Smart Talk: Should I get on board with PPOs?

Wednesday, August 31, 2005

Q. Former CMS Admistrator Tom Scully says that in five years as many as half of all Medicare beneficiaries will migrate to Medicare PPO plans. (Currently, 80% of beneficiaries are enrolled in traditional fee-for-service programs.) What are the financial implications of this for HME?
A. I find it unlikely that half of all beneficiaries will be enrolled in the Medicare PPO option within five years. Traditional Medicare is extremely popular among beneficiaries, and seniors can be highly resistant to change. The only way it could happen is with significant changes to the benefits offered under either traditional Medicare or Medicare PPO plans, which would create a differential to drive seniors to PPOs.
Assuming that this shift did occur, the most important issue for HME providers would be network access. Provider access to these networks would be a necessity. It also appears NCB for HMEs would not apply to the Medicare PPOs, which of course is a good thing for HME providers.
HME providers have borne more than their share of reimbursement cuts. Unfortunately, continued downward pressure on per-unit reimbursement is something we will continue to face forever, both from Medicare and private insurance. Wise HME providers must find ways to deal with gradual downward pressure on per-unit reimbursement. Efficiency is one way to combat rate reductions. Achieving growth in patient numbers and unit volume is another. Achieving the latter requires access to the largest possible base of insureds, be it traditional Medicare, Medicare PPOs or private carriers.
If you believe Tom Scully is right, spend your effort on getting in network with the dominant Medicare PPOs.

Mike Mallaro is CFO for the VGM Group. He can be reached at or (319) 235-7100.