Provider Prospective

PRO2 Respiratory Contemplates: Its Loss of Medicare Oxygen Business

• Sep 01, 2010

Like hundreds of other thwarted bidders around the country, the worstcase scenario has come to pass for PRO2 Respiratory Services, a respected independent home care company. Its Cincinnati branch was not among the winning bidders in the CMS DMEPOS Competitive Bidding Program, according to John Reed, executive vice president and chief operating officer.

In Cincinnati, one of the nine areas where the program begins, PRO2 has about 1,700 Medicare oxygen patients, which is an estimated 25 percent market share, Reed says. If the program is not repealed before Jan. 1, 2011, that business will evaporate entirely.

When everything about the bidding program — from how the bids were evaluated to what financial criteria were applied — is awash in so much mystery and confusion, Reed’s candor about the whole situation stands out. Respiratory & Sleep Management spoke with him to find out PRO2’s plans for the coming months.

RSM: Tell our readers about PRO2 and how it gained such a strong position in the market.

Reed: PRO2 began in 1999, with three initial partners who worked for other national or regional home care companies. They believed in a better way to provide care, so they built the company around a really high level of clinical intervention and customer service. We have programs that emphasize patient quality of life.

We strive to achieve a life-quality goal for each patient. We provide top-quality equipment, a strong clinical team and a combination of services to allow patients to meet their lifestyle goals at no additional costs to Medicare, the patient or the taxpayer. That’s how we grew in a crowded marketplace that includes as many as 40 providers.

RSM: With that kind of success in building market share, comment on what it feels like to lose the bid.

Reed: We bid very aggressively, and our bid strategy was based on the premise that we could not afford to lose the bid. In our strategy, we made very difficult decisions about the services that would be eliminated, the staff that would be impacted and the patient conveniences that would be taken away.

Knowing the new bid rates, we cannot justify how any provider can meet the requirements of the Medicare rules, the state licensure standards, the mandatory accreditation requirement and other regulatory rules, such as those from the state board of pharmacy or for compressed medical gasses. We can’t believe that any company can continue to provide the services mandated in the specific Medicare coverage benefit at those prices.

The new fee schedule would basically take 125 percent of our total labor cost out of our annual revenue. If we were to eliminate every employee, we would still have to reduce another $600,000 in annual supply costs, just to break even. And contrary to what CMS officials are telling the public, eliminating labor and supply costs at these levels will not only affect quality of care, it will eliminate practically every basic service as well.

I would ask CMS officials and members of Congress to transparently review the program and assess each winning bidder’s business plan before and after the new bid rates were set. Ask suppliers how they plan to provide capital equipment, supplies, care and services to the patient at the new fee schedule. It’s very basic business math. Very quickly they would find that bidders from outside the area and bidders who didn’t understand their fundamental costs were the bidders who drove the prices below sustainable levels.

RSM: So what is your Plan B?

Reed: Our first response was that if the bid price is $106.60 for an oxygen concentrator, then so be it. We know that no one else can do it for that price. We understand very clearly what our mandated costs are, and we are not that different than anyone else serving this patient base, except that we have a higher commitment for clinical services. Our first impression was shame on those who used the bid strategy to push below the lowest-possible cost to serve the patient base.

Second, we could chose to “grandfather in” to serve our patients, but not at the new price point. There’s no reason why we should lose $200,000 a month and not be able to accept a single new Medicare patient over the next three years. There’s no reason to throw money down the chute.

Our strategy is to spend the next three months trying to get clarity and transparency and fact on the table to prove that not only can we not make it work at those prices, but no one can make it work at those prices. Hopefully, Medicare patients are not going to be a pilot project of requiring services only by the lowest-price bidder. We will fight to repeal the bill entirely over the next three months.

RSM: How can lobbying be more effective at this point?

Reed: Unlike the initial Round One, we will activate the consumer. We will talk about what the new price means from a convenience standpoint, from a portability standpoint and from the standpoint of a high-tech model vs. the cheapest unit. We will show them how their lifestyles will be impaired, and then we will have the consumers become our advocates.

The American Association for Homecare has identified about 60 patient advocacy groups who have come out against the program. These are the people that CMS is telling about the reduced beneficiary out-of-pocket costs. But these advocacy groups realize that’s not the case. It’s not about the lowest-cost provider providing care in the home; it’s about the right provider who the patient chooses providing care in the home.

There’s a real misconception created by CMS that patient co-pays are going to go down. I was part of a meeting with an Ohio senator in late July where this came up. After that, I came back and did the math. Less than 12 percent of my Medicare patient base has an out-ofpocket obligation, based on supplemental insurance or a hardship waiver. The industry estimates that fewer than 20 percent of beneficiaries have an out-of-pocket obligation. When CMS uses that as the first justification for the program, it’s political spin and rhetoric that gets people excited, but it is simply not factual.

RSM: What else has happened at PRO2 since July 1?

Reed: When the rumor on the street was that PRO2 didn’t win the bid, our phone started ringing off the hook. We’ve got 1,700 Medicare oxygen patients out there, so it’s no secret that we have significant market share. Winning bidders started calling me. To each one who called, I asked, “So you won the bid, but what’s your financial strategy going to be?”

The first one answered that the company was going to a no-delivery model. And I asked, “What do you mean by that? Are you talking about transfilling oxygen concentrators that cost $2,000?” No, he said, he was talking about limiting service and supplies to patients. That’s in direct violation of the bid program rules. The rules say that patients who had certain levels of service before are to get principally the same service after the program starts.

The second provider said he isn’t going to do liquid oxygen. But the bid rules say that providers are required to take assignment on each referral, required to take the referral if they get it and required to dispense the oxygen modality the patient needs. So if a physician says a patient needs liquid oxygen, that’s what the provider is supposed to dispense.

The third provider called and said he didn’t have a single patient in the Cincinnati area and wanted to know if I wanted to subcontract. The fourth provider was from an out-of-state company and said the same thing. When it comes to winning bidders immediately talking about eliminating the barest of essential service and delivery to the home, the program is a train wreck.

RSM: Is the alternative any better? To eliminate the competitive bidding program, the industry has to accept a major reduction across the board in a “pay-for” cut.

Reed: When we delayed Round One, we more than paid for it from our 9.5 percent reduction. There are quotes from CMS officials that say we cost the Medicare program a billion dollars, but we actually paid more than a billion to delay the program.

If to delay it for 18 months is a 9.5 percent reduction, then to kill it forever may be an unsustainable reduction. You can’t create a pay-for based upon projected savings that are unsustainable. So let’s look at this from a responsible perspective. Open up the financial statements of the providers who submitted the bids, look at the fundamental strategic plan and then figure out what the most efficient and economical reduction really is. It will be interesting. A 30-percent reduction across the country as a pay-for will not be sustainable either.

RSM: What about the whole notion of economic freefall, because what Medicare does, private pay does.

Reed: We calculated the numbers on that. Based on a 45-percent Medicare mix, with every dollar reduced by Medicare, another two dollars are taken away by other payers. Practically every other payer is going to reduce the fee schedules off the Medicare rate — Medicare HMOs have to be less than Medicare, Medicaid has to be less than Medicare, and Medicaid HMOs have to be less than Medicaid. If we were going to lose almost $1 million from Medicare, we were going to lose almost $2 million from the other payers.

When the rebid came out in July, it took Ohio’s Medicaid program three days to respond with an e-mail to the industry and our association that said, “Interesting bid prices; we are curious to hear what your comments are.” Ohio Medicaid officials are waiting with baited breath to try to reduce their spending by lowering our fees again.

RSM: How do you stay motivated in this environment?

Reed: First, we know there are many, many patients who use us, like us and depend on us, and they will vocalize about the change in service before they have to switch to another provider or very quickly after they have to switch to a provider who provides significantly different service and care. We have almost 2,000 advocates on our side.

Second, we believe in truth. What we are saying is true and what the public is being told about the benefits of the program is not true. If time is the only thing that will prove that out, then we will find a way to sustain ourselves over time so that we can say, “I told you so.”

RSM: What will happen at PRO2 Cincinnati on Jan. 1, if the program goes into effect?

Reed: The fortunate thing for PRO2 Cincinnati is that we also serve noncompetitive bidding areas in a two-hour circle around the city, so we will find a way to do the best we can with keeping as many good people as we can. We will find a way to continue telling the compelling story against the program. We will find a way to make sure the patients are served.

We can’t sustain three years that way, but we can work through the initial roll-out, if that’s what it takes to prove the terrible construction of this program. It won’t be without harm. There will be job losses. There will be delayed hospital discharges. What we do for the community is good, and we know we do it in an efficient way. We are driven by those goals, but it won’t be easy.

This article originally appeared in the Respiratory & Sleep Management September 2010 issue of HME Business.