Vendors react to Medicare cuts

Wednesday, December 31, 2003

YARMOUTH, Maine - The draconian cuts to HME reimbursement proposed by the Medicare Prescription Drug Act are resurrecting an age-old debate between the cost and the price of home medical equipment.

It is an argument that proponents of lower lifecycle cost believe they’re winning, but also an argument that requires more gusto as lower price alternatives woo reimbursement-challenged providers.

Take, for example, this visit by a manufacturer’s rep to C&C Homecare in Bradenton, Fla., the day after the HME industry emerged as a big loser in the Drug Act. The rep was pushing a novel technology that promised lifecycle savings and all kinds of demand by patients, but there was little demand from Joan Cross, C&C’s director of operations.

“If the patient wants to pay for it, I’ll be glad to get it for them,” she said. “They’ll be the only people who can buy them.”

Cross and others on the HME supplier side of the business believe one surefire consequence of the Drug Act will be a lack of interest in the development of new technologies by manufacturers.

“The first thing that’s going to go is R&D, and this at a time when technology should be at the forefront,” said Tom Ryan, president of Homecare Concepts in Farmingdale, N.Y. “We’re going to see a hoarding of technology and people going back to older technologies because they are not putting money into R&D anymore.”

Invacare, for one, doesn’t anticipate any interruption in its R&D plan. The company has stated that the $20 million it spent on R&D at its $1 billion revenue mark will continue to grow toward $60 million of the $2 billion the company plans to be generating annually within five years.

“You have to look at new products and new services to keep growing,” said Lou Slangen, Invacare’s senior vice president of sales and marketing. “We are an industry that has a built-in, underlying demand growth. That demand is going to be there, and the smart people that do the R&D and come up with better products are the ones that will survive and flourish.”

Slangen isn’t persuaded that the Drug Act cuts will drive commoditization of HME product or increase that wedge of the industry for whom price of product is the primary driver in purchasing decisions. In a recent HME NewsPoll, 22% of 54 respondents stated that price was their primary driver.

At Drive Medical Design & Manufacturing, Executive Vice President Doug Francis expects that percentage to rise as HME providers jettison bells and whistles for good quality, lower-priced product as they prepare bids for competitive bidding in 2007.

“[HME suppliers] are going to look at the potential for business rather than the potential costs associated with delivering the products and look to bid the lowest possible price they can do based on their costs,” said Francis, “and then figure out how they can service that contract.”

Suppliers, by and large, don’t expect manufacturers to lower pricing as a result of the cuts. But as suppliers are already mulling the benefits of cost-lowering mechanisms like activity-based costing, so too are manufacturers.

“We’re going to try to reduce our costs through efficiency measures,” said Pride Mobility Products President Dan Meuser. “We want to give more product for the money.”

Although the margins on oxygen concentrators are so low that they’ve driven some vendors, like Puritan Bennett, from the field, AirSep President Joe Priest said there may still be cost-shaving opportunities there.

“Is there more money that can continue to come out of concentrators?” said Priest. “Sure there is if we continue, which we will, to invest in improved efficiencies, new componentry. We have done a fantastic job over the past five years in reducing costs on the product.”