Home Health & Hospice Week

Consider MMA analysis when facing payment cuts.

Five years from now there will be 4,300 fewer durable medical equipment providers in the United States--so now is the time to make sure you're doing all you can to be one of those left standing.

That's the message of a report from the Weeks Group of Melbourne, FL on succeeding under the Medicare Modernization Act. The report aims to help DME suppliers quantify MMA's impact on their companies, anticipate competitors' responses and formulate strategies for business success.

Report author and company president Wallace Weeks arrived at the 4,300 figure by looking at the number of providers in the top 10 and top 80 metropolitan statistical areas as well as the number of providers outside of MSAs likely to be impacted by competitive bidding.

He started from a base number of 12,000 DME providers, dramatically lower than the 100,000 DME provider numbers reported by the National Supplier Clearinghouse. That's because the NSC counts retail pharmacies, optical dispensaries and other non-DME-specific businesses that Weeks excludes.

Weeks then predicted the failure rate of companies based on information from the competitive bidding demonstration projects. About half of the DME companies that would like to be Medicare providers under competitive bidding will be eliminated, he predicts.

"The truth of it is, as with any forecast, there is a degree of speculation," Weeks acknowledges. "But I've had some people tell me--people who are also in the know in this industry--that they think I'm understating it," he tells Eli.

Give Up Outdated Business Models

A significant number of consumers soon will be served by DME businesses whose processes today are sometimes called "unconscionable," Weeks says. By that he refers to the growing emphasis on mail-order medical supplies and other "low-touch" business models occasionally criticized as bad for patient care.

"Those types of business models have succeeded," he says. The industry probably is "holding onto traditions that the market may not be willing to pay for."

Weeks uses the analogy of someone who owns a hobby shop that sells model airplanes but believes he must assemble the model for the customer. Customers who want to assemble the model themselves for the savings will go to another hobby shop.

"Some people in the DME industry are like that hobby shop owner," Weeks says. "Even with simple things like walkers, there are some in the industry who think they should help personally fit every walker that goes out of their business. They assume no one else can learn how to properly fit it."

Weeks urges suppliers to examine their biases about what they should deliver to the customer and instead think more about what customers and payers want. "I don't mean that providers should throw out their values," he says. "Rather, they should consider where the right place is for their values."

Beware the Program Update Freeze

Finally, Weeks urges DME providers to heed the five-year program update freeze under MMA.

That means the cost of doing business will continue to increase by the rate of inflation--currently about 2.5 percent. But because of the freeze, Medicare reimbursement will not rise accordingly.

"When the cost of business goes up 2.5 percent and your reimbursement stays the same, your profit margin just declined by 2.5 percent," Weeks observes.

Over its five-year lifespan, the freeze will take 12.5 percent (assuming inflation holds steady) out of the profitability of DME Medicare business. And because other payers tie their fee schedules to Medicare, the profitability of more than just Medicare business will suffer.

The freeze is "the most insidious provision in MMA because it doesn't get called a cut," Weeks says. "I don't think it's been given enough attention." 

Note: For more information on the Weeks report, visit www.weeksgroup.com and click on the bookstore link.