Home Health & Hospice Week

Increased dispensing fee not enough to keep independents afloat.

Rather than a victory, the new $57 dispensing fee for inhalation medications may be a nail in the coffin of many small, independent suppliers.
 
So say a number of small durable medical equipment and pharmacy providers that are wrestling with the decision of whether to continue furnishing unit dose medications under the punishing Medicare reimbursement cut to average sales price (ASP) plus 6 percent Jan. 1.
 
In response to the drastic 89 percent cut to respiratory medications albuterol sulfate and ipratropium bromide, the Centers for Medicare & Medicaid Services finalized a $57 per month drug dispensing fee for the medications in the final physician fee schedule published in the Nov. 15 Federal Register. CMS also set an $80 fee for a three-month supply (see Eli's HCW, Vol. XIII, No. 39, p. 307).
 
The new fee is much higher than the pre-ASP amount, which was a mere $5 per month. But it still won't be enough to make a difference to some suppliers.
 
Home Care Pharmacy Inc. based in Manas-sas, VA will be closing its doors thanks to the switch to ASP and inadequate dispensing fee, owner Wayne Stanfield tells Eli. After calculating the pharmacy's costs and the upcoming reimbursement rate including the dispensing fees, "it took me about three seconds to realize this wasn't going to work," says Stanfield, who also owns DME company Prince William Home Medical.
 
Stanfield figures the new rate will cut his net revenues 76 percent. "It's ludicrous to assume anyone is going to take a 76 percent cut in business," he fumes.
 
Suppliers will see an average reimbursement cut of 35 to 40 percent under the monthly fee and up to 70 percent under the 90-day fee, estimates Harold Davis, respiratory specialist for VGM Group's Nationwide Respiratory division.
 
Under those harsh cuts, suppliers still have a laundry list of costs to cover - rent, utilities, staff salaries, regulatory requirements like alarm systems, on-call services, insurance, etc. "The general operating expenses ... that a pharmacy incurs monthly essentially remain the same each month," points out Joseph Lewarski, president of Hytech Homecare, Pharmacy & Medical Supply in Mentor, OH. "So naturally there is going to be a minimum revenue amount required to break even each month." And for many suppliers, the new fee won't make up that amount.

Larger Suppliers Are Winners

Larger suppliers that can achieve economies of scale on these items will be the ones who can survive under the new reimbursement levels, predicts Jeff Wills, owner, CFO and COO of CV Medical Solutions Inc. in Oklahoma City. Providers may need to carry a respiratory medication patient load of 150 or more to break even under the new rates, predicts Jacki McClure, director of the National Respiratory Network and government relations for The MED Group in Pittsburgh, PA.
 
The ASP-based rates are so inadequate for small providers because they must purchase medications from wholesalers rather than directly from manufacturers. "When you can't purchase drugs at anywhere near the ASP plus 6 percent, you're kind of backed into a corner," said a caller in the Nov. 15 CMS Open Door Forum reviewing the physician fee schedule.
 
A CMS official responded that legislators mandated the margin "because of the concern that Medicare was overpaying for the drugs." CMS promised it will try to help physicians obtain better drug pricing, but such help seems a long way off, especially for home care providers.
 
There is a chance suppliers could receive slightly better ASP pricing for the inhalation medications when CMS finally publishes the new rates. The third-quarter manufacturer data CMS will use to set the Jan. 1 rates was due Oct. 31, and the agency is currently reviewing the information. The new rates should be out in early December, CMS said in the forum.
 
Second quarter data indicated an increase over proposed rates may be in store, notes attorney John Wester with Sidley Austin Brown & Wood in Washington, DC. The indicated ASP for albuterol sulfate rose from $0.04 to $0.05 per milligram, while the indicated ASP for ipratropium bromide rose 50 percent to $0.45 per milligram, Wester says.
 
Incremental changes to ASP data won't be enough to keep Home Care Pharmacy in business, Stan-field says. But it may play a part in the decision-making processes many home care pharmacies are going through right now - if the data is available soon enough.
 
Kirkpatrick's Pharmacy in Petersburg, VA is crunching the numbers on unit dose medications now, and hopes to make its final decision on whether to drop the products by early next month, says owner and pharmacist Sam Clay. "The jury is still out," says Clay, who also owns DME company Clay Home Medical.
 
Likewise, CV Medical is aiming to make a decision on whether to drop the business line by Dec. 1, says Wills, who is also the chair of the American Association for Homecare's Home Medical Equipment/ Respiratory Therapy Advisory Council.

Most Will Stick It Out

Though the dispensing fee isn't as much as some suppliers require, it is a far sight more than what the industry thought it might get, notes Mike Hamilton, executive director of the Alabama Durable Medical Equipment Association and Georgia Association of Medical Equipment Services. "At least you have some choice now," Hamilton says. Under ASP plus 6 percent and a $5 monthly fee, there was no way suppliers could stay in the business.
 
The dispensing fee still is a "victory over ASP plus six," even if it won't keep every supplier's doors open, Wills maintains.
 
None of the ADMEA or GAMES members have yet decided to exit the business line, Hamilton says. "They are determined to figure out a way to make it work."
 
MED's network members will be able to stay in the business because they have already been working on efficiencies using tools such as activity-based costing and technology, McClure says.
 
While many small providers will have an initial negative reaction to the new rates, most will decide to stick it out, predicts Davis, also director of operations for Conway, AR-based Baker Medical Inc. "They are going to refine processes and cut costs," Davis says. "Profits won't be what we enjoyed in the past, but it's still enough to furnish patient care."
 
For many suppliers, respiratory meds are only one of multiple business lines. They will emphasize their other areas or get into new lines like other medications or diabetic supplies, Hamilton relates.