The Medicare Modernization Act: Impact in 2005

Greg Spratt BS, RRT, CPFTChief Clinical Officer

Rotech Healthcare Inc.

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Objectives

• Brief Review of MMA

• Review of Sections that Affect HME

• What has the impact been on HMEs?

• What will the impact be going forward?

• How can HME’s prepare?

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What is Medicare Modernization Act?

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Medicare Modernization Act

• Passed and signed into law in December 2003

• Phased in over 5 years

• http://www.cms.hhs.gov/medicarereform/MMAactFullText.pdf

• 415 pages

• Full Document

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The View of HME

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How does MMA impact HME?

• DME Reimbursement Cuts- Based on FEHBP Median Pricing– Oxygen– Power Wheelchairs– Standard Wheelchairs– Nebulizers– Bed/Mattress– Lancet/Test Strips

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How does MMA impact HME?

• 5 Year CPI Freeze• Competitive Bidding

– 10 Largest MSAs in 2007– 80 Largest MSAs in 2009

• Nebulizer Medication Cut ASP+6%+ Disp Fee

• Quality Standards/Mandatory Accreditation• Prescription Drug Plan (Medicare Part D)

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Bottom Line

“Do More for Less Money”

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What will the impact be?

Who do you want to believe?

• The headlines

• The experts

• HME Surveys

• Reality

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The Good News- Need for Home Services Will

Increase• Patient Preference• Cheapest Site of Care• More Focus on Disease Prevention and

Management• Graying of Baby Boomers• Longer Life Expectancy• Improved Disease Identification• More Aggressive Disease Management

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Impact in 2005 (and beyond)

Expenditures for DME Are Expected to Continue to Grow

Source: Centers for Medicare & Medicaid Services, Office of the Actuary

Year Total

2002 $18.8

2003 $19.6

2004 $20.6

2005 $21.5

2006 $22.6

2007 $23.8

2008 $25.0

2009 $26.4

2010 $27.8

2011 $29.3

2012 $30.9

2013 $32.6

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Maturing (Rationalization) of an Industry

• The average Fortune 500 company enjoys a 3.1% profit margin

• HME average is ~7% with some at 20%+

• Defining who we are- Commodities or Medical Services?

• Who will survive?

• How will they survive?

• What will the model be?

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Changing the Model

The Medicare Prescription Drug Act is a different animal. So deep are its cuts that it may require providers to develop an entirely new way of delivering equipment and services, said a downtrodden Don White, president of Associate Healthcare Systems in Amherst, N.Y.

“What we are faced with here may require a paradigm shift, but I’m not sure what it is,” said White, a former AAHomecare chairman. “I wish I could tell you that the future of home care is going to be X. I really don’t know. But the way we do business in 2005 is going to be a lot different than how we do it in 2003.”

HME News, January 2004

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Where’s the RT Benefit in HME?

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Documenting Benefit of RT in HME

• Clinical Benefit• Business Benefit

– Growing Top Line Revenue (New Patients or Services)

– Retain Business– Reduce Costs– Increase Productivity– Increase Value to Organization– RTs Must Lose the Negative Knee Jerk to Profitability

• Are you measuring and able to demonstrate?

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Impacts in 2005 - Accreditation

• JCAHO, accredits 4,300 locations • ACHC has accredited 482 locations • CHAP has accredited 1,000 locations• National Supplier Clearinghouse has granted

supplier numbers to 23,000 HME locations • HME industry’s estimated at 12,800 providers • Less than half of providers are accredited• With accreditation process and ongoing, costs

go up

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Impact in 2005- Acquisitions

• 2003 – 86

• 2004 – 90

• 2005 – 104 (based on Q1)

• Acquisition is not the end of the world

• Acquisition will be a whole new world

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Responding to MMA

• Diversify Payer Mix

• Grow Your Business– New Patients– New Products/Services– More Services/Patient

• Reduce Costs

• Improve Productivity

• Mergers and Acquisitions

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Continue The Fight in DC

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Summary

• MMA will have a significant impact on the industry

• The impact will increase over the next 5 years

• Look for the opportunities to bring higher value to your organization

• The industry will survive

• It will look different tomorrow