Manufacturers prep for product scrutiny

Wednesday, January 31, 2007

Though HME providers will yield less reimbursement as the Deficit Reduction Act caps rentals for durable medical equipment at 13 months, there's more incentive than ever to buy more expensive, higher quality items to service patients.
Why? Because the act requires suppliers to provide equipment that will remain in good, working order for five years. Medicare will pay for "reasonable and necessary" replacement parts, but suppliers will be on the hook to replace products if the carriers determine that the equipment was inferior. Many manufacturers doubt there'll be an appreciable shift in the numbers of providers buying higher quality or cheaper products, they do expect providers to shop more wisely.
"Providers are now asking about the life cycle of the products," said Lou Slangen, senior vice president of worldwide market development at Invacare.
Likewise, Graham-Field has noticed that more suppliers are scrutinizing purchases.
"While price is still the primary driver, our customers are doing more side-by-side comparisons," said Lawrence de la Haba, a vice president at Graham-Field.
Typically, providers look to manufacturers for price breaks when they've taken a hit on reimbursement. Over the past five years, acquisition costs for HMEs have declined as new low-cost manufacturers have entered the market. At the same time, the costs of transportation and raw materials have been rising.
An Alcoa report issued in early December showed that the cost of aluminum has skyrocketed by 60% in the last year and a half. Though manufacturers may already be at the rock bottom with regard to pricing, they still may be subject to pricing pressures.
"All manufacturers will rethink product specifications, warranty, shipping policies, terms and pricing on some of the products they offer," said Andy Jones, national sales manager for Access Point Medical. "These will be the high volume products where pricing competition has been most contentious and providers have enjoyed the benefits of reduced pricing."
However tempting it would be to shave costs by engineering thinner tubes on a walker, some of the industry's manufacturers understand that the risk is simply not worth it.
"A lawsuit can easily cost us a half million dollars," said David Jacobs, vice president of Medline's home medical equipment division, "so the savings that we might realize is a lot less than one lawsuit. When we get sued, our providers get sued, too."
One adverse and perhaps unanticipated consequence of the act is the amount of exposure that suppliers are likely to have on products in the field. Since they typically do not transfer with title, warranties industry-wide are likely to expire when the HME transfers title to the patient after one year.
This is a challenging issue for manufacturers, who are still trying to figure out what to do on this front. Access Point Medical says "warranties should not run longer than the coverage." Graham-Field says it will "continue to offer warranties that reflect the way the product is used." Medline is exploring the differences between servicing warranties with providers and patients. Invacare won't transfer warranty with the title.
"Consumers do not have the staff, the regulatory oversight or the resources to accomplish the necessary inspections and repairs to support products in the same fashion," said Slangen.