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Smart Business Forecasting: Turning HME Threats Into Opportunities

Smart Business Forecasting: Turning HME Threats Into Opportunities. July 28, 2014 The Lodge & Spa at Callaway Gardens Pine Mountain, GA. Before we begin…some comments regarding the potential for nationwide implementation of competitive bid programs and/or pricing and the Round 2 “recompete”….

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Smart Business Forecasting: Turning HME Threats Into Opportunities

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  1. Smart Business Forecasting: Turning HME Threats Into Opportunities July 28, 2014 The Lodge & Spa at Callaway Gardens Pine Mountain, GA

  2. Before we begin…some comments regarding the potential for nationwide implementation of competitive bid programs and/or pricing and the Round 2 “recompete”…

  3. CMS-1614-P • 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. • CMS estimates that by applying bid rates throughout the entire United States it would save over $7 billion over FY 2016 through 2020.

  4. DME Provisions… • Proposed (changes to) the methodology for making national price adjustments based upon information gathered from (all previous) competitive bidding program (CBPs). • Proposed phase in of special payment rules in a limited number of areas (12) under the CBP for certain DME and enteral nutrition.

  5. Update the definition of minimal self-adjustment of orthotics. • Change of Ownership Rules to Allow Contract Suppliers to Sell Specific Lines of Business

  6. “National” Pricing • How? Adjust fee schedule amounts for states in different regions of the country based on previous competitive bidding round pricing in these “regions”. • The regional prices would be limited by a national ceiling (110% of the average of regional prices) and floor (90% of the average of regional prices) • “Regions” are yet to be finalized…

  7. CMS determines a regional price for each state equal to the un-weighted average of the single payment amount for an item or service from the CBAs that are fully or partially located in the same region where the state is located. • CMS determines a national average price equal to the average of the regional prices. • The regional price cannot be greater than 110 percent of the national average nor less than 90 percent of the national average price.

  8. Adjust fee schedules annually using CPI-U • Revise the SPA each time there is a new round of bidding. • Use national ceiling for rural states and outside contiguous US.

  9. “Bundling”… • This is a limited phase in (12 areas) of bundled monthly payment amounts for the equipment, supplies, accessories, maintenance and repairs for enteral nutrition, oxygen, standard wheelchairs, hospital beds, CPAP/RAD in place of capped rental policies. • Bidding would start sometime after 1/1/2015.

  10. The SPA is based on bids submitted and accepted on a monthly basis for each month of medical need during the contract period. • Monthly single payment amount would include payment for all nutrients, supplies and equipment. • Payment is made on a continuous monthly rental basis for DME. The SPA Includes rent, maintenance and service, and replacement of supplies and accessories necessary. • No separate payments for M&S

  11. Round 2 Recompete • Current Round 2 product categories, the associated HCPC single payment amounts and geographic coverage areas remain in effect until June 30, 2016. • CMS is conducting a Round 2 “Recompete” with seven product categories that differ from Round 2, but somewhat mirror the Round 1 recompete categories.

  12. Round 2 Recompete: Same Geographic Coverage but New Bidding Areas (CBAs) • 90 MSAs for the Round 2 Recompete • CBAs in multi-state MSAs have been defined so that there are no multi-state CBAs. There are 117 CBAs in the Round 2 Recompete.

  13. Area CBAs… • Atlanta-Sandy Springs-Roswell, GA • Catoosa, Dade & Walker Counties, GA • Augusta-Richmond County, GA • Catoosa, Dade & Walker Counties, GA • Birmingham-Hoover, AL

  14. Grandfathering will be allowed, but on a bundled basis. • If beneficiary moves out of one of these 12 bundled areas, then a new capped rental period begins. • Program authority runs to 2019. Comment period open now.

  15. Today’s Program… • Revenues, demographics and new market potentials remain strong, but with cuts looming, HME businesses have to retool and retrain to deal with the challenges providers are facing from every direction. • Today I’ll provide analysis, update and commentary… plus new industry metrics and trends.

  16. What We Know: 2014 & Beyond Will See Major Reductions in Per Unit Reimbursement! • Enormous pressures on reimbursement • Healthcare cost increase not sustainable • Cuts across Healthcare continuum • Federal policies mimicked by states and carriers • Natural order of maturing industry • Prepare for 50% reduction in per unit reimbursement on existing product lines • But…let’s look at some actual data…

  17. Actual Durable Medical Equipment Expenditures ($Billions) Source: National Health Expenditure Projections 2012-2022 http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2012.pdf

  18. Projected Durable Medical Equipment Expenditures ($Billions)

  19. U.S. DMEPOS Spending EVEN WITH COMPETITIVE BID RATES!

  20. Actual Per Capita DME Expenditures ($) Source: National Health Expenditure Projections 2012-2022 http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2012.pdf

  21. Projected Per Capita DME Expenditures ($) NOTE: Florida per capita DME spend is $231 in 2014 Source: National Health Expenditure Projections 2012-2022 http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2012.pdf

  22. Annual Revenue Per Patient

  23. Health spending is projected to grow at an average rate of 5.8 percent from now to 2022, 1.0 percentage point faster than expected average annual growth in the Gross Domestic Product (GDP). • Health spending growth during 2013 remained just under 4.0 percent due to the sluggish economic recovery, continued increases in cost-sharing requirements for the privately insured, and low growth for Medicare and Medicaid.

  24. Let’s look at the historical (actual) and some predictions of payer models in our industry…

  25. The Payors: Medicare • Medicare spending growth was 4.2 percent in 2013 and it reflects the 2-percent reduction in Medicare payments mandated in the Budget Control Act of 2011, also referred to as sequestration. • I predict for DME, with the implementation of NCB nationwide, and the prospect of bundled monthly payments (which we will discuss at the end of this program), FFS Medicare as a percentage of overall revenue, will drop to less than 25% for HMEs nationwide within five years.

  26. Medicaid • Total Medicaid spending is projected to increase 12.2 percent in 2014. Enrollment is projected to increase by 8.7 million, nearly all due to the ACA coverage expansion. • As some states are expected to expand their Medicaid programs after 2014 (see next series), an additional 8.8 million people are expected to enroll in the program by 2016. Overall Medicaid spending is expected to grow by 7.9 percent on average in 2015 and 2016. After 2016, Medicaid spending growth is expected to be about 6.6 percent per year on average, mainly driven by spending by aged and disabled beneficiaries.

  27. Affordable Care Act (ACA) coverage expansions • Improving economic conditions, the ACA coverage expansions, and the aging of the population, drive faster projected growth in health spending in 2014 and beyond. • Expected growth for 2014 is 6.1 percent, as 11 million Americans are projected to gain health insurance coverage, predominantly through either Medicaid or the Health Insurance Marketplaces.

  28. Uninsured and the ACA • The Congressional Budget Office (CBO) estimated that the ACA would newly insure 30-33 million people (still leaving 26-27 million uninsured in 2016). • The ACA aimed to fill in “gaps” by extending Medicaid to nearly all nonelderly adults with incomes at or below 138% of poverty (about $32,500 for a family of four in 2013). • However, with the June 2012 Supreme Court ruling, the Medicaid expansion became optional for states, and about half did not implement the expansion. • In states that do not implement the expansion Medicaid eligibility for adults (including AL and GA) will remain quite limited.

  29. Alabama and the ACA • Despite previously supporting Alabama’s implementation of a state-based health insurance exchange, Governor Robert Bentley (R) announced the state will default to a federally-facilitated exchange. • The ACA requires that all non-grandfathered individual and small-group plans sold in a state, including those offered through the Exchange, cover certain defined health benefits. Since Alabama has not put forward a recommendation, the state’s benchmark EHB plan will default to the largest small-group plan in the state, Blue Cross Blue Shield of Alabama 320 Plan PPO.

  30. Alabama and the ACA • There are 660,000 uninsured Alabamians. • Under the ACA, in Alabama, nearly half (46%) of currently uninsured nonelderly people are eligible for financial assistance in gaining coverage (see Figure 2, next). • The main pathway for the currently uninsured to gain coverage is the Marketplace, the new coverage option in the state: nearly 200,000 (nearly three in ten) uninsured Alabamians are eligible for premium tax credits to help them purchase coverage in the Marketplace.

  31. The ACA will help many currently uninsured Alabamians gain health coverage, but many who could have obtained financial assistance through the Medicaid expansion will remain outside its reach. Further, the impact of the ACA will depend on take-up of coverage among the eligible uninsured, and outreach and enrollment efforts will be an important factor in determining how the law affects the uninsured rate in the state. • The ACA includes a requirement that most individuals obtain health coverage, but some people (such as the lowest income or those without an affordable option) are exempt and others may still remain uninsured.

  32. Georgia and the ACA • Governor Nathan Deal (R) announced that the Georgia had stopped planning for an exchange. In the previous year Governor Deal issued an Executive Order to create the Georgia Health Exchange Advisory Committee to assess whether and how Georgia should establish a health benefit exchange •  The ACA requires that all non-grandfathered individual and small-group plans sold in a state, including those offered through the Exchange, cover certain defined health benefits. Since Georgia did not put forward a recommendation, the state’s benchmark EHB plan will default to the largest small-group plan in the state, Blue Cross Blue Shield of Georgia- HMO Urgent Care 60 Copay.

  33. There are 1.8 million uninsured Georgians. • Under the ACA, in Georgia, nearly half (45%) of currently uninsured nonelderly people are eligible for financial assistance in gaining coverage (Figure 2, next). • The main pathway for the currently uninsured to gain coverage is the Marketplace, the new coverage option in the state: 28% of uninsured Georgians (over half a million people) are eligible for premium tax credits to help them purchase coverage in the Marketplace.

  34. Georgia Bottom Line… • In Georgia, 409,000 uninsured adults (22% of the uninsured in the state) who would have been eligible for Medicaid if the state expanded fall into the coverage gap. These adults are all below the poverty line and thus have very limited incomes.  Because they do not gain an affordable coverage option under the ACA, they are most likely to remain uninsured. • The 20% of the uninsured with incomes too high to be eligible for premium tax subsidies or who have an affordable offer of coverage through their employer are ineligible for financial assistance. Some of these people are still able to purchase unsubsidized coverage in the Marketplace, which may be more affordable or more comprehensive than coverage they could obtain on their own through the individual market.

  35. National Impact of insuring more people (AL/GA estimated at 2%)

  36. ACA Durable Medical Effect:Alabama Estimates • Health Care Expenditures per Capita (AL) Medical Durables: $108 • Population of Alabama: 4.8 million • Current DME Spend = $518,400,000 • Estimated New AL Eligibles: 325,000 • 2% increase of DME Spend (Kaiser estimate of current per capita of $108*325,000) • Potential increase in Annual DME Spend: $23,256,000 • Source: http://kff.org/other/state-indicator/health-spending-per-capita-by-service/

  37. ACA Durable Medical Effect:Georgia Estimates • Health Care Expenditures per Capita (GA) Medical Durables: $114 • Population of Georgia: 9.9 million • Current DME Spend = $1,128,600,000 • Estimated New GA Eligibles: 200,000 • 2% increase of DME Spend (Kaiser estimate of current per capita of $116.28 *200,000) • Potential increase in Annual DME Spend: $35,800,000 • Source: http://kff.org/other/state-indicator/health-spending-per-capita-by-service/

  38. Private Health Insurance • Private health insurance spending growth is expected to remain somewhat elevated at 6.2 percent in 2015, primarily related to continued enrollment of the newly insured into Marketplace plans. BUT…analysts predict continued “slow growth” largely due to ongoing increases in plan cost-sharing and continued restraint in the use of physician office visits. • I predict for DME, even with the implementation of the Affordable Care Act, private health insurance, as a percentage of overall revenue, will decrease by 2-3% nationwide within five years…mainly due to the plans emulating competitive bid pricing.

  39. Managed Care • As many HMEs may not be aware, Medicare Managed Care (HMOs/Part C) is not under the program rules for competitive bidding. More than a quarter of beneficiaries fall within Part C Advantage Plans. This number will grow to 30% within 5 years. • While many managed care contracts are at rates above Medicare, I predict for DME, as a percentage of overall revenue, managed care will remain flat within the next five years.

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