Vol. 19 •Issue 25 • Page 22
Home Care Companies Need Partnerships
Reimbursement cuts created by the changes imposed by the Medicare Prescription Drug Improvement and Modernization Act (MMA), competitive bidding and changes in payment methodology for some durable medical equipment (DME), including oxygen, will affect the home care provider’s bottom line in a negative way.
Although many services offered by home care providers are not dependent on technology, new equipment that can be used to treat patients in the home environment represent a major area of potential market growth. The most effective home care involves seamless coordination among the physician who prescribes a plan of care, the home care provider who executes the plan and the patient.
The key to seamless coordination of care is greater application of equipment. Many devices are clear solutions to the many challenges created by MMA and competitive bidding. However, due to provider uncertainty with overall operational costs and lack of understanding regarding the solutions new technology offers, restraint has been the modus operandi for many home care providers.
Restraint by large organizations is driven by a fear that margins will not support the type of capital acquisition required, and many providers will not take advantage of opportunities to improve operational costs through the use of new devices that allow them to reduce labor and operational expenses.
Some small providers will engage in creative lease-to-purchase programs and may be viewed as “flight-risks” because some manufacturers fear they may close their doors if they are within an area selected for competitive bidding because they rely heavily on reimbursement from Medicare.
Home care providers are expecting a revenue decrease of as much as 20 percent as a result of competitive bidding. To make up for such losses, providers are planning to reduce acquisition costs and operating expenses, and they may reduce the level of services they provide.
Many providers have resorted to non-traditional delivery models to reduce or eliminate labor, and a provider like Walgreen’s is in a position to dispense products from its various locations throughout the country to mitigate challenges with deliveries and labor costs.
Providers will be asking manufacturers to share the burden of the cuts, and, as a result, manufacturers may experience reductions in their own profit margins.
Between 2006 and 2009, MMA cuts are expected to lead to a consolidated DME market. Many small local and regional providers will exit the market. MMA will take a toll on manufacturers by way of increased pressure to reduce prices. In turn, manufacturers may offset these losses by reducing their investment in research and development (R&D).
The end result is likely to slow the introduction of new devices to hold down expenses. Manufacturers must build strong relationships with providers and in some cases consider innovative joint ventures. They may also seek to take advantage of the shakeout caused by MMA by acquiring ownership of distribution channels or by creating innovative partnerships with non-traditional home care related businesses.
To capture the double-digit growth expected in the future, manufacturers should invest in solutions that support long-term oxygen user growth, because oxygen is an effective prescription drug for hypoxemic patients with chronic obstructive pulmonary disease (COPD).
Health care was one the better performing industries in 2001, with 13 percent of the nation’s economic output. The government expects that to continue, with the market expanding to 16 percent of the national economy by 2010. The rate of increase of the GDP for health care continues to rise and overall increase. Long-term oxygen therapy is the only intervention known to increase survival in patients diagnosed with COPD. The prediction that COPD will be the third leading cause of death worldwide by 2020 has enormous economic repercussions. Manufacturers and providers must partner to support more research to prevent further reductions in reimbursement.
The technical and economic drivers for the diverse, yet unique devices needed come at a time when reimbursement is being reduced and the payment methodology is adversely changing. The forecasted growth for the home care industry points to an ultimate dilemma should access to care and services be compromised. The U.S. market for home care products and equipment continues to post steady gains, primarily as a result of the large aging population and increasing shifts of chronic care from hospitals to home.
CMS continues to negatively impact coverage of oxygen systems for patients and threatens patient access to home oxygen therapy. This will inadvertently change the standard of care that positively impacts quality of care for patients who benefit from this valuable treatment modality. Oxygen helps to keep patients at home and out of the hospital or nursing home, and research has shown home care has both psychosocial and economic benefits.
Manufacturers need to find ways to address the marketplace directly. Building brand and product awareness among patient populations that are likely customers will pay dividends when the home care market begins to settle.
Vernon R. Pertelle is senior director/assistant vice president for Tri-City Hospital District, Home Care, Occupational Health & Wellness and Rehabilitation Services, in San Diego, Calif. He can be reached via e-mail at [email protected].