An industry under continued reimbursement pressure must channel efficiency

Friday, September 30, 2005

Over the last decade, the homecare industry has seen numerous reimbursement or eligibility challenges including, among others, the Balanced Budget Act of 1997, the Prescription Drug Bill of 2003 and Medicare's reinterpretation of medical necessity requirements for power wheelchairs for seniors that led to a large market decline in 2004 and 2005. New codes and new fees for power wheelchairs and scooters in 2006 and competitive bidding starting in 2007 will just continue the pressure. Any participant in the homecare industry, manufacturer or provider, must prepare for continued reimbursement pressure over time.
We continue to hope that policy makers will pay attention to the message that U.S. Health and Human Services Secretary Michael Leavitt delivered in a February 2005 speech. Mr. Leavitt emphasized that home care is a major part of the solution to rising costs of Medicare and Medicaid. More precisely, he cited the following data to emphasize this point: "In Vermont, 85% of the Medicaid population over 65 still live at home. In New Hampshire, only half can live at home. And Vermont spends less than half as much per elderly person on Medicaid as New Hampshire, freeing up money that can serve more people."
However, we cannot wait for policy makers to do a better job of allocating money along the continuum of care. The homecare industry must focus on improving its efficiency, for example, by choosing products that have the lowest life cycle cost and by lowering its delivery costs with some direct shipment to patients. While the emphasis on cost is important, innovation must continue in order to make sure that the patient's needs are served well. In fact, innovation needs to be focused on a combination of cost and product innovation. Both are critical to an industry under reimbursement pressure.
The HomeFill II Oxygen System is one of several products to hit the market in recent years that is designed to help providers do more with less. Previously, providers needed to spend substantial capital on an oxygen filling system, a large inventory of cylinders and trucks to deliver the filled tanks of oxygen. With HomeFill, the homecare provider can avoid this sizable investment and enter one of the most profitable markets for the homecare industry - the respiratory market for portable oxygen. It is changing the way oxygen providers do business. In future years, Invacare expects that delivering ambulatory oxygen by truck will decline substantially. Providers need to embrace a more efficient and lower cost methodology when it is provided, or they risk being left behind.
Another way for homecare providers to be more efficient is to consider the benefits of consolidating their choice of manufacturing partners. The pressures from competitive bidding and other reimbursement changes should encourage the homecare provider to make certain that it has a strong supplier relationship to provide the right product and the related credit support in the future. In a competitive bidding scenario, winning bidders will have strong supplier partners.
The industry also should look more closely at its distribution costs through the entire chain from manufacturer to patient. Though some suppliers already ship over 50% of their supplies directly to the homecare provider's patient with the homecare provider's name on the packaging, there is still opportunity to increase this percentage. The percentages of those shipping equipment directly to patients today is substantially lower. Suppliers need to develop the ability to efficiently direct-ship in order to help homecare providers reduce the costs of carrying inventory.
Finally, it is important for industry participants to continue discussions on accreditation. The industry should be self-policing in order to avoid repetition of the fraud that occurred in Houston in 2003. Accreditation does not have to be perceived just as a cost or the avoidance of fraud. For example, accreditation could help avoid some of the paperwork that seems to be required for the new Medicare regulations for power wheelchairs. As part of the new codes, there appears to be quite a lengthy requirement for the physician to support the prescription. In contrast, a physician who prescribes pharmaceuticals does not have to file such substantial paperwork. If the industry were successfully self-policing, its ability to win better treatment from Washington would be enhanced.
In conclusion, reimbursement pressures are unlikely to be less in the next five years than they have been seen in the last five years. Providers will need to examine their way of doing business in order to survive and then succeed in the future.


Mal Mixon is CEO of Invacare.