Know Your Numbers

A whiteboard at The Diabetes Store in Memphis, Tenn., displays comments from diabetic patients who have attended the provider's free, three-hour Diabetes 101 education classes, which are held seven times a week and sometimes attract up to 35 attendees. "You're a lifesaver," reads one of the comments scrawled on the board. "You are my angel sent from God," says another.

The comments are typical of feedback The Diabetes Store gets after its classes, which sometimes end with a standing ovation, says Greg Nuckles, COO. "It's horrible to have diabetes, to go to a class, to sit through it. But it's rare at the end of a class that they don't stand up and clap."

Attendees are provided a blood glucose meter during the class and are trained to use it, but it is the education that appeals to diabetic patients because it offers them hope. "It's very clinical," says Nuckles, who has owned The Diabetes Store with his wife Charlotte since 2006. "We don't do a sales pitch."

Even so, reading the messages, Nuckles reflects on the state of the business of providing diabetes supplies to patients. "If I wasn't a glass-half-full kind of person, I would be looking for a way out as fast as I could," he admits. "It's the toughest business I ever thought about being in."

Medicare developments including Round 1 of competitive bidding and the prospect of a nationwide mail-order bid promise to strip margins from the category and push providers such as Nuckles toward lower-cost products and less service.

Sidebar: Diabetic Supplies National Mail-Order Bid On the Way

"Today, our education is free and our product sales fund it," he says. "In the future, we may have to charge for it or bill insurance. We'll keep from doing that as long as we can." The provider also operates locations in Southaven, Miss., and Homewood, Ala. (near Birmingham), and offers diabetes classes in the Chattanooga, Tenn., market.

The need for diabetes care and education is increasing even as the government looks to decrease the money it spends on the disease. According to the latest CDC report, diabetes affects 25.8 million people — about 8.3 percent of the U.S. population — including 18.8 million people who are diagnosed and another 7 million who are undiagnosed. Among those 65 and older, 26.9 percent, or about 10.9 million, had diabetes in 2010. It is the leading cause of kidney failure, non-traumatic lower-limb amputations, new cases of adult blindness and a major cause of heart disease and stroke.

The CDC estimated the direct medical costs of diabetes at $116 billion in 2007, with another $58 billion in indirect costs including disability, work loss and premature mortality.

Tough Times for Reimbursement

In the Round 1 rebid, mail-order pricing for diabetic supplies averaged 56 percent lower than former reimbursements. Test strips fell to a range between $13.88 and $15.62, leaving providers wondering who could supply the products at rates so low.

A study by University of Maryland economist Peter Cramton shows that 87 percent of existing providers in mail-order diabetic supplies lost contracts in the rebid, with 100 percent losing out in five of the nine competitive bidding areas. According to industry estimates, that means more than 90 percent of Medicare's diabetic beneficiaries will be forced to find new providers because the nation's top diabetic supply companies — including giant Liberty Medical — and other established diabetic providers did not win contracts.

Given the typical 90-day supplies and that the bid contracts began in January, the problem is expected to emerge even more clearly this month.

Nuckles says he is sometimes getting 15 calls a day from beneficiaries who can no longer get their brand-name supplies and are looking for a less expensive alternative. The Diabetes Store was not a Round 1 bidder and can only offer the alternative of a cash-pay product.

"We tell them to contact their representatives and their senators and to call Medicare," says Nuckles.

Under the Medicare Improvements for Patients and Providers Act (MIPPA), contract suppliers are mandated to carry 50 percent, by volume, of all types of test strips. But the reimbursement levels make the majority of the top products too costly for bid winners to provide. The law also requires a nationwide bid for mail-order diabetic supplies, but the timeframe is still uncertain.

Sidebar: Top 19 Medicare Mail-Order Diabetic Test Strips

Like many other providers, Nuckles says Medicare makes up about 40 percent of his business, which is now at risk and represents a loss that would have a "devastating effect."

"We have taken the position that we provide education and have always provided brand-name products. But those products are 30 to 40 percent above the bid," he says. Historically, the company has offered Roche's Accu-Check and Aviva products.

Now Nuckles is looking to improve processes to help lower costs, but "it's impossible to lower costs enough to offset a product that costs more than it sells for," he points out. He's also expanding lines to include products such as diabetic shoes, and to emphasize products that are not part of competitive bidding.

At the end of the day, patient well-being is at stake, emphasizes Nuckles. "I don't ever want an insulin-dependent person to look at a [low-cost] meter and inject themselves and then the meter be inaccurate," he says. "Everybody wants to reduce health care costs. Unfortunately, lowering the quality of the product won't get you there, and this could have a devastating effect on overall health care costs."