Products & Technology

A Rough Road Ahead

How will power mobility providers get past obstacles such as 13-month rentals, competitive bidding, and the excise tax so that they can build a path to success?

• By David Kopf
• May 01, 2010

A rough road stretches before power mobility providers as the industry approaches the middle of 2010. While HMEs have always been able to chart their own pathway to success by providing top-quality service to the mobility patients that depend on them, several regulatory obstacles have recent been thrown in their path that have decreased their funding, greatly changed the way they run their businesses, and resulted in more grassroots lobbying and legislative work on the part of all concerned providers.

The three major, recent hits to power mobility have come with the recently passed healthcare reform legislation: the elimination of the first-month purchase option; the manufacturer’s excise tax; and the expansion of round two competitive bidding program, which covers standard power mobility (complex rehab fortunately was carved out of the program).

The Impact of Forced Rental

Perhaps the biggest pothole to emerge in power mobility’s paths is the removal of the first-month purchase option for standard power mobility devices, along with the resulting requirement that mobility providers instead rent that equipment for 13 months. This policy became law with the recently passed healthcare reform legislation, of which it was a provision, and goes into effect Jan. 1, 2011.

The problem with a 13-month rental period isn’t necessarily that it is impossible to conduct business in that fashion, but that it up-ends the way the entire business is ran for little reason. Moreover, it doesn’t make sense in many instances. Why rent equipment to a patient for 13 months when his or her condition is permanent, or will last much longer for a year and a month — the reason the first-month purchase option was developed?

“I kind of hate to say it, but the 13-month rental can be an okay way to do [business],” says Jerry Keiderling, president of U.S. Rehab, the rehab-specific division of VGM Group Inc. “But, it’s definitely going to require power mobility business owners to change their model, and they’re going to hurt right off the get-go. That pain is going to be around a while.”

And even if providers can find a workable way to live without the first-month purchase option while the industry fights to get it back, the scenario is anything but rosy.

“There are a lot of bad points about that rental beyond stringing it out for 13 months,” Keiderling says. “It also means that providers don’t get paid for repairs during the 13 months. So there is a lot more to consider beyond purchase costs and reimbursement.”

The dealer performs all the maintenance on the DME with no reimbursement, as part of the rental arrangement, until Medicare has finalized the last payment for the DME. So, if in the first year, something is fixed or replaced, the rental can cost the HME provider more and reduce the greatly profitability of the product/ service.

Also, there are no limitations or stipulations on the equipment that the patient is getting. So patients could get equipment made by “tier two or tier three” manufacturers that are more fixated on getting DME on the market that meets Medicare testing standards, but might not meet that much higher quality standards that patients, providers and other caregivers prefer, require and currently get from equipment made by “tier one” product makers, Keiderling says.

“That in itself will cost the patients more time in not being able to use the equipment that they are provided,” he adds.

Shaping Strategy

“There is no reason why equipment like this should be rented, and that is the battle that everybody in the industry including us are still fighting,” Keiderling says. “Right now it’s mandated for January 1, but that is a battle that continues.”

And how that battle plays out is difficult to predict. The goal is to try and preserve the first-month purchase option prior to implementation. One option is to regain the first-month purchase option via a doc fix at a later date this year.

“At this point, with healthcare reform and the [13-month rental] being part of it, the only way to really get a viable bill is to hang on to the doc fix at this point,” Keiderling says. “That’s the only way that I can see. And that’s on everybody’s mind. Even thought it’s mandated first there is time to make a change if we can do it, and a lot of people are confident that we might be able to.”

How the doc fix scenario would play out would most likely involve the industry partnering with both a Senate and House champion to back creating the necessary legislative language for reinstating the first-month purchase option. That language would then developed by that lawmaker’s health legislative assistant and staff, and it would be integrated into a doc fix.

“That’s kind of where [the process] is heading right now,” says Greg Packer, director of operations for U.S. Rehab. “Obviously our government relations staff are working on that along with industry organizations — AAHomecare, CRMC and those groups. Those fixes, though, are difficult at best to get taken care of once a bill has been passed, like this.”

That said, when Congress sees the fiscal reality of the 13-month rental, it might be more willing to revise the provision. Simply put, a capped rental program doesn’t save taxpayers any money. In fact, it costs more.

“There are circumstances, under the capped rental program, that don’t make sense when we talk about healthcare reform, because it has been proven that the equipment that does run the 13-month period actually costs CMS about five percent more than the purchase option,” Keiderling says.

Another way the industry could save the first-month purchase option is through other legislation could be coming down the pike. The industry could work to attach language to any appropriate incoming bill.

“We are hearing that another Medicare bill will pass prior to the elections,” says Seth Johnson, vice president of government affairs for Pride Mobility Products. “The doc fix is one option, there’s also the potential that there could be a technical corrections bill to fix some of the provisions where there would be unintended consequences if [health reform] were implemented as written.

“So we’re meeting with legislators … and we’re having those conversations and discussions to get a clearer sense of the opportunities to address the purchase option issue, as well as the excise tax and competitive bidding,” he continues. “I think with all three of those there is an opportunity to change those provisions form the way that they were included in the law.”

Begging the Question

So why did CMS push for policy such as removing the first-month purchase option for some power mobility devices when it will only wind up costing itself and the taxpayers more money in the long run? Not to mention while reducing patient access to better quality DME they would have received in a first-month purchase? (The mind does tend to boggle at this.)

The answer might be as simple as that a 13-month rental looks good on paper over the short term.

“I think this will look fairly good on accounting reports, potentially, for CMS in that they’re not expending those large purchase options,” Keiderling explains. “For the first 13 months that this goes into effect this will look good in accounting, but what ends up happening is that in the long run, yes, on the back end it’s going to end up costing more.

“On the front end, it will look good for [CMS] because the industry is going to be carrying the paper for the purchase for all that equipment for the first five to seven months before they see actually pay-off dollars,” he continues. “And then their actual profit dollars and dollars for deliver and all the seating and positioning and those types of things come in weeks seven, eight, nine, 10 and 13.”

But cost-cutting is only one of the ploys for justifying the mandatory rental.

“The other side to this is that it’s all based on perception,” Packer adds. “Mandates such as this — the rental agreement — CMS sees it as a fight against fraud and abuse. Unfortunately, every provider in this country has been lumped in with the bad people. They see our industry as all fraud and abuse and they think this will take care of part of it.”

And, like the arguments that a 13-month rental makes financial sense, little of CMS’s fraud and abuse argument is grounded in reality.

“When we look at the percentages of what homecare, mobility, rehab makes up of the entire Medicare budget, homecare makes up roughly three percent of CMS’s budget and mobility and rehab make up three to five percent of that,” Packer explains. “A very small market, but we’ve become a target.”

Regardless, of how fl awed CMS’s justifications for the forced rental and the removal of the first-month purchase option for Group 2 power mobility might be, the key thing to remember is that the industry can still fight back.

“It’s not a good thing that the first-month purchase option is going away … but we still have several more bites at the apple to get it reinstated in a budgetneutral compromise,” says Wayne Grau, vice president of supplier relations and government affairs for HME member service organization the MED Group. “Now is the time to fight.”

“This is not a fait accomplis in any way,” adds Reid Bellis, director of the National Rehab Network for the MED Group.

Surviving in the Meantime

How life will work under a 13-month rental for standard power mobility is still coming info focus. What is known is that while all the rules regarding the mandatory rental haven’t been outlined, the payment method has been altered.

“We expect CMS to release a rule outlining the specific requirements that providers must follow under a mandatory rental for standard power wheelchairs,” says Gerald White, vice president of global power chair products for Pride Mobility Products. “We did see in the legislative language a change in the traditional durable medical equipment payment methodology where, for standard power wheelchairs, Medicare will be front-loading the payments.”

Instead of 10 percent per month for months one through three, providers will get 15 percent of the total payment on months one through three, so they will receive 45 percent of the total within 90 days, he explains.

“Then on months four through 13, the percentage is adjusted down to 6 percent from what is today 7.5 percent,” White continues. “So that will end up netting the provider nearly $550 more within the first three months under this modified rental payment methodology that was specifically put in the legislative language that was put in the healthcare reform.”

Another important element of the purchase option language is that it exempts the nine competitive bid areas in which contracts are entered prior to Jan. 1, 2011. So providers with contracts in the round one re-bid CBAs will not be subject to the 13-month rental agreement. The front loading and round one re-bid exemption are two notable bright spots amidst the gloom, indeed.

“They make the change a little more palatable,” White says. “It’s important to highlight those nuances within the legislative language, which was signed into law.”

One positive trend to emerge from the duress mobility providers are experiencing is that they, like most HMEs, are becoming much more attuned to their business performance, and how to fine-tune it.

“We’re going through some of the most challenging times we’ve seen,” Packer says. “And people are actually stepping up to the plate, who, along with us, are very interested in the state of the industry.”

VGM conducts a survey each year that examines various aspects of how HMEs, including mobility providers are performing. It tracks factors such as days’ sales outstanding and similar provider metrics.

“People are becoming much more cognizant of what’s happening in the industry and looking for places to bring in new revenue,” Packer says. “Such as our new division at U.S. Rehab, AHIA [Accessible Home Improvement of America], which is obviously not dealing with Medicare and those types of issues. So they are looking for more cash sales opportunities to help run the business, and continue forward so that they can provide the service that they have been providing for years in taking care of those in need in communities across the country.”

(AHIA is aimed at helping providers provide home modification services to mobility patients so that they can open up new revenue streams outside of Medicare.)

MED Group is seeing similar trends with the providers in its organization, Bellis says. One key element in surviving the current funding environment is improving every element of the business that they can. That will help them live to fight another day.

“That means getting better at business processes; trying to remove as much cost of the process as possible,” Grau adds. “And that’s getting tougher, because they’ve already made those big leaps by buying properly with good companies that are developing good products that meet the new economic environment.

“We feel that with proper modification of good business processes, good purchasing, sticking to formularies, and so forth, providers can thrive in this new environment,” he continues. “It’s just that they have to change their old way of thinking to a new way of thinking.”

Competitive Bidding

The re-bid of Round One of competitive bidding is well underway, and Round two of competitive bidding begins next year, and through the healthcare reform package was expanded to 21 additional competitive bidding areas. In both cases, standard power mobility is one of the product codes covered by competitive bidding, while complex rehab is not. With an average reimbursement cut of 26 percent to all categories in the original Round One bid, there’s ample reason to worry about expanding the program into Round Two.

“We’re expecting a proposed rule for competitive bidding round two this summer, with a final rule being published in fall or winter of this year,” Pride’s Johnson explains.

For now, the big fight remains getting members of the House to co-sponsor the H.R. 3790, the bill introduced by Rep. Kendrick Meek (D.-Fla.) that calls for the repeal of competitive bidding. At press time, the bill was at 203 of the 216 co-sponsors required to gain a simple majority that would move it forward in the House. (See “News, Trends & Analysis,” page 8, for more details.)

“Then the next challenge is compelling the Senate to introduce legislation to repeal competitive bidding,” Johnson notes, adding that the key is finding a Senator that will back the companion legislation. “There are efforts under way to secure a Senate champion. There have been a lot of meetings that have taken place over the last few months with Senators on the Finance Committee and other Senators to introduce a companion bill. Right now [the industry] has not been able to identify a champion like we have in the House with Congressman Meek, but there is support, and those meetings are continuing.”

And if there is steam built up in the House, then that momentum could become contagious to lawmakers in the Senate, as well.

“Anytime the House has the level of support that they have on a piece of legislation like Meek it really does force the Senate to look at that and seriously consider taking action on it,” Johnson says. “I do think that a sponsor will come forward sooner rather than later and we’ll be able to advance this important piece of legislation sometime by mid-year.”

The Manufacturer Excise Tax

The manufacturer’s excise tax was modified in the reconciliation bill that followed the health reform legislation so that it went from a 2.9 percent tax to a 2.3 percent tax, and goes into effect on Jan. 1, 2013. Also, the reconciliation removed additional fees levied on manufacturers based on their assessed gross domestic sales. So the tax is now a true excise tax based on the sale of medical devices by the manufacturers, Johnson explains.

In any case, additional tax burdens at the manufacturer level beg the question, how will this impact the DME that providers offer their patients?

“One of the points that we were articulating to our legislators on the excise tax really is that it is going to lead to increased cost throughout the entire healthcare continuum, which is counter to one of the stated goals of overall healthcare reform — to contain costs,” Johnson says. “The final language would assess a 2.3 percent tax on the sale of a manufacturer.”

While there was initially an exemption for Class I devices, and there is a very narrow exemption for hearing aids, Band-Aids and eyeglasses, DME is still greatly impacted.

“That’s going to be included in the cost of developing these products moving forward. That is obviously not limited to power mobility, but all types of medical devices,” Johnson explains. “All DME items, and all medical devices going up to defibrillators and a lot of really high-tech medical devices are going to be included, and from our perspective that is going to lead to increased costs throughout the entire healthcare continuum.”

From a product standpoint, manufacturers will still continue to develop their technology and develop products, but greater scrutiny will be placed on determining which product categories need the most attention, White says. The approach will most likely be similar to the same approach in prioritizing their offerings.

Moreover, manufactures might step up the ways in which they can help providers carry the cost of mobility devices before they start seeing a return from Medicare funding.

“We do foresee an increase in financing offers within the industry,” White says, adding that the industry, both manufactures and providers are still trying to get a lay of the land. “As far as what this is going to mean to the industry, we’re reaching out to providers to find out what they need and how we can help them, and how we can move forward under this new environment come January 1 of next year. Clearly this is a pretty big change in the business model as we know it, and at this point in time I think right now we’re all trying to get as much information as we can to analyze the specifics that need to be put in place.”

That said, Bellis says that providers must take care to remember that financing is a double-edged sword. While having access to capital to fund rented DME is a major help, to start relying on financing more frequently could negate some of the other strides they have made, he says.

“The longer this goes on, the more likely [financing] would come to fruition,” he says. “But at the same time, all the gains that providers have made in terms of operational efficiencies … leasing would be a reversal that would cut into their bottom lines.

And, while providers learn how to drive through the regulatory and reimbursement obstacle course that CMS has set before it, choked with challenges such as the 13-month rental, competitive bidding and excise taxes, they are meshing that survival instinct with the drive to fight back on the regulatory front. It is a balancing act that is both impressive and inspiring.

“For power mobility … the overall sense of the industry is that while people are saying ‘Woe is me,’ they’re all pulling in the same direction,” Grau says. “This is the biggest time that I’ve seen in my experience with the industry over the last 20 years where providers are all focusing in the same direction, which is truly gratifying.”

This article originally appeared in the May 2010 issue of HME Business.