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Headline News
Sunrise Reorganization Splits Business in Two
LONGMONT, Colo.--In a bold move to counter the industry's turbulent conditions, Sunrise Medical will break into two separate businesses, one specializing in mobility and the other in respiratory equipment, the company announced last week.

Under the plan, set to take effect July 1, Sunrise Mobility will supply Quickie, Jay, Guardian, Hoyer and Bio Clinic products. The company has also reached an agreement with A.R.T. (Artistry in Rehab Technology) to offer its portfolio of products, which include Whitmyer, AES, Rehabilitech, Kid Kart and Kid's Up brands.

The respiratory company, DeVilbiss Healthcare, will supply the DeVilbiss respiratory and sleep therapy product lines.

"High-performing organizations reinvent themselves to both survive the waves and to get ahead of the waves," said Michael N. Hammes, chairman and CEO of Sunrise Medical, in a videotaped announcement.

And the waves in the HME sector have grown increasingly menacing in the past few years with the onset of competitive bidding, the Deficit Reduction Act's 36-month cap on oxygen rentals, drastic changes in power wheelchair coding and reimbursement, impending changes in manual wheelchair codes and increased legislative and regulatory demands.

"We are in a time of change as an industry," Hammes said, adding that splitting the company will allow both entities to become "more flexible, more agile and more responsive" to industry demands.

"Ultimately," he said, "the creation of the two separate organizations will improve focus and create long-term value for customers. A truly focused approach can make all the difference in the world. And we just couldn't provide the necessary focus as one organization."

Under the new structure, Hammes will become CEO of Sunrise Mobility and continue his role as chairman of the overall company. Kees Regeling has been named president and CEO of DeVilbiss Healthcare.

The new structure will be an asset, Regeling said. "As a separate organization, we'll be better able to identify and plan for shifts in the market and react accordingly. This really will strengthen our position as a player both domestically and internationally."

Headquarters for DeVilbiss will be in Somerset, Pa., where that company was based before being acquired by Sunrise in 1993.

In an attempt to curtail spiraling production and labor costs, DeVilbiss is also considering relocating some of its manufacturing operations from Somerset to a new facility in China, sources said. A presence in that country would underscore DeVilbiss' intent to increase its stake in the global respiratory market. With a decision on the potential relocation anticipated in mid-June, however, officials would not confirm published reports that said the company might eliminate 40 jobs at the Somerset plant.

A statement issued Thursday said Sunrise and DeVilbiss were still finalizing details of their global operational and commercial plans, but it was certain that each organization would have its own sales force.

Company execs also said the new structure would not "slow new product launches or cut research and development." Indeed, DeVilbiss is working on new products that should launch this calendar year, including a new CPAP platform and ambulatory oxygen solution.

DeVilbiss customers can continue to order products through Sunrise Medical until July 1; after that date, they must be ordered through DeVilbiss Healthcare. Sunrise Mobility will begin representing A.R.T. products July 1, but aside from selling and marketing, the A.R.T. Group will remain independent, the statement said.

A Web page including details about the reorganization is available at http://www.sunrisemedical.com/evolution.

Going forward, Hildebrandt said, NCART will focus on educating consumer groups about the implications of the legislation and on getting a companion bill introduced in the Senate.

Fraud Strike Force Yields 38 Arrests in South Florida
WASHINGTON--Thirty-eight DME and infusion therapy providers have been arrested and $142 million in billing fraud uncovered by a Medicare Fraud Strike Force formed in south Florida, Attorney General Alberto Gonzales and HHS Secretary Michael Leavitt announced Wednesday.

In the first phase of the operation, investigations begun in March have resulted in charges including conspiracy to defraud the Medicare program, criminal false claims and violations of anti-kickback statutes, Leavitt said. If convicted, many of the defendants could get up to 20 years in prison.

According to a release from the Department of Justice, federal agents arrested 24 people Tuesday, concluding a sweep of DME company owners in southern Florida who were part of an alleged fraudulent prescriptions scam. That brought the total number of arrests under the strike force, which has so far focused only on DME and infusion, to 38.

Officials said a variety of schemes included dispensing unneccessary compounded aerosol meds rather than less expensive commercial pharmaceuticals. In one example, Eduardo Moreno, the owner of several DME companies, was arrested April 7 after being named in a six-count fraud indictment. Two of Moreno's companies, Brenda Medical Supply and Faster Medical Equipment, allegedly billed Medicare for more than $1.9 million for medically unnecessary services.

The FBI has seized some of Moreno's assets, including a Rolls-Royce Phantom worth approximately $200,000.

In another case, Barbara Diaz and Jose Prieto were charged with conspiring to defraud Medicare, submitting false claims and money laundering. The indictment alleges the pair engaged in an infusion therapy scheme where patients did not need the drugs that were purportedly used. From March 9 through Dec. 31, 2006, the defendants billed Medicare more than $900,000 for infusion.

Officials also said seizure warrants have been used to take money back from bank accounts associated with some of the schemes. In one case, agents from the HHS Office of Inspector General recovered more than $1.2 million from a corporate bank account after arresting Leider Alexis Munoz, president and CEO of RTC of Miami, an infusion clinic in Hialeah, Fla.

The strike force, a multi-agency team of investigators, identifies potential fraud cases through real-time analysis of billing data from the Medicare Program Safeguard Contractors and Health Care Information System claims data. It is part of a multi-phase enforcement and regulatory effort to "improve the quality of the industry and reduce the potential for fraud," according to the DOJ release. Additional measures include strengthening the requirements to become a provider and increasing scrutiny of existing providers.

"This initiative targets those who steal taxpayer funds intended to provide health care to the elderly," Gonzales said. The real-time access to billing data, he added, allows officials "to move quickly to make arrests and bring prosecutions as quickly as possible. With better tools and information-sharing, we can expect greater levels of enforcement."

Leavitt called the strike force "just one weapon in our arsenal" against fraud.

"We will be announcing the second step in this multi-year process within the next month," he said. "We expect industry leaders will embrace the changes that will improve the quality of the durable medical equipment industry and others who serve our Medicare beneficiaries."

In an effort to send "a strong message" to potential criminals, Leslie Norwalk, CMS acting administrator said the agency has opened two satellite offices dedicated to combating fraud in high-risk areas with a third on the way.

The strike force teams, each led by a federal prosecutor with agents from the FBI, HHS OIG and local law enforcement, operate out of the federal Health Care Fraud Facility in Miramar, Fla.

Industry Reacts Swiftly to Strike Force Release
ATLANTA--As a press release about the Medicare Fraud Strike Force was picked up last week by news organizations including The Associated Press and the Washington Post, industry stakeholders reacted swiftly, arguing that legitmate providers are unfairly associated with such activities. (See story above.)

They say federal officials haven't done everything they can to root out fraud.

In a story on its Web site about the release, the VGM Group noted that its new fraud and abuse reporting Web site had received more than 250 visits since its launch last month and quoted CEO Van G. Miller as saying, "At VGM, we're sick and tired of those nameless bureaucrats and publicity seeking politicians who seek to tar and feather our entire industry because of the actions of a few."

Miller continued, "That's why I've sent letters and e-mails to all VGM Group members and several thousand non-VGM organizations that service Medicare beneficiaries. VGM is acting as a central point of communication for any HME provider--member or not--who wishes to report fraud."

Officials at the American Association for Homecare said they had issued a response to the Washington Post and also planned to send the following statement to press and congressional offices today:

American Association for Homecare Says Medicare and Its Contractors Have Failed to Combat Medicare Fraud Effectively
ARLINGTON, Va.--The American Association for Homecare restated today that the home care industry, which provides medical equipment and therapies in the home, supports stepped-up efforts to crack down on Medicare fraud and looks forward to continuing work with federal agencies and Congress to prevent fraudulent activity. At the same time, the Association said Medicare has failed to effectively exercise its already ample authority to combat fraud and abuse.

"Medicare and its private sector contractors must vastly improve their approach and do a better job at insisting on standards and other up-front controls that will deny illegitimate operators any chance of taking advantage of the Medicare program," stated Tyler J. Wilson, president and CEO of the American Association for Homecare. "Accreditation and tightened restrictions on entities that are allowed to obtain billing privileges will go a long way toward establishing an environment where unscrupulous companies cannot operate."

"We have been at the forefront of efforts to prevent fraud, which is why the home care industry supports accreditation, quality standards, and other steps to help stem illegal activity. Medicare has failed to impose up-front measures that will curb the opportunity for fly-by-night operators to rip off Medicare," Wilson said. "Existing regulations give Medicare ample authority and tools to address the issue. The American Association for Homecare strongly advocates for ethical participation in Medicare and also for clear, up-to-date, and fair federal regulations that target fraud and abuse but that do not unduly burden those providers who make every effort to follow the rules."

The Association says the vast majority of home care companies are owned and operated by law-abiding individuals. In many cases, these firms are family operations involving multiple generations, who are dedicated to providing the best possible therapies and medical equipment to treat and improve medical conditions for patients at fair prices. Home care providers serve patients who suffer from a variety of conditions ranging from multiple sclerosis and congestive heart disease to chronic obstructive pulmonary disease (COPD).

Earlier this year, the American Association for Homecare offered suggestions to congressional committees for addressing fraud and abuse:

--First, the Association has endorsed the federal quality standards and accreditation requirements for home medical equipment required by the Medicare Modernization Act of 2003 (MMA) and has worked closely with CMS along the way to develop those quality standards. In fact, last year the Association recommended that CMS adopt standards that were far more stringent than what the agency adopted in its final standards issued in November 2006. Many of the requirements from the MMA are only now nearing implementation. Medicare coverage, coding, reimbursement and documentation policies as well as standards for quality, should be clear and unambiguous.

--Second, the Medicare program has numerous anti-fraud and abuse safeguards in place that must be more effectively enforced. Currently, the Medicare program requires that suppliers adhere to specific standards in order to obtain and maintain billing privileges. Proper enforcement of the current rules along with new quality standards and accreditation will go a long way toward cracking down on criminal activity. For example, Medicare and its contractors currently have the ability to conduct on-site inspections to ascertain the provider's compliance with the supplier standards. The National Supplier Clearinghouse (NSC) is also required to conduct on-site inspections when it issues a new supplier number and every three years upon renewal. Shell companies that are purposefully out to defraud the Medicare program should not be able to pass these unannounced site inspections.

Home medical equipment is a critically important benefit that serves millions of beneficiaries. [HHS] Secretary Michael Leavitt has called for greater use of home- and community-based care in Medicaid because "it's not only where people want to be served, but it's radically more efficient."

Mixon to Congress: Support H.R. 1845
ELYRIA, Ohio--In a letter sent last week to 28 members of the House of Representatives, Invacare Chairman and CEO Mal Mixon urged support for H.R. 1845, known as the Tanner-Hobson bill, to "protect beneficiary access and enable small providers to continue to serve Medicare beneficiaries."

Introduced in late March by Reps. John Tanner, D.-Tenn., and David Hobson, R-Ohio, the bill would soften some effects of competitive bidding by allowing any qualified provider who has submitted a bid below the current allowable to continue doing Medicare business (see HomeCare Monday, April 2.)

In the May 7 letter, Mixon stressed the plight of seniors--who will have limited beneficiary choice--and small providers, many of whom, he said, could go bankrupt under the bid program.

"CMS estimates that over 50% of small business will not win a bid. When that occurs, these small businesses, whose revenue is largely Medicare, will likely be forced into bankruptcy," Mixon wrote the congressmen. "As the industry's largest creditor, Invacare will have a major negative financial impact if a substantial number of our customers go bankrupt. The Tanner-Hobson bill would fix this by allowing any willing provider to participate in the program at the bid rate."

Industry advocates have launched a major push for cosponsors in hopes of getting the bill passed, and have asked providers to send similar letters to their representatives.

The text of Mixon's letter follows:

I am writing to ask you to sign on as a co-sponsor of H.R. 1845, a bill introduced March 29, 2007 by Representatives John Tanner (D-TN) and David Hobson (R-OH). The bill, "The Medicare Durable Medical Equipment Access Act," would rationalize the Centers for Medicare and Medicaid Services' (CMS) implementation of the competitive acquisition program for durable medical equipment and supplies, mandated by the Medicare Modernization Act of 2003. The bill would protect beneficiary access and enable small providers to continue to serve Medicare beneficiaries.

lnvacare Corporation is the global leader in the manufacture of the broadest product offering of innovative home medical equipment (HME) that promotes recovery and active lifestyles. The majority of this equipment falls under the definition of "durable medical equipment" as defined under Part B of the Medicare Program. Home medical equipment is an integral part of our nation's health care system and is proven to be clinically efficacious, cost effective, and consumer preferred. Headquartered in Elyria, Ohio, Invacare sells its products to approximately 15,000 independent home medical equipment providers throughout the United States.

On April 2, 2007, CMS issued the final regulation implementing the competitive acquisition program, and is now collecting bids from providers in the first ten large metropolitan areas. The program will go live April 1, 2008. CMS is providing less than a month for the industry to digest and understand the many complexities of the 401 page regulation before suppliers must undergo complex calculations and processes to submit bids that are due the end of June. This document is a true example of our government gone amuck. It is a complete takeover and control of an industry that is already highly competitive and which represents only slightly more than two percent of the Medicare budget. There are complexities related to how Medicare will select contract suppliers, complexities related to how CMS will calculate the bid amounts for each HCPCS code included in the ten product categories, and how this bid program will clash with the Deficit Reduction Act's mandate that seniors be forced to assume ownership and responsibility of their complex oxygen equipment and other HME items.

CMS's attempts to provide small suppliers with an ability to compete are wholly unrealistic in a competitive marketplace. It is likely that seniors with multiple needs will be required to obtain different items and services from different providers. This will result in significant confusion among a population that is already dealing with chronic and acute conditions (seniors will receive co-payment invoices from multiple providers and will have to know which provider to call to obtain service for which item, etc.).

We are very concerned about the ability of the majority of our customers who are small business to win a bid in these ten large metropolitan areas. In fact, CMS estimates that over 50% of small business will not win a bid. When that occurs, these small businesses, whose revenue is largely Medicare, will likely be forced into bankruptcy. (As the industry's largest creditor, Invacare will have a major negative financial impact if a substantial number of our customers go bankrupt.) The Tanner-Hobson bill would fix this by allowing any willing provider to participate in the program at the bid rate.

H.R. 1845 does not repeal competitive acquisition for durable medical equipment (DME). It seeks to make reasonable changes to the structure of the competitive acquisition in order ensure beneficiaries' access to DME is maintained, protect small business providers of DME, and foster a dynamic marketplace for Medicare reimbursed DME. The most innovative and cost effective health care marketplace is one in which a large number of suppliers/providers are competing for business. Approximately 80% of DME suppliers are small businesses that are ill equipped to participate in this federal contracting process. However, small providers are an important part of the DME marketplace, so this bill aims to make competitive acquisition work for small business, preserving consumer access.

If a significant portion of small suppliers are eliminated every three years because of the federal contracting process, competition in the marketplace will diminish, prices will eventually increase, quality will erode, and beneficiaries will be left with few choices. This program will come dangerously close to eliminating the competitive marketplace that ensures seniors have access to high quality items and services, [as] well as their choice of provider.

I urge you to sign on to H.R. 1845 as a co-sponsor.

Special Report: Gather Bid Info from Your Software System
By Roberta Domos

Competitive bidding has arrived, and providers in the first 10 MSAs are scrambling to prepare their bids, with CMS expected to open its 60-day bid window at any time. The two major challenges those who wish to bid face in the short time period before the bidding deadline are collecting the capacity data required by CMS to submit a bid, and preparing a winning bid price that still leaves the company with a reasonable profit margin.

The first place to look for this data is your HME software system. Operating with inaccurate or incomplete information can cost you big in this high-stakes game.

In order to place a bid, you will need to compile key information related to the products previously provided to customers in the competitive bid area. In order to help CMS understand your projected capacity for bid products, you will be required to submit information regarding:

--the total revenue collected in the CBA during the past calendar year;
--the portion of that revenue that was from Medicare beneficiaries;
--the total number of customers served in the CBA;
--the percentage of those customers who were Medicare beneficiaries;
--the total number of bid products you provided, by individual HCPCS, to customers in the CBA, and how many of those were provided to Medicare beneficiaries.

Look to software system reports that provide information on product and payer mix that can then be restricted by some type of geographical indicator, such as county, city or zip code.

In order to formulate a bid, you need to know your total cost of providing the product. Acquisition costs account for the bulk of total costs, but you must also factor in costs associated with delivery, patient education and set-up, reimbursement and general administrative overhead.

Techniques such as activity-based costing can help you zero in on the total cost of providing an oxygen concentrator versus a hospital bed, thus allowing you to formulate a bid that still assures a reasonable profit. But unless you have been collecting activity-based cost data specific to each product you provide, it might be difficult to complete those calculations prior to the bid deadline. Bidders gearing up for the next round should take heed and begin collecting and analyzing activity-based costing data now.

At a minimum, you should be able to calculate gross profit margin data from your HME software system if it includes a purchase order system that communicates with your inventory tracking and utilization data. If you tell your system when you acquired a product and how much you paid for it, chances are you can match that up with utilization data on specific rental products in order to determine gross profit margin percentages by HCPCS code.

Generally, a six-month or less return on investment on a piece of rental equipment results in a profitable transaction. To calculate ROI, take the acquisition cost and divide it by the allowable. For example, a hospital bed with a mattress and rails that costs $600 will have an ROI of 4.3 months if reimbursed at $140 per month.

If you compare the monthly depreciation to the allowable, 10 to 20 percent of the allowable should be allocated to depreciation.

To calculate the monthly depreciation costs, take the acquisition cost of the equipment and divide it by the reimbursement life of the equipment. On an oxygen concentrator that has an acquisition cost of $600 and a 36-month reimbursement cycle, the monthly depreciation cost is about $16.60 per month, or 7 to 10 percent of the allowable depending upon the region of the country. On items that now fall under the new capped rental rules, the monthly depreciation percentage is much higher due to the shorter rental cycle. These items are now more like an installment sale than a rental and should be evaluated by ROI rather than under a depreciation method.

General and administrative costs make up the rest of your fixed cost of providing products to customers. An examination of your fixed costs is not complete without examining your processes. Every duplicate process must be eliminated in order to produce efficiencies that can improve profit margin.

If you have not implemented bar-coding, perpetual inventory management, document imaging, batch cash posting and electronic claims filing for the vast majority of your billing, you have room to improve your efficiency.

Competitive bidding means that in the long run, the most efficient participants win. Needless to say, controlling costs is a large portion of a winning strategy.

Using all of the features your software offers coupled with the right software will allow you to operate with a complete information set to make the most informed decisions.

Roberta Domos is the owner and president of Domos HME Consulting Group, a national, full-service consulting firm that provides accreditation, reimbursement and operations support to DME providers. She can be contacted at (425) 882-9706 or through her Web site at hmeconsulting.com.

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