Neb-meds: Providers ‘sitting on the fence’

Thursday, July 31, 2008

Providers who are struggling in the home medical equipment market should stop and take a look at the respiratory medications business to get some perspective. While competitive bidding has the HME sector off balance, shaky Medicare reimbursement rates have turned respiratory meds upside down.

The latest examples of severe instability in the medication marketplace are price nosedives for several key drugs: Perforomist plummeted 86 cents to $4.08 per dose; DuoNeb dropped 25 cents to 58 cents per dose; and Xopenex was cut 12 cents to 58 cents per dose. That’s just for the latest quarter.

“All aspects of home medical equipment, and especially the neb med business, is in a state of flux,” said Tommy Fletcher, vice president of sales and marketing for Crescent City, Fla.-based American Respiratory Solutions. “We continue to see reductions from most insurance companies, including Medicare. It is difficult to put together any sort of long-term business plan in this environment due to the fact that we do not know what to expect much past the current quarter.”

Sam Jarczynski, president of St. Petersburg, Fla.-based Rx Stat, shares the “glass half empty” outlook.

“The market is much worse than it was last year,” he said. “Reimbursement keeps declining and the average sale price methodology keeps creating prices that no one understands. Constant changes in reimbursement and the reality of ‘least costly alternative’ pricing keeps us guessing on how to move forward.”

The result, according to Fletcher and Jarczynski, is that pricing levels have reached a point where respiratory medication supply is virtually unprofitable.

“The only way to make it in the neb med pharmacy business is by having a large volume and reducing overhead as much as possible,” Fletcher said. “Even with that, the net margins are very slim for the risk involved today. It is difficult to justify 2% net margins given the pains that come with servicing customers.”

Jarczynski adds: “The only profit left for a respiratory pharmacy is in the dispensing fee, and that is not much. Most other medication suppliers in the market will not dispense neb meds for Medicare patients any longer.”

Even those manufacturers sitting on the sidelines of the issue feel compelled to comment about the effect hardships are having on the rest of the industry.

“There is so much turmoil and uncertainty in the respiratory market in general,” said Tom Bannon, president of St. Louis-based Responsive Respiratory. “There are so many unknowns that providers are sitting on the fence post wondering which side to jump to. From the vendor side, we’re seeing price increases in raw materials and freight. We’ve absorbed as much as we can, but it has reached a point where we have to pass on these increases. Reimbursement keeps decreasing and prices keep going up, so there’s nothing else we can do. We have no choice.”

Silver lining?

To find any bright side in the respiratory medication business takes some diligent searching. Given the market’s current volatility, however, there may be a glimmer of light off in the distance, said Tim Gordon, director of marketing for Murrysville, Pa.-based Respironics.

“The positive aspects-for lack of a better term-are the demographics,” he said. “There are a lot of people who are coming into the age group where COPD kicks in. So there continues to be a great need.”
Moreover, the pharmaceutical industry pipeline continues to develop new formulations that may be suited to more workable reimbursement rates in the future, Gordon said.

In the meantime, providers should use every advantage at their disposal to try and offset the medication markdowns, he said, including maximizing revenues on devices and building relationships with referral sources and patients.

“Reusable nebulizers can be replaced at six-month intervals, and while many providers are systematic about replacing them, the opportunity is still sitting out there for many,” Gordon said. “By fulfilling patients’ needs well before others, homecare providers have the chance to build their loyalty as they move on to oxygen. They should also continue to forge relationships with referring physicians, such as primary care practitioners, asthma specialists, allergists and pulmonologists.”

Stability needed

If respiratory medication supply has become a business solely dependent on high volumes and dispensing fees, Senior Respiratory Solutions is so far effectively managing within those limitations. The Texarkana, Texas-based supplier performs compounding and sterile medication packaging for some 5,000 patients.

Despite that lofty number, Senior Vice President Shawn Clemons says “it’s not sheer numbers for us-we are people-oriented.” He admits, however, that “volume is how we have continued to survive in these conditions.”

Even so, Clemons says, the Medicare pricing methodology is skewed and a correction is badly needed.

The market is unbalanced and nearly impossible, Clemons added.

“Albuterol is below our cost and Perforomist as well,” he said. “Something is definitely wrong with the ASP and the numbers don’t make sense. We’re hoping for more reasonableness from CMS on this issue going forward.”