Reimbursement Update: A Recipe for Extraordinary Change

When President Bush signed HR 1, The Medicare Prescription Drug, Improvement and Modernization Act of 2003, Dec. 8 of last year, our industry collectively cringed. This Act, which narrowly passed the Senate 55-44 and the House 220-215 (only after some last minute arm twisting) has sweeping effects on the HME industry. While many members (turns out a majority) of the House and Senate opposed many of the HME changes contained in HR 1, they were very much in favor of the Medicare Prescription Drug benefit that also was attached to the Bill.

The Bill, now law, has both short and long term implications to the HME industry most of which hit us right where many companies are already hurting, in our wallets. It contains everything from allowable freezes and cuts, to mandatory accreditation and competitive bidding. Let's examine some of the major components of HR 1's impact on the HME industry:

1. Medicare allowable freezes Per HR 1, all HME allowables are now frozen until 2008. This means there will be absolutely no increase in reimbursement levels on all items in all categories during this time period. This would be fine if manufacturers froze their prices and the cost of doing business (labor, rent, insurance and transportation) would magically not increase during this period. Let's be frank, these costs will do nothing but increase which will squeeze our margins even further.

2. Reductions in certain fee schedules HR 1 also provides for reductions in 2005 for some of these now frozen fee schedule items. The bill outlines a plan to lower the reimbursement on many items to coincide with the reimbursement levels of Federal Employee Health Benefit programs. These cuts range from an approximate 3.28 percent cut to K11 wheelchairs to a whopping 22.27 percent cut for nebulizers. Hospital beds stand to be cut 20.34 percent.

3. Mandatory Accreditation HR 1 contains a provision which will require all entities that provide and bill HME to Medicare to be accredited. While, at the time of the writing of this article, the specific accrediting bodies that will be authorized to provide such accreditation have not specifically been named, you can feel reasonably sure that JCAHO, CHAP and ACHC will be included on the short list. I believe, along with many other people in the industry, that this is a welcome change. Although it will be a costly exercise for the average HME provider, it will help ensure that fiascos such as Operation Wheeler Dealer do not spring up again and cause catastrophic knee-jerk reactions by Center for Medicare and Medicaid Services (CMS).

4. Competitive Bidding (Phase 1) Competitive Bidding (the effects of which are currently being felt by our brothers and sisters in Polk County, Fla. and San Antonio, Texas) is part of HR 1 and will be rolling out into your backyard if your company location happens to be in any of the 10 largest Statistical Market Area (SMAs) in the country in 2007. SMAs are determined by the National Census Bureau and are based solely on the population of a given city and surrounding areas. The 10 largest SMAs in the United States are: Los Angeles/Long Beach, New York, Chicago, Philadelphia, Washington (including DC, MD, VA and WV), Detroit, Houston, Atlanta, Dallas and Boston. In these markets, with a yet to be determined mix of product categories (expect at least oxygen, hospital beds and wheelchairs), all providers will be required to submit sealed bids for products in the chosen categories and will be prohibited from doing business with Medicare beneficiaries in those categories if they are not a winning bidder based on their bid and the number of allowed winners in each product category. Small providers beware, HR 1 contains verbiage which states that consideration will be given to smaller providers based on bids and their ability to service a given area but has absolutely no guarantee of slots in the winning bidder list for smaller HME providers. Translation as currently written, the small provider will be competing directly with the large regional and national providers with no discernable provision for their size.


Small providers beware, HR 1 contains verbiage which states that consideration will be given to smaller providers based on bids and their ability to service a given area but has absolutely no guarantee of slots in the winning bidder list for smaller HME providers.

5. Competitive Bidding (Phase 2) Phase 2 of Competitive Bidding expands the playing field to the top 80 SMAs in 2009. If your company is interested to find out what SMA you fall under, visit the following Web site:

This site will let you know where you stand in this second phase of competitive bidding. By the way, if you do not find your city in the top 80 don't worry, there is wording in HR 1 that specifies that the Secretary of Health and Human Services has the authority to include "additional areas" if he or she desires. This is equivalent to having "other duties as assigned," in your job description. So, just because your company is located in a rural area does not exclude the possibility of being subjected to competitive bidding.

6. HR 1 also includes legislation related to the aforementioned Operation Wheeler Dealer and the provision of power mobility (power wheelchairs and scooters). Due to the actions of an unscrupulous few in Harris County, Texas, HR 1 mandates that power mobility patients have a face-to-face examination with their ordering physician (not too much to ask if you're an above board provider of power mobility) but also calls for the strict enforcement of the non-ambulatory qualification the patient must meet. This provision allows the patient to have the ability to weight bear for transfer in and out of the power chair or scooter but prohibits them from being able to take any steps, both with and without the use of an ambulatory aid such as a person, cane or walker. When made part of Medicare regulation, power mobility providers must be able to answer (and be backed up by documentation) two additional questions to qualify a patient: How many steps can a patient take without the use of an ambulatory aid and how many steps with one?

If the answer to these two questions is anything but zero, the patient will not qualify. This provision of HR 1 will deny power mobility benefits to many Medicare beneficiaries who, other than being able to take one or two steps (before falling and possibly causing even more serious injuries), need these devices to be mobile and perform Activities of Daily Living (ADLs).

HR 1 does throw the HME industry a few small bones. It allows for longer periods to pay back overpayments (at least six months and up to five years if extreme financial hardship can be proven) and eliminates the horrific effects of extrapolation. Extrapolation has allowed the DMERCs to request overpayments on the same percentage of claims from the entire population of paid claims during a specified time period based solely on the percentage of under-documented claims from a sample of claims taken from the same time period found in an audit. HR 1 also prevents the DMERCs from using extrapolation unless there is a sustained or high level of payment error.

You might be wondering where all of the money saved from these cuts to the HME industry will be going. Many of these dollars are staying right within HR1 in the form of a Medicare Prescription Drug Benefit. While most Americans would agree that seniors should not have to chose between paying for their medications and buying food, HR 1 hits an already struggling HME industry hard.

The good news is that there is movement afoot to never let many of the HR 1 provisions see the light of day through the efforts of State and National Associations such as the American Association for Homecare, lobbying groups, manufacturers such as Pride and Invacare, buying groups (such as VGM) and a strengthening grassroots campaign. The future of our industry lies within the efforts of these entities and the efforts of the provider community. These groups have been screaming for help over the past several years to prevent this situation from occurring but now that it is a reality, we need to band together once again, in greater numbers and strength, to save our livelihood. Don't let apathy cause your HME operation to suffer needlessly. Get involved, this will be our last chance.

This article originally appeared in the March 2004 issue of HME Business.

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