Provider Strategy

Analyzing HME's Future

What's in store for the HME market from 2017 and beyond.

• By Collin Brecher
• Sep 01, 2017

At the end of 2016, with passage of the 21st Century Cures Act, durable medical equipment (DME) suppliers outside of competitive bidding areas would receive an adjustment for claims between July and December of 2016. After what many would consider a lengthy delay, suppliers are now beginning to report that repayments are beginning to roll in. The problem with the implementation is the DME MACs have been given 24 weeks to complete this process, which would conclude in November 2017.

The announcement of the lengthy delay for complete implementation comes on the heels of the quarterly update to the Medicare Supplier Directory produced by the Centers for Medicare and Medicaid Services (CMS). Once you filter down to “real” suppliers, meaning those who provide an array of common DME items for use in the home, the data reveals a 40.1 percent decrease in the number of DME locations nationwide since 2013.

That figure speaks to the continued instability of the competitive bidding program, especially since the nationwide expansion of bidding-derived rates at the beginning of 2016. While industry stakeholders and grassroots suppliers continue to advocate for desperately needed reforms to stabilize the market, suppliers must plan for what the future might look like.

Remember, earlier this year CMS delayed the rollout of Round 2019 of the competitive bidding program. The original announcement (at the time this article was written) remains removed from the website. CMS laid out several things including the consolidation of the separate bidding rounds, new CPAP specific competitive bidding areas (CBAs), CPAP bundling test markets, lead item bidding, and bid bonds.

Stakeholders anxiously awaited the end stage renal disease regulation update at the beginning of July, but upon arrival, there were no substantial DME-related changes. This tells suppliers that significant changes could be on the horizon. Prior to publication of this article, CMS had not yet released any relevant information regarding the future of the program.

Back to the question that runs through the minds of owners and managers every day: “What will the market look like for my business?” The DME market is looking up for suppliers despite the steady drop in the overall number over the past four years. Due to the pressure from industry stakeholders and feedback directly from grassroots providers, CMS has already implemented key reforms to competitive bidding to assist in pushing prices ups.

The competitive bidding ceiling raised sustainably back to 2015 levels

CMS finally acknowledged the flawed practice of the bid ceiling being lowered after each round. Under the previous statue, the bid limits would be pushed down every round, eventually reaching zero. CMS will now use the unadjusted fee schedule amounts for future rounds of competitive bidding. For example, instead of an oxygen concentrator (E1390) being bid around $85, the bid will begin around $180.

Surety bond requirements reducing bad actors and out-of-state bidders

CMS will require a surety bond for each CBA in which a supplier is going to be bidding. This bond would be set at $50,000 for each CBA, which is intended to prevent suppliers from submitting unrealistically low bids that drive down prices in order to improve the chances of that supplier being offered a contract. In theory, this will reduce the number of bidders to those businesses that have the resources and ability to provide care to the CBA. This is compounded with the increased efforts to establish state licensure with a point-of-service requirement for suppliers wishing to care for patients in other states. This licensure protects beneficiaries from suppliers hundreds of miles away from a patient that has a contract to provide that care.

Supplier reductions mean there are fewer players in the marketplace

While a 40 percent reduction in suppliers is not likely to produce optimal outcomes for patients and reduces patient choice, especially in rural America, it also means that there is less competition for suppliers. While the bad actors, arguably, have been pushed out of the market, the industry has also seen business in the market for decades close their doors. This translates to fewer businesses looking for the piece of the pie, a pie that is getting bigger by the day.

Hordes of Baby Boomers are retiring by the thousands

From 2012 to 2017, Medicare enrollment has continued to grow substantially, from 50.8 million to nearly 57.1 million beneficiaries. That is a big pie. With this increasing population of Americans over 65, the demand for DME is growing rapidly. Even with competitive bidding rates, U.S. DMEPOS spending has grown rapidly! Flipping back to your economics book in college, this tells suppliers that an increase in demand puts upward pressure on prices.

Things are changing on Capitol Hill and in Baltimore

In the past few years, the reputation of DME within health care has improved. Previously, the entire DME industry was labeled largely as a bunch crooks taking advantage of an elderly population. Now, due to the constant effort of grassroots suppliers meeting with their members of Congress and testifying before government agencies, the industry has a much more prominent role when it comes to advocating for reforms. With the confirmation of Health and Human Services Secretary Tom Price, HME providers now have a strong, longtime advocate to convey the important role that DME plays within the health care system. Bipartisan congressional efforts with broad support have put a focus on independent suppliers who provide patients a high degree of independence and keep health care costs down in other areas.

All of these wheels are moving at the same time to improve the market for DME suppliers. Will the worries of suppliers disappear overnight? Certainly not. As with any business environment within the 21st century, times are rapidly changing, and suppliers must be willing to evaluate and improve their business models. What it will do, along with continued advocacy and reform, is provide a stable market where providers are able to maintain a high standard of care without having to shake the piggy bank every month to keep the lights on and doors open.

This article originally appeared in the September 2017 issue of HME Business.