How Bad Is It, Really?

Is the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 better or worse than we expected? How will it affect your company? Our lawyer friends would answer, “It depends.”

There are some effects that we can quantify and that prove the lawyers' answer right. For example, 13 million seniors not previously covered will get prescription drug coverage. Retail pharmacies will register a net increase in sales of about $12 billion in 2004 — a 6 percent jump that will grow at 13 percent per year.

So, is it all bad if your company is a pharmacy or a combination pharmacy and durable medical equipment provider?

Out-of-pocket spending for drugs by seniors is currently about $11 billion per year. Seniors will reallocate some of that cash to purchase other items they need and want, and DME providers will have as good a chance of capturing that money as the car dealer, travel agent, mortgage company and grocer.

So, is it all bad if your company files fewer indigent-patient waivers and makes more discretionary DME sales?

Half-Full, Half-Empty

After a peek at the half-full glass, let's peek at the half-empty glass.

Over the next five years, Medicare will cut 19.3 percent from its spending for DME through the Consumer Price Index freeze and the adjustment to average Federal Employees Health Benefits Program (FEHBP) reimbursement. The effect on the DME provider could even be worse if inflation rises above 2.5 percent per year. And this is before we even get to competitive bidding.

In 2002, we fought fiercely to stop competitive bidding that could have made our companies subject to 17 percent reductions in Medicare reimbursement rates all at once. The Centers for Medicare and Medicaid Services (CMS) cannot let a contract under competitive bidding unless the contract reduces spending, so we should expect reductions. However, it seems reasonable that competitive bidding will not yield 17 percent reductions because the margin already will have evaporated. The reductions in 2008 and 2009 will be much more modest, in the low-to-medium single digits.

Although Medicare reform will probably remove more dollars from our industry than competitive bidding would alone, it will do so over a number of years.

So, is it all bad that we now have one to two years to tune up our businesses?