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2016 HME Playbook | Market Trends and Drivers – Understanding the Landscape

2016HME BUSINESSPLAYBOOK

Brought to you by VGM Group, Inc.

Version 2.0 - Non-Bidding Micropolitian Areas

Market Trends and Drivers – Understanding the LandscapeAn Aging and Ailing Population Needs HME ................................................................4

Customer Experience & Paying Out-of-Pocket ..............................................................5

Lack of Cybersecurity is a Liability .................................................................................6

Data: Be Transparent and Use It to Your Advantage .....................................................6

Partner to Win – Collaborating Efforts .........................................................................7

Additional Trends and Drivers to Know ........................................................................7

New Business OpportunityShift Your Business to the Non-reimbursable Space .....................................................9

New Reimbursable Products and Categories ................................................................9

Additional “New” Opportunities ..................................................................................9

The Market is Ripe – Ways to Build New Customers ...................................................10

Product Life Cycles – New Innovation is Necessary .....................................................11

In Focus: Using Data for New Business Growth Case Study ........................................11

In Focus: Retail Science ..............................................................................................12

In Focus: Outcomes Measurement .............................................................................13

15 Products You Should Try in 2016 ...........................................................................14

Strengthening Core BusinessBuilding Differentiation ..............................................................................................16

Analyze Your Business Operations ..............................................................................16

P.S. Don’t Forget to Measure Results ..........................................................................17

Plug into Technology ..................................................................................................18

Swap Best Practices with Industry Peers .....................................................................18

Rationalize CostsKnow & Track Your Numbers ......................................................................................20

Look for Cost Reduction Opportunities ......................................................................21

Competitive Bidding in 2016 and Beyond: Information for Non-Bidding Micropolitian Areas

The Expansion of the Competitive Bidding Program to Rural America in 2016 ...........23

Bid Rates in Non-Bid Areas ..........................................................................................24

Bid Rates on Complex Rehab Items .............................................................................24

Reimbursement Alternatives Long Term Care Facilities .............................................................................................26

Hospices ......................................................................................................................26

Veterans Administration (“VA”) Hospitals and Facilities ..............................................26

TRICARE ......................................................................................................................27

Medicaid and Other State Programs ..........................................................................28

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Table of Contents

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2016 HME Playbook | Market Trends and Drivers – Understanding the Landscape

Market Trends and Drivers - Understanding the Landscape

The HME industry is experiencing reimbursement challenges, but market trends show a promising future for businesses that are willing to change their models to accommodate the wants and needs of the modern health care consumer. Successful businesses will find the way to be the solution consumers seek.

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2016 HME Playbook | Market Trends and Drivers – Understanding the Landscape

An Aging and Ailing Population Needs HMEThe demographics of aging are changing dramatically, most notably the rapid growth of the baby boomer generation. The “boomer” population, born between 1946 and 1964, is projected to rise significantly and steadily until the year 2030, creating excellent opportunity for HME businesses.

1990 2000 2010 2020 2030 2040

20

40

60

80

100 Projected

Millions

Population age 65 and over

U.S. Census Bureau

Paired with the growing aging population is an increased incidence of chronic illness.

The most frequently occurring conditions are hypertension (71%), arthritis (49%), heart disease (31%), cancer (25%) and diabetes (21%). Additionally, 38 percent of people aged 65 and over are obese, an increase of 16% since the late eighties. Eleven million Americans have COPD, but an estimated 24 million may have the disease without knowing it.

of individuals ages 50-64 suffer from at least one

chronic health condition.

According to the Center for Disease Control

Hypertension Arthritis Heart Disease Cancer Diabetes

Clearly, the next 25 years are a golden age for HME businesses to thrive.

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2016 HME Playbook | Market Trends and Drivers – Understanding the Landscape

Customer Experience & Paying Out-of-Pocket

KEY INSIGHTS

The baby boom generation will be spending money out-of-pocket to get the health care services they need.

They are savvy internet users.

The 50+ population accounts for 42 percent of all after-tax income and account for half of all consumer spending.

According to the Pew Internet and American Life Project, 89 percent of boomers seek health information online and 69 percent purchase products online. They want to “do it themselves” and will seek all of the resources available to do so, including apps and devices that help them to track their health. In a study survey of physicians conducted by PricewaterhouseCoopers’ Health Research Institute, half of physicians said they would be comfortable using data from a mobile device to determine if a patient should be seen in person or prescribed education. Ninety percent of respondents predicted that apps and mobile devices would be more important to their practices in the next five years.

As a customer base, boomers will be more sophisticated than ever before, looking for quality products, good prices and a variety of options to choose from.

Keys to capture this market will be:

• Product selection• Expertise• Staff abilities to provide solutions for needs• Customer experience

Focus on complete product packages to increase ticket sales. Work to build a trusting relationship.

In 2016, you must position your HME to offer the “shopping” experience customers seek. Remember the baby boomer mentality in all your marketing efforts; they feel they will never grow old, and they will not be sick!

Jim GreatorexVGM Retail

A first simple step is to arm your showroom or e-commerce site with caretailing products that address the multiple needs of a patient or caregiver. The product categories that are presenting the best retail opportunities are the non-pharmaceutical pain relief products and all options in the ever-more mainstream compression wear lines. With the right people in place, many caretailers should be profitable in six to nine months.

Caretailing: the act of providing customer service and expertise to consumers willing to pay cash for health-related products that improve their lives and are beyond the usual scope of Medicare and other third party payers.

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2016 HME Playbook | Market Trends and Drivers – Understanding the Landscape

Perhaps the products you provide allow for personalization of color, patterns and style. Focusing on the details can improve customer experience, which will add up to more sales and traffic flow through your store or website. And when it comes to marketing your website, website marketing and analysis should be a major focus and investment. Optimize your online marketing to target females between the ages of 35 to 60.

Lack of Cybersecurity is a Liability

The online and convenient shopping experience is what savvy customers expect today. This will only increase as boomers have more health needs as they age. As your company dives into the new world of HME e-commerce, make sure you’re investing in the security and protections needed to protect your business and remain compliant. Data from the FCC shows the average cost of a cyber attack on a small to medium-sized business is $188,242. However, 67 percent of small to medium-sized businesses do not use web-based security, 61 percent do not use antivirus on all computers and 47 percent do not use security on mail services. All of these attacks compromise privacy and add up to liability for business, which can be protected by online security measures and cyber liability insurance.

Breaches such as the malware attack on Target’s 40 million customers resulted in a 46 percent drop in profit and a $10 million lawsuit by shoppers.

The average cyberattack on a small to medium-sized business costs $188,242.

Protect yourself.

Data: Be Transparent and Use It to Your AdvantageSavvy health care consumers are also learning to expect reviews and results of how your business cares for customers. They expect transparency in processes and outcomes. As other health care institutions will be forced to collect and make this information public, it may become more regular for patients or caregivers to expect it from their HME providers as well. Can you start to survey patients to determine how your services increased their quality of life? Are there ways you can gauge customer satisfaction from beginning to end? Not only can you use the results to market your business, you can also use what you learn to improve processes and customer service.

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2016 HME Playbook | Market Trends and Drivers – Understanding the Landscape

Partner to Win – Collaborating EffortsHealth care reform at the state and national levels is changing the way Medicare and Medicaid are administered. To accommodate the change, health care businesses are seeking out partnerships to operate more efficiently, lower risks and provide more innovative products and services. Forty percent of Fortune 50 health care companies pursued new partnerships in 2015, and the number is expected to grow.

In addition, more people will be covered by insurance, providing opportunity for many health care providers. But, the government is picking winning and losing insurers, locking out insurers and the preferred providers connected to them. The panel of providers allowed by insurers is narrowing as well, fueled by consolidation and a push to lower reimbursements.

A relatively few insurers now control 68 percent of health care patients and dollars, shifting by 22 percent in just 10 years. The Aetna/Humana and Anthem/Cigna mergers will take on United Health Group’s $130.5 billion hold on the market. Humana is now the most widely available Medicare Advantage option nationally, and the combined Aetna/Humana company would have 4.34 million Advantage members. The Anthem/Cigna company has 1.1 million Advantage members.

In 2016, finding ways to stay in network will be crucial for health care providers of all types.

Dave KazynskiPresident of HOMELINK

Additional Trends and Drivers to KnowCollecting patient pay up front, millennial expectations (born between 1982 to 2004), patient centricity, increased use of convenient care, decreased inpatient care, increased deductibles and competition for physicians.

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2016 HME Playbook | New Business Opportunity

New Business Opportunity

HME businesses must be adding elements of “new revenue” at all times. New growth is not accidental but an intentional effort that is always at the forefront of strategy, planning and day-to-day operations. A rule of thumb is to target 5 percent of revenues annually from new business opportunity.

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2016 HME Playbook | New Business Opportunity

Shift Your Business to the Non-reimbursable SpaceMake “new” and “growth” intentional by shifting your business to the non-reimbursable space. Lift chairs, active and sports compression, non-pharmaceutical pain relief products, healthy and comfortable footwear, mobility and home safety are all non-reimbursable items that add value to your showroom and drive new revenue for your business. With cash becoming a prominent payer for health care, your business must focus on marketing direct to the consumer. HME providers are hiring or assigning dedicated retail marketing managers more than ever before. This should be one employee who manages all things related to retail products and operations within the store. Not only should this person have the people skills to earn trust of co-workers and customers, he should also have knowledge of visual merchandising, product adjacencies, inventory control and sales reporting.

New Reimbursable Products and CategoriesNew products and categories in the reimbursable product space are another significant opportunity. Grow cash sales from consumers or families by offering a better, more effective or more attractive reimbursed item. Think of better wheelchairs, features that break down barriers, items to be used in second residences, portability, convenience, accessories or items that relieve pain. Inspiring creative ideas that help caregivers and patients solve problems is by nature the definition of caretailing and should be added to your yearly strategy to grow business. To have the most success in this strategy, as an industry we must negotiate upgrade clauses into our payer contracts. The payers, who in most cases pay at the hamburger level for product quality, must allow their members to upgrade to filet mignon.

AdditionaL new opportunities

Branches – With solid core processes in place, look for ways to get bigger and expand your geographical footprint. Repeat what you do best in neighboring regions.

Referral Sources – Grow your referral source contacts efficiently by forming a strategic sales plan that utilizes data to target the right providers. Build sales call routes that will produce better contacts with more volume potential.

Networks – Research local and regional networks for access to narrowing insurance panels. Address the trend in your strategic planning by building personal relationships with key payers in your region.

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2016 HME Playbook | New Business Opportunity

Home InfusionThe health care market is full of possibilities to build new customer bases, requiring a more significant change to business and long-term planning. Would your business benefit from joining the home infusion market? Cost containment and clinical administration trends will continue to expand infusion to the home or alternative site setting. Currently no individual provider holds more than 10 percent of market share, fostering a competitive environment for growth. Independent providers comprise 74 percent of the market.

OtherIndependents

CVS, Coram

Walgreens,Option Care

Express Scripts, Critical Care Systems

Bioscrip

Harris Williams and Company – Home Infusion Industry Overview

Home Modifications

What about the possibilities of getting into home modifications? Ninety percent of those 50 and older want to stay in their homes as long as possible, and 80 percent say their current home is where they want to live. Aging in place remodeling is a $30 billion market; accessibility equipment is a projected $5-7 billion market.

O&PResearch also shows growth for the prescription-based O&P market, despite reimbursement challenges similar to our own. The report, U.S. Markets for Orthotic and Prosthetic Devices 2014, from Decision Resources Group, shows growth until 2022 due to conditions such as arthritis, orthopedic soft tissue damage, diabetes and peripheral artery disease.

New HME CustomersOr, build new customers without leaving the HME market.

Nursing homes

Senior living facilities

Schools for children with disabilities

The Market is Ripe – Ways to Build New Customers

of the revenue growth is predicted to be in orthotic devices such as prescription braces.

More opportunities

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2016 HME Playbook | New Business Opportunity

Product Life Cycles – New Innovation is NecessaryNew growth is necessary at the juncture where the modern health care system and consumer demands meet with HME. Many core HME products are in a mature portion of lifecycle or beyond, at a point where profit margins will fall drastically. How can you introduce new, innovative products to your customers? They have always been a key part of the successful HME story and will continue to be a major revenue driver for the industry. Noninvasive ventilation and chest compression technology are two examples where we’ve seen innovative products and growth in the recent years.

Product Margins

Profit Contribution

In Focus: Using Data for New Business Growth Case StudyCLICK TO VIEW

Product Life Cycle Economics

Rev

enu

e

Time

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2016 HME Playbook | New Business Opportunity

In Focus: Retail ScienceToday’s HME market is flooded with competition. We’re being squeezed into a changing industry with some very big players. Being the underdogs in this evolving market, how do we stand out in the crowd and provide our customers with something the big players can’t match?

Retail is about constantly responding to trends, inventory turns and sales demands. It’s about changing your offerings to satisfy continually evolving customer wants and needs. In order to be successful, retailers must know how to track and analyze data and implement changes based on the trends.

Retail science does not have to be complicated. In our case, it is as easy as combining the six fundamental elements of retail so that they work together holistically to help you build and maintain a successful retail business.

Business analysis – Analysis of overall business operations, identifying strengths and weaknesses and identifying solutions to grow profit.

Financial projection – Create a financial dashboard to track performance, project patient purchases and average ticket, and project transactions and average ticket for organic growth.

Marketing – Analyze current marketing and room for growth, create an 18-month plan, set expected outcomes and track results.

Store Experience and Design – Assess the current showroom, reconfigure existing space, update materials, paint, signage, fixtures and more.

Products – Analyze current product mix and opportunities for expansion, manage inventory, and determine product placement and merchandising needs.

Operations – Hire or reassign a retail manager, create a companywide incentive program, track sales, manage inventory and conduct caretailing training.

6 Fundamentals of Retail Science

Achieving these retail core competencies create the showroom experience that customers seek in today’s health care environment. Customers are ready to spend money on a number of caretailing items that will increase your revenue, including high-quality products, holistic and all natural products, comfort items, accessories, athletic performance products, safety products and more. Have you positioned your company to provide for these demands?

Many HME have showrooms that have underperformed due to lack of a true retail program being implemented. Resources are now in place that can assist all providers in building diversified cash flow in this underserved, entrepreneurial caretailing opportunity.

For more information, contact VGM Retail Scientist Rob Baumhover at rob.baumhover@vgm.com.

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2016 HME Playbook | New Business Opportunity

In Focus: Outcomes Measurement

Outcomes measurement is the collection of reliable, clinically meaningful, evidence-based data that can be used as a sales or marketing tool to partner with hospitals, health systems or payers that are seeking to reduce costs and avoid readmissions.

The health metrics they seek include compliance rates and programs for patients, timely delivery for discharges, length of stay by disease state and readmission rates as they relate to transitional care. In addition to this clinical data, there may also be value to collecting quality-of-life data from the patients under your care. The data, which is collected by means of consumer-centered surveys over a period of several months, helps business owners better understand the costs and benefits of providing quality care with high levels of consumer satisfaction.

Outcomes Measurement MattersThe health care system as a whole is shifting business models to reflect outcomes-driven decision making, but as of now, no government entities are requiring medical equipment providers to participate. Measuring outcomes is a valuable proposition for your business, and here’s why.

Health care regulations are shifting to evidence-based outcomes. Throughout the health care system, the government is requiring evidence-based outcomes data to participate in accountable care organizations. The government and other health care entities are speaking a new language. By implementing outcomes measurement, HME providers maintain clinical relevancy and have evidence to prove value to policymakers when funding or access to HME are on the chopping block.

Today’s health care market expects measurable outcomes. HME providers that demonstrate consumer outcomes will gain a competitive advantage over those who choose to work under the status quo. Presenting outcomes data to physical therapists, hospital discharge planners and health system decision-makers will aid your communications and marketing, making your business a more attractive partner. Information related to rehabilitation, recovery, aging, disability and ongoing quality-of-life issues are all included in the measurements.

Consumer-driven outcomes build relationships and show value to customers. Providers can position their businesses as patient-care experts by clearly defining the clinical delivery process and strategy to reducing readmissions and co-morbidities for better customer satisfaction. Outcomes measurements are consumer-driven. Providers demonstrate superior care with an emphasis on proven results using a systematic approach. In addition, by monitoring consumer outcomes, providers can suggest future products and services to avoid adverse conditions.

Outcomes knowledge allows for implementation of improvement plans starting from any level. Collecting outcomes data allows managers to analyze and compare datasets to identify problem areas and propose solutions. With guidance from experts, providers can implement a variety of solutions and, over time, form best practices that are evidence-based.

Now is the time to persuade decision makers to include HME in the larger health dataset.

John Gallagher Vice President of VGM Government Relations

Using outcomes measurement, providers can improve efficiency and enter marketing and policy discussions from a position of strength. We all know that healthy consumers are happy consumers. When measuring outcomes, all parties, including patients, providers and the health care system, benefit. Being able to identify and quantify outcomes can not only improve the quality of care delivered, but will provide evidence-based data for the new value-based world of health care.

For more information, contact Dave Lyman, vice president of VGM Outcomes at dave.lyman@vgm.com.

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2016 HME Playbook | New Business Opportunity

15 Products You Should Try in 2016 Rifton Tram - A transfer and mobility device designed to deliver three powerful functions in one compact unit: gait training, sit-to-stand transfers and seated transfers.

Deroyal Continuum - An intelligent inventory management system used to dispense high quality orthopedic softgoods and bracing to patients in outpatient settings.

Philips Dreamwear Under the Nose Nasal Mask - A unique design that offers many of the benefits of nasal and pillow masks to allow patients to have the best of both mask types, allowing more freedom of movement and more comfort than their prescribed mask.

International Biophysics Corporation Afflovest – A portable high-frequency chest wall oscillation vest that promotes airway clearance and improvement of bronchial drainage.

Vionic Shoes – Stylish shoes with innovative orthotic technology that helps align the feet from the ground up.

Incrediwear Knee Sleeve – A therapeutic fabric knee brace infused with circulation-enhancing natural elements that can help accelerate recovery and alleviate pain.

Topricin Pain Relief Cream – Pain relief cream formulated without parabens, petroleum or other harmful ingredients.

Comfort Tek Royal EZ Swivel Chair – A discreet swivel chair that enables a caregiver to gently move a seated person to and away from a table.

DVTlite, Medline, Medtronic - Wireless pumps that mimic the body’s venous system, preventing blood from remaining still and clotting.

S3 Sleep Solutions Services - Manage CPAP compliance and reporting using multiple levels of technologies to engage patients with PAP therapy consisting of text message, email, life call and smartphone applications.

DeRoyal or Medela NPWT – Therapeutic negative pressure wound therapy units.

Better Rest SoClean – Automated CPAP cleaner and sanitizer that kills germs and bacteria in a mask, hose and reservoir.

Frozenpeaz – Hot pack and ice pack therapy products developed for serious injuries, post-surgery recovery, sports related injuries and chronic pain.

ING- Orthosleeve Compression Foot Sleeves – Compression foot sleeves for plantar fasciitis and other foot pain using medical grade compression.

Live at Home Pro Mobile App – An app to complete home assessments, make recommendations and securely communicate and integrate results to customers and the office from one location.

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2016 HME Playbook | Strengthening Core Business

Strengthening Core BusinessHME business growth requires a firm foundation rooted in business fundamentals. Dedicating time for reflection, goal setting and operations analysis will plug the leaks and propel your business forward to achieving success.

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2016 HME Playbook | Strengthening Core Business

Building DifferentiationDevelop a clear value proposition within your core business that helps you to differentiate from the competition. A value proposition is defined by Forbes contributor Michael Skok as “a positioning statement that explains what benefit you provide for who and how you do it uniquely well. It describes your target buyer, the problem you solve, and why you’re distinctly better than the alternatives.”

What business sets your business apart from the rest? If you haven’t taken the time to develop your value proposition, do so soon.

We have They have

Better equipment

Convenience

Data for payers

Better outcomes

Managing a condition or disease state

Flexible hours of operation

Greater speed

A hold on important referral sources

Analyze Your Business OperationsIn general, health care businesses struggle with operations due to the complexities of serving unique patients and differentiating between clinical and business processes. This makes an operations analysis of your company even more vital to curb inefficiencies and plug revenue leakage. A complete business analysis of all functions is a cumbersome project. So focus on the layers and functions that are most directly related to your value proposition or original business plan. Start by identifying what your analysis will include and then develop a timeline. Your long-term timeline may include your intentions to conduct several analyses, while a short-term timeline will more specifically address the steps you want to complete for full analysis.

Start with an analysis that is easier to accomplish so that you and your staff are motivated to continue the improvements. Then move on to the ones you predict will show the greatest improvement in revenue or employee or customer satisfaction.

Clint GeffertPresident of VGM & Associates

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2016 HME Playbook | Strengthening Core Business

Consider beginning the process by issuing a questionnaire to employees or customers. You may need to interview employees individually to understand the processes you’re not tasked with on a daily basis. Or, you may find that information to examine your processes isn’t currently available because you’re not tracking enough information. The initial steps of developing a timeline to collect information for analysis will help you to identify potential problems and their source and then find practical solutions.

The solutions may be to change the way staff members do daily tasks, find a way that technology can help or to outsource the work to a business with expertise to work more efficiently.

Key Areas Worth Your Evaluation:

• Quality of care assessment – health metrics of patients

• Staff competency evaluation

• Cost per unit per patient

• Billing and reimbursement audit compliance program

• Business planning and development

• Customer service, speed and responsiveness

• Human resources and internal grievance resolution

• Business intelligence and technology

What processes can you work to improve in the coming year? Develop a plan to analyze your operations and make room for improvements throughout the year. When doing so, differentiate between clinical protocol and optimizing operations.

P.S. Don’t Forget to Measure ResultsAn important component of your operations analysis is measuring results, both in the short-term as you work your way through analyses and in a long-term sustainable way. Internal process metrics should align closely with strategic goals in order to best support the goals. While it’s common to include end-result measures such as financial metrics or inventory turns, it’s important to consider a current-metrics review of processes that may be more difficult to quantify. This could include customer profile accuracy, staff competencies or work flow as examples. Input from the management team or top-level staff will be key to identifying what these metrics may be.

What’s most important is that the metrics are trackable. As you develop your operations analysis, keep in mind that the tracking devices you create will be used into the future to monitor progress and aid in future improvement.

Scott OwenVice President of Sales, VGM & Associates

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2016 HME Playbook | Strengthening Core Business

Plug into TechnologyYou’ll find in your operations analysis that optimizing technology might be the solution to improving the way you do things and increasing revenue. From the way we use big data to targeting physicians to automatic inventory management, high-tech solutions for HME business challenges are on the rise. Your operation analysis can help you determine if the leap to a technical solution adds up.

Does your customer relationship management (CRM) system integrate with your electronic health records? Does your CRM identify top referring physicians and facilities? Today’s integrated systems allow HME providers to do both of these in the click of a mouse.

Here are more ways to use technology:

• Customer relationship management

• Billing and operations systems

• Online payment management

• Cybersecurity

• Fleet management

• Paperless office

• Automatic inventory management

Swap Best Practices with Industry PeersAt VGM we believe that one of the best ways to discover best practices is by fostering open discussions with your peers in the industry. Are you taking the time to attend industry events and meetings such as Heartland, Medtrade or state association events? Yes, the events are created to offer you and your staff great educational opportunities. However, the social events and open discussions are meant to allow you the time to meet with HMEs of many sizes from around the country. It’s your opportunity to discuss how to overcome business challenges and grow your business in new ways.

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2016 HME Playbook | Rationalize Costs

Rationalize CostsSimply put, your cost structure must be aligned with the gross margin dollars generated in your business model. Broadly speaking, HME businesses historically operated with the benefit of relatively high gross margins. Naturally, relatively high cost structures evolved as providers competed mainly on service. Declining reimbursements have changed this dynamic. Accordingly, providers must re-evaluate their operations and in most cases reduce certain elements of their cost structures in order to optimize profitability.

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2016 HME Playbook | Rationalize Costs

Know and Track Your Numbers

The owner and the senior managers must know the numbers. You must understand the financial performance metrics of your business. We call these “Key Performance Indicators” (KPIs).

Mike MallaroVGM CFO

You should:

Identify KPIs for your business.

Understand the KPI results for your business - past, current, trend and other comparable entities.

Base decisions on quantitative data, not just gut feel.

Seek out data when assessing and solving a problem, not just anecdotes.

Set targets for KPIs and track progress over time.

KPIs to Consider

Personnel costs as a percentage of revenue

Branch operations costs as a percentage of revenue

Cost of goods/products as a percentage of revenue

Days to: bill, collect, deliver

Per unit cost on key activities: intake, billing a claim, delivery, sales/business generation

Key volume metrics, such as masks per patient per year, percentage of orders filled, accessories as a percentage of base

Revenue per patient

Lifetime value of a patient equipment type

TIP: Generally think percentage or per unit measure in your KPIs

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2016 HME Playbook | Rationalize Costs

Look for Cost Reduction Opportunities• Understand what is high value to your cash flow and your customer. Stuff that’s not in that bucket is where to

focus.

• Say “no” to some things.

• Look at cost reduction as a journey over the next 18 months. Some cost decisions become less daunting if looked at over a longer time horizon.

• But, once you make tough decisions, act on them quickly.

• Keep emotions out.

• With some items, it makes sense to start from a “zero” base.

• Don’t use “peanut butter” – you shouldn’t be cutting everything, nor should you be cutting evenly.

• If an activity is not central to your core, you should consider outsourcing opportunities. Often someone with greater scale can perform the function at a significantly lower cost.

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2016 HME Playbook | Non-Bidding Micropolitian Areas

Competitive Bidding in 2016 and Beyond: Information for Non-Bidding Micropolitian Areas

CMS has implemented bid pricing nationwide as of Jan. 1, 2016, with separate fee schedules for regional and rural areas. For regional areas, the agency will base pricing on the average pricing in the competitive bidding areas in the region; for rural areas, it plans to base pricing on the national weighted average plus 10 percent.

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2016 HME Playbook | Non-Bidding Micropolitian Areas

CMS has implemented bid pricing nationwide as of Jan. 1, 2016, with separate fee schedules for regional and rural areas. For regional areas, the agency will base pricing on the average pricing in the competitive bidding areas in the region; for rural areas, it plans to base pricing on the national weighted average plus 10 percent.

VGM has extensive tools for understanding the program, including webinars, fee schedules, regional versus rural ZIP code directories and much more. Find the tools at vgmncbservices.com.

The Expansion of the Competitive Bidding Program to Rural America in 2016

• January 1, 2016 Medicare DMEPOS fee schedule amounts for items outside of competitive bid areas that were adjusted per CMS1614-F (based on the previous and current bidding programs)

•January 1, 2016 Medicare ENTERAL fee schedule amounts

•Estimated 2016 Regional Single Payment Amounts for July 1, 2016 - Top HCPCS Only

•Rural ZIP Codes for 2016 (PDF; paid at 110% national) - (ZIP file)

•Regional ZIP codes for 2016 (PDF; paid at RSPA)

• CMS Fact Sheet: Initial phase-in of adjustments to fee schedule amounts for certain DMEPOS using information from the competitive bidding program

•CMS Methodologies For Adjusting Fee Schedule Amounts

•Nationwide Rollout Talking Points

•Preparing for the Expansion of Competitive Bidding Program to Rural America in 2016

•Codes Affected by the 2016 Expansion to Competitive Bidding

In November 2014, CMS issued Final Rule 1614-F, which contains provisions relating to the DME competitive bidding (CB) program and how CMS plans to roll out competitive bid pricing in non-bid areas. A subsequent December FAQ document indicates that, beginning in 2016, Medicare also intends to apply CB rates for standard wheelchair accessories to reduce payment amounts for complex rehab wheelchair accessories, which were specifically exempt by Congress from being included in the CB program. Not that long ago, many providers believed they were unaffected by the program because it was originally rolled out in only nine competitive bidding areas (CBAs). The industry warned that the program would have ripple effects, and it certainly has led to significant changes and consolidation within the industry. Even after the implementation of Round 2, the program did not directly affect a good number of providers. Now, we are all affected by CB and need to be unified in our message to policymakers to secure better outcomes prior to implementation of the new rates in January 2016.

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2016 HME Playbook | Non-Bidding Micropolitian Areas

Bid Rates in Non-Bid AreasOne of the provisions in the Final Rule outlines how CMS will apply competitive bidding rates in non-competitive bid areas. While providers in these areas will not be required to submit bids, CMS will use single-payment amounts (SPAs) from other nearby CBAs to set the rates for these non-bid areas, including rural areas. CMS states in the Final Rule that regional single-payment amounts (RSPAs) will be set for eight regions originally used for economic analysis purposes by the Bureau of Economic Analysis in the Commerce department. The RSPA would be calculated using the average of all the SPAs for an item from all CBAs that are fully or partially located in each region. These adjusted payment amounts would be equal to the RSPA but not less than 90 percent and not more than 110 percent (referred to as the national ceiling and floor respectively) of the average of the RSPAs established for all states. Any RSPA above the national ceiling would be adjusted down; any RSPA below the national floor would be adjusted up. For rural areas, pricing will be set at the ceiling or the RSPA, whichever is higher. The new regional pricing will be phased in beginning Jan. 1, 2016. Payment rates for all affected items will be set at 50 percent of the adjusted fee schedule amount versus the current rate. Beginning July 1, 2016, the rates are reduced to 100 percent of the adjusted fee schedule amount. Future rounds of bidding would use these adjusted rates as the new bid-limit ceiling.

Bid Rates on Complex Rehab ItemsWhile CMS has the authority to roll out the competitive bid pricing in non-bid areas, they do not have the authority to roll out the pricing for exempt items. CMS published an FAQ that indicates they intend to apply CB pricing information obtained through bids on standard wheelchair accessories to reduce payments on complex rehab items. Such application of bid pricing goes against the statutory language in the Medicare Improvements for Patients and Providers Act of 2008, which specifically exempted wheelchair accessories from CB when used on a complex rehab wheelchair base. For the last six years, Medicare has paid for these items at the traditional fee schedule amount when provided on a complex rehab wheelchair base due to the specific language in the law exempting these items from CB. Complex rehab wheelchairs are customized to address specific medical needs of people with high-level disabilities. This specialized equipment is provided through a clinical team and requires extensive evaluation, configuration, fitting, adjustment and programming to meet an individual’s needs as outlined by their physician. NCART and other complex rehab stakeholders are already working with CMS and legislators to rescind the policy change so these items, when placed on a complex rehab base wheelchair, are paid at the traditional Medicare fee schedule.

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2016 HME Playbook | Reimbursement Alternatives

Reimbursement Alternatives

• Long Term Care Facilities

• Hospices

• Veterans Administrations

• TRICARE

•Medicaid and other State Programs

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2016 HME Playbook | Reimbursement Alternatives

Long Term Care Facilities Most residents in long-term care facilities may receive HME reimbursed by Medicare Part B as if those patients were residents of their own homes. For those long-term care facilities that are not paid a per diem rate for the patient’s care, HME suppliers may either bill Medicare directly for provision of the equipment, or, in some cases, facilities may choose to contract with the HME supplier to provide the equipment directly to the facility, and the facility will then provide it as a benefit to its residents.

Hospices The hospice benefit paid to the hospice facility includes the equipment and products used to service the beneficiary. HME suppliers are not entitled to receive reimbursement from Medicare for equipment provided to hospice patients. Hospices, however, may purchase this equipment directly from HME suppliers. The HME supplier should approach hospice providers in its market to inquire about their source of medical equipment and to determine if the hospice is a potential purchaser of equipment or supplies.

Veterans Administration (“VA”) Hospitals and Facilities The VA is a large purchaser of HME and routinely sends out requests for proposals, asking that HME suppliers submit a bid to different VA regions or facilities that service patients.

The Department of Veterans Affairs operates a nationwide system of hospitals, clinics, Veterans Integrated Service Networks (VISN), data processing centers and national cemeteries, which require a broad spectrum of goods and services. The VA purchases these goods and services on a national, regional and local level. So, no matter how large or small your business is, the VA is a potential customer. The VA purchases a majority of its requirements for direct delivery through its local Acquisition and Material Management office. You are encouraged to contact each facility for inclusion in its procurement process. Some of the items the VA purchases are pharmaceuticals and medical and surgical supplies; perishable subsistence; equipment, supplies and materials for facility operation; prosthetic and orthopedic aid; medical gasses; and other items.

The VA uses several methods to purchase items. Acquisitions are accomplished by sealed bidding, negotiation or simplified acquisition procedures. Each of these methods is designed to promote full and open competition to the maximum extent possible, which in turn allows all responsible bidders/offerors an opportunity to compete. The most suitable, efficient and economical procedure will be used, taking into consideration the circumstances of each acquisition. Depending on the commodity (supplies, non-personal services, construction, etc.), most acquisitions at a medical center are of a definite-delivery/indefinite-quantity type.

Much of the purchasing is accomplished through the use of mandatory sources such as Federal Supply Schedules and supply depots. A significant portion, however, will be acquired from sources obtained through the publication of solicitations in the Federal Business Opportunities (FedBizOpps), solicitation mailing lists, commercial advertising or any other accepted means that will provide the procuring activity with a sufficient number of responsible bidders/offerors to ensure full and open competition. Federal Business Opportunities can be searched at www.fbo.gov. Simply typing in “durable medical equipment” or “dme” into the Keyword/Solicitation # field will bring up opportunities for contracts with the Department of Veterans Affairs as well as other federal agencies.

The Office of Small and Disadvantaged Business Utilization (OSDBU) was established in the Department of Veterans Affairs to assist and support the interests of small business.

A mission of this office is to provide outreach and liaison support to businesses (large and small) and other members of the private sector. Additionally, OSDBU is responsible for monitoring VA implementation and execution of the following socioeconomic procurement programs:

•Service-Disabled Veteran-Owned Small Business

•Veteran-Owned Small Business

•Small Disadvantaged Business (includes Section 8(a))

•Historically Underutilized Business (HUB) Zone Small Business

•Women-Owned Small Business

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2016 HME Playbook | Reimbursement Alternatives

VA Federal Supply Schedule Program (FSS) establishes long-term government-wide contracts that allow VA facilities and other government agencies to acquire a vast array of medical equipment and supplies directly from commercial suppliers. While VA FSS contractors enjoy expanded opportunities to connect with the government marketplace, being a contractor can require significant investment of time and expenditure of resources. It is important you take the time to make an informed decision about your need and ability to participate in the VA FSS program. Click here for more information.

TRICARE

TRICARE is the health care program for uniformed service members, their families and survivors. TRICARE is another large purchaser of HME, which offers both contract and non-contract opportunities for suppliers. TRICARE uses military treatment facilities (also known as direct care) as the main delivery system and augments direct care with a network of civilian providers and facilities. The program is available worldwide and managed regionally in six separate TRICARE regions jointly by the TRICARE Management Activity (TMA).

Each TRICARE region is administered by its own managed care support contractor (MCSC). The TRICARE regional contractors assist the TRICARE Regional Offices/TRICARE Area Offices and military treatment facility commanders. The MCSCs are responsible for establishing the provider networks in each TRICARE region.

•North: Health Net Federal Services, Inc.

•South: Humana Military Healthcare Services, Inc.

•West: TriWest Healthcare Alliance

•Overseas: International SOS

At a minimum, all TRICARE providers must be authorized/certified under TRICARE regulation and must have their authorized/certification status verified by the MCSCs in each region. Click here to find links to certification information as well as contract opportunities.

TRICARE has an established “hierarchy” of provider types. Understanding the different types will help you decide what type of TRICARE provider you want to be. A TRICARE-authorized provider is a provider who meets TRICARE’s licensing and certification requirements and has been certified by the MCSC to provide care to TRICARE beneficiaries. There are two types of TRICARE-authorized providers:

• Network providers sign a contractual agreement with the MCSC and agree to provide care at a negotiated rate and file claims for beneficiaries.

• Non-network providers must be certified, but they do not sign a contractual agreement with the MCSC. There are two types of non-network providers. Participating providers agree to file claims for beneficiaries, to accept payment directly from TRICARE and to accept the TRICARE maximum allowable charge as payment in full for their services. Non-participating providers do not agree to accept the TRICARE maximum allowable charge or file beneficiary claims. Non-network providers can choose to participate on a claim-by-claim basis. You do not choose to be either participating or non-participating all of the time. The maximum amount that TRICARE can pay a provider for a procedure or service is known as the TRICARE allowable charge. The TRICARE allowable charge is tied by law to Medicare’s allowable charge whenever practical and may vary based on the prevailing rate in a given location.

To become a TRICARE-authorized Provider, you first must become certified. Then, you need to decide if you want to join the network. Once you decide to become a certified network or non-network provider, your MCSC will provide you with all the information you need to care for TRICARE beneficiaries.

A certified non-network provider, commonly referred to as a TRICARE standard (Certified) Provider, does not have a contractual relationship with the regional contractors but must be certified to provide care to TRICARE beneficiaries. To be certified, you must be a facility, doctor or other health care professional that meets the licensing and certification requirements of TRICARE regulations and practices for your area of health care. Once you are certified, you may or may not agree to “accept assignment” - that is, accept the TRICARE maximum allowable charge as payment in full for services. If you don’t agree, then you are considered an authorized, non-participating provider. You may elect to accept assignment on a claim-by-claim basis. If you want to become a TRICARE Standard (Certified) provider, you must complete the appropriate standard provider certification documents for your region and mail or fax them to the address on the form.

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2016 HME Playbook | Reimbursement Alternatives

Medicaid and Other State Programs All states have medical assistance programs, such as Medicaid. Medicaid programs generally require enrollment, and many Medicaid programs restrict enrollment to in-state or border-state entities. Despite that restriction, many Medicaid programs also have waiver programs that allow the state to cover a wide range of items and services. For example, there are specific waiver programs for mentally and physically disabled patients. In addition, many states also have worker’s compensation programs and health care programs for state and county employees. An HME supplier should consider enrolling in its state’s programs and enrolling in other states’ programs as well.

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2016 HME Playbook | Refusing Assignment

Refusing Assignment

An assignment agreement is between a supplier and a Medicare beneficiary. The option of accepting assignment belongs solely to the supplier.

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2016 HME Playbook | Refusing Assignment

An assignment agreement is between a supplier and a Medicare beneficiary. The option of accepting assignment belongs solely to the supplier.

Suppliers have a choice to become a participating or non-participating Medicare supplier. Suppliers can change their participation status annually. Participation status is part of the enrollment process through the National Supplier Clearinghouse (NSC).

Participation means the supplier always agrees to accept assignment for all services furnished to Medicare beneficiaries during a 12-month period, beginning January 1 of each year.

By agreeing, the supplier always accepts the Medicare allowed amount as payment in full and doesn’t collect more than the deductible and coinsurance from the beneficiary. By accepting assignment, the payment is sent to the supplier.

Ronda BuhrmesterReimbursement Specialist

For more information, contact Mark Higley, vice president of VGM Regulatory at mark.higley@vgm.com.

Suppliers who choose not to sign the participation contract are referred to as non-participating suppliers. For non-participating suppliers, the Medicare payment is sent to the beneficiary. The non-participating supplier can then bill the beneficiary for the difference between the submitted amount and the Medicare allowed amount, as well as the deductible and coinsurance on non-assigned claims. The non-participating supplier can choose on a claim-by-claim basis whether or not to accept assignment, except where CMS regulations require mandatory assignment. Non-participating suppliers are not required to file a claim to secondary insurance. Suppliers are able to collect the payment upfront from the beneficiary. Non-participating suppliers are required to accept assignment when the beneficiary has both Medicare and Medicaid.

Open enrollment forms are mailed to all active suppliers every November. If an existing non-participating supplier wants to become participating, then the agreement form must be received during open enrollment and postmarked before December 31 of that year.

If a participating supplier wants to become non-participating, they can request to become non-participating by sending the request to the NSC on their company letterhead. The request must be postmarked before December 31 of that year to become non-participating effective January 1 of the next year.

Once entered into, the assignment agreement may not be rescinded by the non-participating supplier unless done so by mutual written agreement of the supplier and beneficiary. This agreement must be communicated to the DME MAC before a notice has been sent for the claim determination. Participating suppliers may not rescind the assignment agreement during the period of participation contract.

Suppliers that have been awarded a competitive bid contract are required to accept assignment.

When accepting assignment, the supplier is bound by law to accept the DME MAC’s determination of the approved amount as the full fee for the service rendered. The supplier may not bill, or accept payment for, the amount of the reduced charges. However, an attempt must be made to collect (1) 20 percent of the approved charge (coinsurance), (2) any amount applied to the deductible, (3) any non-covered charges and (4) the additional charges when an ABN upgrade is executed.

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2016 HME Playbook | Non-Bidding Micropolitian Areas