DETROIT, Mich. (Oct. 20, 2013) As reported on Crain’s Detroit Business, two hospital-based health systems in Michigan and an affiliate of Center Line-based Binson's Home Health Centers have agreed to merge their operations into Hart Medical Equipment Co. to sell durable medical equipment to seniors after the systems failed earlier this year to win Medicare competitive bid contracts.
Other health systems, including Henry Ford Health System, are expected to purchase ownership stakes in Hart Medical, a Grand Blanc Township-based durable medical equipment (DME) company owned by Binson's and Mike Damstra, who also owns CareLinc Medical Equipment of Grand Rapids.
Earlier this month, Genesys Health Equipment and McLaren Home Medical signed agreements to merge their DME operations into Hart Medical, said Damstra, Hart managing partner and co-owner.
McLaren Home Medical is owned by Flint-based McLaren Health Care and Genesys Health is owned by Grand Blanc Township-based Genesys Health System, one of five regional systems owned by Ascension Health Michigan.
Hart will be set up as an operating company to run hospital-based DME companies, said Damstra, who declined to name other health systems that have expressed interest in also joining Hart. After the merger, Hart Medical now employs 85 people and expects to double the number of employees by year-end, Damstra said.
John Polanski, CEO of Henry Ford's Community Care Services, confirmed that Henry Ford is negotiating to merge its DME company into Hart Medical.
"The DME industry...is in chaos because of competitive bidding," Polanski said. "Rates were cut about 45 percent across the board in seven categories through the bid process."
In July, Medicare began its new competitive bidding contract system for the DME industry that not only cuts prices—to save Medicare about $1 billion annually—but also limits the number of companies under contract.
DME vendors, which include about 400 in Michigan, provide a variety of home medical supplies such as hospital beds, portable oxygen systems, diabetic products, knee braces, commodes, walkers and blood pressure monitors.
Two large local DME companies, Binson's and Wright & Filippis, a Rochester Hills-based DME provider, won several Medicare contracts, but had to cut their prices on at least five contracted products by about 45 percent, executives said.
However, few hospital-owned DME companies in Michigan won contracts. As a result, Polanski said, most health systems in Michigan have been scrambling to figure out ways to continue to serve discharged patients who require home medical equipment.
"We did not win any of the contracts, and we bid 37 percent less," Polanski said. "We have not been able to take care of Medicare patients who require DME equipment since July 1. We are looking at options from A-Z."
Polanski said 64 percent of companies that won bids in Michigan are based out of state. Some have attempted to subcontract with local DME companies.
"They want us to provide services for below our costs," he said.
Ken Fasse, COO of Binson's, said Binson's and Hart Medical are working with the health systems because they have access to the Medicare contracts.
Damstra said Hart Medical will allow participating health systems to lower operating expenses by combining purchasing power, consolidate office departments, streamline delivery systems and create economies of scale.
"This will allow us to continue to serve our patients in an integrated way," Polanski said. "This model will give us a great opportunity for growth. Other systems (in Michigan) are looking at joining."
Last year, more than six Michigan-based systems unsuccessfully advocated for changes in the DME Medicare bid process to allow for hospital-based company exceptions. They argued that patients are discharged more smoothly and readmissions are lower for patients who receive DME equipment directly from the hospitals.
Systems with DME companies include the University of Michigan Health System, Beaumont Health System, St. John Providence Health System and Oakwood Healthcare.
