The program officially started today, with all the competing and conflicting flavors of a bitter sweet chocolate. Despite a last minute lobbying effort - and one missing vote, at least 3 failed lawsuits - the program started.

“Industry” is saying that there is still a chance it will be reversed (temporarily) however that’s a long shot.

I used quotes when using the word “industry” because - industry was late to the party in presenting a united front and in the later stages “industry” unraveled somewhat when companies awarded contracts protested about delays to implementing the program, as well as arguments over higher and lower spec products being included (see Scooter Store) etc. The approach was also somewhat un-imaginative with the usual “lots of companies will go out of business, we provide services that cannot be obtained elsewhere etc.. to which the opposition cried the free market ethic, “If you cannot compete you deserve to go out of business”… and so on.

The main issue of course was an industry that did not recognize the seriousness of needing to provide cost savings to one of their biggest customers - namely Medicare.

There is no doubt in my mind that serious companies have been making contingency plans for this eventuality, and it is these that will ultimately win, as they had the vision to succeed - no matter what.

For all others, with all sincerity - go read “Who moved My Cheese“.

(You may be interested in our take on the NYT post a few days ago.

In the heady days of Medicare cost cuts, national competitive bidding, healthcare industry protests, the political healthcare reform proposals of Clinton, Obama, McCain – as well as the Michael Moore take on all these things – here is a cost cutting solution from the prosperous central European country – the Czech Republic.

Formally free doctor visits for patients are now $1.85, the same for prescriptions, and a hospital stay is about $3.60 per day. (Comparison for US readers – a gallon of gas costs upwards of $8).

There is an annual cap of $300 for the patient fee. Of course the indigent are treated for free anyway (why wouldn’t they be).

The result is that prescriptions have fallen 40%, the public insurer (read Medicare equivalent) has saved $100 million and providers have increased revenues by $62 million in the first three months of the new program.

Health care fees trouble Eastern Europe

or, who should US voters vote for?

According to AAHomecare even more cuts are planned.

It’s also about Asian sourcing, low barriers to product development and market entry - and who takes what and how much in the value chain.

Invacare has just announced (HME News) that they will no longer sell powerchairs to the Scooter Store. This follows last weeks announcement from the Scooterstore recommending that higher end rehab power chairs be included in the the (divisive - according to the majority of the industry) - national competitive bidding process (pdf download).

While the reason for the split from the Invacare perspective is related to their commitment to individual independent homecare dealers this is symptomatic of a much bigger issue.

What are the key factors…

The power wheelchair manufacturers (and others) have seen dramatic cuts in Medicare reimbursement in this category. Furthermore the new competitive bidding process is also sure to have a negative impact on margins. It also pits traditional manufacturers against the dealer distribution channel as to who and how will both parties participate in this new (coming -already here) environment.

In fact, everything that the major payers (reimbursement agencies, governments and de facto “consumers”) desire.

In order to deal with prices that continue to fall, the major manufacturers, started a few years ago, outsourcing heavily to Asia - as other industries have done when confronted with cost issues (or to increase their margins).

The issue for the manufacturers however is that they outsourced products with little or no intellectual property attached to them - only manufacturing know how. As one would expect, now that Asia has learned (with the help of the manufacturing industry) how to make rehab products - these same Asian companies are doing two things:

• Firstly they are establishing their own operations in the US and other markets. Some examples being Shoprider and Merits. Of course what these Asian companies have is products largely developed with the help of the US domestic manufacturers over the years - but what they still don’t have a great deal of is dealer and direct consumer customers.
• Still no big surprise - except that these (and several others) not only supply the traditional manufacturers with power chairs and other products, now have their own US direct operations, but they also supply national and / or large distributors with product, competing with the self same traditional manufacturers that essentially put them in business.

What’s next.

The competitive bidding process and the lines between manufacturer, importer, distributor and dealer are going to become increasingly blurred.

Companies like The Scooter Store, essentially breaking conventional ranks is a sign of things to came, not only in the US but also in other big rehab markets, like Germany - in fact its already started.

So, unless rehab “manufacturing” companies have IPOD (r) type patents and distributors of enhanced OEM rehab products have lifetime guaranteed customers - be ready for rapid change.

Or better yet be the change maker - and prosper.

Update January 28, 2007: Doug Harrison from the Scooter Store getting more isolated - maybe not. Lou Slangen from Invacare notes

“This is the most defining moment we’ve had in our industry on rehab products”.

Invacare and Scooter Store Heat Up Rhetoric - hmetoday

Its official - CMS (Medicare - Medicaid) have gone public with a website to provide further information on National Competitive Bidding (NCB).

This is yet another indication that NCB is coming sooner rather than later.

Of particular interest is this statement “CMS has not set a deadline for DMEPOS suppliers to become accredited in order to retain/obtain a supplier enrollment number or to competitively bid”…

Here is the site:

http://www.cms.hhs.gov/competitiveacqfordmepos/

Here is a related site providing further detailed information on implementation. (Work in progress).

http://www.dmecompetitivebid.com/

(For non US companies this provides useful insights into the US market - It is worthwhile clicking on the links).

New RAMP report and Invacare, Respironics and Apria announce latest quarter earnings:

A new RAMP report has just been issued by the Power Wheelchair Industry:

Here’s the headline:

Government Data Refutes CMS Claims that Utilization of Mobility Benefit Is on the Rise - Utilization Sharply Declined Since 2003; No Support for CMS Claims of Increases.

Basically the industry is saying that CMS (Medicare) has got the numbers all wrong in terms of the growth in numbers of powered products over the years. Industry contends that the increases were in the years leading up to 2003 due to technology advances while also admitting that there were some provider organizations that had been involved in some fraudulent activity.

Full report here

Invacare announced their earnings today and while EPS had grown sequentially from prior quarter (excluding one time events), profits were down from prior year and the firm was guiding lower largely due to reimbursement insecurities (see above). The stock closed 5.3% down at 22.53. Full release here.

Respironics saw profits rise based on domestic sleep products and international revenues however they missed analysts expectations. They also guided revenues lower. The stocked took a hit and closed more than 7% down at 35.69. Full release here:

Apria said today that its earnings were flat (beating analyst estimates), and Q3 revenues were up 4%. Apria affirmed guidance but acknowledged that Medicare reimbursement cuts would affect margins. The stock closed up over 5% at 22.04.

Did you notice that both Invacare and Respironics reported positively on International?

The quick read:

1. Medicare reduces reimbursement about 35% November 15
2. CMS spokesperson Ellen Griffith said “Medicare was paying for the equipment at a much higher rate than what it was being sold for on the market”
3. Cara Bachenheimer — vice president of government affairs for Invacare, the largest U.S. manufacturer of power wheelchairs — said, “Most suppliers do not have the kind of margins to sustain these cuts.”
4. Jim Greatorex — president of Black Bear Medical, the largest supplier of home medical equipment in the Northeast — said, “These prices are just absurd. This policy change is motivated strictly by saving money and does not take into effect the devastating effect it will have on the consumer, supplier or manufacturer”

[Read more →]