Industry Dynamics

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Industry Dynamics

• Rita Hostak
• Vice President Government Relations

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Agenda

• Competitive Bidding and MIPPA
• Quality Standards
• Non-Medicare
• Price Setting Alternative Methodology
• Building and War Chest

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Competitive Bidding

• Medicare Improvements for Patients and Providers
  Act (MIPPA) of 2008 (HR-6331)
• Contracts are terminated
• Damages Payable from Federal Supplementary
  Medical Insurance Trust Fund
• Delays Round 1 and 2
• Exempts Complex Rehab
• Reforms

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Competitive Bidding Continued

• Delay- Round 1
• Conduct competition so that round one will occur
  in 2009
• Same Areas excludes Puerto Rico (9 rather than
  10 CBAs)
• Same Items Except Negative Pressure Wound
  Therapy and Complex Rehab
• Round 2- In 2011
• Same MSAs as announced
• Allows the Secretary to subdivide MSAs with
  populations of at least 8,000,000 into separate
  areas for competitive acquisition purposes
• Subsequent Rounds occurring before 2015 shall
  exclude
• Rural Areas
• MSAs not selected for round 1 or round 2 with a
  population of less than 250,000
• Low population density within a MSA that is
  otherwise selected

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Competitive Bidding Continued

• Missing Financial Documentation
• The Secretary shall notify the supplier of any
  missing financial documentation within 45 days
  for round 1 or 90 days for subsequent rounds
  after the document review date
• No bid may be rejected on the basis that
  documentation was missing if it is submitted no
  later than 10 business days after the date of
  notice.
• Budget Neutral Offset
• All items included in competitive bidding prior
  to July 1, 2008 including all related accessories
  but only if furnished with an included item will
  receive a reduction in reimbursement of 9.5 in
  January 2009.
• All other items will receive the CPI increase
  (U.S. urban average) (5)
• 2010, 2011, 2012, 2013 all products receive the
  percentage increase in the CPI
• 2014- items receiving the cut in 2009 will
  receive the CPI increase plus additional 2.0
  percent increase- as long as this adjustment has
  not been made in a previous year.

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Accreditation

• All previous deadlines have been eliminated
• Legislation requires all suppliers be accredited
  by October 2009
• CMS currently has deadline set for September 30,
  2009
• Draft Standards to be released soon- before Labor
  Day?

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Quality Standards for Rehab

• Physical Location
• Direct Employee vs. Contract Employee
• Repairs
• Excluded Persons

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Whats Next?

• Seeking Technical Amendment to MIPPA 2008
• Alternative Solutions for 9.5 Cut
• Implementation of MIPAA by CMS
• Exemption for Manual Wheelchairs and Seating
• Coding
• Improved coding for related accessories and
  seating
• Manual wheelchairs
• SADMERC transition to the PDAC- Noridian awarded
  contract Palmetto out
• New Medical Director for PDAC and DME MAC

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Non-Medicare

• Medicaid
• Managed Care Organizations
• SCHIP
• Others

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Non-Medicare

• Budget shortfalls
• Increase in dependence on government funded
  healthcare
• Unemployment
• Economic impact-escalating healthcare costs

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Non-Medicare

• All Roads Lead to Medicare
• Coding
• Coverage
• Pricing

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Alternative Price Setting Methodology

• Notice of Proposed Rule Making (NPRM)
• Expected this Fall
• Sneak Preview

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Building a War Chest

• Our Biggest Success (besides the rehab
  exemption)- Differentiating Rehab from DME
• Defining Complex Rehab
• Complex Rehab Service/Delivery Model
• NOW- We Must Make It Mean Something
• Reimbursement for the additional services?
• New benefit category?
• Coding changes?
• All of the above?

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Payment for the Services

• Must Establish and Prove Costs
• CMS treats all DME the same
• Could require legislative strategy
• Must have independent data

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A Day in the Life of a Rehab Supplier

• A- Order Intake, insurance verification and
  scheduling
• B- Evaluation and equipment simulation/trial
• C- System specification write-up, coding and
  pricing
• D- Medical documentation preparation and
  gathering
• E- Predetermination of medical necessity and
  funding
• F- Ordering and receiving of products
• G- Assembly, adjustment of products, and delivery
  prep
• H- Delivery, set-up, fitting, and training
• I- Billing and collection
• J- Post-delivery follow up

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The Devil is in the Details

• 1- Intake
• a- Field Incoming Call
• b- Obtain Basic Patient Demographics
• c- Schedule Evaluation
• 2- Verify Funding- All Insurers
• 3- Do IVR Call to Check Same or Similar
• 4- Evaluation- Prepare
• a- Coordinate Evaluation with Clinical Team
• b- Prep Paperwork
• 5- Evaluation- Demo Prepare
• a- Locate Demo Product
• b- Modify Demo for Specific Patient
• 6- Evaluation- Loaner Equipment
• 7- Evaluation- Drive Time
• 8- Evaluation- In Clinic
• b- Assessment and Measuring Patient
• c- Product Trial-Simulation
• d- Reimbursement Review- Coverage Criteria
• e- Document Specs and Prepare Evaluation Notes

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Details Continued

• 9- Evaluation- In Home
• a- Assessment and Measuring Patient
• c- Product Trial-Simulation
• d- Reimbursement Review- Coverage Criteria
• e- Document Specs and Prepare Evaluation Notes
• f- Home Assessment
• 10- Evaluation- Repeat Steps 6,7 and 8- When
  Required
• 11- Evaluation- Re-Schedule- When Required
• 12- Evaluation- Post
• a- Prepare Order Specs
• b- Paperwork Completion
• 13- Create Electronic File
• 14- Update/Complete Demographics
• 15- Provider Quote Process
• a- From Manufacturer
• b- Enter Specs in Provider System
• c- If New Product- Add To System
• 16- Coding and Pricing
• 17- Documentation Prep and Gathering

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Details- Continued

• 18- Pre-Determination Process
• a- Initial Submission to Insurer
• b- Additional Follow Up
• 19- Documentation QA- Before Ordering
• 20- Re-Verify Funding
• 21- Re-measure Patient (If Necessary)
• 22- Purchase Product from Multiple Manufacturers
• 23- Receive Product from Multiple Manufacturers
• 24- Delivery-Prep Equipment
• a- Assemble components and seating
• b- Equipment QA
• c- Re-order wrong components
• 25- Delivery-Prep Paperwork/Documentation
• a- Re-Verify Funding
• b- Paperwork
• a. Delivery Ticket
• b. Signature Waiver
• c. ABN
• d. Product Training Documents

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Details- Continued

• 26- Schedule-Coordinate Delivery
• 27- Delivery
• a- Drive Time
• b- Training
• c- Adjustment
• 28- Delivery- Repeat as Needed
• 29- Post Delivery Documentation QA
• 30- Billing and Collection
• a- Collection Activity-Primary
• b- Post Payment to AR
• c- Bill Secondary Insurer
• d- Collection Activity-Secondary Insurer
• e- Post Payment to AR-Secondary Insurer
• f- Repeat above steps for Tertiary Insurer

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Details- Continued

• 31- Post Delivery RTS Follow Up
• Other Possible Activities
• 1- Fielding Calls from Patients and Referrals to
  check Order Status
• 2- Communication with Manufacturers to Verify
  Compatibility of Components
• 3- Re-Scheduling Cancelled Evaluation and/or
  Delivery Appointments (15 of the
• Time)
• 4- Step 17 can be repeated numerous times to
  obtain the necessary documentation
• from clinicians

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Product Cost vs. Service Cost

• Moran Report released in 2006- Findings
• Completed results from 27 companies providing
  rehab and assistive
• technology to Medicare patients, providing
  evidence regarding their operating
• income and payer mix.
• These respondents were relatively homogenous,
  showing comparable shares for product cost and
  non-product operating expenses as a percentage of
  revenues.
• Of the 27 observations reported, only three
  providers realized net operating
• income higher than 5 of revenues. The
  median observed net was 1.6.
• Five of the 27 companies reported negative
  operating income in the most recent period.
• the ratio of product acquisition costs to
  revenue. As indicated in the graphic, 22 of 27
  providers or 81 - had product acquisition
  costs within /- 5 of 50 of total revenues.

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Product Cost vs. Service Cost

• The ratio of non-product expenses to product
  acquisition costs fell typically in the range of
  0.9 to 1.1.
• Five out of 27 respondents reported losing money
  on this segment in the accounting period
  reported only three respondents indicated net
  operating income as a percentage of revenues
  greater than 5. The balance clustered in the low
  single digit range. The median observation was
  1.6.
• Profit margins ranged from 1-2

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Simon Business School Report

• The companies that participated in the survey
  were from all across the United States The
  participants were companies with annual revenue
  varying from a compact 250,000 to an expanding
  21,000,000.
• Divided into three (3) major groups
• (1) Small Companies Annual revenue - less than
  5 Million (representing 53 of the industry)
• (2) Medium Companies Annual revenue - 5 Million
  to 10 Million (representing 42 of the industry)
• (3) Large Companies Annual revenue - more than
  10 Million (representing 5 of the industry)

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Simon Business School Report- Continued

• 59 companies represented as follows
• Small 31 companies- 53
• Medium- 25 companies- 42
• Large- 3 companies- 5
• of revenue from complex rehab sales
• Small 75
• Medium 87
• Large 87
• Pretax Profit by category
• Small 3.44
• Medium 6.87
• Large 4.83
• Small Category- Largest sector of the business
• 33 lost money in 2007
• Cost of Sales averaged 50.16
• Operating Expenses averaged 46.13
• Medium Category
• 44 lost money in 2007
• Cost of Sales averaged 46.46

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Sam Schmidt Paralysis Foundation

• Georgia Tech and University of Buffalo
• NCART

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New Benefit Category

• Requires Legislation
• Not Easy Path
• Not Risk Free
• Requires data

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Revised Coding

• New Players
• Hard to get desired outcomes
• Risk
• Could require legislative strategy

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All of the Above

• Heavy Lifting
• Use Momentum Generated for Exemption
• Risk
• No Guarantees
• Weariness

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