Reduced Medicare reimbursements may threaten equipment services

Neighbor Island medical equipment companies are bracing for change as new Medicare reimbursements take effect this year.

Despite years of gripes that the federal health care program’s payment rates are too low, Medicare is extending its rates nationwide this year, including nonurban and rural areas that had previously been exempt. And while the rates are touted as saving both the program and beneficiaries money, durable medical equipment companies fear lower reimbursements will hamper services to Medicare clients. For communities like Maui that rely on a few small local providers for equipment, it’s a worrisome prospect.

Maui- and Kauai-based Gammie HomeCare, for one, will stop accepting most Medicare clients starting April 1. The company currently accepts Medicare clients but at a loss, owner Paul Gammie said.

“Our industry has been taking serious cuts to our products and services since 2003,” Gammie said. “We knew cuts were coming, but had continually hoped they would be much less than this.”

The reimbursements that companies receive for providing medical equipment to Medicare beneficiaries are being cut in phases. Cuts began Jan. 1 and phase in fully July 1. Changes range from hospital bed rental prices, reduced by 18 percent Jan. 1 and 36 percent by July 1; oxygen therapy products, which will go to 40 percent cuts by July; and CPAP machine rentals, which will be trimmed by 50 percent, all Hawaii-based rates. (A CPAP machine provides continuous positive airway pressure for people with breathing problems, like sleep apnea.)

On Maui, it’s easy to find items like crutches at a local drugstore. But specialized equipment comes mainly from Gammie HomeCare and Apria, a national chain with branches on Oahu, Maui and the Big Island.

While the company won’t drop its clients with existing equipment, Gammie fears his struggles will be mirrored in other Neighbor Island markets. Less-populated areas can’t depend on the economies of scale that help larger markets weather big cuts, he pointed out.

“We don’t have access to the same economic model,” Gammie said. “We already provide services to a great majority of people on Maui. . . . We don’t have a bigger pie that we can plug into.”

California-based Apria is still weighing options, Chief Executive Officer Dan Starck said.

“No business can take 40 percent reimbursement reductions and not make changes,” Starck said. “We may have to be much more strict about how far from the branches we are able to service patients.”

Rainbow Medical Supply, a major Big Island provider, is also reconsidering some of the products it offers.

“Heretofore we have been a full-service durable medical equipment company,” Chief Executive Officer Terry McCrary said. “Reductions to our scope of practice in this rural area will no doubt do great harm to Medicare beneficiaries on our island.”

Cuts are especially hard on Neighbor Islands, where providers pay more and wait longer than Oahu to receive shipments, and residents can’t drive to bigger cities like Honolulu to find other options, said Desiree Quintanilla, operations manager for Hawaii Home Infusion Associates.

Regarding the new rates, Quintanilla cautiously said the Kauai-based medical equipment company would make Medicare client decisions on a case-by-case basis.

Root of the rates

Reimbursement rates have already been determined in competitive bidding processes held across the country in 99 metropolitan areas. Critics of the bidding process say this is where the heart of the problem lies.

When legislators passed the Medicare Modernization Act in 2003, the law required a new competitive bidding system. Instead of clients going to any Medicare-enrolled provider, the program requires they go to a winning bidder. Companies bid to service certain products, and Medicare sets the rate at the median of these bids, according to Medicare officials.

Gammie said he’s “a fan of the concept of competitive bids,” but that Medicare’s system is “not a true auction.”

In 2010, 244 economists, engineers and computer scientists penned a letter to President Barack Obama, saying the problem is that companies are not held to their bids. The 244 “auction experts” pointed out that the system allows bidders to toss in low-ball offers to win and then later walk away if they decide the rate doesn’t suit them.

The first bidding rounds in 2011 began in nine areas and by 2013 expanded to 99, including Honolulu. Providers outside of the bidding areas, including Neighbor Islands, were exempt from these rates until a 2014 Medicare final rule mandated that rates spread nationwide by 2016.

“I don’t believe that it’s appropriate,” Starck said. “The initial intention was not to just take the competitive bidding rates and move them out to nonbid areas.”

Many legislators agree. A bipartisan group of 36 senators, including Hawaii Sens. Mazie Hirono and Brian Schatz, sent a letter to Medicare in 2014, questioning “whether an apples-to-apples comparison with urban areas is the best approach, especially since there are some concerns with the bidding process in Round 1 and Round 2.”

“The goal of the competitive bidding program is to reduce Medicare costs while ensuring patient access to necessary durable medical equipment,” Schatz told The Maui News last week. “Unfortunately in some areas, that has not been the result. With reports of disruptions to (durable medical equipment) service on Oahu, I’m concerned that we may see further disruptions now that the bidding program is being implemented on the Neighbor Islands.”

There’s a caveat for Hawaii, Alaska and Puerto Rico. Each gets an extra 10 percent tacked on to the reimbursement rates. Still, the overall cuts are so drastic that the 10 percent cushion is of little compensation, Starck said.

Contract-selected companies assumed that their volume would naturally increase to offset the reduced payment rates.

Apria won a bid on Oahu in 2013 and did see a volume increase (that, for proprietary reasons, was undisclosed) but not enough to balance out 40 percent decreases in reimbursements, Starck said.

Nancy Mendoza, chief executive officer of Oahu-based Respiratory Home Care Specialists, won a bid but didn’t see an increase. Like others, she believes Medicare is expecting much more for less. Rates are reduced while contractors are expected to handle increased documentation requirements, Mendoza said. As a result, it takes longer to begin servicing Medicare clients.

“The bottom line really is you have to have money to run your business,” said Mendoza, a registered respiratory therapist. “Right now that’s what everybody’s battling. . . . When reimbursement consistently goes down, it’s more difficult to keep clinical staff on board. The care to your patient takes a hit there.”

Changes, however, are on the horizon for the bidding process. Last year, Congress passed a bill that requires companies to post surety bonds between $50,000 and $100,000, forcing them to stick by their bids. The changes must be implemented by 2019, but in the meantime, companies are saddled with low bids from the current process.

CMS: No access issues

Officials at the Centers for Medicare and Medicaid Services say beneficiary access has continued uninterrupted. Medicare’s monitoring program, last updated in late 2015, reported “no changes in beneficiary health outcomes . . . have been observed to date,” as a result of the competitive bidding program.

“We’ve heard general concerns from suppliers and providers in Hawaii and tried to address those as they’ve come up,” said Lorelei Piantedosi, associate regional administrator for the area that includes Hawaii. “But we haven’t heard of specific examples of beneficiaries being impacted.”

Medicare initiated competitive bidding to bring market-based prices to the program. The prices it had been paying were “excessive – sometimes three or four times retail prices and the amounts paid by commercial insurers,” according to its website. The government expected competitive bidding to save Medicare $25.7 billion and beneficiaries $17.1 billion between 2013 and 2022. A March 2015 Domestic Policy Council report found that Medicare had saved approximately $2 billion a year after new bidding procedures went into effect in mid-2013. At the time of the report, the bidding program was expected to save Medicare an additional $30.2 billion over the next 10 years.

Despite reduced rates, services should still continue for nonurban and rural Medicare clients, said Kirk Sadur, Medicare program protection branch manager.

“One of the things with the competitive bidding program that we’ve tried to do is have enough suppliers available so if a contract supplier had to drop out of the program, there would still be enough suppliers,” Sadur said. “We hope that there would not be an access issue if one provider had to drop out.”

Piantedosi and Sadur encouraged medical equipment providers to contact them to report any problems.

“The data we have and the anecdotal evidence that we have on the program since it was started five years ago is that it’s working,” Piantedosi said. “It’s saving beneficiaries money. It’s saving Medicare money, and it hasn’t negatively impacted beneficiaries’ access to supplies or equipment.”

Hospital officials say otherwise. Wesley Lo, chief executive officer of the Hawaii Health Systems Corp. Maui Region, said there have been instances in which patients couldn’t get home medical equipment and had to stay in the hospital for several more months. (The HHSC Maui Region operates Maui Memorial Medical Center, Kula Hospital and Lanai Community Hospital – until a transition is completed this year to Kaiser Permanente.)

Hospitals get reimbursed for acute patient stays, Lo explained. But these reimbursements stop once a patient is sub-acute and ready to go home.

“We’ll take care of them, but it’s the most expensive place for them to be,” Lo said. “And they take the place of someone who needs acute care. . . . Durable medical equipment is important to the whole continuum of care.”

On average, there are more than 30 patients at Maui Memorial Medical Center each day who should be home, Lo said. Caring for these patients costs $3,000 to $4,000 a day, which the hospital is not reimbursed for. Medicare may be paying less, but somebody has to make up the difference, he added.

“As a state hospital, (costs) go to the taxpayers,” Lo said. “Ultimately everybody pays for it anyway. It doesn’t make health care cheaper.”

Neighbor Island outlook

Any effects on Neighbor Island Medicare beneficiaries will depend on the decisions companies make as July 1 approaches, Starck said. Alternatives are limited if Gammie steps out and other Neighbor Island companies follow suit.

“I have no problem being replaced if the marketplace has found another willing provider who can be more efficient,” Gammie said. “However, I know of no such entity being available to the communities of Maui and Kauai, and I believe Medicare has forced this situation with no one available to fill the void they themselves have created.”

Schatz and Hirono have been active with Medicare issues over the years – collaborating with fellow legislators on letters and proposed bills to improve the bidding program and expand medical equipment options in Hawaii. Both said they are continuing efforts to ensure beneficiary access, which Hirono called a “top priority.”

“While reforms to Medicare’s durable medical equipment reimbursements were intended to rein in abusive practices, the impact on rural providers and beneficiaries, including many in Hawaii, were not adequately taken into account,” Hirono told The Maui News last week.

“Now that cuts are being imposed statewide, the concerns are even greater,” she added. “I intend to continue working with my Senate coll-eagues from other states who are experiencing similar issues to explore a legislative fix that provides Hawaii real relief.”

Starck said lobbyists in Washington are vying to extend the July 1 final cut date, but most providers “are planning on there not being an extension.”

* Colleen Uechi can be reached at cuechi@mauinews.com.


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