No Time to Relax

Recently, I finished a really big project that I had been working on for 10 weeks. Most of those weeks included six or more workdays, many of which were 10 to 15 hours long. An intense focus and adrenaline kept me going, but when the project was complete, my focus was gone, the adrenaline was not pumping and I didn't feel like doing anything. I crashed because I could.

As an industry we have just completed a really big project, getting a delay in competitive bidding. Some worked harder than others to win the delay and are due a great deal of gratitude. But we were all stressed by the implementation of competitive bidding.

When any stress ends, there is the tendency to relax. But this is not the time to do that. We need to get back in the game and make something of the next opportunity.

Now that the round one contracting process has been delayed until 2009 and round two won't begin until 2011, for the home medical equipment industry, that opportunity is to make the most of the bid delay.

The delay has a price, and that is a nationwide reimbursement cut on competitively bid items and elimination of the CPI adjustment that would have occurred next year. All providers must prepare for the 9.5 percent cut — now only weeks away on Jan. 1, 2009 — and many providers must also prepare for future rounds of competitive bidding.

So the delay means there are notable opportunities to: prepare for lower reimbursement rates; improve financial ratios to qualify as a contractor; adjust company cost structure; and become a more powerful industry.

After more than a decade of working with activity-based costing and the application of activity costs to DME products, I have a clear understanding of the net profit contribution of each product, the portion of reimbursement that is left after paying for a product and all of the activities associated with that product.

In round one, the bids were at prices so low that the net profit contribution was not sufficient for the winning bidders to sustain such steep discounts in eight of the 10 product categories that were affected. And the two categories that were sustainable (oxygen and enteral nutrition) were just sustainable; they were not attractive.

Accepting the contracts offered this year would have bankrupted many providers. Fortunately, we don't have to watch or experience those tragedies.