Observation Deck

The Price of 'Keeping the Doors Open'

One provider recounts the sometimes painful sacrifices made to stay in business.

• By John Eberhart
• Dec 01, 2014

I have a story to tell that I truly believe is representative of many stories around the country but I haven’t seen or read many of these stories to this point. What I have seen are stories about how to survive competitive bidding or what to change in order to “keep the doors open.” I believe these stories are important to tell especially in a legislative environment that is very dysfunctional and apparently not moving towards the functional any time soon. Here is my story:

I was working as a staff respiratory therapist at a small-town, 50-bed hospital in San Clemente, Calif. in 1996, and was approached by some local physicians to throw my hat in the ring and start a DME company focused on oxygen delivery and patient follow-up post-discharge from the hospital. I didn’t consider myself terribly entrepreneurial at the time so it took about two years of egging on and conversations in the ICU and ER in the middle of the night for me to look into it. I started the daunting process of California licensure in 1997 and in June of 1998 started accepting my first patients. Before I knew it, I was a businessman responsible for not only my patients, but my employees.

In addition to the new business venture, my wife Janis and I decided to begin our family. We had our first of two beautiful daughters, Allison, in October of 97 and our second beautiful daughter, Emily, showed up 3 years later in September of 2000. By this time I was knee deep in the DME business environment and working 60-70 hours a week to keep everyone happy and feeling cared for.

The next phase of the business was made a necessity by the Medicare Modernization Act that was signed into law in January 2003 during the lame duck session. This was the primary legislative effort that brought competitive bidding to my door and began the slow but sure collapse of the oxygen-related side of the business. We watched as our reimbursement was cut on a yearly basis and we were floored as we watched seemingly ridiculous legislation be enacted… like the oxygen cap, which resulted in Medicare paying for 5 years of service in 3 years, so that after 3 years, there was no revenue to pay for the service I was providing for many patients.

The term “competitive bidding” implies that if you work hard and do a good job you could have a competitive advantage — or at least could compete. But in actuality it created an environment in which the largest companies, drive the small to mid size firms to the brink of closure. “Competitive bidding” might have been an attempt to achieve economies of scale, assuming large companies can provide quality service at a lower price than small firms, but the impact has been a jumbled industry consolidation with dubious results for patients.

So, seeing these changes coming down the road we began the process of fighting, in hopes that the pendulum would begin to swing the other direction and fairness and a commitment to the care of America’s elderly would prevail. We were accredited and re-accredited by the Joint Commission in 2005, 2008 and 2011 at a cost of tens of thousands of dollars. We dealt with the bonding requirements that were enacted. And, we dealt with continuous reimbursement cuts that seemed to be coming at us on an annual basis.

What we did to combat all these changes was to grow by acquiring failing companies, to take on different modalities of care such as DME and sleep therapy and most importantly to get involved with the legislative process. I even took the giant leap and started a company in a different state to diversify both my customer base and service portfolio. Others engaged alternative strategies, but I did everything in my capacity to respond to these federal reimbursement changes. But they were coming too fast.

We watched as Round One of competitive bidding came and went and felt like we had a good handle of how to win a Medicare contract. As Round Two hit our area we spent thousands of dollars to hire “experts” to ensure that our bid was as strong as possible and that we walked what we perceived is the fine line between winning a contract and staying in business. As it turns out the fine line was nonexistent. We pushed the limits of what we thought would keep our “doors open” and the winning bids were double that number. I was floored.

As the months have passed since the beginning of the implementation of the MMA 2003 I have endured the following.

• The closure of our California business within six months after the Round Two implementation commenced.
• I have watched friends who won the bid struggle to “keep their doors open.”
• I’ve watched leaders of industry, some of whom were my mentors with business smarts well above my pay grade, close their doors.
• I have acquired failing companies.
• In an attempt to, once again, change the direction of the company, I became credentialed as a registered sleep tech and threw my hat in the sleep diagnostic realm.
• I have made an effort to join and participate more actively with NAIMES and now AAHomecare to boost our national lobbying efforts. I have learned that what is clear and plainly good for our patients and the elderly is not what our legislators are concerned about. If you are not involved in educating and communicating with your legislators nothing will happen.
• Most painfully, I’ve lost a marriage of 17 years due to my focus on the business and not the family. This is a story unto itself and, I believe, is one of many unintended consequences of the legislation that undermined the rich diversity of an important piece of the healthcare economy.
• Finally, after all the sacrifices made to “keep the doors open” and care for patients, employees, and referral sources, the IRS decided to audit us professionally and personally. (Nice!)

The most frustrating part of this entire process was two-fold: First, a majority of legislators that I spoke to were not interested in hearing about much less learning about the industry as a whole and really what it is that we do in providing oxygen and supportive care and medical equipment. Second — and more frustrating — it didn’t have to go this way. People and families like myself own the majority of small- to mid-size DME companies, and we all understand the ramifications of Medicare solvency. As a whole I believe that most of these companies that were providing great care to our patients would still be around if the cuts and restructuring were more reasonable.

One can quibble with my strategy, but our industry has witnessed the demise of many firms who took a variety of approaches to responding to competitive bidding. I doubt I am alone, however, in receiving calls regularly from former patients who simply do not know how to navigate in the new environment.

I don’t tell my story to invoke pity, but rather because I think that sharing these stories is imperative at the very least to help get the pendulum swinging in the other direction. Now, what is your story?

This article originally appeared in the December 2014 issue of HME Business.