Business Solutions

Solving the Power Mobility Puzzle

After 10 months of having their funding turned upside down, power mobility providers continue to retool and redefine their businesses.

power mobility market problemsIn an industry being redefined by cuts and caps, the power mobility market is perhaps the current poster child for HME transition and scrutiny. Removal of the first-month purchase option, Round 2 of competitive bidding and a recent HHS OIG report that reads like a bad school report card are the most recent obstacles testing the resolve of power mobility providers.

“The market is in a state of transition,” says Tim Pederson, director of National Rehab and O&P Networks for The MED Group,. “Medical policy remains unclear as documentation and audits continue to run rampant, resulting in many instances of providers paying penalties or having future payments suspended.

“With the current challenges, I expect the market to shrink as the federal and state payers increase scrutiny of provider documentation and patient medical necessity,” he continues. “Larger organizations are growing their businesses, while many small providers are finding it difficult to navigate the obstacles to success.”

Greg Packer, vice president of U.S. Rehab, points to a power mobility market sea change that began with the CPI freeze in 2004. From there, the market saw a 3.3-percent reduction in 2005, a 27-percent reduction in 2006 and then the 9.5-percent reduction after Round 1 of competitive bidding stalled. Packer says that the standard power chair market has received more than a 40 percent reduction in reimbursement on what is now called group 2 standard power.

“The power chair market has dipped in the past two years because of continued pressure on reimbursement and paperwork requirements,” Packer says. “The future is reduced numbers of providers who provide this type of equipment and more rationing of the products that individuals need to perform daily living tasks.

“Standard power chairs are not a product that you put out and never see the patient again,” he explains. “There is a service element to this type of equipment, because the useful life is longer than 12 months and issues are predominantly electrical. Patients need immediate repairs and maintenance.”

This requires skilled repair technicians who understand power mobility equipment and its functionality, Packer notes.

“With the 13-month rental option being CMS’s method of choice now, the provider needs to make sure the equipment is in working order,” he says. “Each patient has different needs and different uses, so wear and tear on the equipment is all over the board. The cost to continue to repair and maintain the equipment is assumed by the provider, which reduces the profit margin on the equipment even more.”

To measure the state of the power mobility market and perhaps even help see into its future, HME Business magazine took an in-depth look at the removal of the first-month purchase option, Round 2 of competitive bidding and the recent HHS OIG report. We found that one thing is abundantly clear: the only constant to this embattled industry is change — and lots of it.

Removal of the first-month purchase option

On Jan. 1, the power mobility market welcomed the new year, but not the drastic change that came with it: The first-month purchase option for standard power mobility devices was gone, meaning that providers no longer received full compensation for the device at the outset of the claim. Instead, payments now trickle in while providers endure patient costs.

“The elimination of the first month purchase option was a significant change for the industry and there was little time for providers to adjust their business model in time to adapt by the January 1 implementation date,” says Julie Piriano, PT, ATP/SMS, director of rehab industry affairs for Pride Mobility Products. “There was a segment of the provider community that had the capability of making the transition rapidly to take advantage of market share, but this was not the norm. A small number of providers elected to walk away from the standard power business due to the significant investment of time and capital needed to make the transition; however, the majority of providers are ramping up their business as the year continues and cash flow and financing options allow them to meet the needs and demands of the expanding senior market.”

Piriano calls the transition “a significant bump in the road” that has reduced the use of medically necessary products; however, she feels that this trend is not likely to be maintained as businesses adapt and the wave of baby boomers that need power mobility to remain safe and independent in their homes and communities continues to increase.

From the provider point of view, Mark Farmer, owner of Southwest Mobility in Arizona, is on the frontlines of the power mobility market and he calls the result of removing the first-month purchase option “devastating to providers across the country.”

“Nearly 100 percent of providers’ claims for power chairs are medically necessary to treat permanent (or lifetime) disabilities,” Farmer says. “Yet CMS feels it is more appropriate to pay for these as a capped rental over 13 months versus a lump sum payment in the first month.

“Many providers across the country have thrown in the towel and have either gone out of business or simply no longer provide power chairs as a part of their business model,” he continues. “Providers will have to partner with manufacturers that offer extended financing terms in order to carry their product line. Patient choice of power mobility has been the biggest negative impact for beneficiaries over the past several years. With drastically reduced fee schedules and the removal of the first month purchase option, the patient may not always have the choice of models.”

Packer says that removing the first-month purchase option has caused those many providers selling just a few chairs on a yearly basis to stop, which has proven especially painful to providers in rural America and in smaller communities. And overall, it’s causing increased expenses for the providers.

“With 20 percent co-payment due from the patient, the provider needs to collect each month from the patient as well as Medicare,” he says. “This increases the cost of collections and time spent on each claim, which drives up the initial cost of doing business further as the reimbursement falls. With the reimbursement being collected over 13 months versus upfront on the chair, it makes it much harder on cash flow for all providers in the industry.

“This is why the manufacturers have established lease programs, and started giving terms to help the providers through the first few months of the new program,” he adds. “The manufacturers have also developed rentalready equipment with plastic covers for armrest shroud covers and seat covers to help prevent wear and tear. Each door ding on an armrest will potentially bring a costly service call. This type of increased expense for minor equipment issues will be the biggest challenge for the provider in the future.”

Transitioning to a rental business has its share of pains. Packer points out that the 13-month rental puts more and more strain on the business model and pushes providers toward financing options. Large manufacturers are becoming more selective about whom they extend credit to, which puts more pressure on the provider.

Farmer says you can only make this work if you have a manufacturer that is willing to partner with you for the long term.

“The first year will be the toughest for providers until they can build a nice block of rental business,” Farmer says. “The keys to succeeding will be in your billing and collections department. You must keep your DSOs to a minimum. You must make sure those secondary payers are getting billed timely for payments. You also must have a dedicated person to call patients on a monthly basis and make sure they have not been institutionalized in a hospital, skilled nursing, or rehab facility, which could affect your monthly payments.”

Some providers remain unsure about what the rental market can offer and are still adapting, notes Joe Chesna, national sales director, Standard Power for Pride Mobility. Chesna says a multitude of new rental specific products and services coupled with the rapidly expanding senior demographics provide excellent opportunities to the rental ready provider, but there are things to consider if you want to get in the game to win.

“The biggest factor to a provider’s success in the rental environment is the standard power products they select,” Chesna says. “It is essential that they understand the importance of the overall lifetime cost of the product versus the product acquisition costs. Now more than ever, product quality and durability should be the driving factor in product choice. Providers must also look at their day-to-day operation and make equally large changes.

“For example, look for ways to continue to build capital by making the commitment to retail sales,” he explains. “Retail presents the single best opportunity to augment income. Also, diversifying payer sources to include Medicaid, private insurance, managed care and workman’s compensation is an exceptional way to supplement Medicare-regulated payments and use efficient and effective marketing techniques to attract new business.”

Preparing for Round 2

In mid August, the CMS announced its broad schedule for Round Two of competitive bidding. If all stays on track, the industry will see the bidding schedule, the bidder education program and the bidder registration period begin in the fall, with bidding beginning some time in the winter of 2012.

Pederson says the biggest challenge for power mobility in Round Two of competitive bidding is the result of combining manual and power mobility into one bidding category. While many suppliers provide basic manual wheelchairs, they do not also provide power wheelchairs. Manual wheelchairs and power wheelchairs are not provided at the same time or to the same beneficiary, which requires completely different business models. Complicating this even further is the inclusion of several complex manual wheelchairs into the category. K0005 manual wheelchairs and power assist rims are clearly complex, yet they are included in the category. There is no rational basis to bundle these in the same category, and this will limit the number of bidders to those who can provide the full spectrum, Pederson says.

Both Farmer and Packer say Round 2 has the potential to be devastating to the power mobility market. Packer says CMS is pushing for a monopolistic environment that will force small business out of the market. He says this may not be CMS’s ultimate goal but it is a definite consequence of the program. The continued fl aws in the system are very apparent and should be addressed prior to the second round, which Packer suggests CMS is eager to implement.

“If providers are going to survive Round 2, it is important to position your business with approximately 60 percent of revenue coming from cash sales,” Farmer says. “I am speaking, of course, about providers that primarily provide mobility products as their core business. Winning providers in Round 1 for power mobility are not currently seeing a large increase in that business. On the other hand, losing providers have either closed their doors or have had to decrease their staff dramatically. I expect the same for Round 2 MSAs.”

HHS OIG report

The Office of Inspector General (OIG) unleashed findings against the power mobility market in its recent HHS OIG report that among many things says 61% of 2007’s power wheelchair claims weren’t medically necessary or lacked documentation.

But while the report is aimed at the power mobility market, there are HME providers who feel it is a revealing look at the reporting organization.

“OIG reports tend to have a long shelf-life, especially when they are beneficial for CMS to shift the focus away from the inadequacies of the Agency or its contractors,” Piriano says. “Anyone who went through the significant changes in coding, coverage and payment of power mobility devices that took place on Nov. 15, 2006, can attest to the fact that the industry and CMS were in turmoil regarding the provision of power mobility devices.

“It is completely disingenuous of the OIG to review the same 375 claims from the first half of 2007 three different times to assess supplier acquisition costs, services rendered, documents received and the documentation of medical necessity and paint the industry with a broad brush that implies fraud, waste and abuse,” she continues. “However, it is important to remember that improper payments made, based on the findings of the most recent OIG report, do not constitute fraudulent billing, wasteful spending or abuse of the program.”

Pederson says of the report that the industry has been asking for clarity in medical policy and documentation ever since the power mobility codes and policies were revised in 2006. But to date, the industry has not received that clarity.

“The fundamentals of the medical policy seem to be sound, but there has been a wide range of opinions on proper documentation,” he says. “This is true even from one governmental agency to another. The OIG report clearly says that medical necessity was only questioned on nine percent of the claims. The fact that the OIG concluded that information was missing in the remaining 52 percent of the denied claims underscores that the government needs to fix the documentation process for determining the medical necessity for power wheelchairs. CMS continues to utilize a flawed system that leaves physicians, providers and Medicare beneficiaries confused about what documentation is needed to satisfy their requirements.”

Baby Boomers to the Rescue?

The power mobility market needs a hero, and many providers are putting that onus on the thriving baby boomer market.

“The power mobility market remains viable as long as the challenges are mitigated or managed and the opportunities are realized,” says Piriano. “From a standard power perspective, managing the transition to mandatory rental is the key to increasing market share and growing business alongside the increasing population of active, independent and infl uential baby boomers who demand high-quality products at a competitive price.”

With the arrival of the baby boomers, the market has great potential, says Farmer. He points out that baby boomers will be purchasing for themselves and for their parents in need of power mobility products. Power wheelchairs and scooters have changed aesthetically over the years and are considered much more of a life enhancement product to people with disabilities. The technology being offered by manufacturers now is much more advanced as well as seating and positioning components for the high-end patient.

“It is important that providers get the mindset that cash is king,” says Farmer. “We need to diversify our product lines to make up for the lost revenue from our payers. I still want to continue to build our Medicare/insurance business for power mobility, because I know there are fewer providers out there to choose from now. More importantly, we need to build our cash business from vehicle lifts, bath safety products, ramps, ceiling lifts, stair lifts, and other accessories. We need to properly train our sales people to cross-sell and up-sell every opportunity that exists. If you don’t, your customers may go to the competition and purchase those add-on cash sales.”

Whether the industry can tap the baby boomer market as a way to grow a sustainable, successful business that is less dependent of reimbursement remains to be seen. But currently the path ahead is not only redefining the market but it is threatening patients’ quality of life.

“The industry is in a great transition and we are on a ride that will take us to inferior quality products due to declining reimbursements and lower profits,” says Packer. “This is a poor path to take in our estimation as it leads to patient risk and rationing of products. DME is a cost saver, not a cost driver, and as patient dissatisfaction continues to rise, we will see a great deal of discomfort in the industry.”

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

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