'Are these rates sustainable?'

YARMOUTH, Maine - HME providers spent the long days and nights following CMS's announcement of the Round 2 payment amounts trying to crunch numbers and strategize their next moves.

Many of them did this in a daze, trying to comprehend how the payment amounts came out, on average, 45% lower than the current fee schedule, when they expected them to be 32% to 35% lower.

“We're still reeling,” said Cindy Bishop, owner of Diamond Medical Equipment in Little Rock, Ark., which received contract offers from CMS. “I just don't know where these rates came from and how they expect us to do business at these rates.”

Across product categories and across bidding areas, providers told the same story: that the offers they received from CMS were lower than the bids they submitted.

This left providers like Chris Rice asking themselves: What now?

“The big question is: Are these rates sustainable?” said Rice, the CEO of Diamond Respiratory Care in Riverside, Calif., which received contract offers from CMS. “Is there a way to re-engineer our business model to make it work? We haven't figured that out yet.”

Providers like Jack Marquez believe that for some product categories like hospital beds, which in his state have a payment amount of, on average, $55 per month, the answer is a resounding no.

“At that price, if you take away the 20% co-pay, you're talking about getting $46 when the actual bed is $425,” said Marquez, the owner of Cobra Medical Equipment Plus Pharmacy in Doral, Fla., who wouldn't say whether or not his company received contract offers from CMS. “So you have to spend $425 of your money and wait almost 10 months to break even. I don't believe some providers who submitted bids knew their costs.”

Providers who didn't receive contract offers are putting Plan B in place. Marcia Togami plans to ramp up her company's business with other payers and put new emphasis on cash sales.

“We're going to tell customers, we can't take Medicare for this, so we can either refer you to someone else or we can give you such and such a discount if you pay cash,” said Togami, the special projects manager for A&R Medical Supply in Albuquerque, N.M., which relies on Medicare for about 30% of its business. “We're not going out of business when July 1 hits.”

Providers who didn't receive contract offers also expect that decisions that they have made to diversify into non-competitive bidding products like orthotic bracing to help buffer their losses. But Joel Segar knows that won't be enough.

“How do we make it all up,” said Segar, president of ContinuCare Health Services, a health system-affiliated HME provider in Chattanooga, Tenn., which relies on Medicare for about 28% of its business. “Everything's on the table as long as it's ethical and legal.”

Contract or not, providers agree there will be huge changes to their businesses between now and July 1—changes that beneficiaries are going to feel.

“All they're going to see is a company that they use to rely on no longer being able to serve them the way they used to,” Bishop said. “All they know is they have paid into this all their life and they think they should be able to get what they need. For those of us in the business, it's hard to understand what's going on. How can we expect them to?”