DMEPOS Outlook for 2023 and Beyond
Orthotics & Prosthetics
on February 17, 2023
By Mike Mallaro, CEO, VGM Group, Inc.
We have been through three tumultuous years, ignited by a pandemic and exacerbated by supply chain disruptions, recalls, an upside-down labor market, and inflation. And while predicting the future is a fool’s errand—given that most predictions are wrong—allow me to offer my outlook on the next 24 months in the DMEPOS space.
Despite the maladies mentioned in my opening, we are coming off the greatest period of home oxygen in history. Demand across our sector continues to increase at a very healthy level. Healthcare at home is more appreciated than it has ever been. Reimbursements have broadly risen for the first time in two decades, albeit not at the same level as costs. And the payer landscape, all things considered, is probably as favorable as it has been in a decade.
When all factors are considered together, I remain highly bullish on our space. Below are some of the things I anticipate over the next 24 months:
By the time you read this, we will have received the largest Medicare rate increase in decades. Granted, that increase is driven by inflation and your costs have also risen. However, I believe the Medicare CPI increase for 2023 will be higher than the percentage of inflation in your P&L in 2023.
Supply chains will remain vexing. I expect we will get out of the CPAP shortage by mid-year. Filling the pent-up demand in the sleep space will be a significant boost to business, likely in second half of 2023 and first half of 2024. However, I do expect that some other categories will experience supply chain disruptions in 2023 and 2024. These will be a result of several factors, such as:
- Political instability in the world
- Impact of massive reshuffling of supply chains
- Labor issues
- Negative impact of climate change driven weather events
We can’t necessarily anticipate the specific disruptions, but we must remain nimble and expect the unexpected.
Inflation and the Economy
I expect the economy to remain erratic. Inflation will be stubborn in 2023, exacerbated in industries where oligopolies dominate, such as cloud computing, home delivery, and energy. Expect labor rate inflation to ease significantly in 2023 as segments of the economy contract.
Some economic bubbles will burst, with single family housing and office complexes being two areas where we will likely see drops in valuation. I also foresee recessionary slowdowns, particularly in areas which were hot throughout the pandemic. On the positive side, our segment of healthcare is largely recession-proof.
While labor rates may stabilize, the labor market will certainly not “return to normal.” Flexibility will remain central to the needs of most workers. Employers who can find ways to offer flexibility within the context of meeting the needs of the customers and the business will be the winners. Those imposing inflexibility on workers will remain frustrated.
Customer (user) expectations have changed, and healthcare has been slow to respond. Convenience, customer experience, and personalization are expectations that place demands on you as a healthcare provider, but also create a big opportunity for differentiation.
Contactless transactions in DMEPOS, efforts toward customization and personalization, informed recommendations, and coordination of care are all pathways to better customer experience and, thereby, growth in your business.
Recurring revenue should be a central theme of your strategy and thinking. When allocating your time and attention, be overweight on attention focused on recurring revenue opportunities. Where you can strengthen recurring revenue—increasing CPAP resupply rates as an example—you can really start to drive material and lasting improvements in your financial performance.
Healthcare is decentralizing in many ways and that will continue, making care at home very attractive.
Payer Landscape and Perceptions
The payer landscape presents three primary challenges—reimbursement rates, access, and documentation/qualification rules.
Cybercrime activity will continue to be a pain point.
Mergers and Acquisitions
Capital markets continue to find DMEPOS a very attractive space, and as a result, mergers and acquisitions activity will be robust in 2023 and 2024.
Demand for DMEPOS will remain very strong.
An Optimistic Outlook
It’s been a bumpy ride and will continue to be so. But there are far more reasons for optimism than there are for pessimism about your business prospects these next few years.
- Centers for Medicare and Medicaid Services. “Calendar Year 2023 Update for Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) Fee Schedule.” Change Request 13006. Published Dec. 2, 2022.
- Milstein, Jake. “Critical Insight Finds 35 Percent Increase in Attacks on Health Plans in 2021 End of Year Healthcare Data Breach Report.” Jan. 31, 2022. www.criticalinsight.com.
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