Home medical equipment suppliers dreading more Medicare reimbursement cuts

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Pabst Professional Center

At the Kenosha Public Library’s southwest branch in June, Yolanda Swift, deputy national ombudsman for the U.S. Small Business Administration, sat before a room of small business owners from around southeastern Wisconsin who sought clarification on certain federal rules, regulations and policies.

A group of home medical equipment suppliers voiced concerns about whether they’d be able to stay in business through the end of the year because of certain federal policies and cuts related to Medicare reimbursements.

HomeMedicalEquipment-2016-07-13-ShutterstockSwift said she had heard similar complaints from all over the country.

Since the passage of the Medicare Modernization Act in 2003, local medical equipment suppliers, who provide things such as walkers, wheelchairs, medical oxygen tanks and CPAP machines for sleep apnea, have gone through multiple rounds of Medicare reimbursement cuts, with more looming on the horizon.

There was an initial 8 percent reduction in home medical equipment reimbursements in 2003 and another 9 percent nationwide HME reimbursement reduction in 2008, with the passage of the Medicare Improvements for Patients and Providers Act. In July 2013, when a new competitive bidding program for Medicare contracts was implemented in Milwaukee and 99 other cities, home medical equipment reimbursements were reduced by 45 percent over three years.

And those were just the cuts for all devices that fall under the umbrella of home medical equipment. Different pieces of equipment under that umbrella, such as ventilators, wheelchair components, diabetic testing supplies and in-home oxygen therapy machines, were also subjected to additional cuts.

So far in 2016, reimbursement rates were cut again by nearly 30 percent for some devices on January 1, and another planned rate cut of more than 50 percent was scheduled to roll out on July 1, but was delayed until September.

On top of that, cuts of more than 50 percent have also taken effect this summer for equipment provided to patients in rural areas.

“There’s big problems with this,” said Rick Adamich, president of Waukesha-based Oxygen One Inc. “The biggest is it costs me probably twice as much, if not more, to go into a rural area to service a patient,” but the reimbursement rate will now be the same as it would be if he were helping a patient a block away from his office.

For the past few years, rates in rural areas have been comparatively stable and local medical equipment providers, such as Adamich and Knueppel HealthCare Services Inc. chief executive officer Cindy Ciardo, say they have been relying on them to keep their businesses afloat amid heavy losses.

“Everything is truly imploding now,” Ciardo said. “We have nowhere else to go. We can’t prop up the system anymore.”

West Allis-based Knueppel provides home rehabilitation equipment to Medicare patients. Ciardo said that over the past three years, reimbursement cuts have become so severe that she’s had to lay off employees and close a satellite location in Mequon. She’s worried about keeping the business alive through the end of the year.

One major element driving these cuts is the implementation of Medicare’s metropolitan Competitive Bidding Program in 2013, which gave large national home medical equipment providers the ability to bid in markets where they had no local foothold or infrastructure.

The problem, according to Ciardo, is that these companies can bid at unrealistically low prices in order to win contracts in local markets, which forces local suppliers to bid at lower-than-normal prices, as well, in an attempt to win contracts. And the bid prices influence the reimbursement rate the federal government will eventually set on that contract.

“They artificially put in low bids, kind of to assure they’ll get in,”Ciardo said. “They’re thinking, ‘I’ll bid 20 cents on the dollar and (the actual Medicare reimbursement) will come in at 70 cents on the dollar.’ But it didn’t, because too many companies bid too low. The reimbursement rates were then deflated based on artificially low bids.”

And if the rate comes in too low for a large out-of-state company’s bottom line, it is not obligated to accept the contract it won. Adamich, who in addition to running Oxygen One serves as president of the Wisconsin Association of Medical Equipment Services board of directors, said this puts local equipment suppliers who win small-capacity Medicare contracts in the same market in an extremely vulnerable financial position.

“Medical oxygen is my primary category, and in the last round of bidding we had close to 25 suppliers of medical oxygen submitting bids,” Adamich said. “Of those 25, only about four of us were actively supplying oxygen in the Milwaukee area. The rest of them were in places like Florida, Texas, Las Vegas, California. Nobody in their right mind, no beneficiary or referral source, is going to call a company out of Texas to service their patient on oxygen here.”

But if the out-of-state company, which won a certain bid under the assumption it could serve a large portion of the local Medicare market, doesn’t accept the contract, the small local suppliers that accepted contracts under the assumption they would only be handling a relatively small portion of the local market are still contractually obligated to service all qualifying patients in the area.

“You bid your capacity,” Adamich said. “This is how much of the market I’m able to handle. I bid my capacity. I bid responsibly. I accept a contract because, frankly, we need to in order to support our referral sources and support the patient population. Then other people exit the market. And now all of the sudden I’m expected to handle this capacity, a much higher capacity and a much larger volume of patients that I’m not set up to handle. It can run me right out of business if I have to accept these people. And by the rules of the contract, I have to accept all qualified referrals.”

Adamich and Ciardo are hoping the delayed July 1 rate cut will be waived and cuts to rural service area reimbursements will be reversed for future contracts, but they’re pessimistic.

“I’d be lying if I said I was optimistic that we’d get something beyond a three-month delay,” Adamich said. “We fully anticipate that there are going to be significant ongoing challenges with this.”

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Ben Stanley, former BizTimes Milwaukee reporter.

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