Setting a Smart Strategy for 2019
In our 12th annual Big 10 survey of trends impacting the HME industry, we see some ongoing issues and opportunities, as well as some larger developments that providers might not have been considering.
- By David Kopf
- Jan 01, 2019
In order to set a smart strategy, you need to know what you’re up against. However, that’s not always clear in the post-acute care space, and the HME industry in particular. We’re familiar with plenty of ongoing issues, such as competitive bidding or the push to diversify revenues, but there are also other factors — many of them outside our usually narrow focus on the HME market, in specific — that will begin to impact the industry in 2019.
That’s why we publish the Big 10 list every January. It’s a chance for us to sit up, survey the horizon, and take stock of not only what’s happening in our immediate marketplace, but what’s developments are headed our way. In our 12th annual edition of the Big 10, we’ve isolated these 10 trends:
- Competitive bidding gap
- The rest of CMS’s final rule
- TPE audits
- Increased competition from large online companies
- Remote patient monitoring
- Convergence of payers and providers
- Next-level retail products
As you’ll see, some of these items might not fit the usual list of issues you’ll see in a typical roundup of industry trends. However, those external developments could have profound enough impact that they either become market opportunities or market disruptors, depending on how providers react. Let’s take a closer look at each, and see how they might impact your strategic planning for 2019.
Competitive Bidding Gap
For all of CMS’s commitment to competitive bidding, the program went dormant for 18 to 24 months starting Jan. 1. Per CMS’s recent Final Rule any Medicare accredited DMEPOS provider can offer items for which they didn’t have a bidding contract. For providers that were unable to successfully bid a contract for a competitive bidding area or a product category they might have previously served, this could represent a tremendous opportunity.
But it also begs a number of questions about whether or not they want to do that. For starters, many of those providers might have stepped away from those categories or CBAs and reshaped their business strategies after Rounds 1 and 2 of competitive bidding. In fact, they might have stepped away from Medicare DMEPOS altogether, focusing instead on retail, private payer, Medicare Advantage or skilled nursing facilities, to name a few.
And if they decided to get back into those categories, would they have to re-secure accreditation? They might have let their Medicare accreditation for a particular category lapse and would have to undergo the process all over again.
Or, a provider might have entered a subcontracting relationship or 5 percent agreement with another provider that got a contract. Now they have to ask themselves if they want to leave those relationships?
And hanging over all these decisions is the fact that this competitive bidding gap is impermanent. The program will resume in the near future, and then what will those providers do? Re-bid? Do they stand a good chance of getting a contract? To be certain, the bidding gap is a good break from a bad program, but for many providers it will mean as many questions as it does opportunities in 2019.
The Remainder of CMS’s Final Rule
Let’s remember that the bidding gap is just one element of CMS’s Final ESRD/DMEPOS Rule, which it released in November. The Final Rule contains provisions that are clear wins for the industry, such as the aforementioned bidding gap; lead item pricing; additional rural relief; and a new method for calculating SPAs. In quantifying the upsides to the Final Rule, the American Association for Homecare said it should bring at least $1 billion to the industry. That’s a welcome bit of business given how greatly the competitive bidding program has hurt providers revenues since it began. But there’s still a lot to sort out in 2019.
For starters, non-bid area providers that are not rural and in the contiguous United States still don’t have a break. Rural areas get a 50/50 blended rate, and Congress made it clear in the CURES Act and elsewhere that it wants those non-bid area providers to have those rates. The Final Rule also doesn’t retroactively apply Consumer Price Index (CPI) adjustments in CBAs based on the increases in the CPI from 2013 through 2018. The industry will have to work with Capitol Hill and CMS in 2019 to see what can be done to ensure all providers finally get those blended rates and adjustments, because the current situation is untenable for many HME businesses.
Also, the Final Rule opens the door for CMS making changes to oxygen reimbursement. CMS will create a new class for portable liquid oxygen equipment by splitting the existing class of portable gaseous and portable liquid oxygen. CMS would increase the payment amount for the new portable liquid oxygen class so that it is the same as the OGPE (oxygen generating portable equipment) rate. Moreover, CMS has already taken public comments for plans to add ventilators to the next round of competitive bidding. Given the vital, life-sustaining nature of such equipment, this will likely be an advocacy fight during 2019.
TPE and Other Audit Challenges
TPE audits are an ongoing issue for providers that will continue to impact their business strategies in 2019. TPE stands for Targeted Probe and Educate and it aims to identify providers who are billing for certain codes and have higher error rates.
But the program is designed to help providers improve their documentation and billing. Rather just doing widespread prepayment reviews of claims, auditors will audit 20 to 40 initial claims, and if the provider’s error rate is under a certain amount, then auditors will notify the provider that it is essentially free to go about its business. But if the error rate is over a certain amount, then the provider has to go through a second round, starting with an education session in which the auditor details the issues and how to fix them. Afterward, the provider goes through another round of 20 to 40 audits.
After the third round, the error rate is still not where they anticipate it being, then that provider gets referred to CMS. CMS’s responses could include extrapolated overpayment, or referral to a RAC, or a ZPIC, for additional auditing, which is much more intensive.
And that’s just one audit challenge for 2019. For instance, CMS will likely emphasize patient privacy protection. HIPPA and Office of Civil Rights (OCR) reviews designed to protect patient healthcare information (PHI) performed more than 200 audits, and none of the providers passed all of the audit components, Moreover, 86 percent failed in certain categories either by making either minimal efforts to comply, negligible efforts, or no efforts whatsoever. Expect CMS to focus on protecting patient data as a result.
Fortunately, we can see software vendors start to address the need to bring e-prescription to the HME industry in 2019, and providers should consider integrating it into their businesses.
E-prescription has been a regular component of U.S. healthcare IT systems for years — except when it comes to the HME industry. However, e-prescription has been finding its way into HME and now that it’s here, the technology could offer several improvements for providers, particularly when it comes to claims documentation and patient data protection.
E-prescription electronically connects providers to their referral sources so that they can seamlessly and securely share information. This means that claims documentation doesn’t have to be a snipe hunt. Instead of angling for one piece of information or another, the information is entered and shared via electronic forms. Given that providers represent roughly 30 percent of their referral partners’ documentation load, any technology that can help relieve that burden will be more than welcome.
And providers that take advantage of these technologies will stand out to referral sources that are looking to reduce the amount of time that they spend serving up the correct documentation. Anything that providers can do to make life easier for their referral partners becomes a strategic advantage.
HME Business has been beating the drum on e-commerce for a while now, but there’s a reason for that: it represents a massive pool of retail activity that is looking for not only deals, but expert advice on good products — and that sits squarely in providers’ wheelhouse.
Most importantly, e-commerce is where the customers are. It is the reason that even some big-box retailers are having a tough time staying in business. According to a June 2017 Forbes article, online sales grew faster in 2016 than they had over the past three years and account for 11.7 percent of overall retail sales. More data: The Census Bureau’s tallied retail e-commerce sales in the United States for the first quarter of 2016, and it grew 3.7 percent over the previous quarter to a total of $92.8 billion. Lastly, market data company Statista.com reported that health-related spending constituted 5.6 percent of total e-commerce. That amounts to $5.19 billion in one quarter.
Providers cannot ignore this in 2019. They must have some form of e-commerce strategy that leverages their product and care expertise. That strategy could start with an online presence meant to drive traffic to the physical location. It could be a limited e-commerce presence designed to help patients purchase resupply items and other HME offerings online, but still in support of a physical location. Or, it could be a bona fide business that is dedicated to e-commerce and is focused on engaging with and transacting with online customers on a regional, national or international level.
And providers are in such a good position to stand out from online retailers. They can offer in-store product demonstrations and events; they can offer warranty programs that no online retailer could ever hope to compete with; they can even offer special service packages or things like free labor. Providers already have the competitive edge to cement repeat business; they simply need to wield it.
Bottom line: providers ignore e-commerce at their own peril. Yes, they might currently dominate their local market, but if they don’t take time in 2019 determine their clients’ e-commerce wants and needs and develop plans to cater to them, they can expect to lose share of that market over time.
And the competition for that online business is fierce. To put the scale of online competition into stark terms, consider this: Amazon.com and retailers using Amazon are vying for as much share of the retail market for HME products as they can get. That’s right: Amazon is your competition. So is every other large online retailer, such as Walmart, Target, Alibaba and CVS.
But it goes deeper than simple retail sales. For instance, last June, Amazon bought online pharmacy PillPack. Now, PillPack might be small as online businesses go — it employs roughly 1,000 people — but it gives Amazon a foothold in the $560 billion prescription drug industry. Moreover, it gives Amazon the ability to bill Medicare and other insurance for prescription items.
Offering funded HME items isn’t a short stretch, especially considering that Amazon has the warehousing and distribution muscle that no provider can match. Now, we all know that a lot more goes into warehousing and delivering DME than sporting goods, electronics or clothes, but these are capabilities that a company like Amazon could add if it wished to do so.
Add to that the fact that both ridesharing services Lyft and Uber have released services that let healthcare professionals order rides for patients going to and from appointments, and we see another potential alternative distribution layer possibly coming into focus on the horizon. Smart providers will be monitoring these developments during 2019.
With the clear need to cater to clients’ retail needs, as well as their funded needs, providers need to give them options in order to pay. While financing is a familiar aspect to other retail marketplaces, consumer financing is not a common feature in the HME industry. Moreover, consumer financing represents an ideal means to help providers to grow retail sales.
However, because good customer credit is not as prevalent in healthcare-related purchases, as it is in other industry, specialized healthcare credit companies to help patients purchase items, finance copays and conduct similar transactions have sprung up. A key option in that regard is healthcare credit services provider CareCredit, which entered the HME marketplace in earnest in 2017. CareCredit works with a whole spectrum of healthcare specialists ranging from allergy and immunology all the way to vascular surgery and everything in between — including HME.
And we’ve seen CareCredit commit to the HME market. In 2017, we saw the company enter multi-year agreement to help finance patient purchases of Applied Home Healthcare Equipment Inc.’s OxyGo line of portable oxygen concentrators. We also saw in September Pride Mobility offer in-house support for CareCredit purchases of its lift chairs, scooters and power wheelchairs.
Providers that have not investigated firms such as CareCredit in 2019 need to do so. As retail becomes more ubiquitous, including the purchase of more expensive items, such as portable oxygen concentrators, PAP therapy devices, and power mobility, providers need to ensure they also give their clients financial options.
Remote Patient Monitoring
This is a trend that we have identified before in the Big 10, and make no mistake, we are highlighting it again for 2019. In basic numbers, the population of remotely monitored patients grew by 51 percent to 4.9 million during 2015, according to researchers Berg Insight. More specifically to HME, connected medical devices, such as sleep therapy equipment, accounted for a whopping 71 percent of total remote patient monitoring revenues in 2015, according to Berg.
Ground zero for remote patient monitoring has been sleep therapy. PAP therapy systems provide a wealth of patient data that helps physicians fine-tune patient care, keep patients compliant with therapy, and demonstrate outcomes to funding sources.
But sleep isn’t the only HME segment seeing remote patient monitoring. Already in diabetes care, glucometers are syncing with patient smartphones and using other wireless approaches to send patient performance metrics to reporting systems used by physicians. Also, in respiratory care, portable oxygen devices are beginning to send not only telemetry-type data to help providers remotely troubleshoot devices, but also sending patient usage data to referral partners.
Most recently, ResMed — a company that announced at the outset that it had monitored 1 billion sleeps — recently it spent $225 million to acquire Propeller Health, a company that makes tools for remotely monitoring medication use by patients with chronic obstructive pulmonary disease and asthma. Deals like that indicate that we will see remote patient monitoring expand particularly in oxygen during 2019 and beyond.
Convergence of Payers and Providers
On the funded side of healthcare, another larger trend is the integration between payers and providers will also shape the HME market in 2019. To be sure, we’ve seen some recent major deals in this regard: United Healthcare and dialysis giant Davita, pharmacy chain CVS and Aetna, and Humana and Kindred Healthcare.
These deals will change how healthcare is delivered. For instance, in the $69 billion CVS-Aetna deal, Aetna is supposed to become a separate business unit within CVS with the goal of moving more of the patient’s care within CVS pharmacy locations. The lets CVS “own” more and more of the patient’s care and the patient relationship.
How providers need to respond to these sorts of trends remains to be seen as these sorts of relationships unfold over 2019 and beyond but we do know a couple things: First, providers need to focus on the unique value that they bring to patients and HME customers. They need to shore up their niche and excel at it in a way no other business can. Second, they need to ensure that they remain flexible enough and diversified enough that they can adjust to any competition that might arise from these deals.
Next-Level Retail Products
By now, you’re likely noticing a prevailing megatrend impacting the HME space (and really healthcare as a whole): the retail sector is moving the needle. Whether its e-commerce or competition from outfits such as Amazon or healthcare-oriented financing, the wants and desires of clients are forcing healthcare as a whole to respond.
We’re seeing that in the HME products that are now being offered to customers in the post-acute market. In some cases, they could be major disruptors for existing product paradigms. For example, the DFree from Triple W is a wearable device for urinary incontinence patients. Much of incontinence stems from patients not realizing they need to go to the bathroom. The DFree use a mini ultrasound sensor and a small device to monitor a patient’s bladder. When the bladder reaches a predetermined level, the $499 DFree sends an alert via Bluetooth to the patient’s smartphone letting them know they need to go. If the device catches on, that could redefine the market for incontinence products — and patients’ lives.
And that’s just one example of how smart retail products that patients could impact the HME space. Expect more to come. Smart providers will keep their eyes peeled during 2019, because these items represent both a massive cash sales opportunity and the potential to redefine the markets for funded items.
This article originally appeared in the Jan/Feb 2019 issue of HME Business.