Opportunities in HME/ Benchmarking/Bid Program Update

Opportunities in HME/Benchmarking/Bid Program Update ADMEA November 24, 2018

Introduction…CMS’s Office of the Actuary has published their National Health Statistics for 2016 (they always run about a year behind.) A few interesting statistics in there about HME:

The annual growth rate across all HME categories will average about 6% a year for the next several years. • Unit growth and demand will result in total HME spend five years from now (2022) being nearly 30% greater than the HME spend in 2017. • The increase in HME spend in 2018 over 2017 – in terms of total dollars spent – will be a greater increase than in any year in the past decade.

Looking at 5 years ago vs 5 years from now, to gain perspective, shows Medicaid as the payer source that will have grown the most, by a fair margin. • Private health insurance grows proportionately as well. Medicare shrinks in proportion. Said another way, Medicaid and private health insurance become more important to HME providers than they have been in the past.

Yes, those serving the HME space face many daunting challenges, there isn’t much argument over that. But we do so in a market that is growing in dollars and growing much faster than almost every other segment of our economy. • Shifting sands are requiring us to change, to do things differently, to re-prioritize and to focus. But opportunities abound. • Today’s HME market is a complex and challenging environment. We continue to see declining reimbursement rates and pressure from payer sources.

IN CONJUNCTION WITH AAHomecare, and our essential state and regional associations (thank you ADMEA!) VGM’s Government Relations and regulatory groups continue to advocate for you relentlessly, meeting with legislators daily to ensure public policy reflects the critical role HME plays in health care.

Despite these challenges, opportunities for growth still exist and will become more prevalent in the near future. • Projections by the Census Bureau estimate the number of adults aged 65 and over could increase to more than 71 million in 2030 and hit 88.5 million by 2050. • This uniquely positions our industry to help improve the quality of life for more patients than ever before.

But before we get to someHME specifics, let’s look at what I dub “Mega-trends” impacting our industry…

Looking at the legislative, regulatory, technological, medical and market changes converging to re-invent post-acute healthcare, I have suggested several “mega-trends” that will impact how HME industry leaders need to manage their organizations in the decade ahead. • These forces are re-shaping the healthcare landscape—and re-defining how all the players, from payers to providers to manufacturers, must adapt to drive growth.

The American healthcare system is undergoing massive change. From transformational policies to disruptive legislation to groundbreaking medical advances, powerful forces are coming together to re-create the healthcare environment. • Here are several that are – or will, I believe – affect the home medical equipment industry:

“Consumers Take Charge”… • As patients have both more information about health issues and better tools for monitoring their own behaviors and health status, they are gaining more control over their care. • Consider that in the U.S. alone more than 75% of healthcare costs result from chronic diseases—many of which are preventable with the right behaviors—and the importance of consumers taking charge of their own health is clear. • As a result, we’ll see fast growth in home-based self-care, as well as self-monitoring technologies. Initiatives such as “pay for performance” and “patient-centered medical home” will further spur the self-care trends.

“Cash vs Reimbursement”… • With CMS working overtime to drive down Medicare funding for home medical equipment, providers must increase their cash flow. • One of the key ways to accomplish that is through increasing retail sales revenue. While patients come to providers for core DME, there is still a multiplicity of high-and low-price products, such bath safety items, auto access gear, compression garments, or aids to daily living, for which they are willing to pay cash. • Moreover, there are many patients of means who are willing to pay cash for traditionally funded items, such as portable oxygen concentrators, because they want them right away and can afford them.

Projected Per Capita DME Expenditures ($) Source: National Health Expenditure Projections 2014-2022 http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2014.pdf

“More with Less: From Volume to Value”… • Doing more with less is an over-arching theme of a revamped post-acute healthcare system. Across the board, stakeholders will need to support higher quality, better outcomes and greater patient satisfaction —all while reducing costs. • “Value” will be a central focus, as we seek to improve the results we achieve for every dollar spent. As we move from a volume-based to a value-based system, payers—whether Medicare, private insurers or states—will transition to more innovative payment mechanisms, including bundling agreements, risk sharing and capitation arrangements. • Reimbursement based on quality metrics is within the not-too-distant future for HME providers.

Suppliers can participate and DME and Part B drugs are included in the program (page 4 of Fact Sheet https://innovation.cms.gov/Files/fact-sheet/bpci-advanced-generalfs.pdf • This program has two different types of participants: convener and non-convener. Convener participant brings together multiple downstream entities referred to as “Episode Initiators” to participate in the program, facilitate coordination, and bears the financial risks. • A non-convener participate does not bear any financial risk. The website states that “Medicare-enrolled providers or suppliers may participate as Convener Participants only.”

“Healthcare Everywhere“… • Driven by the rise of new technologies, experts anticipate that, over the next decade, as much as 50% of healthcare will move from hospitals and clinics to homes and communities. • From smartphones to social media to sensors, new tools are empowering consumers with more information and control over their healthcare decisions—and providers with more options for where and how they treat their patients. Smartphone technology has put health information—and applications—into everyone’s hands. • Smartphones are monitoring vital signs, measuring calories and helping consumer manage their own health in every possible setting.

“The New Aging”… • As I indicated in my introduction, Today, 13% of the U.S. population—40 million people—are 65 or older. By 2030, the over-65 segment will soar to 72 million or 19% of the total population. • The 85+ population will be 6.6 million by 2020. Over the next 20 years, 74 million baby boomers will retire. • All of these stats point to a healthcare system that will need to cope with a dramatically growing group of older Americans—and find innovative ways to deal with the medical and functional needs of an aging population.

From self-care to connected care to monitoring devices, the focus will be on helping people stay in their homes longer. In addition, it will be more important than ever both to manage chronic disease and to integrate behavioral health methods to promote better choices. • State and federal governments will need to think outside the box. The shift to managed care will continue, along with the need to focus on behavioral health initiatives and transition to care management models. • The expansion of palliative, hospice and related services will lead to new approaches for helping people face the end of their lives with dignity.

So let’s look at the numbers! • Each company here today will receive a hard-copy of a 2017 Benchmarking Survey conducted by VGM Group, Inc. to provide HME providers with an overview of the industry. (Want me to email you the file? Just ask or text 319.504.9515)

Notes Continued… The survey questions were crafted with the learning of 8+ years of VGM Benchmarking surveys. Further, the financial questions were reviewed by an independent certified public accountant. Questions focused on in 2016 financial and operational information. Data was collected over a period of 12 weeks from May to August 2017. At the close of the survey, responses were compiled, and data was analyzed.

Today’s Birmingham Bidding Update… • We recognize some of you here today might not actively engage in the upcoming Round 2019 competitive bid program. However, due to the Affordable Care Act, you will essentially “inherit” a similar reimbursement fee schedule determined by your metropolitan bidding neighbors, such as Chattanooga, Knoxville, Memphis and Nashville…in addition to Birmingham/Hoover • Medicare FFS reimbursement continues to be a key payer benchmark, and this next Round can raise the overall bar. (Some positive improvements have already taken place!) • In the meantime, the market continues to consolidate, with ever-increasing demand for our products and services. We will offer some data.

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

Reimbursement Prices Continue to Plummet… • As Alabama providers are most aware, the industry has 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 most 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. As a result…

As I offered at the last ADMEA meeting, the number of “true” HMEs have been steadily declining(data is 2010 to September 2017)…

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.

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.

However, since the January 2016 implementation of competitive bid pricing to rural (non-bid) areas (*), the loss of Medicare DMEPOS suppliers in these counties have accelerated from the 18% noted. • Accordingly, we examined the reduction in counties designated as rural/frontier, and/or with a large native American population,and/or make up the 100 counties with lowest per capita income and/or are made up with large 65+ populations. (*) The Affordable Care Act amended the Medicare Modernization Act statute to mandate use of information from the DMEPOS competitive bidding program to adjust the fee schedule amounts for DME in areas where competitive bidding programs are not implemented by no later than January 1, 2016

To about 28%...

How is this reduction affecting our patients? AAHomecare commissioned a survey…

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.

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

Update: COMPETITIVE BIDDING ROUND 2019 REMAINS ON HOLD • As Alabama providers are most aware, CMS has delayed its previously announced competitive bidding Round 2019. • 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.

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.

“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.

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.

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.

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.

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??? I think March 2018!!

There is also some good new for the next (2019) Round… • Last year, CMS published a proposed rule (CMS-1651-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.

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.”

Opportunities in HME/ Benchmarking/Bid Program Update