Since passage of the Medicare Modernization Act in late November 2003, home medical equipment providers have reacted with a series of emotions strong enough to pass any Hollywood actor's screen test: shock, denial, outrage and dismay. But in the months since — while frustration with the government's actions remains — providers have channeled that energy into an entrepreneurial determination to counter and survive the MMA's effects.
Against this tumultuous backdrop, HomeCare's annual collection of industry facts and figures puts home care companies' hottest areas of discussion under the magnifying glass: product and payer mix, claim denials, days sales outstanding, merger-and-acquisition trends and accreditation. We've also asked experts in these areas to give us their insights and explain what the numbers mean. You'll find their comments throughout this section, along with market forecasts in several key sectors from well-known research firms.
As they take a closer look at the latest statistics, these experts say they see the early reflection of providers' evolving strategies — and an industry in change as it prepares to do business in HME's new order.
The coming years in home care will see a shift away from Medicare and Medicaid — and toward managed care and other payers, according to Dr. William Cron of Texas Christian University in Fort Worth, Texas, who has conducted AAHomecare's Financial Performance Survey for the past several years. “From a business standpoint, you're usually better off meeting customer needs and providing exceptional value, and it's hard to do within Medicare and Medicaid, which are inherently standardized.”
Future product mixes, though, are a bit harder to predict, particularly with the tide of baby boomers soon to hit shore, Cron says. What he does see is a “bifurcation of the industry,” with large firms growing larger and small firms becoming more focused, specializing in relatively few products. These small firms “will become more service-oriented and less product-oriented,” he adds. “And in the end, that's what the customer needs.”
| 2003 | 2004 | |
|---|---|---|
| Respiratory Drugs | 41 | 45 |
| Respiratory | 56 | 56 |
| DME | 69 | 69 |
| Rehab | 76 | 98 |
| Enteral | 110 | 93 |
| *DSO within each category weighted toward products with higher dollar totals paid in that category. Figures reflect the average number of days elapsed from date of service to Medicare check issue date. 2003 data represents analysis of more than 5 million claims, and 2004 data represents analysis of more than 9.3 million claims processed for RemitDATA customers. | ||
| Source: RemitDATA, 866/885-2974, www.remitdata.com | ||
“DSOs in HME are so high in this industry simply because the process to get paid is so onerous and complicated,” says Bently Goodwin, CEO of Memphis, Tenn.-based RemitDATA. “This does not come as a surprise to anyone out there, because they are dealing every day with the complexities of submitting CMNs, revising CMNs or having CMNs rejected because Medicare has one on file from a previous provider, but will not tell you who that provider is. If the CMN is correct, it gets denied for additional documentation or some other small reason.
“With almost one out of every four claims being denied at some point in the payment cycle,” Goodwin continues, “it is no wonder DSO is this high. What may be a surprise [to some] is that many providers have figured out the complexities and intricacies of the Medicare processes and are consistently getting paid 50 to 70 percent faster than the averages shown here.
“Our data shows that with few exceptions, if the DMERC gets a clean claim, they pay it in 14 days. The key is CQI (continuous quality improvement) in the reimbursement department,” Goodwin advises. “Find those products that have the highest denial rates and DSO, focus on specific actions to improve the results, and then measure the performance.”
| Sector | Number of Deals 2003 | % of Total | Number of Deals 2004 | % of Total | Change | Q4 2004 | Q1 2005 | Change |
|---|---|---|---|---|---|---|---|---|
| Home Health Agencies | 45 | 23.2 | 57 | 25.7 | 26.7% | 18 | 15 | -17% |
| Hospice | 17 | 8.8 | 15 | 6.8 | -11.8% | 3 | 3 | 0 |
| Staffing | 20 | 10.3 | 37 | 16.7 | 85.0% | 7 | 7 | 0 |
| Home Medical Equipment | 86 | 44.3 | 90 | 40.5 | 4.7% | 18 | 26 | 44% |
| Infusion Therapy | 7 | 3.6 | 11 | 4.9 | 57.1% | 0 | 3 | NA |
| Specialty Pharmacy | 19 | 9.8 | 12 | 5.4 | -36.8% | 3 | 3 | 0 |
| Total Transactions | 194 | 100.0 | 222 | 100.0 | 14.4% | 49 | 57 | 16% |
| Source: The Braff Group, 888/922-5169, www.thebraffgroup.com | ||||||||
The total volume of HME merger-and-acquisition deals in 2004 edged up only slightly over that in 2003 — from 86 to 90. And though deal-making started strong in the first quarter this year, M&A activity should end 2005 with volume consistent, or a little more, than that in 2004.
According to Dexter Braff, president of Pittsburgh-based The Braff Group, an M&A firm specializing in various health care sectors, “We are seeing some acquisition strategies in anticipation of competitive bidding, but it's not a groundswell yet — at least not until the first 10 bid sites are announced.” At press time, locations of the 10 MSAs where the bidding program will be introduced were expected by late summer.
One noticeable trend, says Braff, has been an increase in demand for larger HMEs, particularly those generating revenues in excess of $10 million. That trend will continue in 2005, according to the company. What's more, while buyers' historical demand has been focused mainly on providers with Medicare-reimbursed oxygen business, now some companies “are openly looking for [providers with] non-Medicare payers to complement their Medicare business” and diversify risk, Braff says.
Top 5 Reasons for Medicare Claim Denials in 2004*
- Duplicate claim/service (C018)
- Payment adjusted because this service was not prescribed by a physician, not prescribed prior to delivery, the prescription is incomplete, or the prescription is not current. (C0/PRB17)
- Claim not covered by this payer/contractor. You must send the claim to the correct payer/contractor. (0A109)
- Claim/service lacks information which is needed for adjudication. Additional information is supplied using remittance advice remarks codes whenever appropriate. (C016)
- Non-covered charge(s) (PR96)
*Based on analysis of 9.3 million claims adjudicated by the four DMERCs between Jan. 1 and Dec. 31, 2004, and processed for RemitDATA customers.
Source: RemitDATA, 866/885-2974, www.remitdata.com
According to management and reimbursement expert Miriam Lieber, president of Lieber Consulting, Sherman Oaks, Calif., it's more important than ever that claims are clean and that reimbursement practices are efficient, because poor performance in this area can greatly affect profitability. “Providers have to be skilled in reimbursement, and it is no longer acceptable to use ignorance of documentation or procedures as an excuse — that simply is not tolerated anymore by any payer.” Good personnel training can help, she advises. “Providers can't just put an able body in a seat and let them go. Providers have to learn reimbursement, and they have to teach reimbursement.”
Regarding the most common reasons for denials, Lieber says that switching of payers can be prevented by securing complete intake information at the time the order is placed. “As difficult as it is to verify insurance information, at all costs it should be done during the intake process.” A tip that some providers use for securing secondary insurance information is asking the patient to pay their copay portion up front. “You will certainly learn if the patient has secondary insurance if you simply ask them to pay,” Lieber points out.
And, she continues, providers must be diligent about securing complete CMNs. “If you do not determine medical necessity up front, you will be held accountable by way of a B17 denial.”
Lieber notes that most often, poor results in claim payments point to the intake process. “If your company is not achieving first-time payment on more than 70 percent of its claims, you have a real problem,” she says.
With a continuing government crackdown on fraud, new Medicare coverage policy in effect, an overhaul that produced 49 new codes — and new pricing just over the horizon — the power wheelchair sector “is on pins and needles right now,” says Sheila Ewing, research analyst, medical devices, Frost & Sullivan. After CMS increased scrutiny of K0011 claims, payments for the equipment dropped, dramatically in some areas of the country. But this year and for the next five, Ewing expects market revenues to hold fairly steady.
She adds that new coverage and coding changes, however, could lead to a decrease in average selling price, and she predicts the days of power chairs with all the bells and whistles are numbered. “You're going to see the market go more toward basic models instead of the fully loaded products … Anything extra [not deemed medically necessary will come] out of the patient's pocket,” she says.
Before Medicare turned its attention toward the power mobility sector, she says, “The [chairs had] everything because CMS was reimbursing it. Now, they're cutting back.”
That means, she contends, that manufacturers must focus product development to meet consumer needs — nothing more, nothing less. Ewing says her research shows interest in “hybrid” chairs that are smaller, lighter, more durable for both indoor and outdoor use and that break apart easily for transport. For the Medicare population, she explains, many traditional mobility devices “are too big and heavy for an elderly person to transport.”
Ewing predicts the market's most dramatic growth may not come through Medicare. She expects that, when they need them, many of the baby boomers will simply buy wheelchairs for themselves or their loved ones.
| Condition | Total Patients | Patients Using One or More Home Care Products |
|---|---|---|
| AIDS | 900,000 | 810,000 |
| Arthritis | 66,000,000 | 52,800,000 |
| Cancer | 7,200,000 | 100,000 |
| Cardiovascular Disease | 68,000,000 | 68,000 |
| Fetal Disorders | 490,000 | 100,000 |
| Intestinal and Urological Disorders | 20,500,000 | 13,000,000 |
| Kidney Disorders | 400,000 | 30,000 |
| Neonatal Conditions | 100,000 | 90,000 |
| Pain Management | 500,000 | 450,000 |
| Respiratory Problems | 48,000,000 | 2,500,000 |
| Source: Kalorama Information, The U.S. Market for Home Care Products, June 2005,800/298-5699, www.kaloramainformation.com | ||
According to New York-based research firm Kalorama Information, the chart above shows estimates reflecting “the total numbers of patients suffering from mild to severe portions of the condition, with many patients, particularly in the large arthritis and cardiovascular groups, experiencing mild to moderate forms of the disease.” Driving product utilization, the research firm says, are “growing numbers of individuals with serious chronic conditions, new products and technologies that enable home care and cost-containment efforts within managed care that are moving more patients from expensive institutional care to less costly home care.”
| Product Group | 2003 | 2005 | 2007 | CAGR* 2003-2007 |
|---|---|---|---|---|
| Mechanical Ventilators | 113.0 | 135.2 | 162.6 | 9.5% |
| Oxygen Therapy Equipment | 198.3 | 206.0 | 213.9 | 1.9% |
| Nebulizers | 176.6 | 208.6 | 246.3 | 8.7% |
| OSA Therapy Products | 364.6 | 482.0 | 636.4 | 14.9% |
| Total | 852.5 | 1,031.8 | 1,259.2 | 10.2% |
| *Compound Annual Growth Rate | ||||
| Note: Mechanical ventilators segment includes noninvasive and portable devices for home health care. Oxygen therapy equipment segment includes oxygen concentrators and liquid oxygen systems. Nebulizers segment includes compressors/ultrasound devices and small-reservoir standard and specialty nebulizers. Obstructive sleep apnea therapy product segment includes continuous and bi-level positive airway pressure devices and accessories. | ||||
| Source: U.S. Markets for Home Healthcare Products, July 2004, Medtech Insight, a division of Windhover Information, 949/219-0150, www.medtechinsight.com | ||||
Aging of the population and the corresponding increase in chronic illnesses combined with the expense and reduced length of hospital stays have all contributed to an expanding market for home care products, according to Newport Beach, Calif.-based Medtech Insight. In 2003, home respiratory therapy, intravenous infusion therapy, enteral nutrition and dialysis therapy products and services generated nearly $1.3 billion in corresponding product sales — growing at a compound annual rate of 6.1 percent, Medtech Insight reports. One of the fastest growing segments will be obstructive sleep apnea, with sales projected to increase from $364.6 million in 2003 to more than $636 million in 2007, a compound annual growth rate of nearly 15 percent.
Following the mandate for supplier accreditation that Congress included in the Medicare Modernization Act — and the quality standards that providers must meet to take part in competitive bidding, also required by the reform legislation — 44 percent of providers participating in HomeCare's most recent survey on the subject told us their companies are currently accredited. According to survey results, the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) remains the dominant accrediting organization in HME, especially among larger providers, followed by the Community Health Accreditation Program (CHAP) and the Accreditation Commission for Health Care (ACHC).
At the time the provider survey was conducted last fall, only 27 percent of the unaccredited companies said they planned to begin the process this year.
But my, how a few months — and the realization that CMS is moving ahead on implementing the DME bidding program — have changed things. We know the results are not nearly as comprehensive as those in our 2004 survey, but in a Web poll conducted last month on accreditation, almost all unaccredited respondents said they had either begun the process or have plans to apply. Only 3 percent of the online poll participants said they do not plan to apply for accreditation. See page 12 in this issue for the full poll results. And, urge consultants in this area, get your applications in now.
About Your Customers
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By 2030, the 65+ population will more than double to 71.5 million, and will grow to 86.7 million by 2050. (Based on 2004 projections)
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By the year 2030, the baby boomers will be ages 66-84 and will make up about 20% of the total population.
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80% of people 65 or older own their own homes.
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States with the highest percentage of residents 65 and older are: Florida, 17.6%; West Virginia, 15.6%; Pennsylvania, 15.3%; Iowa 14.9%; North Dakota, 14.7% and Rhode Island, 14.5%.
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In 2004, Americans born in 1939 and earlier were 12.6% of the total U.S. population, or about 1 in 8 people.
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In 2000, life expectancy for men at age 65 was 16.5 years, and for women, 19.5 years. In 2040, it will be 19 years for men, and 22 years for women.
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The “oldest old,” those aged 85+, were 1.5% of the population in 2000 and, by 2050, will be almost 5% of the population.
Source: MetLife Mature Market Institute, Demographic Profile of Americans 65+, September 2004; Demographic Profile of American Baby Boomers, March 2005; 203/221-6580, www.maturemarketinstitute.com
| Manufacturer Revenue ($ in millions) | |||||||
|---|---|---|---|---|---|---|---|
| Year | Ambulatory Aids | Bathroom Safety Supplies | Home Care Beds | Wheelchairs | Misc. Products | Total | Change |
| 1999 | 64.7 | 225.0 | 232.1 | 284.8 | 80.0 | 886.6 | NA |
| 2000 | 69.2 | 243.5 | 238.8 | 300.7 | 88.0 | 940.2 | 6.0% |
| 2001 | 72.9 | 260.0 | 245.2 | 314.5 | 97.0 | 989.6 | 5.3% |
| 2002 | 77.2 | 278.5 | 253.3 | 329.7 | 107.0 | 1,045.7 | 5.7% |
| 2003 | 83.0 | 298.8 | 260.4 | 345.8 | 118.0 | 1,106.1 | 5.8% |
| 2004 | 89.0 | 321.2 | 268.3 | 363.3 | 130.0 | 1,171.9 | 5.9% |
| 2005 | 95.6 | 346.0 | 277.3 | 382.2 | 144.0 | 1,245.0 | 6.2% |
| 2006 | 102.7 | 374.0 | 287.1 | 402.6 | 159.0 | 1,325.4 | 6.5% |
| 2007 | 110.5 | 405.0 | 297.2 | 424.7 | 176.0 | 1,413.5 | 6.6% |
| 2008 | 119.0 | 439.5 | 308.9 | 448.7 | 195.0 | 1,511.1 | 6.9% |
| 2009 | 128.3 | 477.7 | 321.1 | 474.7 | 216.0 | 1,617.8 | 7.1% |
| Source: Kalorama Information, The U.S. Market for Home Care Products, June 2005, 800/298-5699, www.kaloramainformation.com | |||||||
With the graying of America, home care manufacturers continue to offer new products in all market segments, New York-based Kalorama Information reports. At the same time, physicians are being pressured by managed care groups to contain costs, and so are prescribing home care as a less expensive alternative to institutional care. This points to a strong growth rate in manufacturer revenue through 2009, according to the research firm.
| Third-Party Payments | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Public | |||||||||
| Year | Total | Out-of-Pocket Payments | Total | Private Health Insurance | Other Private Funds | Total | Federal2 | State and Local2 | Medicare3 |
| Historical Estimates | |||||||||
| 1990 | 10.6 | 6.9 | 3.7 | 1.5 | — | 2.2 | 2.0 | 0.1 | 1.8 |
| 1998 | 16.9 | 8.9 | 7.9 | 3.2 | — | 4.7 | 4.6 | 0.1 | 4.1 |
| 1999 | 17.2 | 9.0 | 8.2 | 3.2 | — | 5.0 | 4.8 | 0.2 | 4.3 |
| 2000 | 17.7 | 9.0 | 8.8 | 3.4 | — | 5.4 | 5.2 | 0.2 | 4.6 |
| 2001 | 18.2 | 8.7 | 9.5 | 3.5 | — | 6.0 | 5.8 | 0.2 | 5.2 |
| 2002 | 18.8 | 8.5 | 10.3 | 3.5 | — | 6.8 | 6.6 | 0.2 | 5.9 |
| Projected | |||||||||
| 2003 | 19.6 | 8.7 | 11.0 | 3.5 | — | 7.5 | 7.3 | 0.2 | 6.5 |
| 2004 | 20.6 | 8.9 | 11.7 | 3.5 | — | 8.2 | 7.9 | 0.2 | 7.2 |
| 2005 | 21.5 | 9.2 | 12.4 | 3.6 | — | 8.7 | 8.5 | 0.2 | 7.7 |
| 2006 | 22.6 | 9.5 | 13.1 | 3.8 | — | 9.3 | 9.1 | 0.2 | 8.2 |
| 2007 | 23.8 | 9.7 | 14.0 | 4.0 | — | 10.0 | 9.7 | 0.2 | 8.9 |
| 2008 | 25.0 | 10.1 | 15.0 | 4.2 | — | 10.8 | 10.5 | 0.3 | 9.6 |
| 2009 | 26.4 | 10.4 | 16.0 | 4.4 | — | 11.6 | 11.3 | 0.3 | 10.4 |
| 2010 | 27.8 | 10.7 | 17.1 | 4.5 | — | 12.5 | 12.3 | 0.3 | 11.3 |
| 2011 | 29.3 | 11.0 | 18.3 | 4.7 | — | 13.6 | 13.3 | 0.3 | 12.3 |
| 2012 | 30.9 | 11.3 | 19.6 | 4.8 | — | 14.7 | 14.4 | 0.3 | 13.4 |
| 2013 | 32.6 | 11.6 | 21.0 | 5.0 | — | 16.0 | 15.7 | 0.3 | 14.6 |
| 1Latest figures available. The health spending projections were based on the 2002 version of the National Health Expenditures (NHE) released in January 2004. 2Includes Medicaid SCHIP Expansion and SCHIP. 3Subset of Federal funds. | |||||||||
| Source: Centers for Medicare & Medicaid Services, Office of the Actuary | |||||||||
Medicare Enrollment 41,086,981
| Category | Total |
|---|---|
| Aged Persons | 35,007,557 |
| 65 to 74 | 17,859,714 |
| 75 to 84 | 12,584,753 |
| 85 and over | 4,563,090 |
| Disabled Persons | 6,079,424 |
| Under 45 | 1,708,899 |
| 45 to 54 | 1,885,826 |
| 55 to 64 | 2,484,699 |
| All Persons | 41,086,981 |
| *Latest available data July 2003 | |
| Source: Centers for Medicare and Medicaid Services | |
There are 115,181 active supplier numbers.
| By DMERC | |
|---|---|
| Region A | 22,162 |
| Region B | 26,891 |
| Region C | 40,554 |
| Region D | 25,574 |
| Total | 115,181 |
| *As of May 1, 2005 | |
| Source: Palmetto GBA, Columbia, S.C., National Supplier Clearinghouse | |
For information on HomeCare's exclusive research reports, visit www.homecaremag.com.
