Industry Roundtable

Round Two: Bracing for 2013

HMEB’s Editorial Advisory Board discusses Round Two of competitive bidding along with a host of other challenges providers face in the coming year.

Round Two: Bracing for 2013Take cover! As providers approach 2013, it is clear they are in for a true watershed year in the history of the home medical equipment industry. Competitive bidding Round Two, extended to 91 competitive bidding areas by the Patient Protection and Affordable Care Act (PPACA) stands to completely reshape HME in very short order.

At press time, the Centers for Medicare and Medicaid Services is poised to announce the bid amounts for Round Two and if they are anything like the past, providers in the affected CBAs can expect between a 25 percent and 35 percent cut to reimbursement rates for the product categories covered by the program.

But the real action happens next year. In spring of 2013, CMS will announce the providers that won contracts from the bid, and will start educating providers, referral partners and beneficiaries on how the program proceeds form there. Then, in July 2013, CMS implements Round Two of the program.

Grandfathering and subcontracting might temporarily help carry the providers that lose their Round Two bids, but, based on Round One experience, those options will not support those providers for long.

Still, the industry isn’t without hope. At press time, Rep. Tom Price (R-Ga) announced he would lead the drafting and launching of legislation to advance the HME industry’s Market Pricing Program (MPP) alternative to competitive bidding in the House of Representatives (see “News, Trends & Analysis,” starting page 8, to read more). Such legislation would repeal competitive bidding and replace it with a program that would use a fair bid system to set rates, but not axe providers out of the business.

This represents an opportunity for providers to save their industry. If they can get enough political support behind it, they just might be able to stop Round Two, but the question is, will they be able to do it before the implementation date? Only time will tell.

But competitive bidding and the fight to replace it with the MPP isn’t the only issue providers must contend with in the coming year. They face other challenges, such as the continued onslaught of pre- and post-payment audits from CMS; an expansion of the face-to-face requirement under PPACA; the prior authorization project for power mobility; and the effort to redefine complex rehab as a separate benefit.

Moreover, if those providers have been watching reimbursement trends, and monitoring the progression of competitive bidding, as well as reading the pages of HME Business, then chances are they have been facing one more challenge: expanding and perhaps redefining their businesses. Certainly, 2013 will be the year where providers’ efforts to drive new revenue streams will be put to the test. How will they fare?

To discuss these challenges and more, we once again turn to HMEB’s Editorial Advisory Board to gain their shared insights and expertise. Joining our annual round table are the following members:

  • Ty Bello, RCC, president and founder of Team@Work.
  • Georgie Blackburn, vice president of Government Relations and Legislative Affairs for BLACKBURN’S.
  • Sandra Canally, president of The Compliance Team Inc.
  • Dave Cormack, president and CEO of Brightree LLC
  • Spencer Kay, president and CEO of Fastrack Healthcare Systems Inc.
  • Michael Reinemer, vice president of Communications and Policy for the American Association for Homecare
  • Ron Resnick, president of Blue Chip Medical Products Inc.
  • Tom Ryan, president and CEO, Homecare Concepts Inc.
  • John Shirvinsky, executive director of the Pennsylvania Association of Medical Suppliers
  • Peggy Walker, RN, billing & reimbursement advisor for the US Rehab Division of VGM Group
  • Carl Will, senior vice president of North American HomeCare for Invacare Corp.

(For a full list of HMEB’s Editorial Advisory Board, read our masthead on page 6.)

So, without further ado, let’s take a look at the year to come, and how our board members think providers should approach the challenges it offers:

We’re on the eve of Round Two bid amounts being announced. How would you characterize the progression of Round Two, and how will it play out over 2013?

Ryan: I feel like we’re beginning to adjust this year and get back to some profitability and get through the 36-month cap [for oxygen rental] finally, and it’s just this sense of unknowing with what this number’s going to be for competitive bidding — and whether you’re going to win or not. It’s not a very solid feeling. It’s probably the worst feeling I’ve had through my career; that sense of not knowing.

To this day, when I crunch the numbers, looking at what some of the rates would be, I’ve done all the things you need to do with being aggressive with cost cutting and looking at revenue enhancement and revenue diversification, and the numbers still don’t make sense to me. It’s a very uneasy feeling going into 2013.

… For the first time, I’m leery of growth, because you can’t grow without more debt. One of the things we’ve learned is that the industry has a lot of debt in it.

Will: There will certainly be more disruption than with the first nine CBAs simply because of the size of it. Grandfathering will mask or delay some of the impact, but if you couple this with the pre- and post-pay audits that have already been happening, you’re going to start to see a shake up.

What are you hoping providers will do in the face of this massive change?

Will: They have to address their cost model, and lots of them have been. … I think a lot of providers are waiting right now, because they want to see if they won the bid. And I think they’ll be able to tell that with the pricing when that comes out. Right now, it’s “wait and see.”

… I think you’ll also see a service drop-off. I would hope it wouldn’t be anything that’s out of what’s required, but when a lot of providers grew up in this business, they made their names on service, and they went above and beyond. That’s not going to be affordable in the future.

Shirvinksy: Providers have to contact their Congressional offices every single chance they get. They have to let lawmakers know that their future viability is on the line.

Canally: Certainly providers should look into expanding their product line into areas that aren’t related to competitive bidding. If they want to add product lines that have not been subjected to competitive bidding, then they’ll need to get accredited. The other thing is if they don’t win a bid, then one of the thing some of our providers have done is become subcontractors of  the bid winners.

Kay: In 2012 we have seen a tremendous number of clients move into other areas to protect themselves in a lot of ways, but also to grow their businesses. We’re seeing an awful lot of them get into e-commerce, to have an Internet presence. We’re seeing a lot of cash sales. There are a lot of Baby Boomers who, if insurance doesn’t cover something, they will pay for it with a credit card on the Internet, and they’re used to shopping like that. We also accept insurance online with our software. And by doing that, it reduces the providers overhead, because that’s fewer people it needs to process orders.

Have you seen any success with subcontracting?

Canally: To the point where it’s for an item that the bid winner doesn’t want to be bothered with, and for the provider that didn’t win the bid it is part of their everyday business, where they have it nailed, and they know how to do it, they will subcontract as long as they can still make money on it. … And even as a subcontractor they still need to maintain accreditation.

What about the cost models of competitive bidding? Is the race toward lower reimbursement going to impact care?

Resnick: I feel very bad for what’s coming down for the patients more than I do for the dealers and ourselves. We’ll all survive, and we’ll all manage. The problem is who is going to take the brunt? Patients are going to get sicker. The home healthcare environment has done a really good job and reduced significant costs. But you can’t get a gallon in a quart container, and it’s up to us to take care of those patients. So the patient suffers when providers are buying not on need, but on a code to fit a price, and that is just not right, at all.

If a doctor is considered a racecar driver, I’m the guy who builds the racecar. I can only tell you how fast you can take that corner without crashing. We build a product that is designed to meet the needs and weight of a patient, and meet them clinically for a positive outcome. … I’m not in the business to “buy a box and sell a box.” We’re still repairing units 10 or 12 years old. It’s called durable medical equipment, but it’s becoming disposable medical equipment.

On the legislative front, with the MPP legislation about to be launched, how would you characterize the fight to stop competitive bidding?

Ryan: I continue to advocate and believe that we can stop this with MPP. I watched the Small Business Subcommittee testimony [see “News, Trends & Analysis,” page 8, to read more] and I thought it went rather well. I think that the committee certainly understood out issues. … So I remain somewhat optimistic that we can potentially still get competitive bidding stopped, but it’s a frightening way to go into the year.

Now that the industry has moved off repeal and has a repeal and replace with a market price program that is going to be budget neutral, we’re going to have the same bi-partisan support. We just needed the vehicle and a hero, which hopefully will be Congressman Tom Price to put a bill out there. Then we can have something to rally around. It all comes down to budget neutrality, because the touted savings of competitive bidding are significant. So if we can give [Congress] the same savings, and do it in a more fair and transparent process, I think we have a chance to get this passed.

Reinemer: The best advice for 2013 is let’s get the Price bill done in 2012. Our window is closing, and the further that Round Two goes as well as the Round One re-bid the more they will increase the inertia at CMS and make it harder and harder to put the toothpaste back in the tube.

You really can’t understate the important of people getting to know their lawmakers. There are great examples of people in the HME sector that have really gotten to know their members of Congress and that’s why we have these champions. They are the ones that really go to the mat for us. There’s no way we are going to get to where we need to go unless we have more folks like that.

Shirvinsky: Everything that we’re dealing with is survival. We know that this is a badly designed system; we know it encourages low-ball bidding; we know that the numbers that we’re seeing are unsustainable; and no matter how much CMS wants to shine this apple, it’s rotten. So everyone is concerned. One of my most enthusiastic supporters for getting rid of this system and replacing it with something better is one of the big bid winners.

Do you believe the MPP legislation will gain critical mass before, or after the contracts are announced? Where do providers need to be in the fight to pull it off?

Ryan: If we do get it taken care of, it will happen before the contracts are announced. … If we are going to get MPP, it’s going to have to be part of the lame duck Congress; it’s probably going to be part of the Medicare SGR fix; and I think we have a very short window to get it done. If we’re going to get it done, this is the time. I’m hoping Congressman Price drops his bill so that we can get that scored and we can see where we need to go.

Will: I don’t see some type “sand save” before this thing goes forward.

Blackburn: I do know that they awards will likely be offered prior to us getting enough support on this bill before the end of the year. … Congressman Price is putting pressure on the CBO to get his bill scored. We have inklings of what that might be, and there is a possibility that we might have to come up with a pay-for, but that pay-for would be inconsequential compared to the outcome the MPP would give this industry. If there is a pay-for, our industry will do whatever is necessary to get the right kind of bid system in place, because frankly the bid system we have in place is affecting every other contract we have.

We’re going to need a rally call at Medtrade and everybody that’s been very involved will be working before Medtrade. It’s necessary to contact our congress members now and tell them this is coming; it’s not hypothetical; it is going to drop; we have the support; and you need to listen to us, because this is the only way it will work for CMS, for beneficiaries and for suppliers.

From a business perspective, in the run up to Round Two, what do providers need to be saying to their referral partners?

Bello: If we learned anything from Round One it’s that we still have to sell and market our business. As a matter of fact, all indications show that, post-Round One, those that won their bids are doing more focused and intensive sales and marketing than what they did prior to competitive bidding.

This makes complete sense, because now you’ve taken that referral source, who might have been used to going to multiple HME providers, and you’ve narrowed it down to a smaller list. We as HME providers have to be better at marketing and better at sales than we ever have before. Just because you won the bid doesn’t mean you’re going to get the business. You still have to earn it.

If a provider has won a contract, why does it still need to reach out?

Bello: There might be a lack of clarity on the part of the referral source. They’ve never gone through this either. The HME providers that have done their job have educated the referral community as best as they can; forewarning them. … But you still have market to them.

What about providers that don’t get CMS contracts in Round Two? What sales challenges will they face when working with their referral partners?

Bello: Obviously the loss of Medicare business that they’ve had will be in some cases significant. If they’ve been engaged in our industry over the past several years, they’ve seen what’s been coming. The majority of providers in this industry are very educated in this arena, and have diversified and have moved a lot of their business from the CMS Medicare population, to other payors, to retail, etc. And those are the wise ones. Those will be the ones that will succeed and still serve a niche market, although they won’t be serving the Medicare population.

How is Round Two going to impact mobility providers?

Walker: If they don’t win a contract, and they do a lot of mobility? Then they’re out of luck, just like those oxygen providers in Round One. We’re going to lose a lot of them. But, a lot of providers that were strictly mobility are redefining their businesses and going into home accessibility; that’s a big one, because it’s cash. For mobility people, that’s where you need go. … For someone that hasn’t won a bid, I don’t see a whole lot that they can do, if they haven’t started doing something else.

For the providers that do get contracts, the big challenge is going to be that, now, if they put out a power wheelchair, rent it for 13 months, get paid for it, and that chair gets torn up before the five-year limit is up, they’re responsible for replacing it. They don’t have to replace it with a new one, but they are responsible for replacing it. They’re buying into a five-year contract, not a 13-month contract, or a three-year contract, and I don’t know if too many of them are really aware of that.

What about the widely expanded face-to-face requirement per PPACA. Is CMS going to listen to the industry and rein in a requirement that would essentially mean face-to-face requirements for just about everything?

Ryan: Whether or CMS is going to listen, or whether this has to be ratcheted up on the legislative agenda is concerning to me. What’s going on in the audit activity and what’s going on in these proposed rules, it’s outrageous. As you try to get leaner and meaner and cut costs through new technology the onerousness of trying to get physician face-to-face on any piece of DME is going to be outrageous; it’s going to increase the cost on everything. It’s getting out of control. Will there be reasonableness from CMS? I’m not quite sure. I hope that they hear what we have to say and understand that face-to-face is there for an area where you think it’s needed. … You have to have a way that makes it simple to get accomplished for both the physician and the provider.

Reinemer: We’ve worked really hard with officials at CMS to explain what our concerns are in real detail. I have hope that on issues like that we can make progress. There’s just a long list of issues like that we have to continuously have to bird dog.

When it comes to audits, are providers starting to get their legs under them? What do they need to do in 2013?

Kay: We’re trying to find ways to help the provider reduce costs, and it’s very costly for the provider to have someone standing at the copy machine making copies, and the cost of the postage to send it up, and half the time you don’t know if Medicare has actually received it. So we created an electronic system so that we can send all the electronic documents directly to Medicare and get a status that it has been received.

Shirvinksy: We’re dealing with this bizarre situation where CMS is in intent on dramatically slashing reimbursement rates while at the same time doing everything they can to increase our costs. … Doing business with Medicare adds about 30 percent to the costs of doing business. So if we want to bring down the cost of healthcare, bring down the cost of compliance.

Can providers leverage their business assets to better deal challenges such as competitive bidding and audits?

Kay: Software companies have an obligation to help providers deal with competitive bidding. … When this is all over, for those providers that win and those that don’t win their bid, we can give them the tools to reduce their operating costs and to become more productive. I can’t help them increase their reimbursement rates, but I can help them as far as being more efficient and to do more with fewer people.

Cormack: We certainly see the cup as half full. One of the things we’re doing as a company, because everything is hosted, is that we are providing our customers with intelligence on their systems related to operational cash performance, and we’re calling people up as well to say, “You are in the lower 25th percentile on DSO. For a company like yours, you should be seeing this DSO.”

The prize for those providers that can work out the efficiencies, reduce their labor costs, and increase revenues is a viable thriving business, because the patients have to go somewhere.

Switching gears to mobility, how will the effort over the coming year to make complex rehab a separate benefit help those providers?

Walker: If it comes about, I think it is going be really good for complex rehab providers. One, [CMS] is going to understand that doing complex rehab is really different from someone putting out a power wheelchair. It’s more time, effort, training, and expense to hire staff and delivery techs. Once they recognize that as a separate benefit category, I think that maybe like prosthetics and orthotics, if providers put out truly custom chairs and it stays out three or four days and then something happens and you have to take it back, they will allow for that and you’ll get some money back. You’re not stuck.

The providers that are going to be doing this are going to be much better educated, more aware of what’s going on, and it’s going to be much better for the beneficiary. The only issue getting people to buy into increased education; raising the bar and making it harder to put out a complex rehab chair.

Politically, how do you think the effort will progress?

Walker: I think we have a chance. I feel a lot more confident today than I did a year ago. More people on the Hill are understanding it and buying into it. So hopefully, it’ll pass. I’d like to see it pass in the coming year.

How will the prior authorization project play out for providers in the initial seven states, and how will it impact providers that aren’t in the project?

Walker: If you talk to the average DME Medicare provider, they would love to see prior authorization.

The way prior authorization is set up now, what I worry about more than anything is the fact that there is 10 days to turn it around. Well, what happens is that the providers think 10 days is 10 days. What they don’t realize is that they have to stamp it in 10 days. It doesn’t have to be completed in 10 days. They just have to stamp it and get it out the door in 10 days. I’m afraid that if it gets to be too much of a hassle for the reviewers it’s going to be difficult to keep up with that. I hope they’re not being set up for failure.

Prior authorization is much better for all providers. You don’t have to buy a chair and put it out for a patient. You can wait and buy a chair and wait for it to be prior auth’ed. You don’t have to have it in your inventory. So it’s going to be great for those providers, because they will feel “it’s going to be covered.”

For the providers in those seven states, they have to educate their staff. They want to make sure that they’re paperwork is good. They have to be aware of what’s going on. Some people don’t even know they are going to be on prior authorization. For the providers that aren’t in those states? They’re very jealous.

This reminds me of Medicare accreditation, where you can take what initially seems like a negative and turn it into a positive.

Walker: With audits and everything that’s going on, if I put out a chair before Sept. 1, I had no clue if it was going to pass. If it denied, I would have to take it to redetermination, and the denial could have been something as simple as a signature. So I have a chair out there that I’ve paid money for and I get no return on it for months; who can afford that?

How will accountable care organizations (ACOs) impact providers in the year to come?

Will: Accountable care organizations, if they become more broadly adopted, will certainly make homecare providers more important. They still won’t drive the channel, but certainly in homecare you’re able to drive costs down and prevent re-admittance, so homecare providers are going to become important. Whether that happens in any great amount in 2013 has yet to be seen. To me, it puts us more in a sweet spot.

Cormack: For 2013, I don’t see ACOs being extremely important, but what’s important is that the connectivity capabilities begin to mature, such as HL7 [the developing Health Level 7 standard for sharing healthcare information electronically].

Blackburn: I think we’re looking at ACOs as a projection for a change to come. Just like in 2003 when they announced competitive bidding would take place, we knew to take some steps to become lean and mean and drive productivity for a bid system that we didn’t yet have. I think an accountable care organization starts at the top at the hospitals with the doctors, and where our type of supplier fits in is that it will rise to the top. I know that we will play some part, but it’s hard to know what that role will be. A lot of hospitals have their own DMEs right now. I think at the ground level, we need to be talking about it, because we don’t yet know how it will factor into our industry.

Bello: It’s a whole new crop of referral partners to which we have limited exposure and communication. While these ACOs, hospital-based as we know, we haven’t really communicated with that channel of people inside of the hospital. We’ve communicated with the discharge planners, the social workers, case managers, hospitalists and referring physicians. ACOs are being head up on a business compliance side, which doesn’t necessarily intermingle with that same group. So this is a completely different profile of a referral source.

We have to get much better at outcomes — and we’re very good at outcomes. And, we have to thank accreditation for getting us to that point where we’re at today. Mandatory accreditation made us much better for the advent of ACOs.

But I have to say, the ACOs that we’ll be calling on are not necessarily to be called upon by our sales representatives. ACOs are at a different level. Therefore the people calling on ACOs need to be at a different level, in other words, a CEO, a vice president, someone in that genre. In many instances, that ACO contact will be at the upper echelon of the hospital.


This article originally appeared in the October 2012 issue of HME Business.

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