'Unbundling' Medicare reimbursement

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Tuesday, April 30, 2002

The boldest proposal to come out of the recent AAHomecare Leadership Conference in Tucson - indeed, the most ambitious plan to reorient the way HME providers do business since the Six Point Plan and the Balanced Budget Amendment of 1997 - sprung from a Power Point presentation by MED Group CEO David Miller.

In short, Miller's plan would rewrite the rationale and formula behind the Medicare fee schedule. Where today DMEPOS suppliers are reimbursed for product only, Miller's "fresh approach" would identify the costs of product, professional service and what he calls a "functional needs" analysis, and reimburse suppliers, when appropriate, for all the costs of providing product.

At the same time, Miller is proposing that the industry set new professional standards for provider participation in the Medicare program, not unlike the standards that govern participation in the orthotics and prosthetics and prescription pharmacy industries.

The "Fresh Approach to Reimbursement" presentation he delivered at AAHomecare's Leadership Conference is a synthesis of ideas shared with and generated by MED Group members at a variety of MED events.

"When I project this presentation up on the screen, they say, 'Wow, we have a big task,'" says Miller. "Then they say, 'But we don't have a choice. These changes simply must be made'"

Miller estimates it would take four to six years to roll out such a plan. But he doesn't expect the idea to gain traction unless a critical mass of players forms a coalition to advance the initiative, both inside and outside the industry.

At first blush, about four out of five HME News readers favor a proposal to unbundle product, service and clinical assessment, according to this month's HME NewsPoll (See page 62). After the Leadership Conference, Miller fielded a number of questions about the plan in a March 20 interview.
Question and answer
HME NEWS: Why now? Has technology or the way HME providers do business changed so dramatically that the industry needs to take a fresh look at reimbursement?

DAVID MILLLER: Yes, and there are three compelling reasons: new technology and products for home care, quicker dismissals from hospitals and the desire of the patients and their families to be cared for in the home. Add these factors to the graying of America and one can easily see what is driving the need for us to be better providers.

HME: In your presentation, you use the word "sophisticated" to describe the kind of provider this fresh approach demands. What do you mean?
DM: To be a sophisticated provider means at least two things. One, that you have put together a staff of people who are educated, motivated and willing to continue to improve themselves so they can deliver the best service. And two - here I'll borrow a line from a book by Michael Gerber called The e-Myth - our business owners have to gain the discipline to begin working on their businesses and not just in their businesses. Many providers today are either good salesmen or good technicians. But sometimes, there's no one really managing their business, it's managing them.

HME: If I understand the proposal correctly, only those providers who meet these new standards would be able to provide product and service to Medicare beneficiaries, in the same way that only NRRTS members, now, can provide rehab products to people in Georgia's Medicaid program.

DM: That's right. There would be some requirement, if you will, mandated by the payer, that you must meet professional standards before you can dispense that product. And let's take it a step further. You've got to meet these standards before a manufacturer is able to sell to you, by law. If it's a bath bench, the standard is pretty low, but if it's a home ventilator, oxygen concentrator, CPAP or power chair, for example, there's a higher standard.

HME: Are we talking about an overhaul of the whole fee schedule or just a portion?

DM: I am open to letting there be carve-outs. Practically speaking, it would be foolish to say you need a rocket scientist to turn a screw in a home appliance. You just don't need that. We do need different committees or task forces to take a look at these issues. One of those teams would need to answer that very question.

HME: This industry tried to create some standards years ago, but the initiative didn't go anywhere. Why not?

DM: One significant reason was the distraction caused by the Balanced Budget Amendment of 1997. That stung the provider community badly. The oxygen cut, the freeze in the COLA, competitive bidding. Timing is everything, and the time has come for sweeping changes in our reimbursement system. People are financially stressed. They're either in trouble, or they're not being nearly as productive and effective as they could be.

HME: You said in Tucson that "This formula no longer works." You were talking about the current fee schedule. It's anachronistic.

DM: When I say "the formula" I'm not just talking about the triangular reimbursement scheme. You have to look around and see how many people have gone out of business in the last year; how many are struggling to make payroll; how many are so far behind in payments to vendors that they are using double digit lease rates in order to finance equipment - equipment they may not be renting but selling. When the prime lending rate is under 5% and you should be able to borrow at about 7% but can't, that just proves that this business formula doesn't work.

HME: What happens if the formula doesn't change. Is the formula partially responsible for the fraud and abuse cloud that hangs over this industry and does the status quo merely perpetuate a climate for fraud and abuse?

DM: I think that's one of the things that happens. Look at the expenditures the OIG is putting into investigation of totally innocent people. People who have simply made mistakes are being pursued almost as heavily as those perpetrating fraud. In our industry, financially, there's just not a great future in terms of the survival rate if people have to continue to deal with such a complex system.

HME: So how does changing the fee schedule and raising standards mitigate fraud and abuse?

DM: Fraud and abuse has a lot to do with the government's creation of many of the obstacles to getting paid. If there must be obstacles, let's put them up front so that a company must be qualified before it can ever become a provider.

HME: In a study released by AAHomecare last fall, the Lewin Group found that the cost of goods for nebulizer medications represented just 26% of the total cost of providing nebulizer medications. Does the industry need more studies like this to justify such sweeping changes?

DM: We have some studies, and we do need more studies. For example, W.B. Mick [director of MED's National Rehab Network] just released a study about how much it costs to do rehab repairs. New York State did an incredible study, which showed that every time a provider fits a custom seating system he or she is making very little money, if any, because of the time that is put into customized equipment. We need the same type of studies, to be updated and refreshed, on what it costs to deliver an oxygen concentrator, a CPAP, a high quad recliner etc.

HME: Is there any receptivity at CMS for these kinds of changes, or is that yet a bridge to be built?
DM: That's another bridge we must build. But I think CMS under Administrator Tom Scully is more open than ever before to progressive change. I think the [Bush] Administration is more open to this kind of change, as well.

HME: But isn't the Medicare pie only so big? Any proposal that would provide reimbursement for service and analysis might raise the specter of a bigger homecare benefit in Washington.

DM: That's why all this has to be budget neutral for the government. It cannot be, "Oh, by the way, it's going to add another 20% to the cost of delivering HME." For current products, we are not necessarily asking for higher reimbursement. Instead, we see benefit for all parties - the payer, the patient, the physician writing the CMN, and the provider if the system were modernized.

HME: So why go to all the effort to pursue such "modernization"? In a sentence, summarize the purpose behind such an initiative.

DM: In a sentence? I can't even say "good morning" in a sentence. But, I will summarize by saying there are millions of Americans who labor under the burden of illness, injury or disability. They need what the members of our industry have: professional service, quality products, and caring hearts and hands. Without serious thought to significant changes in the reimbursement environment, those fellow citizens will not receive the level of care that is needed for health in the home.

HME: Finally, what do you need to move this project forward?

DM: Open minds. Fresh ideas. Cooperative spirits. Creative thinking. Money. Time. Consumer support. Manufacturer and provider participation It is a complex jigsaw puzzlea puzzle, quite frankly, too complicated for any one individual or organization to solve. But, together, in a unified fashion, we can make a positive, lasting footprint on the landscape of health care in our great nation.

HME

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