Medicare, Medicaid strain diabetes market

Despite continually increasing demand for diabetes products and services from the public, the business of furnishing these items has gotten more difficult due to competitive bidding, stringent policies and fee schedules, vendors say.

Research from the National Institutes of Health shows a burgeoning potential market for diabetes supply, with an estimated 21 million Americans diagnosed with diabetes, 8.1 million still undiagnosed, and more than 79 million with at-risk blood glucose levels. Yet these numbers also translate into much higher treatment costs, which has the public and private payer communities concerned.

Three years ago, the American Diabetes Association released a comprehensive examination of costs in the U.S. directly attributable to diabetes, estimating the annual cost of diabetes to be $245 billion, with $176 billion in direct medical costs and $69 billion in reduced productivity.

“When examined over a five-year period, direct medical costs of diabetes care have increased more than 30% over the rate of inflation—a number directly attributable to increased prevalence in the U.S.,” ADA researchers said. “Previous studies have shown that this expenditure is attributable to uncontrolled diabetes, especially within the Medicare and Medicaid populations.”

As a result, CMS has implemented competitive bidding for Medicare and systematically reduced Medicaid reimbursements across the diabetes spectrum, while also implementing more detailed provider requirements. These developments have had a distinctly negative impact on business, said Bobby Kanter, CEO of Milwaukee-based Anodyne Shoes.

“To be blunt, it's getting tougher for providers to supply shoes to their patients,” he said. “The requirements for dispensing shoes, relative to other reimbursable products, are significantly more burdensome. The rejection rate of claims and overall number of audits is, unfortunately, continuing to increase.”

Diabetic shoes are subject to RAC audits, Kanter said, “because it's CMS's thought that products were being dispensed that in some cases should not have happened.” Disagreement between providers and Medicare over medical necessity is commonplace, he said, “but it's unfortunate that this burden then falls on the provider to either dispense the product and eat the cost or withhold the necessary product from the patient. This is the reality for us at this point.”

Pendulum swing?

Fallout from competitive bidding has caused some HME companies to go out of business, concedes Anita Perez, director of sales and marketing for San Diego-based Acon Laboratories, and as a result the quality of blood glucose meters and strips for beneficiaries has suffered. Still, she said the situation could improve as more baby boomers need these products.

“The pendulum will swing the other way because baby boomers will pay out of pocket rather than accepting inferior products,” Perez said. “They do not have the entitlement mentality and will pay cash for what they need.”

For now, the HME providers who are determined to succeed in the diabetes market must re-think their business model and their approach to the market, Perez said. The key, she said, is to focus on health and wellness.

“Stop thinking of yourself as a destination for people who are sick and offer preventative care,” she said. “Quit worrying about what is reimbursable and focus on community outreach and education.”

A strategic shift in direction requires working with wellness consultants, such as personal trainers and yoga instructors, Perez said, as well as carrying complementary retail products, such as aids to daily living, skin care, exercise equipment—even yoga mats.

“You can't stay in business just moving widgets,” she said. “Show people what they don't realize they need. And get the message out to referral sources that you are a complete resource for diabetes patients.”

If the shoe fits

Although some providers are furnishing cheaper quality monitors and test strips, that approach does not work in the therapeutic shoe market, Kanter said.

“Furnishing cheap shoes results in two main issues,” he said. “The first is patient non-compliance because they don't want to wear ugly, uncomfortable shoes. The second is product defect problems. The shoes often fall apart before the patient is ready for a new pair.”

From that standpoint, it is ultimately more profitable for the provider to stick with offering quality shoes, because “cheap shoes” also carry the additional costs of more frequent patient visits and staff time, Kanter said.

“It's easy to look at it day-to-day and the immediate per-pair margin versus looking at overall time spent,” he said, “but using a premier manufacturer is going to result in more referrals and more business.” hme