2011 Big Ten

Power Mobility

With the removal of the first-month purchase option, mobility providers must redefine their business models.

• By David Kopf
• Jan 01, 2011

A critical trend facing many HME providers can be summed up in one word: rental. Nothing will define the power mobility segment more this year than the elimination 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 2010’s healthcare reform legislation, of which it was a provision, and went into effect Jan. 1 of this year.

Prior to the elimination, a patient a patient with a permanent mobility condition could opt to purchase a power mobility device. Now that is not the case, the provider must rent that device to patient over a 13-month rental period and bill Medicare in monthly installments over that time. Given that most power mobility patients have lifelong conditions, the elimination completely throws mobility providers’ business models and cash flow into disarray.

The industry tried to fight the elimination of the purchase option and the ensuing forced rental during the second half of 2010. The plan was to partner with champions in the Senate and House to create the necessary legislative language to save the first-month purchase option, and attach that legislative language to a doc fix or other must-pass piece of legislation later in the year. As the legislative landscape for the second half of 2010 came into focus, the 20 percent-plus payment reduction for physicians was shaping up to be that piece of legislation.

Unfortunately, that didn’t play out as hoped, thanks to the mid-term elections and the resulting lame duck session of congress. With not much time left in the year, and a Congress fixated on addressing some high-priority budget issues, attaching language from the tiny DMEPOS segment of Medicare’s budget to a larger item wasn’t going to be at the top of a lawmakers’ lists. Moreover the increasingly contentious and partisan nature of the newly formed Congress almost sealed that fate.

Playing the New Game

Now, as we step into 2011, standard power mobility providers are faced with having to reshape their businesses to sustain a dramatic change to their cash fl ow. For starters, the key will be to somehow get through their first 13-month cycle. If they can survive that, they can start to reach for some “equanimity” from an accounting perspective.

However, surviving that 13 months requires getting over a massive capital expenditure “hump” for the purchase of the DME, and that will most likely require financing (see “Financial Services,” page 30). Providers will need to pay up front and recoup slowly, and they will need to work with their vendors and commercial lenders to secure the financing.

But financing is only one part of the equation. Providers will also need to drive associated overhead out of their rental businesses. They will need to seek out power mobility products that are not only cheap, but rock-solid reliable. The last thing any business that rents equipment needs is to have to continually repair that equipment. So providers will need to very regularly and meticulously review the equipment and vendors with which they are working to ensure they pencil out.

Besides the chairs, providers will need to drive every other unnecessary cost out of their business in order to maximize margins. Also, they will need to build new efficiencies into their new rental businesses. Now, they will need to create new inventory management procedures that support a rental business model. They will need to create processes for ensuring previously rented equipment is ship-shape for the next patient. They will need to create new billing and accounting procedures to support the rental business. In short, power mobility providers have a whole new — and rather steep — learning curve sitting smack dab in their path to profitability.

Not the Only Obstacle

Moreover, many power mobility providers have another issue they must tackle in 2011: competitive bidding (see “Competitive Bidding,” page 18). The Round One re-bid went into effect Jan. 1 of this year and providers of standard power mobility (complex rehab was carved out) in the affected CBAs must contend with the fallout.

Smart mobility providers will be watching how this plays out as CMS will be shaping up Round Two toward the Spring, and given that the 2010 healthcare reforms expand Round Two into 21 CBAs, many more mobility providers will have to contend with this deeply flawed program.

The smartest thing these providers can do is to start studying their current business and financial models and see how they compare to the business models of those providers that were awarded contracts in Round One’s CBAs to see if they can indeed survive similar reimbursement cuts. If not, they at least now have an idea of what they must content with and start shaping strategies for how they might survive.

That is, if the industry can’t stop competitive bidding. Obviously the industry will keep fighting both to stop competitive bidding, as well as to reinstate the first month purchase option and end the mandatory rental of standard power mobility. For the short-term, the name of the game is survival, while trying to fight for a saner funding future.

This article originally appeared in the January 2011 issue of HME Business.