Vol. 20 •Issue 2 • Page 20
State of Home Care Industry for Future
The Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA) provides seniors and individuals with disabilities with a prescription drug benefit, more choices and better benefits under Medicare. Major changes initiated by the act include: a five-year CPI freeze on several DME products and a round of competitive bidding in the nation’s top-10 metropolitan statistical areas (MSA). That effort begins this year.
The home care market generated $53.1 billion in 2003, but growth has slowed due to reimbursement cuts. Despite competitive bidding, the HME market is forecast to double in size by 2012.
MMA will not have major short-term effects on HME providers; however, the long-term effects will be revenue decreases of as much as 20 percent. To survive, many HME providers will become “one-stop-shops” and vertically integrate non-traditional business.
Many providers will resort to non-traditional delivery models to reduce or eliminate labor and ask the manufacturing community to share the burden of the cuts. By 2009, this will lead to a more consolidated HME market.
Manufacturers will experience slow equipment acquisitions and pressure to reduce pricing. Reductions in research and development will also slow introduction of new devices. Finally, manufacturers will begin to opt to enter the marketplace directly, perhaps as providers or through joint ventures.
Medicare Managed Care is expected to grow and Medicare/Medicaid dually eligible beneficiaries are being enrolled in managed care organizations (MCOs) in an effort to reduce costs. Ultimately MCOs will look to manufacturers for direct pricing and contracts through national purchasing organizations.
As the shift to MCOs builds momentum, purchasing organizations will ultimately be the primary provider of most insured beneficiaries in this country. This will further impact operations, profit margins and diversification strategies, all of which could have a profound effect on the long-term strategies of HME providers.
In 1980, only about 10 million people were enrolled in managed care plans, and most of them were members of Kaiser Permanente plans. At that time, 24 percent of health care spending was out of pocket. By 2001, another 125 million people had been added to the managed care system, although the share of out-of-pocket health care spending had dropped by 10 percent. There now is an entrenched sense of entitlement to health care services, as has been made clear by the recent wave of strikes by unionized workers.
What was interesting about these strikes is that they carried little political resonance elsewhere, because only 17 percent of privately insured people today still have coverage. The choice now is between paying your mortgage or your health care premium.
What makes the health care sector unique is that as of 2003, fewer than 14 percent of health care payments were made by individuals out of pocket. That is, 86 percent of total U.S. health spending was covered by managed care and Medicare. As MMA unfolds, more health plans are shifting the portion of pay to subscribers while MCOs plans take on more risk in an effort to attract seniors. Thus HME providers must shift to managed care contracting and become more efficient with operations, technology, outcomes and capital purchasing.
Long-Term Oxygen Therapy
According to the American College of Chest Physicians, between 14 and 20 million Americans suffer from COPD. Analysts believe only half of the patients with COPD are actually diagnosed, often at later stages of the disease. Of the currently diagnosed COPD patients worldwide, 2 million are long-term oxygen therapy (LTOT) patients.
The health care costs for COPD in the U.S. are estimated at $30 billion, with $5 billion spent annually on COPD-related reimbursement, making it the second largest category in home care. The growth rate in the LTOT patient market will be 6 percent per year. Home oxygen therapy represents one of the largest single reimbursement categories in home care, and governments and insurers are struggling against escalating health care costs.
While the number of patients on home oxygen therapy is increasing, revenue is declining. This dynamic presents a major profitability challenge for HME providers who are also facing pressure to deliver improved patient services.
Services are expected to decline and the physician will be expected to take a more active role in managing the patient. However, there is decreasing involvement of physicians regarding outpatient coordinating and supervision of care. The majority of physicians are willing to defer decisions about treatment and goals to non-physician health care providers and, in some cases, even HME providers.
It has been my experience that most physicians will sign a prescription for therapy without their previous initiation if it has been initiated by a therapist.
The American Medical Association, as well as federal guidelines, emphasize the important role physicians have in initiating, determining the medical necessity and ordering of services. However, it is unlikely that this will occur in competitive bidding, further placing the patient at risk.
For more information on this topic, visit www.advanceweb.com/rcp.
Vernon R. Pertelle, MBA, RRT, is senior director/asstistant vice president for Tri-City Healthcare District, Home Care, Occupational Health & Wellness and Rehabilitation Services. He can be reached at VRPertelle@aol.com.