Study strengthens rehab industry's stance

Sunday, August 3, 2008

WASHINGTON - A new study paints a drab picture of the complex rehab industry: On average, providers of high-end wheelchairs make only a 5% profit, with equipment purchases and operations eating up nearly all of their annual revenues.

While this is no surprise to rehab providers, industry stakeholders hope it is for decision-makers and payers.

"When we're dealing with the OIG, Congress or CMS, we now have valid data that gives them a little better insight into what we mean when we talk about all these expenses," said Don Clayback, vice president of government affairs for The MED Group and part of NCART's executive leadership.

Fifty-nine rehab providers of all sizes participated in the study, conducted by the University of Rochester's Simon Graduate School of Business. The industry initiated the study earlier this year after the Office of Inspector General (OIG) released a report that stated Medicare pricing for 28 power wheelchair codes was 45% higher, on average, than median Internet pricing. Since the report was released, the OIG has been surveying providers to take a closer look at their costs structures.

According to the survey: Small companies, those with less than $5 million in revenues, make a 3% profit; medium companies, those with up to $10 million in revenues, 7% profit; and large companies, those with more than $10 million in revenues, 5% profit.

The study found the majority of rehab providers are small providers (53%) or medium providers (42%).

Purchasing equipment eats up about 50% of revenues for small providers; about 46% for medium providers; and about 48% for large providers. For operations, the biggest expenses for both small and medium providers were evaluation, specification, fitting (21% and 28%, respectively). For large providers, it was intake, qualification and documentation (20%).

"One of the major goals of this study was to show the cost intensiveness of this industry," said Doug Westerdahl, a rehab provider who's involved with both NCART and AAHomecare's Rehabilitation and Assistive Technology Council (RATC). "It wasn't about just asking for their bottom lines."

In its conclusion, the study hints at the industry's concerns about decreasing access.

"Under such a low profitability, it is extremely hard to forecast the financial performance of the industry," the study states. "The threat of more and more firms exiting the industry becomes stronger as profitability goes lower."