 points summarizes rehab providers responses regarding areas that will be affected by the 9.5 percent cut and changes they will be making relating to the products and services they provide:
•    Ability to do off-site assessments and evaluations
•    Ability to provide demonstration and trial equipment
•    Ability to work with clinicians and participate in clinic-based assessments
•    Ability to offer a variety of product choices
•    Amount of time spent training and educating customers
•    Timeliness and frequency of deliveries
•    Range of products you currently repair and service
•    Ability to do repairs and service at the customer’s home
•    Provision of loaner equipment at the time of repair
•    Provision of clinician educational programs
•    Discontinue doing offsite assessments and evaluations

“It’s all those value-added services that we do that we are not paid for that might have to be erased if we are not successful in getting the 9.5 percent reduction removed from the complex rehab category,” Blackburn says.
In this survival of the fittest mode, providers are going to have to look into other products and other categories, and collect their money up front, bill the patient and let the patient get the cut, Walker says.

“It’s not something that they want to do, but they have to,” she says.
People are always going to need DME. Walker says, “We just have to learn that we can’t give stuff away.”
Providers are going to have to look at staffing, paperwork and vendor reps, and ensure that their computer software is updated. Opportunities also exist for providers to become home modification consultants.

Kirsten DeLay, sr. vice president of sales management and operations of Pride Mobility Products, says Pride is focusing on helping providers to decrease their backend cost. After acquiring the product and delivering it to the beneficiary, providers should consider the quality of product they’re receiving when purchasing from manufacturers.

Also, long-term quality, reliability and warranty claims are very important because all those things need to be minimized for a provider to decrease their backend costs. They should certainly be seeking out manufacturers that have minimal warranty claims and have a very high-quality and reliability ratio after the point of delivery.

Providers must push for manufacturers to get more focused with lead times, particularly with complex rehab.
“The shorter they can make that cycle, the more they can improve their terms in profitability,” DeLay says. “Those are all of the details behind the backend costs that end up costing providers money that probably in years past got easily overlooked.”

Buying cheap isn’t the answer. Lower acquisition costs generally lead to higher quality incidence in the field. Although your acquisition cost may be less when you actually purchased the product, over the lifetime of that product the service work that you would have to do on it and the quality issues that you’re going to run into are always going to be higher.

“If you take a chance with a very low acquisition cost, you’re definitely putting your profitability at risk on the backend because you really don’t know what’s going to happen,’ Delay says.

Retail products are going to be the way to go if you’re looking for cross-selling or cross-marketing opportunities. Providers should think about lift chairs, scooters, vehicle lifts and ramps, all of which complement power chairs and manual wheelchairs.
“I think for many providers they focus on providing the power chair and not necessarily have their sales people focus as much on all of the other things that beneficiaries might be able to take advantage of from them,” she says.

To cut back on spending, providers will need to limit the number of vendors that they use. In the past, many providers liked the idea of having two or three manufacturers for any given product category just because they liked to leverage one against the other. But with provider cuts, they’re asking the manufacturers for lower pricing so the more volume you can commit to the manufacturer the better price break you will get.

Another key element that providers will not want to overlook is referral-based education. They’ll want to build strong relationships and reputations on a local and regional level (depending on what size provider you are) to be able to maintain the volume of business with all of the cuts you’re going to see in your profitability.

Providers should be careful of putting all their eggs in one basket, says Walker and DeLay. Both agree that providers need to diversify their payor sources by looking at cash sales, Workman’s Comp, Medicaid, the V.A., private insurance and vocational rehab.

To prepare for the cut, that is exactly what Fisher is doing, diversifying her product offering and payor sources. She believes that those businesses that provide solely mobility will be significantly impacted.
“If a larger part of their business is mobility, then obviously, they’re going to be negatively impacted,” she says. “If they don’t do a whole lot of mobility, then it shouldn’t affect them as much.”

After doing all that they can do individually, providers will have to come together collectively on a grass-roots level to voice their concerns about the cut.
“I think it’s in our ballpark to educate the patients and the advocacy groups much like we did when we took on competitive bidding.” Blackburn says. “We found that our patients become very eloquent and they tell their stories much better than providers to our legislators.”

Education is an important piece in doing away with competitive bidding and the 9.5 percent cut. That is why Pride is working closely with a plethora of different groups to ensure that end-users are aware of the impact the reduction will have on their ability to get repairs and to make sure they have access to many of the services for replacement products that they may need in the future, Johnson says.
“We know we are more cost efficient than allowing a patient to remain in skilled care, certainly in hospitalization,” Blackburn says. “... I think when we bring the message of the 9.5 percent cut, what it does to complex rehab and we combine that with the efforts we’re designing to combat fraud and abuse as a proactive measure, as an industry… and combine that with what providers don’t want to do in order to take away advantages to their patients, that’s a critical message to legislatures who are their for their constituents.”

Points to Take Away
•    Prepare for the 9.5 percent cut as much as you can now, it will more than likely be here Jan. 1.
•    For those providers whose product mix is primarily complex rehab in the power modality business, the cut will greatly impact your receivables.
•    Now is the time to reevaluate the service component of your business.
•    Congress needs to be educated on the ill effects a 9.5 percent cut would have on complex rehab and mobility providers.
•    One way providers can prepare for the return of the competitive biding program is by becoming accredited.
•    Even if the competitive bidding program is stamped out, there will more than likely be cuts to pay-for it.
•    Providers need to increase their margins by looking to retail products, reducing costs on the backend and cutting lead times.
•    Buying cheap products is not the answer — it will only cost more in the end.
•    Diversifying payor sources and products can help providers get through these difficult times.
•    It’s imperative that providers ban together to educate Congress, advocacy and consumer groups about the impact the 2009 projected funding landscape will have on all parties involved.

Learn more
For more information on the 9.5 percent cut and competitive bidding visit:
•    http://www.hme-business.com
•    http://www.cms.hhs.gov/
•    http://www.aahomecare.org/

This article originally appeared in the December 2008 issue of HME Business.