UNTIL THE LAST few years, the home medical equipment industry has been able to stave off a wide variety of legislative and regulatory proposals-such as competitive bidding, consolidated billing and inherent reasonableness price reductions-that could drastically alter Medicare reimbursement.

Consider these successes: When policy-makers began hinting at their desire for competitive bidding and IR in 1985 and 1986, industry leaders realized Washington had had enough of the reasonable charge methodology. They knew the age of the "golden commode" was rapidly coming to an end. So the industry wrote its own reimbursement fee schedule, named the Six-Point Plan, and Congress passed it.

In 1989, the industry rallied to fight maximum rates calculated at 95 percent of the national median. The change would have reduced the industry's budget by $75 million. "Congratulations, HME industry. You fought, and you did impact the system," said Jeremy Jones, then president of Homedco Inc. in Fountain Valley, Calif.

In 1993, Medicare spending was reduced by $56 billion over five years-with most cuts made only in physician and hospital fees. In addition to facing relatively few cuts, HME providers were excluded from the Consumer Price Index update freeze placed on other health care providers.

Now, back to the present. The HME industry is struggling in a challenging regulatory environment, with much of the political posturing, budget cutting and new rule threats focusing on three issues: inherent reasonableness, competitive bidding and consolidated billing.

Industry leaders are quick to point out that all three issues have been floating around Washington for years. "The government interest in DME is not new," says Tom Antone, a health care attorney with Mintz, Levin, Cohn, Ferris, Glovsky and Popeo in Washington, and president of the National Association for Medical Equipment Services from 1985 to 1990.

"But," he adds, "the number and magnitude of government initiatives with respect to DME have reached an all-time high."

Growing Industry, Decreasing Funds WHY IS THIS? For one thing, the home care industry's growth over the last decade or so has been staggering. In 1993, home care services accounted for $9.7 billion of Medicare expenditures and covered 2.8 million beneficiaries, according to the Health Care Financing Administration. By 1996, the numbers had jumped to $17.2 billion paid out to 3.8 million beneficiaries. "Home care is the single fastest growing component of the overall health care budget," reports Antone.

Not that industry expansion hasn't been noted before by HCFA officials. "Part B expenditures have been going up at a rate much faster than can be explained by general inflation or the growth in the Medicare population," said Bernard Patashnik, reimbursement coordinator for HCFA, back in 1987. He estimated that the government spent more than $1 billion on HME for Medicare.

The difference today is that the industry's growth is juxtaposed against a rapidly decreasing pool of money. In 1993, industry officials say, threats to severely cut HME reimbursement began to reverberate through the halls of the Capitol. Medicare trustees then came out with a report saying that the insurance program's main trust fund, the Hospital Insurance fund, "is severely out of financial balance" and could be wiped out as early as 1998.

In 1995, the trustees amended their report, saying that the fund would go bankrupt in 2002. That same year, the nation's budget plan went unresolved, to much public outcry and media attention. That year was also the first time serious cuts to home care were on the table. The proposed cuts included a 20 percent oxygen cut (escalating to 30 percent over the following seven years), a consumer price index freeze for all HME through 2002 and mandated competitive bidding demonstrations.

Industry leaders breathed a sigh of relief when Congress was unable to agree on a budget, and these proposals were left on the table. "The longer the delay, the better for home care," said Cara Bachenheimer, then executive director of the Health Industry Distributors Association's home care and long-term care market groups.

Even at the time, however, home care officials said the reductions-especially to oxygen-were inevitable. Sure enough, the Balanced Budget Act of 1997 included cuts to home care that nearly mirrored those proposed in 1995. Partisan politics stalled the reductions for more than two years, but in 1997, the government passed a 25 percent oxygen cut with an additional 5 percent decrease in 1999, a CPI freeze on all HME through 2002 and mandatory competitive bidding projects.

The "F" Word AND THEN, OF course, the fraud issue comes to mind. Media reports of HME providers scamming the system, coupled with a litany of studies by government agencies alleging overpayment, have seriously harmed the industry's credibility with the public and Congress. (See sidebars on page 48 and below.)

"Policy-makers have chosen to package their DME reimbursement reductions not as reductions but rather as ways to combat fraud and abuse," notes Antone. "And that plays well."

BBA '97 also includes several anti-fraud and abuse initiatives. Among them are a requirement that all Medicare Part B providers and home health agencies post a surety bond of no less than $50,000; a provision that providers can be excluded from Medicare if found guilty of a felony; and an increase in HCFA's ability to impose civil monetary penalties. The act also requires HCFA to conduct no more than five competitive bidding demonstration projects and to report to Congress on their impact on patient choice, access and quality.

According to health care expert Michael DeCarlo, HCFA is to blame for much of the fraud because it fails to head off potential abuse before the product category is exploited. "HCFA is notorious for playing 'pay and chase,'" says the attorney with Dickstein, Shapiro, Morin & Oshinsky in Washington and former NAMES director of regulatory affairs.

"The system allowed certain items to be exploited," he says, "and even though the vast majority of providers are out there to service their patients based on medical need, there are those who will take advantage. This increases the perception that the industry is rife with exploitation."

The industry has difficulty policing itself, providers say, because the barriers to entry into the market are so few. And misconceptions exist about what is legal and ethical. To remedy this, NAMES has been trying to persuade Congress to raise the bar for HME providers, including adopting conditions of participation and certifying providers. But so far, NAMES has achieved neither although other barriers are on the horizon, including surety bonds and increased supplier standards. (See HomeCare's June issue.)

Gone But Not Forgotten THE FRAUD-FIGHTING and budget- balancing measures of IR, competitive bidding and consolidated billing in the HME industry first appeared in 1985 and 1986. The industry dodged those bullets with its comprehensive Six-Point Plan, which was at the time the most far-reaching legislation in the industry's history.

But that feat is nearly impossible to repeat, Antone says. "It established an unrealistic expectation of what an association can be expected to achieve," he says. "I don't think people understand how unusual it was for a provider industry to write its own reimbursement statute."

Indeed, as much of a milestone as the plan was, it served only to slow IR and competitive bidding, not eliminate them. The plan required Medicare carriers to disclose data that is used in developing rate calculations. It also prohibited pilot projects or studies by the Department of Health and Human Services, such as the competitive bidding project, until 1991.

"The industry adopted a new payment methodology based on fee schedules, thinking that competitive bidding would go away, but that didn't happen," said Kathy King, a Medicare Part B specialist on the Senate Finance Committee, in 1993. "It's coming from the bureaucrats. They see that Medicare and Medicaid aren't working."

IR also resumed in the early 1990s. Reimbursement for blood glucose monitors was reduced nationwide in 1994 via IR although HCFA complained that the process was much too long and arduous.

With the express purpose of saving $19 billion, the House Budget Committee in 1995 proposed consolidated billing for HME; however, Congress never enacted the measure. The committee suggested requiring HCFA to pay hospitals a lump sum to be distributed to home health and other post-acute providers. In BBA '97, consolidated billing passed, but "the venue was changed," Antone says. "They deleted hospitals and put in nursing homes." Still, the government's intention was the same, he adds: to lower costs by reducing the number of claims it had to process.

Anticipating the Impact THE INDUSTRY IS at odds over which reimbursement-altering vehicle will most drastically change the home care landscape. But many speculate that the major result is already in the works in the form of the competitive bidding project now being tested in Polk County, Fla.

"For the first time, the government has a nongovernment-generated database on which to base reimbursement cuts," Antone says. "It will be used to immediately reduce reimbursement where the demonstrations take place, but it also produces a database for extrapolation to the nation."

DeCarlo believes competitive pricing-the proposal that President Clinton espouses almost annually-will have the largest impact in the industry's history, even more than BBA '97 did. After the presidential elections in 2000, he predicts nationwide competitive pricing will go into effect. "It will force suppliers to tell HCFA what they are willing to take as an operating fee," he says. "Initially it will be problematic, but each year, the bids will creep up as theyunderstand the prices they can really live with. Then costs will escalate, and the whole thing will start over again."

However, according to David Williams, director of government relations for Invacare Corp., Elyria, Ohio, the most immediate threat facing providers is IR. "There's no stability to the industry as long as that's out there," he says. "You can't plan your business if you don't know what is going to be paid for the product."

A provision in the BBA removed the safeguards tied to competitive bidding, including industry consultation, the comment period, impact studies and publishing intent in the Federal Register. This could have harmful effects for providers, as evidenced by attempts in 1998 to cut reimbursement using data industry officials decried as statistically invalid.

"HCFA took IR more seriously when it was in the Federal Register," Williams says. "They knew that if they used bad data, they would be sitting in a committee on Capitol Hill explaining why they did what they did. Now, there is no compunction about using bad data."

The potential impact of consolidated billing is more difficult for industry analysts to judge. Ever since its origin in BBA '97, home care experts have not been able to grasp exactly how it would work.

"Consolidated billing is a logistical nightmare that is being forced on a system that is constantly in flux," Williams says. "HCFA's own advisers say it will take five years before they can do it right."

What's more, adds Antone, home health agencies can use prices determined by the competitive bidding project to gauge how much they'll pay HME providers.

Changes for the Better? DESPITE THE CHANGES that home care providers are up against, there is a bright side. After all, DeCarlo notes, HME regulation, while more vigorous of late, still does not rise to the level of other health care groups, such as hospitals and home health agencies.

And the favorable demographic trends provide hope when times seem bleak. "This industry can survive because demand will grow," Antone says. "It just can't be the old industry."-HC

AS MEDICARE, THE nation's largest health insurance fund, faces extinction, the last thing Americans want to see is money doled out to people scamming the system.

However, since as far back as 1979, industry members have sounded off against inaccurate media portrayals of the home care industry. "Medicare wants to bring the prices down, so when a company is accused of charging too much for its wheelchairs, the press seizes the opportunity to promote the price-gouging image," said Chris Heinemeyer, president of Medi Central, San Antonio, in 1979.

Leon Miller, board member for the National Affiliation of Durable Medical Equipment Companies, agreed, saying at the time that newspapers present one side of the story-and "it's not the DME side."

Following are just a few of the major news stories that have shown a negative light on the HME industry in the last decade.

January 1991-A Common Cause article accuses dealers of "milking Medicare." The national magazine highlighted a number of fraudulent acts by certain DME dealers.

May 1991-After Senate Budget Committee hearings begin examining waste and abuse in the Medicare program by HME dealers, television networks profile the industry, depicting it as riddled with fraudulent operators who are abusing the Medicare program.

December 1993-Television news show 20/20 alleges overbilling in home infusion in a report on this fast-growing niche.

March 1994- Attacks continue despite public relations campaigns-including videos of legitimate providers helping patients-by industry groups. Business Week features an expose of fraud in home health care.

January 1998-NBC Nightly News with Tom Brokaw features HME providers in a "Fleecing of America" segment. The report highlights fraud within the industry and references a December 1997 Office of Inspector General report, which states that the Health Care Financing Administration gives Medicare supplier numbers to inexperienced, unqualified people.

TRACING GOVERNMENT AGENCIES' reports on the home medical equipment industry leaves little wonder as to why providers have been stung with legislative and regulatory hits. Clearly, a momentum to control home care spending has been building this decade, especially toward oxygen payments, which were perceived to be out of control as early as 1991.

October 1991-Medicare Part B funds spent on oxygen equipment, especially concentrators, have steadily increased, according to an Office of Inspector General report "Trends in Home Oxygen Use." OIG suspects overutilization and overpayment. In a comparison between the Veterans Affairs Administration and Medicare, the study found that Medicare paid twice as much.

November 1991-Providers are making much more after the Six-Point Plan, the General Accounting Office says in "Medicare: Effect of Durable Medical Equipment Fee Schedules on Six Suppliers' Profit Margins." The report says HME suppliers are making a bigger profit on Medicare with the fee schedule system established by the Six-Point Plan than they were before 1988 with the reasonable charge system.

February 1995-OIG launches an investigation into inappropriate billing and marketing for incontinence supplies. It opened more than 20 investigations. Extraordinary growth of incontinence expenditures prompted the OIG's attention. It later says questionable billing could account for up to half of Medicare allowables for incontinence supplies in 1993.

August 1995-Two new Special Fraud Alerts by the OIG, designed to heighten both public and industry awareness of fraudulent health care practices, debut. One looks at home health care fraud; the second focuses on the provision of medical supplies to nursing facilities.

March 1995-The OIG blames fraud and abuse for the 263 percent increase in Medicare home health services spending over the past four years. It asks Congress for more resources.

January 1996-The OIG Work Plan names 15 home care probes-an all-time high.

December 1997-About 40 percent of HME providers participating in Medicare fail to meet at least one of its 11 standards, according to an OIG report, "Medical Equipment Suppliers: Assuring Legitimacy."

May 1998-Compiled for the Senate's Special Committee on Aging in May, a General Accounting Office report slams the Medicare payment system for HME. According to the study, Medicare has no idea what it pays for HME, generally pays too much for such items and ought to overhaul the entire payment system. Solutions include cutting reimbursement via the inherent reasonableness rule and persuading Congress to adopt "best price" legislation.

January 1999-In a Special Fraud Alert, the OIG warns physicians that they could be held liable for signing false statements regarding a beneficiary's medical necessity for HME.

April 1999-A GAO report says that 1998's 25 percent oxygen cut has not had a major impact on beneficiary access. The report points out that the number of Medicare beneficiaries using home oxygen continued to grow in 1998 and that providers accepted allowance for 99 percent of the home oxygen claims filed for the first half of 1998.

June 1999-The OIG recommends $160 million a year in reimbursement cuts for hospital beds, pressure support surfaces, and parenteral and enteral nutrition in its 1999 Red Book, a compendium of significant cost-saving recommendations for HHS.

August 1999-The OIG issues a report that finds nearly one-quarter of oxygen certificates of medical necessity were inaccurate or incomplete; 13 percent of beneficiaries reported never using their portable systems; and providers reported providing services but could not fully document them. It makes several suggestions to HCFA to remedy the situation.

THERE IS MORE holding back the industry than fraud-fighting measures and budget-balancing cuts, says David Williams, director of government relations for Invacare Corp., Elyria, Ohio.

"Our industry is more vulnerable because we don't have a powerful political lobby, we don't have a lot of credentials for providers, and in the past we haven't had our act together to appear united before Congress."

For more on what the industry's leaders are doing-and what you can do to make a difference-see the stories on pages 88 and 94.-K.S.