Tsunami of Rising Costs Impacting DME Supplier Community

Published in Member Communities on October 25, 2021

By Craig Douglas, Vice President, Payer and Member Relations, VGM Government Relations

This article was originally featured in HME News.

There are a myriad of challenges facing DME/HME providers, not the least of which is a sharp increase in costs pertaining to several facets of their business. Since the onset of the COVID-19 pandemic, PPE, fuel, vehicle, and labor costs have risen sharply. Several major DME manufacturers have now announced yet another round of surcharges that have been or will be implemented. In other industries, when a surcharge or price increase is incurred, the cost is passed to the end user purchasing that product. In this case, the DME suppliers are expected to absorb the increased costs and not pass them on to the patient. The DME supplier community cannot absorb these price increases and continue to provide products to patients. They need help in the form of higher reimbursement rates, and they need it immediately.

The surcharges being handed down by manufacturers are primarily due to rising costs associated with raw materials used in production, shipping, and labor. These are not the first surcharges since the pandemic began and may not be the last. This latest round of surcharges is of greater significance due to the breadth and depth of the surcharges. It is estimated that the manufacturers that have recently imposed surcharges represent approximately 65% of the total market for some of the product categories impacted. The surcharges aren’t coming from just one or two manufacturers, nor are they impacting just one or two product lines. They involve a growing list of major manufacturers and distributors, and they impact dozens of product lines, many of which are high volume products like wheelchairs, hospital beds, walkers and lift chairs. Many of the surcharges are in the 20% to 30% range of the price of the product, and in some cases, the dollar amount of the surcharge alone exceeds the current reimbursement from Medicare and other payers.

VGM recognizes and appreciates that CMS has taken some steps to ensure access to these medically necessary and cost-saving home care products and services for patients during the COVID-19 Public Health Emergency (PHE). For instance, by removing 13 product categories from Round 2021 of the competitive bidding (CB) program, CMS has maintained an “any willing provider” state, allowing beneficiaries access to more providers.

Unfortunately, the removal of those 13 categories also resulted in a reversion back to the rates from previous rounds of CB for many providers, especially those that serve any of the 130 competitive bid areas (CBAs). Through the passage of legislation such as the CARES Act, some suppliers have received rate relief in the form of higher reimbursement rates in one of two ways:

1) For providers that serve rural areas, prolonging a 50/50 blended rate that was initially introduced via a mid-2018 IFR; and

2) Creating a 75/25 blended rate to be offered to providers who serve non-rural, non-CBAs, which is currently scheduled to remain in place until the end of the PHE.

The legislation passed to date, however, has not offered any reimbursement increase for providers that serve the 130 CBAs. Rather, the reimbursement rates for the providers that serve the CBAs remain tied to previous rounds of CB, resulting in rates that were derived via an auction methodology which utilized a “median bid” concept to set rates rather than a clearing price (as was to be used in Round 2021), and that were based on pre-pandemic demand and cost structure. The rates that came from that median bid methodology were artificially low and are not reflective of or sustainable in today’s market.

As you can see, the COVID-19 pandemic continues to disrupt the supply chain for several key medical equipment and supply categories. When you factor in all the additional costs brought about by the pandemic, including but not limited to PPE costs, surcharges, increases in delivery costs ranging from 19% to 43%, increased labor costs, equipment quarantining/disinfecting/sanitizing costs, and other cost increases outlined above, none of which will likely disappear immediately once the PHE is declared over, it is clear that reimbursement rates for all suppliers need to be increased on a more permanent basis. The increases to reimbursement need to be maintained not just through the PHE, but likely well beyond that, as the end of the PHE will not likely trigger or coincide with an end to these cost increases. VGM recognizes the issues outlined herein which are impacting HME suppliers, and we are doing all we can to fight for a better tomorrow. #TogetherWeWill

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