Regulatory Update

The home care industry is working to build upon the significant gains made last year when the Medicare Medicaid and SCHIP Balanced Budget Refinement Act of 1999 (BBRA) was signed into law. The BBRA represents the restoration of approximately $100 million in reimbursement for home medical equipment (HME) services that had been cut under the Balanced Budget Act of 1997 (BBA).

The BBRA also repealed home health consolidated billing for durable medical equipment (DME), and forced the Health Care Financing Administration (HCFA) to delay its inherent reasonableness (IR) reductions. Home health providers also made gains under the BBRA including the delay of the 15 percent cut in Medicare payments and additional payments for the administration of the Outcomes and Assessment Information Set (OASIS) questionnaire.

The national home care associations and their grassroots networks worked hard to achieve these gains. Without the hard work and persistence of individual home-care providers across the country, the BBRA success would not have been possible.

For the last few years, many American Association for Homecare (AAHomecare) members have taken the time to sit down with their representatives to explain in careful detail the negative impact that the BBA had on their businesses, their patients and their communities. These one-on-one conversations have consistently proven to be the most powerful tool for effecting change in Washington.

This year, Congress has again placed a high priority on major health care legislative proposals. The challenge is ensuring their passage during a tumultuous election year. At press time, proposals under consideration include managed care reform, a Medicare prescription drug benefit and a Medicare "restoration" package for health care providers. The strong economy (and the lower-than expected Medicare outlays) made it possible for Congress to engage in the politics of surplus. Members of Congress were able to simultaneously seriously consider tax relief, the prescription drug benefit and the Medicare "restoration" package.

BBA Relief

President Bill Clinton was able to shape the Medicare giveback debate by announcing his own Medicare "restoration" package well before any of the congressional committees had begun work on their own proposals. In February, the President called for the restoration of $20 billion in Medicare funding over five years ($40 billion over 10 years). This proposal included $2 billion over five years ($3 billion over 10 years) in increased reimbursements to home health providers. The President supported a one-year delay in the scheduled 15 percent reduction in home health payments, to October 1, 2002, and would have increased home health payment rates in fiscal year 2001 at the full market basket rate.

The plan also promoted competitive bidding for medical equipment services. AAHomecare could not support the President's proposal because it did not go far enough to save the Medicare home health benefit and would further deny beneficiary choice of provider with the inclusion of a national competitive bidding proposal.

Throughout the spring and summer, AAHomecare, the state associations and individual providers worked to educate Congress and the Administration on the top legislative goals facing the industry. In late summer, key congressional committees finalized worked on their own packages to restore Medicare funds taken by the BBA. In addition to supporting full elimination of the scheduled 15 percent payment reduction, AAHomecare supported the full restoration of the Consumer Price Index (CPI) for durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) services. The Association also remained steadfast in its opposition to HCFA's risky competitive bidding project that eliminates Medicare beneficiaries' ability to choose their own provider and erodes access to high quality health care services.

As of press time, none of these BBA restoration packages had come to fruition. However, the Senate Democrats had raised the stakes by proposing an $80 billion (over ten years) give-back package that was said to include the complete elimination of the 15 percent cut and the CPI increase for DMEPOS. The House Committees and the Senate Republicans had indicated that they might not be as generous in their proposals.

AAHomecare members were again busy meeting with their members of Congress and state associations were hard at work coordinating lobbying efforts. AAHomecare expects that the hard work of our members will once again promote policies that support a vital homecare benefit.

The following highlights AAHomecare's positions on the key issues facing the homecare industry.

Full Restoration of the Consumer Price Index

The regulatory changes and reimbursement reductions mandated by the BBA destabilized HME providers. It is important for companies in the HME industry to remain viable because they provide a vital, cost-effective component to the delivery of health care to Medicare beneficiaries. The BBA lowered the reimbursement for home oxygen equipment and services by 30 percent and eliminated the CPI adjustment for home medical equipment for five years. These cuts have resulted in lost jobs and failing businesses throughout the industry, an impact that exceeds anything Congress anticipated. While Congress in the 1999 Balanced Budget Refinement Act provided some cost of living adjustment (COLA) relief, the amount is limited compared to the magnitude of the total cuts that industry companies have had to absorb. Therefore, the HME industry has asked Congress to restore the COLA for fiscal years 2001 and 2002.

The cuts contained in the BBA have shaken the foundation of HME industry companies. PriceWaterhouseCoopers (PWC) released some startling findings in an update of a 1999 survey of nine publicly held companies that provide home medical equipment and services. PWC observes that the nine companies were earning a positive net income in 1996, but two-thirds of them were losing money, bankrupt or out of existence three years later. This occurred during a period in which U.S. corporate profits rose by 18 percent.

Elimination of the 15 Percent Payment Cut for Home Health

AAHomecare maintains that Congress should restore Medicare beneficiaries' access to home health services by eliminating the additional 15 percent payment cut scheduled to be implemented on October 1, 2001. Home health reimbursements have already been reduced by much larger amounts than originally forecasted, and the most frail elderly are experiencing problems with access to home health care. The additional 15 percent reduction will only exacerbate these problems. For instance:

  • The BBA was originally scored to reduce spending for the home health benefit by approximately $16.1 billion over five years. However, the actual impact of the BBA was much more dramatic. In March, the Congressional Budget Office revised its estimate to a reduction of more than $70 billion over five years, more than four times the original estimate.
  • A two-part study by George Washington University's Center for Health Services Research & Policy has provided significant evidence of access problems to home health services for the sickest, most frail Medicare beneficiaries.
  • Recent legislative changes hold promises of being helpful in alleviating further problems of access to the Medicare home health benefit; however, that promise will not be fulfilled if the additional 15 percent reduction now scheduled for October 1, 2001, goes into effect.

Competitive Bidding Should Be Carefully Examined

AAHomecare urges Congress to carefully examine the results of the current HME competitive bidding demonstration project before expanding competitive bidding to new areas. The demonstration has the potential to eliminate market competition, harm beneficiary access to quality medical services, and cause irreparable damage to small businesses. Such a radical change in the Medicare benefit should not be expanded without careful examination.

Although the term "competitive bidding" may sound attractive, the demonstration actually eliminates the free market competition that encourages the provision of high quality medical services to Medicare beneficiaries. The demonstration design greatly reduces the number of HME providers who can serve beneficiaries with specific needs and eclipses the key component of free market competition - consumer choice. Medicare's winning bidders, therefore, are not subject to the market forces of consumerism.

In order to implement the competitive bidding demonstration, HCFA waived the section of the Social Security Act (42 USC Sec.1395a) that guarantees patients' ability to choose their own health care provider. The beneficiaries in this demonstration have therefore lost the most important means of controlling health care quality - the ability to use the provider of their choice. Importantly, these beneficiaries have not been given the choice to "opt out" of the demonstration. If a beneficiary is dissatisfied with the services provided by the "winning" bidders, that beneficiary has very limited alternatives.

Competitive bidding is inappropriate for HME because the health services that accompany medical equipment are as important to beneficiaries as the products themselves. Home oxygen equipment cannot be drop-shipped to patients - therapeutic support services are crucial to positive health outcomes. History shows that once an artificially low bid is awarded and the contract holder faces budget pressures, the first thing the provider eliminates are these: preventative maintenance, patient education, 24-hour on call service, the professional care of respiratory therapists, and the furnishing of supplies. Once these services are withheld, the beneficiary is much more likely to experience health problems. Unfortunately, HCFA has failed to incorporate any real quality control measures into the demonstration design.

The average HME provider is a small "Mom and Pop" operation with fewer than 20 employees and less than $3 million in annual revenue. As a direct result of the demonstration project, many small businesses operating in Polk County have lost the ability to serve Medicare beneficiaries who require specific services. For the average HME provider, this demonstration project has amounted to a loss of approximately 27 percent of annual revenue. Few businesses will be able to withstand this loss, and many HME providers will be forced to close their doors.

The American Association for Homecare was formed from the merger of three national associations - the Health Industry Distributors Association's Home Care Division (HIDA Home Care), the Home Health Services & Staffing Association (HHSSA), and the National Association for Medical Equipment Services (NAMES). Membership in the organization currently exceeds 1,000 providers in more than 3,000 locations and includes home medical equipment, respiratory service, rehab mobility, home health and home infusion therapy providers. For more information, please call (703) 836-6263 or visit the association's Web site at

This article originally appeared in the October 2000 issue of HME Business.

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