2010 Forecast Survey

Along with the plummeting temperatures that ushered in the New Year across much of the nation, home medical equipment providers told HomeCare they're worried about a deep freeze of their own in 2010.

Most taking part in the magazine's annual Forecast Survey said they had jumped through the latest regulatory hoops, with more than 90 percent becoming accredited and obtaining surety bonds. And despite the regulatory headaches, a still-dull economy and HME's toughening market, providers' product intentions remain strong for the year.

But unrelenting reimbursement woes, the forward march of competitive bidding and potential threats under health reform could worsen business conditions dramatically, some said.

The python-like squeeze has already taken a toll on some HME companies. Seventy percent of survey participants said rival businesses in their local markets had closed within the past year. The bright side for those remaining is that they picked up market share. "Our goal is to be among the survivors," one provider said. "As weaker businesses fail, we will do our best to capture their market share."

Seventy-two percent are confident they could handle the influx of patients even if half or more of their competitors go under, as CMS has estimated could happen with competitive bidding.

To keep their companies in the right half of that scenario, the vast majority (84 percent) said they had adopted new technologies and/or business practices: Half said they now use DME-specific software of some kind, 41 percent use document imaging and 30 percent use GPS/routing software. To deal with the 36-month oxygen cap and the 9.5 percent DME cut, providers said they had increased efficiency (57 percent), changed their oxygen delivery model (35 percent) and/or changed their product mix (30 percent).

As for the cap, respondents said it has had some dire effects — not the least of them on patients — but the majority (59 percent) said they are coping. Another quarter (24 percent), however, said they don't know how much longer they can continue in the Medicare oxygen business. A whopping 89 percent consider CMS' recently announced payments for oxygen maintenance and service to be inadequate.

"CMS does not fully understand the service and delivery needed to adequately provide the care needed for these fragile patients," one provider commented. Added another, "CMS should read the standards manuals of the accrediting bodies. If CMS wants this level of patient care, they should pay for it."

Then there are the day-to-day speed bumps. Providers complained CMS' recent PECOS requirement, for example, is "another damaging move by CMS … another hurdle to make things more difficult to provide much needed services … another poorly planned implementation … another waste of taxpayers' time … another way for Medicare to get rid of us."

In aggregate, providers estimated only a third of their referring physicians were registered in the system by mid-December. "Again, the DME industry is carrying the burden of holding physicians' hands and making sure they do what Medicare wants," a frustrated respondent wrote. "Another rule, another barrier to overcome."

But overcoming competitive bidding is another matter, and providers said it remains their biggest concern. In fact, 75 percent of those taking part in the survey said they had contacted their federal legislators about H.R. 3790, Florida Rep. Kendrick Meek's bill to stop the program juggernaut. That's the largest percentage of HME providers ever reporting political involvement in HomeCare's history of surveying on legislative issues.

Will it be enough? Providers said they're not sure, with many noting they will continue to fight the program because they are just plain scared about their prospects if bidding is implemented. "Reduced reimbursement can usually be dealt with; exclusion from any participation is fatal," stated one. "If I don't have patients, I don't have a business," said another.

As for the Round 1 rebid of the current program, scheduled to be implemented in January 2011, 19 percent of the providers in the survey said they were bidding. Of those, respondents bid in an average six categories, 42 percent bid in non-local areas and 20 percent bid in categories they don't currently provide. On average, these providers said they bid 9 percent below current allowables.

These Round 1 bidders also had some advice for others considering a bid in Round 2: "Be careful," warned one. "Three years is a long time." Cautioned a second, "Don't lowball your bid. Know your limits since no amount of volume can make up for zero profit margins." And yet a third, "Pray for H.R. 3790."

Simply "staying in business" was another top concern registered by providers, whose thoughts about the future ranged from positive to positively grim:

• "I believe that our company is diverse enough to survive."

• "We are very innovative and flexible as a company. If there is an industry when the dust settles, we will be there."

• "I'm gonna keep on doing what we do best, and that's giving our patients the best service possible. I believe once the competitive bidding repeal happens, we all will be OK."

• "My patients don't seem to understand the dire circumstance that [both of us] face. I no longer have the cash flow to provide the service that has always put the patient first."

• "The combination of health reform and competitive bidding will deeply impact this industry and my business negatively. Ultimately, patients will receive [fewer] benefits, less quality of care, poor quality of products. In turn they will have less independence to stay in the home environment, end up in hospitals and state-run home facilities and ultimately cost the country more than the current system."

• "While remaining optimistic that we are in charge of our own destiny and our business, the reality is CMS is leading the charge and all other payers will follow. So much is still up in the air, including competitive bidding. That one program and the intention to go national by 2016 will seriously affect our industry, our company and our patient base."

• "Once competitive bidding hits my area, I will go out of business."

• "I don't know that any company in this industry has a future."

On a more hopeful subject, we asked providers how they would spend the money if they could invest any amount in their HME business. We got a range of answers on this one, too, everything from adding inventory and new locations to hiring on expert staff to utilizing more technology and more advertising. However, some said, with the industry's mounting uncertainties, they would invest "not another penny."

And one funny guy? Well, he said, "I'd relocate to Costa Rica."

2010 Forecast Survey Results

• Market Conditions
• Accreditation/Surety Bonds
• Competitive Bidding
• Company Revenue
• Oxygen/Mobility
• Technology/Innovation
• 2010 Product Shopping List
• The Future
• About This Survey

Market Conditions

Have any HMEs in your market gone out of business in the past year?
Yes	69.9%
No	28.8%
No Answer	1.3%

If half or more of the HME companies in your market went out of business, would you be able to handle the influx of patients?
Yes	72.2%
No	26.2%
No Answer	1.6%

Accreditation/Surety Bonds

Is your company currently accredited?
Yes	91.6%
No	7.8%
No Answer	0.6%

Did your company obtain a surety bond?
Yes	90.9%
No	7.8%
No Answer	1.3%

Competitive Bidding

Are you bidding in the Round 1 rebid of competitive bidding?
Yes	19.4%
No	79.9%
No Answer	0.7%

Will you bid in any non-local areas?
Yes	41.7%
No	56.7%
No Answer	1.6%

In how many categories?
1	11.7%
2	6.7%
3	6.7%
4	6.7%
5	11.7%
6	5.0%
7	10.0%
8	1.7%
9 (all)	38.3%
No Answer	1.5%

Will you bid in any categories that you don't currently provide?
Yes	20.0%
No	76.7%
No Answer	3.3%

How much lower is your bid(s) than the current allowable?
Less than 5%	28.3%
5% to 9%	21.7%
10% to 14%	10.0%
15% to 20%	15.0%
More than 20%	8.3%
No Answer	16.7%

Have you contacted your U.S. representative in support of H.R. 3790?
Yes	74.8%
No	23.3%
No Answer	1.9%

On a scale of 1-5, how confident are you that competitive bidding will be stopped/repealed?

Company Revenue

What percentage of your revenue is generated from the following?
Medicare	38.3%
Medicaid	16.5%
Managed care (MCOs, HMOs, PPOs, etc.)	13.3%
Private insurer	12.4%
Retail sales	10.4%
Commercial/institutional accounts	7.2%
Other	1.9%

Will your company's revenue increase, decrease or stay the same in 2010 compared to 2009?
Increase	41.4%
Decrease	28.2%
Stay the same	29.4%
No Anwer	1.0%

What percentage of your company's revenues are derived from ...
Sales	54.9%
Rentals	45.1%

What measures are you taking to deal with the 9.5% DME cut/the 36-month oxygen cap?
Increasing efficiency	57.3%
Changing oxygen delivery model	35.0%
Changing product mix	29.8%
Specializing in a particular business niche	22.0%
Moving into retail	21.7%
Changing payer mix	21.0%
Layoffs	21.0%
Moving away from Medicare	21.0%
Expanding	14.9%
Increasing sales staff	12.6%
We have made no changes	13.9%

About PECOS: In aggregate, providers estimated only 33% of their physicians and other referral sources were registered in the Provider Enrollment, Chain and Ownership System.

Oxygen/Mobility

Is your company involved with respiratory products?
Yes	76.4%
No	23.0%
No Answer	0.6%

Is your company involved with mobility products?
Yes	67.3%
No	30.7%
No Answer	2.0%

What impact has the 36-month cap on home oxygen rental had on your business?
No effect	7.6%
Some effect, but we are coping	59.3%
I'm not sure how much longer I can continue in the Medicare oxygen business	23.7%
I've left the Medicare oxygen business	4.7%
No Answer	4.7%
Base = respondents involved in mobility products

Do you think CMS' new payments for maintenance and service of oxygen equipment will be adequate?
Yes	4.7%
No	89.0%
No Answer	6.3%
Base = respondents involved in mobility products

What impact would elimination of the first-month purchase option for standard power wheelchairs have on your business?
Base = respondents involved in mobility products

Technology/Innovation

What new technologies/practices have you adopted?
Automated inbound/outbound telephone technology	15.5%
Bar coding for inventory	20.1
Business process metrics	15.5
Document imaging	41.1
DME-specific software	49.5
GPS/routing software	30.1

What is the one new innovation you have implemented that has made your company more efficient/saved money/made money?

Accountability for managers/staff Accreditation Activity-based costing Added lift/ramp business Added sales staff Bar coding Changed oxygen delivery model Changed intake procedures Consolidated deliveries CPAP supply program Cushions on all wheelchairs Cut staff Document imaging Electronic billing Energy shopping Expanded showroom Going paperless GPS/routing Handheld PDAs to confirm patient receipt of equipment Highly trained employees Increased disposable business Increased repair business Low vision aids Mail order pharmacy Moved to cash Outsourced billing/payroll Patient management Portable oxygen concentrators Reduced overhead Retail sales Signed key distributorships Stopped billing Medicare Streamlined operations Tracked marketing

2010 Product Shopping List

1.	Manual wheelchairs	79.0%
2.	Beds	73.5%
3.	Ambulatory aids	73.1%
4.	Nebulizers	72.8%
5.	Bath safety products	72.2%
6.	CPAP/PAP	64.1%
7.	Mattresses/pads	63.1%
8.	Bariatric products	62.1%
9.	Bariatric wheelchairs	61.8%
10.	Lift chairs	61.2%
11.	Sleep products	60.8%
12.	Patient lifts	59.5%
13.	Oxygen conserving devices	56.6%
14.	Pulse oximeters	53.1%
15.	Incontinence	52.1%
16.	Stationary oxygen concentrators	51.1%
17.	Portable oxygen concentrators	50.8%
18.	Power wheelchairs	50.5%
19.	Scooters	49.5%
20.	Pressure-reducing support surfaces	49.2%
21.	Seating and positioning	47.9%
22.	Nutrition	46.9%
23.	Compression hosiery	46.3%
24.	(Tie) Compressed gas regulators	43.7%
	(Tie) Wound care	43.7%
26.	(Tie) Diabetes products	41.7%
	(Tie) Orthopedic softgoods	41.7%
28.	Sport/lightweight wheelchairs	40.8%
29.	Ramps	40.1%
30.	Urological/ostomy	39.5%
31.	In-home oxygen fill systems	38.5%
32.	Hot and cold therapy	33.7%
33.	Skin care	31.4%
34.	Pediatric respiratory	30.1%
35.	Orthotics/prosthetics	28.8%

The Future

What DME provisions are you most concerned about in the House/Senate health care reform bills?
Competitive bidding for manufacturers	53.1%
Expansion of Round 2 competitive bidding to 100 MSAs	50.8%
Excise tax on manufacturers	39.2%
Application of bid rates nationwide by 2016	35.6%
Elimination of first-month purchase option for standard PWCs	31.4%
Reduction in Medicare claims submission period	30.4%
Reduced CPI updates	20.4%
Creation of an independent Medicare commission	19.1%
Accreditation exemption for pharmacies	18.4%
Increased fraud and abuse measures	18.4%

What are your current top business concerns?
Competitive bidding	58.3%
Staying in business	43.0%
Oxygen cap and post-cap rules	41.1%
Health care reform	37.9%
All the new DMEPOS regulations/audits	34.0%
Growing business	26.2%
PECOS	23.6%

Which statement best describes your future plans?
I plan to stay in the HME business through 2010	15.9%
I plan to stay in the HME business through 2011	12.9%
I have no plans to leave the HME business	56.0%
I plan to exit the HME business within the next year	4.9%
I plan to exit the HME business before Round 2 is implemented	3.2%
I plan to exit the HME business if bid pricing is extended nationwide	3.6%
No Answer	3.5%

About This Survey

Data were collected Nov. 19-Dec. 17, 2009. Of 309 HME companies participating, 57 percent operate a single location and another 13 percent operate two locations. Thirty-nine percent of respondents' companies employ 10 or fewer people, while 11 percent employ 100 or more. Twenty-nine percent reported revenue under $1 million, while 7 percent indicated revenue of $25 million or more.

The largest group of companies is located in Jurisdiction C (41 percent), with 18 percent operating in Jurisdiction B, 17 percent in Jurisdiction D and 15 percent in Jurisdiction A. Eight percent of participants reported nationwide operations.

Not all respondents answered every question, and some totals may add to more than 100 percent due to multiple responses. Survey methodology conforms to accepted marketing research methods, practices and procedures.

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