More reimbursement pressure coming?

Thursday, July 31, 2003

YARMOUTH, Maine - A freeze on Medicare consumer price index and cost of living allowance increases is nothing new to manufacturers. They’ve ostensibly operated under a price ceiling since the Balanced Budget Act of 1997 and have more or less accepted it as a reality of doing business.

All told, manufacturers say they would rather take their chances with another seven-year price freeze than submit to the volatility of national competitive bidding.

Although the U.S. House of Representatives, led by California Republican Bill Thomas, is still advocating national competitive bidding for durable medical equipment in its Medicare reform legislation, the Senate Financing Committee’s CPI and COLA freeze proposal appears to have gained momentum, Beltway observers say.

While preferable to competitive bidding, a CPI and COLA freeze could still pose challenges to the manufacturing sector, company officials say. Since BBA ‘97, industry prices have largely remained frozen despite that some costs – namely insurance – have risen dramatically.

“Insurance rates represented the biggest increase of any expense last year - $4 million to $5 million higher,” said Mal Mixon, president of Elyria, Ohio-based Invacare. “It shot upward after September 11. We’ve got it more under control this year, but we have to offset those increases in other areas of the business.”

Among the adjustments Invacare is making is to move production to “lower cost environments” and increase productivity 10% per year, Mixon said.

“If a plant makes 100 chairs this year, they’ll have to produce 110 next year with the same resources,” he said. “As an industry we have to knuckle down and measure productivity and what drives costs.”

Company size is irrelevant when it comes to the CPI freeze, as its impact is hitting conglomerates like Invacare and small independents like St. Petersburg, Fla.-based Lifestyle Mobility with equal force.

“It has reached a point where we’re trying to get margin from a margin now,” said Lifestyle Mobility President Darrin Horst. “If cloning was possible, we’d take a product we manufacture and duplicate it.”

Although Horst says he’s not ready to panic, he admits to not knowing what the company’s future course will be.

“We’re not sure of how we’ll respond yet,” he said. “I don’t want to take a ‘wait-and-see’ approach, but I don’t want to make a knee-jerk reaction, either.”

So far, Mundelein, Ill.-based Medline Industries isn’t looking at wringing out more productivity. Instead, it is concentrating on making its product line more versatile so providers can buy and stock fewer goods for the same patient population. Jack Bowser, president of Medline’s durable medical equipment division, points to a next-generation wheelchair line as an example.

“This will be the first standard wheelchair with a push button quick release axle,” he said. “It’s a more versatile chair so instead of carrying three SKUs for three patient groups, providers only have to carry one.”

Despite whatever hardships a continued freeze could impose on the industry, it’s still preferable to competitive bidding, Mixon said.

“If we carry the day in lieu of competitive bidding, it will take a lot of uncertainty out of the industry,” he said. “We have lived under a freeze since 1997, but we’ve received a half-percent CPI rise here and half-percent COLA rise there over that time. We’d love to have COLA, but it’s not something we’ve enjoyed much in recent years and we have to continue improving our efficiencies every year.”

Besides having to live with an artificial freeze for the past five years, manufacturers have had to deal with downward pricing pressures exerted by the market as well.

“Every year dealers expect our prices to go down, so our prices have consistently gone down,” said DuWayne Kramer, president of Kansas City, Kansas-based Leisure-Lift. “That’s true across the board – for lift chairs, wheelchairs and scooters.” HME