Business Solutions

Going, Going GONE?

2011 Funding Forecast

• By David Kopf
• Nov 01, 2010

The HME Business Editorial Advisory Board sheds light on the coming year’s funding environment and what providers must do to retool for future success.

As 2010 winds down, providers find themselves in a sea of uncertainty. Just as H.R. 3790, the bill introduced by Rep. Kendrick Meek (D.-Fla.) that calls for the repeal of competitive bidding, was gaining legislative traction with 257 co-sponsors, disaster strikes. The re-bid of Round One of CMS’s national competitive bidding program for DMEPOS goes into effect with winning bids that result in an average cut of 32 percent.

This means the original pay-for of the Meek bill, based on the original bids of Round One, with an average funding cut of 26 percent, goes out the window and the bill must be re-scored. This leaves the Meek bill momentum stalled out as the re-bid approaches its Jan. 1, 2011 implementation date.

Similarly, the removal of the first-month purchase option is nearing the same implementation date, representing a funding calamity for many mobility providers who would see their cash flow suddenly slow to a monthly trickle, leaving them to somehow account for formidable up-front DME purchase costs.

Of course, massive cash flow fallout has been familiar territory for oxygen providers who have now started supporting patients entering the 37th month and beyond. With the industry’s past attempts at reforming the oxygen benefit in limbo oxygen providers must now consider how NCB could further impact their funding.

And even without NCB to worry about, provider funding is already in upheaval due to the ramping up of Medicare pre- and post-payment audits. The alphabet soup of RAC, CERT and ZPIC audits has not only hammered some providers’ cash flow, but served as a major — and expensive — distraction from the more important business of serving patients and referral partners.

It’s a bleak picture, but there’s hope: just recently 166 experts in economics and particularly bidding models, including a Nobel Prize winner, sent a letter to Rep. Pete Stark (D-Calif.), chairman of the House Subcommittee on Health for the Committee on Ways and Means, stating that CMS’s current competitive bidding program is seriously flawed and must be fixed before it is implemented. Stark then forwarded the letter to CMS Administrator Donald Berwick with a cover letter reiterating the experts’ concerns. (To read more about the letter, turn to “News, Trends& Analysis,” starting page 8).

Since that letter was submitted it has gained a firestorm of Washington and media attention, including that of the New York Times. When that many great minds have that strong a concern, there could be grounds for an administrative delay of implementation of Round One. That is the industry’s current anti-NCB gameplan, and it could be a smart play indeed.

Likewise, because of other previous industry trends and developments, such as CMS accreditation requirements, many providers have implemented a variety of smart documentation and regulatory compliance procedures that have helped shield them from at least part of Medicare’s audit tidal wave.

Also, providers are just plain craftier. After dealing with so many cuts, many providers have implemented a variety of savvy business practices and tools to reduce their overhead and optimize their effectiveness. Providers are more agile and more able to roll with the punches and adapt. No matter what 2011’s funding environment has to offer, HMEs will be able to position themselves for not just survival, but success.

Asking the Experts

To get a better picture of how providers can expect key industry trends and issues will play out in 2011, HME Business sat down with several of its Editorial Advisory Board members to ask them about issues such as competitive bidding, audits, the first-month purchase option and oxygen funding.

All told, we were able to interview 10 of our 14 board members, who shared a variety of insights on subjects ranging from competitive bidding, to the oxygen rental cap, to the first-month purchase option for mobility, cash sales and other pressing topics. The 10 board members that joined the roundtable are:

• Georgie Blackburn, vice president of Government Relations and Legislative Affairs for BLACKBURN’s.
• Dave Cormack, President and CEO of Brightree LLC.
• Kirsten DeLay, senior vice president of Sales Management and Operational Planning for Pride Mobility Products.
• Spencer Kay, president and CEO of Fastrack Healthcare Systems Inc.
• Michael Reinemer, vice president of Communications and Policy for the American Association for Homecare.
• Ron Richard, CEO of SeQual Technologies Inc.
• Tom Ryan, president and CEO of Homecare Concepts Inc.
• Wayne Stanfield, president and CEO of the National Association of Independent Medical Equipment Suppliers
• Peggy Walker, RN, billing & reimbursement advisor for the US Rehab Division of VGM Group.
• Carl Will, senior vice president of North American HomeCare for Invacare Corp.

So, without further ado, let’s see what our board members had to say, starting with the most pressing challenge facing the industry — competitive bidding.

The clock is ticking. Is there enough time to get competitive bidding repealed?

Michael Reinemer: With the lame duck combing back the week of Nov. 15 — and they might come back in December to finish more business — that’s kind of the final window for the 111th Congress. So, even going into next year, we wouldn’t rule out a legislative remedy, either. Obviously the longer Round One is implemented the harder it will be to stop it and try to undo the damage. I’m sure we’ll be pursuing every avenue that has any promise whatsoever.

Carl Will: Rep. Pete Stark, the Chair of the House Ways and Means Committee Health Subcommittee, plans to hold a hearing in mid-November on CMS’ implementation of the bidding program. Much will depend on the information that CMS has yet to release — who the winning bidders are in each of the initial nine MSAs. So the outstanding questions remain: will Congress have the political will to step in and if so, will the industry be willing to pay the price tag for a repeal or delay. Those are both unresolved issues at this point in time.

Georgie Blackburn: My personal feeling is that the Meek Bill is probably in jeopardy simply because of where Mr. Meek stands in the election in Florida.

Wayne Stanfield: There is little opportunity and a small chance that competitive bidding will be stopped before Jan. 1. The delay in CMS releasing contractors is pointing to a problem that we believe they’ve had all along: they can’t get enough contractors to sign in at least some of CBAs. Perhaps the best chance we’ve got is going to be CMS being forced to put an administrative delay in place. CMS is going to find it very difficult to go forward with all of Round One if they have problems in some of the CBAs. Logic says that we’re down to 80 days before this thing goes life. Suppliers have to gear up or gear down. It’s illogical for CMS to delay making an announcement, unless they had a problem.

What’s are the next steps for fighting competitive bidding? As I understand it, the emphasis is on leveraging the letter from 166 experts to get a delay in the implementation of Round One.

Michael Reinemer: The economists’ letter has been a huge shot in the arm, and we’re hoping that helps reinforce the idea that competitive bidding is seriously flawed. So we have the economists and the economists and the disability groups that are opposed to the bidding system, and they all underscore the fact that this is not about the HME sector being concerned about its own business, this is about patients and how you operate a program like this effectively. On both counts the verdict is a thumbs down.

Carl Will: We continue to pound the pavement on Capitol Hill, reinforcing our message that the bidding program is anti-competitive and bad for consumers. Even during the Congressional recess, most staff are still working in D.C. We’ve been educating Hill offices on the recently released statement by 166 leading economists and others who are known experts on competitive bidding. This statement has given us new credibility and new ammunition; many offices in D.C. that had been skeptical are paying close attention. Members of Congress are also waiting for information that CMS has yet to release — the identity of the contractors. That information will be critical for many in Washington to determine whether Congress will intervene with Round One prior to its Jan. 1, 2011 implementation.

Georgie Blackburn: We’re based in the Pittsburgh CBA, and we’ve have to do bids twice now, I think we’re more electrified by the House Ways and Means Health Committee subcommittee meeting. Now we have credible people — these 166 experts that have written Chairman Stark — and I think these points coming from the experts, rather than the industry, makes a difference. I can’t imagine being in the driver’s seat like Mr. Berwick is and not paying attention to what a Nobel Laureate might have to say about a program CMS developed on its own without the input of any of these people. That letter is the best piece of news I’ve seen in three years. What’s your sense of Congress’s take on competitive bidding? Do they have any sense of its true impact on patients and providers, or are they buying CMS’s anti-fraud argument?

Carl Will: There’s a real mix. Some members of Congress have clearly benefited from the extensive grassroots efforts that have occurred over the last several years and are seriously concerned about the impact of the program in their districts. What everyone needs to understand is that in the absence of us educating members and their staff, all the Hill offices hear are the constant communications from CMS that the bidding program will save money, ensure quality and prevent fraud — a pretty convincing message, particularly when the only data being released is a 32 percent average payment reduction.

Tom Ryan: I think the experts’ letter certainly raised eyebrows in Ways and Means. The Ways and Means hearing was put on hold until we could get an answer from CMS on the letter. And in Energy and Commerce, a hearing that we thought was going to be a little more negative for the industry wasn’t so terrible. There are a lot of people asking a lot of questions.

Kirsten DeLay: I think the industry has done a good job of showing how competitive bidding will impact quality of care and limit patients’ access to care significantly. I do feel like Congress is getting it and they are understanding what the downfalls will be. The reason that the letter is so encouraging is that this is from people who are experts in the areas of competitive bidding and auction pricing, and to have them weigh in on something that’s very personal to us in this industry and also agree that competitive bidding is not going to accomplish what it wants to accomplish is very, very encouraging.

The elimination of the first-month purchase option is on an equally tight timetable. Can we fight for a delay? How?

Kirsten Delay: We are definitely very focused on continuing to fight for a oneyear delay and feel like there’s a lot of support for it, and garnering support is a bit easier since it’s budget-neutral. The trick is getting the legislative language written and attached to a piece of must-pass legislation prior to the Jan. 1 implementation date.

Michael Reinemer: One of the questions is what will be possible during the lame duck and will the Congressional leadership allow the healthcare bill to be opened up and tweaked at this point? I’m sure that will happen next year, but in a short lame duck where they have to address some spending issues quickly, will they allow some other issues to be opened up? They wouldn’t necessarily want the kind of “Christmas tree” effect where people start attaching all kinds of provisions to legislation, but our hope is that we would have that opportunity.

Kirsten Delay: The one piece of legislation on the must-pass list would be the currently scheduled delay on the 20 percent-plus payment reduction for physicians that would be effective Dec. 1. That would be a likely vehicle to try and get the firstmonth purchase option delay included with that piece of legislation.

If the first-month purchase option is eliminated, that represents a huge portion of provider cashflow. How can power mobility HMEs survive this?

Carl Will: Our position is to support the industry and to try and reestablish the first month purchase option and if that doesn’t happen we’re going to work with providers to enable them to get through this first 13-month cycle. If you can get through the first 13 months, then life gets a lot more normal. We don’t think it’s a higher percentage of individuals that will move to nursing homes by the 13th month, so you can get a lot of that reimbursement that you had before, but it takes a lot of cash. Where you were buying a chair and recouping it quickly, now you’re buying a chair and recouping it slowly. After one cycle it’s much closer to normal, though.

Tom Ryan: The cap has been significant. We’re seeing on average $25,000 a month of revenue that would have happened if those patients weren’t in the 37th through 60th month. Unfortunately, I think that with the economic crisis we’re in and the budget climate we’re in, I don’t see a good opportunity for us to get the rental cap repealed. My concern is that we hold at the 36 months or will there be continuing pressures to decrease that cap. In the proposed physicians rule they want to have us responsible for these patients at the 18th month, which is a number that’s been bantered back and forth in previous legislation. I’m not used to it, but it might be a reality of life.

Ron Richard: I think for years people have taken a more reactive approach to reimbursement cuts or pricing pressures and I think it’s pretty evident that you have to take a more offensive and proactive approach if you’re going to continue to provide oxygen. The providers that remain in oxygen are going to be the ones that offer multiple solutions. Providers are going to focus on low- or no-delivery. The shift is going to be improving efficiencies and changing over to emphasizing the value we offer as homecare providers is our services. The service to the patient is still paramount to why providers are so important to the overall healthcare structure. If people start going back to hospitals instead of homecare, costs are going to skyrocket.

Carl Will: One of the trickier parts about the nondelivery model is that you’re buying capital equipment, so time can either be your friend or your enemy. If you plan ahead you can buy capital equipment and integrate it into your model ahead of massive change, and that allows you to space out your spending and have a more gradual curve to your change, which is easier to digest. We’re encouraging individuals, especially in Round Two areas, to take the winning bid rates from Round One, drop them into your existing volume, and see what your financials look like and then plan for a future in which you can make money at those levels.

Ron Richard: The FDA regulates oxygen as a drug, and limiting or putting a cap on a medication is wrong. We make devices that dispense a drug. For CMS to put a cap on the equipment what does that mean? If the equipment doesn’t work right and it’s not maintained, patients aren’t expected to maintain their equipment and the manufacturers don’t build equipment to let them do that. I think that CMS is forcing an issue that could be really dangerous for patients.

Dave Cormack: If you take a look at reimbursement, it’s going to be what’s it’s going to be. If you look at the manufacturers, they don’t have any room to seriously drop prices because of quality issues. So where does that leave you? It leaves you with how you run your operations as a provider. This is 100 percent going to come down to efficiency of providers. The smart providers that we see have figured out that they can take significant cost out of their business through efficiencies and workflow, and through embracing value-added outsource services, such as billing services. Ninety-eight percent of the providers I meet don’t have the data they need to forecast reimbursement cuts or product profitability. Those that do it are spending weekends putting spreadsheets together when they should be focusing on their business.

What about the oxygen reform package? The legislative language was created, and it was attached to legislation, but sadly that legislation didn’t go anywhere. What are the next steps in the 02 reform fight?

Tom Ryan: The oxygen bill you had out there was the old Price Bill, and that went back to making us whole without a pay-for. It didn’t get a lot of support, and unfortunately in a pay-go Congress you have to have something to offset that, so overall reforming the oxygen benefit was something the industry took a stab at, but we could never get consensus in the industry. We’ll continue to argue what this has done to providers, and if we can put a bill across to repeal the cap that would be fine. What I don’t want to do is take that 36-month payment up front and take the same dollars form a budget-neutral standpoint and pay us continually. I’d rather frontload my payment during that first 36 months. To take the payment for that 36 months and make it last five years is not a win for the industry.

Carl Will: From a D.C. perspective, oxygen is always a hot topic on Capitol Hill. That’s simply because there continues to be the perception that Medicare pays too much. We are expecting the General Accountability Office to soon issue a report comparing what Medicare pays for oxygen therapy to what other third party payors pay. That report could set the groundwork for some activity on Capitol Hill next year. At the same time, that could give the industry an opportunity to pursue oxygen reform, if that were the consensus.

Michael Reinemer: From our perspective, this would be something we would have our RT advisory council and other people who drive policy in the association look at. It’s been a lower profile issue, because the competitive bidding issue is such an enormous threat that has sucked up a lot of oxygen in the debate. We’ll have to see what comes up through our committees and what the lay of the land is once we get to 2011, see what has happened with competitive bidding and see what the possibilities are.

How important do you see retail sales becoming for providers in 2011?

Spencer Kay: For many providers it could be extremely important in replacing the loss they’ll see in Medicare revenue. It’s another avenue that is growing and provides a lot of opportunities. But, retail is not for everyone. It takes a very different mentality than running a traditional HME business. You need to be doing things that are a little different, including advertising and merchandising, and knowing how to set up the store itself and how to promote the products within the store.

Kirsten DeLay: The name of the game should be to diversify. In terms of the changes coming from Medicare, the more you can diversify the stronger and more financially healthy you can make your business to survive challenges such as competitive bidding or the elimination of the first-month purchase option. The Baby Boom’s continued growth continues to be a plus. The first wave of Baby Boomers turned 62 in 2008 and that was at a rate of 365 individuals an hour. Twenty-seven percent of this nation’s population are Baby Boomers. Their lifestyles are active and they’re all living much longer. The need for DME products will continue to grow, and the retail outlet will offer them many more options than they would have if they only went the reimbursement route.

Wayne Stanfield: This industry is going to have to change if it is going to survive. For the better part of 40 years we have built an industry based on thirdparty reimbursement, and taking care of people who are sick. Now, in this new generation, we have got to start serving well people and dealing with wellness and prevention, and make money that way, rather than on sick people. … Where many businesses are 80 percent Medicare, they’re going to be 60 percent retail and 20 percent Medicare. Competitive bidding is a part of a long-term strategy that will change this industry dramatically. Those suppliers that see the need to move in another direction are going to be around to make money and enjoy a good business life.

CEDI announced the shutdown of free, direct connections and that providers would have to pay to file claims with their choice of six contractors. Do you see this being a big issue in 2011.

Spencer Kay: Yes and no … There might be situations, depending on their [software] vendor. Either they’ll have to pay their software vendor or pay for their ability to bill direct themselves. Most of those companies that are providing this capability are charging monthly fees. So there is another cost here, which is the last thing this industry needs. But there are some benefits as well. Instead of using the traditional dial-up modems that most providers are still using to connect to Medicare they will be able to use their Internet connection so transactions will be faster and have fewer problems.

Dave Cormack: It’s estimated that 75 percent of providers are using the free dial-up connection to Medicare. For one, they need to be doing this through a certified partner by April 1, or they won’t be able to file claims. It comes down to whether or not the software the provider works with is going to absorb the cost or pass the cost on to the provider.

Medicare audits were the sour surprise of 2010. How will RAC, ZPIC and CERT audits play out in 2011? Will providers be more prepared?

Peggy Walker: Number one, CMS is getting a lot of money back, so the audits are going to continue. It’s not going to stop. But what I’m seeing with the audits, the ones that are ZPIC, is that they pull so many charts; and you’re trying to get the information for those charts; and then they review 30 or 40 of them; and send them to the local carrier and ask for money back; and then you’re trying to get the paperwork back to go to redetermination. So it’s very confusing process. And it’s something that we’ve never had to deal is before. We’ve never had to deal with this volume of charts. It’s a lot of money … and it snowballs to the point where you just can’t do it.

Tom Ryan: I think the audit situation is one of the biggest challenges this industry has. It could be right up there with competitive bidding. CMS is looking change the way we care for our patients; they are questioning the LCD to the utmost. What it’s done to me as a company is it has put me on the “not easy to do business with” list, but I have no choice. We now have a whole process in place where the CSR turns the claim over to the documentation department to get the clinical documentation up front.

Georgie Blackburn: You need to have a strong corporate compliance program to have an insurance policy. We’ve always approached it as a way to protect your business. But the government has a new revenue stream with the audits, and that’s how I really see this, their new way of gaining revenue. So if you’ve had a compliance plan in the works and made it a living, breathing entity, you shouldn’t have to worry too much. If you had a program that sat on the shelf, then that’s a big concern. In 95 percent of the cases we have the medical records up-front and we make sure cross our T’s and dot our I’s before we hand off the product or bill the government. We don’t want to bank money and then have it take from us.

Peggy Walker: What we have to do today to prevent claims from this point on getting an audit, we need to learn from the audits that are happening now. Providers need to audit their claims before they get caught. Also, get an outside auditor to come in an audit your claims.

Tom Ryan: On the couple pre-pay audits I’ve had we went fl ying through because we had the data, but it’s caused my Medicare hold report to grow by 25 percent over nine months. That’s significant. That’s revenue that’s not in my pocket. Auditors expect data up front and in a short time period, so my experience has been to get the documentation up-front and if we all do the same thing and request it the referral community will understand we need it and respond. Be prepared.

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