1. Presented by Mark Higley
HME in 2018 & Beyond: (From My Perspective… A State of the Industry Update – plus new Benchmarking!)
Presented by Mark Higley

2. This Afternoon’s Program…
2017 arguably is offering some promising changes to the Medicare reimbursement climate. The CURES bill mitigated some of the rural roll-out pain, a Final Rule indicated future bid rounds will begin at a much higher ceiling, and a bid bond requirement may allow for some “out of area bidder” relief.
Medicare reimbursement continues to be a key payer benchmark, and these positive events should raise the overall bar. We will see. In the meantime, the market continues to consolidate.
Today’s session will present current HME market statistics, benchmarking data and some new issues to review.

3. As you are most aware ---Medicare reductions continue to follow competitive bid program SPAs on a regional basis – and other payers are following suit!

4. Reimbursement Prices Continue to Plummet…
At the beginning of the year, the industry experienced additional cuts with the implementation of the January 1, 2017 CMS fee schedule. Beyond the Medicare cuts providers are dealing with, managed care plans and some state Medicaid plans are following suit with their rates.
These additional cuts come after most of the fee for service Medicare Advantage plans took initial reductions in July of 2016.

5. It is not unusual for managed care plans to update their fee schedules annually with the January 1 fee schedule published by CMS. However, these plans continue to base their reimbursement with a discount off the Medicare fee schedule.
These discounts are averaging 20-40% below the Medicare fee schedule.
The industry is seeing these plans taking large cuts at the beginning of 2017.

6. Many of these managed care plans have a pricing philosophy (and related contractual language), that no notification of the actual fee schedule changes is required because they are based on the current year Medicare fee schedule.
It also takes several months for these plans to update their fee schedules in their system, so reimbursements have only recently begun to drop.
Due to this, many providers are not aware that their reimbursement rates have changed.

7. Providers should create a list of the plans you work with that tie reimbursement to Medicare rates.
This will allow you to easily review payments on an ongoing basis to determine if they have taken these cuts or not, and if they are paying appropriately.
It will also allow you to evaluate the impact to cash flow and revenue for your company.
Many of the individual Blue Cross Blue Shield plans not associated with Anthem base their reimbursement off Medicare fee schedules
We (VGM) have assigned a tenured managed care associate to answer questions and offer tips for DME providers to negotiate with the various plans. Contact Craig Douglas at or

8. The number of “true” HMEs have been steadily declining (data is 2010 to 2016)…

9. We can also access the state-by-state detail (I can offer Alabama detail today-- there are 222 active remaining companies in the state); I have ed this file to Mike Hamilton
The next series of slides indicate “traditional HME companies” by tax ID (many have multiple locations) followed by the number of individual NPI/PTAN locations (we dub them “rooftops”)

13. In the past three and a half years, the number of home medical equipment suppliers and the number of locations has declined by 38%.
This is a staggering downsizing of suppliers in any environment.
This consolidation is even more egregious when considered in the context of a growing population of seniors brought on by the aging of the baby boom generation.
The frail elderly and the disabled are the populations which rely upon home medical equipment suppliers to maintain quality of life.

14. Consolidation is occurring across the healthcare continuum
Consolidation is occurring across the healthcare continuum. Over the past five years, hospital system consolidation has occurred at higher rate than in any other five year period in history.
Over the three year period from 2012 to 2015, 12% of all physicians in the US went from an independent practice to being employed by a health system. That’s 46,000 docs consolidating into health systems in just three years.

15. Drilling deeper into the home medical equipment consolidation provides a clear correlation between federal policy on the inaccurately named competitive bidding and consolidation.
In the 10 most populous states, where competitive bidding is focused, there was a 47% reduction in the number of HME suppliers over three and a half years.
In the fifteen lowest population states, where competitive bidding was largely absent, there was an 18% reduction in suppliers over the same period.

19. https://data.medicare.gov/data/supplier-directory

20. That tells us that a combination of federal policy changes and economic realities caused a significant consolidation, 18%, in home medical equipment suppliers. But further, competitive bidding alone, the most deeply flawed of policies, caused a consolidation of nearly 30% of supplier in impacted areas. And to be clear, that’s a consolidation over a very short window of 42 months.
Competition is good for the consumer, it gives them choice and it forces competitors to provide exactly the things consumers want in order to win their trust and their business. Consolidation eliminates competition and eliminates patient choice. It has robbed patients of local access as many communities that once had access to providers no longer have that local access.

21. We must all advocate for reversal of federal and state policies which force consolidation and harm providers and patients.

22. Bidding Reform Coming?...DME Stakeholders Hard at Work!!

26. There is also some good new for the next Round…
Last year, CMS published a proposed rule (CMS P) that is an annual update to the end-stage renal disease (ESRD) bundled payment system but also included proposed changes to the competitive bidding program, including the bid ceiling issue.

27. Indeed, CMS offered:
“If the fee schedule amounts are adjusted as new single- payment amounts (SPAs) are implemented under the CBPs (competitive bid programs), and these fee schedule amounts and subsequent adjusted fee schedule amounts continue to serve as the bid limits under the programs, the SPAs under the programs can only be lower under future competitions because the bidders cannot exceed the bid limits in the CBP.
To continue using the adjusted fee schedule amounts as the bid limits for future competitions does not allow SPAs to fluctuate up or down as the cost of furnishing items and services goes up or down over time.”

28. In other words…
CMS seemed to recognize that, under the current statute, the bid limits would be subject to a continuing downward spiral, eventually reaching zero.
So, CMS is proposing to use the unadjusted fee schedule amounts for the purpose of establishing limits on bids for future competitions, including recompetes.
According to CMS, the agency is proposing this change because it believes “the general purpose of the DMEPOS CBP is to establish reasonable payment amounts for DMEPOS items and services based on competitions among suppliers for furnishing these items and services, with bids from suppliers being based in part on the suppliers’ costs of furnishing the items and services at that point in time.”

29. On last October 31, CMS finalized the Rule….so what does that mean?
This rule now allows the bid limits to be based on the fee schedule amounts – think B4150 at $.70 versus $ and E1390 at $ versus $78.61…ostensibly in time for upcoming single program.
And about doubling most other codes….

30. To clarify, the bid ceiling has not been removed entirely, but raised to the 2015 Medicare fee schedule amounts. Here are a few examples from a non-rural area:

31. Additional Final Rule Updates…
Bid surety bond requirement. CMS will implement a provision requiring 2019 bidding entities to submit proof of an authorized “bid surety bond” for each CBA in which a supplier is bidding.
The surety bond amount would be set at $50,000 for each CBA associated with the bid.
If the bidder is offered a contract for any product category in the CBA, and the supplier’s bid for the product category was at or below the median composite bid rate used to calculate the SPAs, the bid bond would be forfeited, and CMS would collect on the bond if the supplier does not accept the contract.

32. In all other cases, the bid bond would be returned to the bidder within 90 days of CMS’ public announcement of the contract suppliers for the CBA.
This provision is intended to prevent suppliers from submitting – but not accepting — “low-ball” bids that artificially drive down prices to improve the supplier’s chances of being offered a contract.
The rule also addressed penalties for bidders who provide falsified surety bonds or accept a contract offer and then renege on it in order to avoid surety bond forfeiture.

33. (Will Alabama be affected?)
CPAP Bundling
(Will Alabama be affected?)

34. TRUMP’S First Executive Orders
“Drain the Swamp!”
TRUMP’S First Executive Orders
The order does not offer specifics. Rather, the order notes that the President intends to "seek the prompt repeal" of ACA. Pending the appeal, the order directs agency heads to "waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications."

35. Round 2019 Competitive Bidding??
In a surprise, "now you see it, now you don't" move, the Centers for Medicare and Medicaid Services has delayed its previously announced competitive bidding Round 2019.
In fact, the Round 2019 plan is back under wraps. CMS went so far as to remove the information it posted to its site on Jan. 31, and instructed the Competitive Bidding Implementation Contractor (CBIC) to remove the information from its website, as well.
Under the original announcement, the Round 2019 plan would have consolidated all rounds and bid areas for the bidding program into a single round of competition. In terms of a timeline, CMS had reported that after Round One 2017, the Round Two Re-compete, and the national mail-order competition conclude on Dec. 31, 2018, the Round 2019 contracts would become effective Jan. 1, 2019, and would run until Dec. 31, 2021.

36. Major changes to the program included:
“Lead item” bidding for a primary item within a group of related equipment. The single payment amount for the items within the group would be based on n the lead item.
A $50,000 surety bond requirement for each CBA in which a bidder submits a bid.
Ten CBAs were designated for the CPAP devices and related accessories product category only, with five of those new CBAs, requiring payment for the CPAP device, related accessories, and services to be made on a bundled, non-capped monthly rental basis.

37. “Implementation of 10 New CBAs for CPAP Devices and Related Accessories”
CMS is adding 10 new CBAs specific to the CPAP devices and related accessories product category. No other product category will be subject to competitive bidding in these 10 new CBAs for Round 2019.
In five of the 10 new CBAs, payment will be made on a bundled, non-capped monthly rental basis, with one monthly rental payment for the CPAP device, related accessories, and services for each month of use. No separate payments will be made to suppliers in these CBAs for replacement of equipment, accessories, supplies, repair, or maintenance and servicing, including miscellaneous items.

38. Suppliers bidding in these five CBAs will submit bids for a single Healthcare Common Procedure Coding System code, K0400.
In the remaining five new CBAs, payment will be made using the same payment rules in all other existing CBAs. In other words, payment in the remaining five new CBAs will be made for the CPAP device on a capped monthly rental basis, with separate payment on a purchase or rental basis for humidifiers used in conjunction with the CPAP device.

39. Continuous Positive Airway Pressure (CPAP) Devices and Related Accessories (Non-Capped Rental - bundled)
This product category is only bid in the following five CBAs: Des Moines-West Des Moines, Iowa; Hickory- Lenoir-Morganton, N.C.; Lansing-East Lansing, Mich.; Mobile, Ala.; Santa Maria-Santa Barbara, Calif.
Continuous Positive Airway Pressure (CPAP) Devices and Related Accessories (Capped Rental)
This product category is only bid in the following five CBAs: Ann Arbor, Mich.; Cedar Rapids, Iowa; Huntsville, Ala.; Salinas, Calif.; Winston-Salem, N.C.

40. Separate payment will also be made for the purchase of essential accessories (such as tubing and masks) and for repair of a beneficiary- owned CPAP device.
Suppliers bidding in these five CBAs will submit separate bids to furnish CPAP devices and replacement of related accessories to beneficiaries with a permanent residence in the CBA.

41. The previous timeline…
Spring 2017
CMS to announce bidding timeline
CMS begins bidder education program
Bidder registration period to obtain user ID and passwords begins
Summer 2017
Bidding begins
Now???

42. Estimate of decline level in valuations:
EBITDA Multiple (Cash Flow)
2-3 times
Reflects risk of further reimbursement declines
Revenue Multiples (per $ revenue)
Respiratory focused $.50-$.60
Complex Rehab focused $.40-$.60
Supplies – Incontinence, Enteral, etc. $.25-$.35
O&P - $.60-$.80
Valuations are Based Upon the Cash Flow Capability of a Business and a Buyers View of the Risk this Level of Cash Flow Will Continue

44. Baby Boomers
74.9M boomers
50% of population over 50 by the end of 2017
Targeted by marketing ONLY 5- 10%
Spending to increase in 20 yrs. by $4.74T

45. More on Boomers 82% belong to a social networking site
Spend more time online than millennials
70% of the disposable income controlled by boomers

48. Projected Per Capita DME Expenditures ($)
Source: National Health Expenditure Projections

49. New products will be an important part of the equation for DMEPOS suppliers and beneficiaries.
The importance of new products in the DMEPOS business model will increase in coming years.
Look for a change in philosophy at FDA and CMS away from being a safe keeper to much more of a facilitator of new products and technology.
Smart suppliers of DMEPOS will capitalize on the flow of new products.

50. Growing consumerism and out-of-pocket obligations.
Republican plans will likely lead to even more health plans where consumers pay large amounts out of their own pocket. This will occur in private plans and to a lesser extent in Medicaid.
Higher co-pays and deductibles are problematic for healthcare providers. DMEPOS suppliers will need to get better at billing and collecting from consumers.
Further, suppliers need to be more patient-centric and get better at presenting health solutions directly to patients and their families.

52. The Current/Future Landscape
Affordable Care Act (ACA)
Accountable Care Organizations (ACO’s)
Primary Care Physician becomes center of Medical Homes Model
Increased Audits
Fee-For-Service migrating to Outcomes-based Medicine
Value-Based Purchasing
Bundled Payments
Population Health
Hospital Readmission Reduction Program
Narrowing Networks
Collaborative Efforts
BY % of Hospital payments will not be fee- for-service

53. Facts About the Future of HealthCare
Mobile Care
Remote monitoring
Data analytics
Merger mania
Integrated information systems
Baby Boomers- disposable income45k/year

54. Some Benchmarking! (Our sample…)

55. Payer Mix as a % Gross Revenue

56. Revenue per FTE- VGM Members

57. Revenue Per FTE

58. Personnel Costs as a % of Gross Revenue

59. Size of Company by Gross Revenue

60. Net Income as a % of Gross Revenue
This is pre-competitive bidding rural roll out!

61. Current Ratio

62. A/R Turnover Ratio

63. Days Sales in A/R

64. Inventory Turnover Ratio

65. Days COG in Inventory

66. Debt to Equity Ratio

67. Inventory Frequency

68. Cycle Count Frequency

69. Key Performance Indicators (KPIs)
Personnel costs as a percentage of revenue
Branch operations costs as a percentage of revenue
Cost of goods/products as a percentage of revenue
Days to: bill, collect, deliver
Per unit cost on key activities: Intake, Billing a claim
Key volume metrics, like masks per patient per year, percentage of orders filled, accessories as a percentage of base
Revenue per patient
Lifetime value of a patient equipment type
Length of stay
Lincare Oxygen LOS-26 months

70. VGM/AAH Request for survey input…
WE are soliciting your help in an important survey effort to determine access to care under the competitive bidding program for Medicare beneficiaries who have been prescribed home medical equipment, services, and supplies.
The highly respected health economics and policy consulting firm Dobson DaVanzo & Associates has been retained to conduct this survey that will evaluate the effect of competitive bidding on Medicare beneficiary access to care. Given your direct experience as a supplier, your input is critical for this important survey initiative.

71. Dobson DaVanzo will be conducting the survey online and will follow up with phone calls as needed. Responses to the survey will be masked so that only the third party that is fielding the survey will be able to see the identity of the respondent and the actual response data. Rest assured, your anonymity will be protected.
We hope ADMEA members will participate in this survey and give this group your important feedback. If you’re interested in participating in the survey, please

72. Dobson DaVanzo approved the following messages for you to use when asking others to participate in the survey initiative:

75. Vice-President, Regulatory Affairs
Questions?
Mark J Higley
Vice-President, Regulatory Affairs
VGM Group, Inc.
(c)