You name it, home medical equipment providers are worried about it.
From reimbursement cuts to bad press. From claims processing and payment time to ASP+6. From stiff competition and fraudulent dealers to high gas prices. Not to mention competitive bidding and the Medicare Modernization Act (MMA). When the responses to HomeCare's annual Forecast Survey were tallied, in fact, home care companies had given us a two-page, single-spaced list of things they're concerned about for 2005 and beyond.
It's no big surprise that many of these issues are directly related to effects of the MMA.
The good news is that providers responded with an even longer list of the measures they are taking to meet — and master — the challenges they face.
And in spite of what for many is shaping up to be an uncertain New Year, the majority of the HMEs we surveyed (65 percent) told us they not only expect to survive 2005 but to grow their revenue over 2004 figures, on average by 5.6 percent. An additional 18 percent expect revenue to remain constant over the two-year period.
About the Survey
In September, HomeCare mailed survey questionnaires to 1,500 randomly selected domestic subscribers asking about their intended product purchases, their business operations, future plans and their thoughts on the state of the industry. Of 353 companies that returned completed surveys, the majority (68 percent) indicated their organization is a home medical equipment/service provider. The remaining participants said they work for a pharmacy/chain drugstore with HME or for a specialty home care company.
Respondents operate in a variety of locations and represent a wide range of company sizes. The largest group of respondents, 28 percent, said their companies are located in a small urban area, while another 25 percent said their operations are located in rural areas. Eleven percent of the respondents said they operate in one of the 10 largest U.S. cities (where competitive bidding will begin in 2007), and 15 percent said they are located in one of the country's 80 largest cities (where the bidding program will expand in 2009). Eight percent of the respondents said their operations are national.
While these companies operate a median one location, 44 of the companies participating said they have more than 50 branches. On average, respondents employ 38 people. Thirty-nine percent said they have 10 or fewer employees, though 24 percent said they employ 100 or more.
Again on average, respondents' estimated 2004 revenue is $6.6 million, with a median of $2.3 million, but 41 respondents placed their company revenue at $25 million or more.
Moving Away from Medicare
Of the companies surveyed this year, revenue is generated from: Medicare, 37 percent; Medicaid, 16 percent; managed care (MCOs, HMOs, PPOs, etc.), 14 percent; retail sales, 12 percent; private insurers, 11 percent; commercial accounts, 7 percent; and other sources, 2 percent.
One goal many providers share for next year is moving away from Medicare, and more than a third say they will diversify their company's payer mix in 2005. They also plan to cut costs and increase productivity to protect profits. Other means they are banking on to stay in the black include a string of “betters:” better and more aggressive marketing, better use of software, better qualification of patients, better service.
As to exactly how they will diversify both payers and products, a number say they are looking to increase retail sales, and overall buying plans reflect the intent. For the first time, bath safety products moved up on providers' shopping list to tie with manual wheelchairs in the top product spot. Ambulatory aids, beds and mattresses and nebulizers round out the top five purchases providers say they will make in 2005.
Other products most providers will be buying include lift chairs, incontinence products and oxygen concentrators, patient lifts and CPAP/bi-levels. Power wheelchairs and scooters, which grabbed the headlines throughout this year, rank at Nos. 11 and 12, respectively, on providers' list of purchases.
Across the product spectrum, the biggest group of respondents (35 percent) anticipates the respiratory sector will account for their company's largest revenue growth in 2005, with many still counting on continued growth in the sleep market.
Among survey respondents who expect next year's income to decrease from 2004 levels, 83 percent believe the downturn will be directly related to reimbursement cuts mandated by the MMA. About those cuts, providers said the change in oxygen reimbursement would hurt their business most (42 percent), while 24 percent said they would be hurt most by payment cuts for power wheelchairs.
About the full impact of MMA, providers had even more to say. More than a third of respondents indicate they will change their service to accommodate reimbursement changes set forth by the legislation, and more than one in 10 say that MMA's scheduled cuts, based on Federal Employees Health Benefits Plan (FEHBP) median pricing, will cause them to sell or close their business sooner than they otherwise would have.
Twenty-two percent of providers told us they plan to exit HME within the next five years. Many said that they are just ready to retire, while others mentioned “burnout” and “frustration” because of lower reimbursements, red tape and paperwork, along with doubts about their companies' continuing viability in the industry's vastly changed market.
Then Again …
Then again, three-fourths of responding providers say they plan to stay in business through 2005, through 2007 when competitive bidding kicks in and through 2009, when HHS could expand the bidding program nationwide.
Preparing to grow in spite of next year's lower reimbursements will certainly keep them busy. Two-thirds of the respondents have plans to increase their business by adding patients, and 44 percent say they will enter new product areas. A third will expand into another geographic area.
Twenty-three percent will open a new branch in their current market, and 18 percent say they will grow through acquisition. Some respondents also note that they are likely to or plan to affiliate with a hospital/physician (41 percent), home health agency (34 percent) or health maintenance organization (31 percent).
To improve efficiency, most providers say they will be cutting costs through better inventory control (72 percent) or by asking manufacturers for better pricing (67 percent). Forty-four percent plan to concentrate buying with fewer vendors, and 40 percent say they will buy in bulk.
Nearly four in five respondents (78 percent) plan to purchase products direct from the manufacturer next year, and 52 percent plan to purchase through distributors. Nearly half (49 percent) say they are affiliated, or have plans to affiliate, with a buying group.
Accrediting bodies should be another busy bunch next year. According to the survey results, only 44 percent of responding providers say their organizations are currently accredited. Among HME companies that are not, 27 percent plan to apply for accreditation within the next 12 months.
Accreditation also made the list of subjects that providers see among their biggest challenges. A laundry list of others includes local and national competitors, keeping up with legislation and regulations, claims and payment problems and staff issues involving retention and training. As a group, however, these HMEs singled out the 2005 FEHBP-based reimbursement cuts and 2007/2009 competitive bidding as their “most pressing” business concerns.
On the flip side, providers listed the nation's aging population, advancing technology and improved products, growing retail sales and managed care among items that have had a positive impact on their companies and the industry over the past year. Interestingly, managed care also made the list of factors that providers believe have had a negative impact, proving once again just how different home care companies — and their individual business plans — can be.
On the state of the industry in general, however, as a group more than a third of providers (35 percent) believe that HME has a somewhat or very favorable future. An additional 35 percent believe the industry is holding its own but not advancing, and 20 percent believe the industry is in a state of decline.
To cope, providers will implement all sorts of strategies. Some say going forward they will expand more profitable lines and eliminate low-profit products. One said he would “just say no” to bad business. Others said their companies would focus on retail sales, while another plans specifically to “fit in where [competitors] fail.”
To sum it up, wrote one provider, in 2005 he will be “working like a madman, trying to dodge dozens of bullets each month.” Still another said he has come to believe “there are no measures you can take when the government controls all.”
Other HME executives apparently share the sentiment and are appealing to a higher power. In response to the question “What measures are you taking to survive the industry's current changes?” there were several mentions of prayer.
For the Record
Survey methodology conforms to accepted marketing research methods, practices and procedures and the guidelines set forth by American Business Media. Data was collected Sept. 9, 2004, through Oct. 15, 2004. Percentages are based on responses from 353 companies. Not all respondents answered every question, and some totals may add to more than 100 percent due to multiple responses. For a complete copy of the 2005 Forecast Survey, visit our Web site at www.homecaremag.com and click on the button titled “Purchase Exclusive HomeCare Research.”
2005 Product Shopping List
| 1. | (Tie) Bath safety products | 70.5 |
| Manual wheelchairs | 70.5 | |
| 3. | Ambulatory aids | 69.7 |
| 4. | Beds/mattresses/pads | 68.6 |
| 5. | Nebulizers | 66.6 |
| 6. | Lift chairs | 61.2 |
| 7. | (Tie) Incontinence | 56.1 |
| Oxygen concentrators | 56.1 | |
| 9. | Patient lifts | 54.7 |
| 10. | CPAP/Bi-level | 54.1 |
| 11. | Power wheelchairs | 53.5 |
| 12. | Scooters | 52.7 |
| 13. | Portable oxygen systems | 52.1 |
| 14. | Oxygen conserving devices | 51.8 |
| 15. | Compression hosiery | 50.1 |
| 16. | Seating and positioning | 47.0 |
| 17. | Orthopedic softgoods | 46.7 |
| 18. | Nutrition | 46.5 |
| 19. | Bariatrics | 45.6 |
| 20. | Pulse oximeters | 42.2 |
| 21. | (Tie) Diabetes | 41.9 |
| Scooter/wheelchair lifts | 41.9 | |
| 23. | Support surfaces | 41.1 |
| 24. | Compressed gas regulators | 38.5 |
| 25. | Urological/ostomy | 38.2 |
| 26. | Ramps | 38.0 |
| 27. | Hot and cold therapy | 36.0 |
| 28. | (Tie) Sleep disorders | 35.7 |
| Sore prevention | 35.7 | |
| 30. | Skin care | 34.3 |
| 31. | Orthotics/prosthetics | 31.2 |
| 32. | Liquid oxygen systems | 30.3 |
| 33. | Pediatric mobility | 28.0 |
| 34. | Pediatric respiratory | 26.6 |
| 35. | Apnea monitors | 26.3 |
Which of the following markets will account for your company's largest revenue growth in 2005?
| Respiratory | 35.4% |
| Sleep disorders | 12.7% |
| Power wheelchairs | 12.5% |
| Pharmacy | 11.0% |
| Scooters | 6.8% |
| Diabetes | 5.9% |
| Infusion | 5.7% |
| Manual wheelchairs | 5.7% |
| Orthopedics | 5.1% |
| Bariatrics | 4.2% |
| Beds/mattresses | 4.0% |
| Bath safety | 3.1% |
| Seating/positioning | 1.7% |
| Women's health | 1.7% |
| Pediatrics | 1.1% |
What has had a positive impact on your company/the industry in the past year?
Nearly 150 individual providers shared their thoughts when answering this survey question. Following is a representative sample of the responses they gave in their own words.
“Advancement of technology”
“Affiliation with a home health and hospice
system”
“Aging population”
“Adding patients”
“Adding services”
“Baby boomers”
“Better inventory control”
“Better products”
“Better staff retention”
“Buying groups”
“Cash sales”
“Electronic billing”
“Elimination of product lines”
“Excellent customer service”
“Expansion into new geographic area”
“Expansion into new product lines”
“Getting more aggressive and politically
involved”
“Growth in respiratory market”
“Hospice”
“Increased advertising”
“Increased need for HME products”
“Involvement in our state association”
“Newer and better products”
“Managed care”
“Manufacturer financing and co-op advertising”
“Manufacturers have held the line with price increases. Some
have even come down.”
“Mergers/buyouts of competition”
“More people needing our services”
“Moving away from Medicare reimbursement”
“O2 revenue”
“Productivity-based management applications”
“Providing the best possible service and
products”
“Quality personnel through training”
“Retail sales”
“Trade organizations and magazines”
“We get to help people when they are in need. That is why
most of us are still in the business: to make other people's lives
easier and better.”
What has had a negative impact on your company/the industry over the past year?
An even 180 survey respondents answered this question, and they did not mince words. A representative sample of these individual providers' comments, in their own words, follows.
“Allowable freezes”
“Bad press from fraudulent dealers”
“Being small and getting our referral sources to give us
business”
“Billing issues”
“Claims!”
“Competition”
“Concern over ASP+6”
“Consistent downward payment level pressure by all
payers”
“Continual acquisition of smaller DMEs by large
corporations”
“Continued scrutiny of the HME business by CMS, constant
regulatory mandates.”
“Crackdown on power mobility”
“Denials”
“Direct/TV advertising by manufacturers”
“Employee retention”
“Ever-increasing government regulations”
“Future price cuts, more red tape”
“Gas prices”
“Government position toward HME”
“HIPAA”
“Hospital-based DMEs placing discharge planners in their
hospitals”
“Illegal, unethical practices of other HME
companies”
“Increased competition by national companies”
“Internet sellers. Manufacurer-direct sellers. Single
product, national ‘code-killing’ companies”
“Lockout by HMO and insurance plans”
“Looming competitive bidding”
“Managed care contracts”
“Medicare Modernization Act”
“New computer system to be HIPAA-compliant. Can we say
nightmare?”
“Payment processing/time for payment”
“Power wheelchair regulations. Excessively slow payments.
Unfair claim rejections”
“Red tape, bureaucracy”
“Rule changes, reimbursement cuts”
“State Medicaid cuts”
“Torrential legislation/regulations”
“Unethical competitors in the marketplace”
What are the biggest challenges facing your company?
| Government reimbursement cuts | 59.2% |
| Claim processing/payment time | 43.6% |
| Competitive bidding | 42.2% |
| Claim denials | 41.9% |
| Paperwork/administrative activities | 24.9% |
| Local HME competition | 22.4% |
| Accreditation | 21.5% |
| Keeping up with legislation/regulations | 20.1% |
| Staff issues (training, retention, etc.) | 19.8% |
| Manufacturers selling directto consumers | 19.3% |
| Managed care contracting | 18.1% |
| Mail order/Web-direct HME sales | 16.4% |
| Hospital-based HME competition | 16.1% |
| National HME competition | 13.9% |
| Compliance | 11.0% |
| Keeping up with technology | 11.0% |
| HIPAA | 9.1% |
| Quality patient care/services | 5.1% |
| Retail pharmacy with HME | 4.5% |
| NSC Medicare supplier standards | 4.0% |
