New Report: CPI freeze chills providers to the bone

Monday, January 31, 2005

MELBOURNE, Fla. - What appears to be the most innocuous provision of the Medicare Modernization Act may actually be the most dangerous, HME financial analyst Wallace Weeks asserts in a new report. The five-year Consumer Price Index freeze, starting in 2005, has the potential to catch HME providers off guard as they focus on the more drastic reimbursement cuts and competitive bidding, he said.
Wallace Weeks

The 29-page paper, called “Succeeding in Homecare After MMA,” is designed to help providers plan their future strategy amid the potentially harmful new policies under the redesigned Medicare system. At the outset, Weeks makes some bold predictions about how the legislation will impact the HME industry as a whole. He bases his assertions on data he collected from CMS and “applying simple math.”

His first forecast serves as a warning to providers not to take the CPI freeze lightly.

“The industry really needs to think about the insidious nature of program updates,” he said. “Up until this year, the annual program updates included the CPI adjustments for inflation, which companies are used to getting. There will be no more of these anytime soon and even if the inflation rate stays steady at 2.5%, that’s 12.5% going away a little at a time over five years. Meanwhile, the cost of business is still going up.”

Tom Pryor, president of Arlington, Texas-based Integrated Cost Management Systems, says Weeks is right on target.

“The CPI freeze is like a leaky faucet,” he said. “At the start it doesn’t look like much, but by the end of the day you realize that it amounts to several gallons.”

To be sure, the freeze has gotten lost in the blizzard of punitive measures, agreed Don Clayback, vice president of networks for Lubbock, Texas-based MED Group.

“Ironically, the industry was willing to take the freeze in lieu of other things, but instead we got hit with everything,” he said. “How bad it hurts depends on each provider’s situation. Depending on the markets they serve, they might be more affected by a 10% reimbursement cut for oxygen or 20% cut for a hospital bed. But CPI has gotten lost in the confusion. The bigger message is the combination of CPI, competitive bidding and FEHBP reductions.”

Conversely, Mike Barish, president of Coral Springs, Fla.-based AnCor Healthcare Consulting, isn’t sure CPI is what providers should be worrying about most.

“No doubt it’s damaging, but I don’t know if it’s the most damaging,” he said. “It may depend on where the company is located. If I’m in one of the largest MSAs in the country, it may not be my biggest concern.”

Even so, the CPI freeze is a threat providers need to be vigilant about and perhaps take on as a grassroots lobbying issue, said Jim Phillips, president of Waterloo, Iowa-based VGM Financial Services.

“Over five years, the build-up is significant and could have a dramatic effect,” Phillips said. “I don’t know many companies that would charge the same price five years from now. It’s time for the industry to make this point with Congress. They have reversed legislative policies before, so it’s not unprecedented that they would do this.”