2014 Respiratory and Sleep Outlook

Pitfalls and Possibilities

Competitive Bidding, audits and face-to-face evaluations will shape respiratory and sleep providers' course through 2014.

• By Joseph Duffy
• Oct 01, 2013

The battles fought by respiratory and sleep providers in 2013, as part of the continuing war against competitive bidding, audits and other business-building roadblocks, will continue to be waged in 2014 in defense of livelihood and a growing patient base in need of services. The question is, while providers are sure to encounter obstacles, will they also encounter opportunities?

Competitive bidding Round Two has rolled out in 91 bid areas and many hands are on deck to try to stop or change what the industry, lawmakers and experts have deemed a flawed program. In addition, audits and the face-to-face rule continue to punch potholes in providers’ path to a more profitable business.

For says Joe Lewarski, vice president of Clinical Affairs & Respiratory Commercial Operations for oxygen equipment maker Invacare Corp., 2014 will most likely have the same concerns found in 2013: Competitive Bidding, audits and the threat of Medicaid programs and private payors implementing payment rules and rates similar to Round Two, as well as the implementation of the new face-to-face rules. Industry consolidation is a likely consequence of these changes, he says, and the number and size of HME providers will begin to change as we move through 2014.

“Intense regulatory oversight and difficulty in obtaining clinical documentation that meets strict Medicare requirements along with competitive bidding have made it a tumultuous year for many providers,” is how Wayne van Halem, President, The van Halem Group LLC, sums up 2013.

Overall, providers are feeling increased pressure to offset the reimbursement cuts and as a result, are seeking solutions that enable them to optimize the efficiency of their operations and improve patient compliance, says Eli Diacopoulos, General Manager, Respiratory Care, Philips Respironics.

“In making the choice to change and optimize their operations, we believe that providers recognize that some of their processes must evolve,” she says. “This requires diverting resources that are typically customer facing to work on changing their business processes and models. In short, providers will need to do more with the resources they have, and in some cases, with less. And there are more strategic approaches that will help providers to navigate through the changing reimbursement environment. For example, providers may consider prepayment of co-pays from patients up front prior to servicing them.”

For Steve Nyhuis, vice president of respiratory provider Airway Oxygen, top concerns going forward include reimbursement decreases, which cause an inability to supply quality products; more compliance data required for payment, which can result in less revenue; and sleep labs attempting to get into the CPAP business, because in general, labs, says Nyhuis, lack an understanding of caring for patients in the home.

For Bob Hoffman, Vice President, Nationwide Respiratory, VGM Group, profitability is a concern for all companies regardless of their product mix. Dealing with significant reimbursement reductions coupled with audits, more and more providers are looking at developing relationships with long-term care facilities, VAs and hospices. He also says that determining the best use of assets is also a concern going forward with competitive bidding. Non-delivery models certainly pay off long term but balancing the up-front cost with the uncertainty of winning a bid or a re-bid makes that decision more difficult.

“Reimbursement is a primary focus for the future in healthcare for providers and physicians,” says Ron Richard, CEO of sleep equipment maker InnoMed Technologies, regarding his top concerns for 2014. “Getting paid enough to provide services and quality products will be a key factor in our ecosystem. However I see a trend in patients paying more out of pocket in order to secure better care options.

“A second concern will be the ability to innovate and create new products, which result in lower costs and improved adherence with the patient’s treatment,” he continues. “Pressure from external sources producing lower cost products are flooding into the U.S. market. Finally, globalization of healthcare and sharing information that potentially can create better delivery systems needs to accelerate in order to reduce waste and cost. At the rate we are going in the next decade the top 20 economic producing countries will spend approximately 20 percent of their GDP on healthcare. This can potentially bankrupt an economy.”

Competitive bidding Round Two

Many HME industry organizations and providers are working toward stopping Round Two and replacing it with the Market Pricing Program (MPP). This fight is ongoing and will no doubt be a focus throughout 2014. But how is Round Two expected to influence business in 2014?

“For providers outside of competitive bid areas, the respiratory growth continued to be a solid portion of their business model,” Hoffman says. “However, for those providers in the Round Two competitive bid areas, uncertainty again kept them from being able to plan and forecast purchases and growth. Depending on which side of the bubble you are on determines the effect it will have on your business.

“And to be honest, I am not sure winning a bid is really a win or losing a bid is really a lose,” he notes. “The margins are low and being able to provide the quality of equipment with the standard of care providers are used to providing is not sustainable. What a great process we have in place.

With an aging population and an emphasis on reducing hospital admissions, let’s reduce the number of homecare providers by having them bid in a flawed system with rates the winners can choose not to accept.”

And besides the Medicare market, competitive bidding will likely take its toll on private payor reimbursement, as well.

“Right now, we’re all starting to question when private payers may decide to follow Medicare reimbursement cuts with reimbursement cuts of their own,” Diacopoulos explains. “Such a move would further impact the sleep market, which is largely private pay. We’re wondering about a possible time frame in which this could happen.

“If it is a few years from now, say in 2015, HMEs will have more time to adjust and modify their business models,” she continues. “The question that then follows is how patient care will be impacted by these changes. For example, some competitive bidding winners are not local to the patients they are serving. Will a phone call be sufficient to manage the patient remotely? We think that the solutions to enable better and more efficient remote patient management will become essential tools for many HMEs.”

Diacopoulos says she believes that HMEs will feel pressured to offset the impact of competitive bidding, which means tools that enable more efficient operations, such as patient setup, enhanced compliance management and easier resupply identification, will become even more important.

“We believe that there are opportunities for HMEs to take advantage of next year, such as extending service offerings to their existing patient population,” she says. “A resupply program for sleep accessories can help keep patients compliant. HMEs should make sure that they are the resupply source for patients needing new masks and supplies, versus losing this opportunity if the patient acquires them from a different source.”

Richard adds that in the current environment, providers are bidding prices that they can’t sustain if they keep going in the direction they are heading. Anyone can bid a lower price but in the end, he says, we are talking about rationing healthcare to recipients who have contributed a lot of money over time until they become eligible for coverage.

Moreover, reductions in reimbursement are having a trickle-down effect on clinical studies, product development and innovation, Richard adds. This will impact not only the product choice and quality available to providers, but the care they provide patients, as well.

“The excise tax on medical devices, as well as the pending changes to healthcare coverage in 2014, has had an adverse effect on manufacturers,” he says. The increases in cost for manufacturers to produce quality products will be a challenge especially in light of competitive bidding and providers demanding lower cost of acquisition regarding their sleep and respiratory product lines.”

“Manufacturers have to make an acceptable margin on their products just like any other business,” Richard continues. “There will come a time when reimbursement levels reach a point that a middleman can’t exist due to margin erosion and the trend of manufacturers going direct to patient and payers will increase leaving the traditional homecare model to evolve into a more relevant and sustainable ecosystem.

“Additionally the recent bid has resulted in hundreds of providers closing their doors to Medicare patients and thus limiting the patient’s choice of where to get supplies and care,” he notes. “It ultimately will result in only a few companies serving the Medicare population. I think any provider that has a Medicare provider number and wants to accept the reimbursement rates offered by CMS would better serve aging seniors who deserve and have paid into the Medicare system over many years.”

Audits

Audits have had a huge impact on the HME industry, but van Halem says he has hope that some recent changes might improve things as far as allowing physicians to use templates and have more liability when not providing the necessary documentation.

“A major challenge will be the implementation of a national Recovery Audit Contractor to review nothing but DME and Home Health claims,” he says. “The other major challenges are the increasingly dramatic use of extrapolated overpayments and an increase in the volume of audits in the Managed Care arena that are following the same strict adherence to the LCD that traditional fee-for-service audits have.”

Hoffman points out that providers are being audited for claims from three years or more. This puts additional manpower costs on the providers to focus solely on working audits. Audits are occurring on many different levels and have included small items such as urological supplies and commodes, he says. Often times, even though medical necessity is proven, administrative or technical errors have triggered the audit.

“In the wake of lower reimbursements, compounded with the added costs associated with audits, the challenge to providers to maintain profitability becomes increasingly difficult,” says Hoffman.

Audits have impacted provider’s cash flow, operational processes, personnel needs and their relationships with referrals, says Lewarski. Audits have the potential to be more disruptive and cause more pain to the business than Competitive Bidding, as they can affect all providers, regardless of market, services or size. Lewarski believes that CMS considers these audits to be successful and, therefore, will continue to expand the size and scope of audits in 2014.

Face-to-Face Rule

The face-to-face rule will change the way HME is ordered for many items, Lewarski says. It requires that providers collect from the physician significant, detailed documentation of the specific visit and medical need for the ordered item.

“There will likely be a steep learning curve as physicians learn to document the patient’s medical record and the key information necessary to validate the need for the HME item,” he says “A potential negative impact of this rule is physicians pushing back on the ordering of some of these items, particularly lower tech items that are available over the counter.”

This article originally appeared in the October 2013 Respiratory & Sleep Management issue of HME Business.