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The Drug Improvement and Modernization Act (MMA) is now law and is well on its way to making historical change in the healthcare industry. For Home Medical Equipment (HME) providers, knowing that change is here and will continue to rear its head for the next 5 years, business should be anything but usual. Rather, taking stock of operations and making future plans is unavoidable.

What to do first?
Determine your game plan for the various phases of price reductions. Know how much of a reduction you will endure. This will depend upon how much Medicare revenue you garner from certain core products, as listed below.

For 2004 we already know that inhalation therapy drugs have been reduced to 80% (albuterol and ipratropium) and 85% of AWP (average wholesale price).

For 2005, we know that these same drugs are subject to price cuts whereby average sales price (ASP) plus 6% will be the total Medicare payment amount. This pricing structure will make it difficult for any company to dispense these drugs. The remaining cuts will be based on the difference between the 2002 allowable and the FEHBP (Federal Employee Health Benefit Plan) for a handful of items -- oxygen, nebulizers, manual and power wheelchairs, diabetic supplies (lancets and strips), hospital beds and air mattresses.

By 2007, we will face competitive bidding for a handful of products in 10 MSAs (Metropolitan Statistical Areas). This will essentially force HME providers to enter into a contract with Medicare much the way they bid for and contract with HMOs. In 2009, the competitive bidding program will be expanded.

Start with data tracking
Begin tracking how much revenue each of those core products represents to your operation (Medicare patients only). Determine your potential loss as each of the cuts gets implemented. You will first need to sort revenue reports for 2003 and 2004 by payer and by product. Isolate the products that you know will be affected. Calculate the potential loss and plan as follows:

Decide if you will diversify by product, payer or both. You might also decide to increase the size of your company to account for the revenue loss. Finally, you might decide to relocate or add offices in other locations where the potential customer base may be predominantly non-Medicare.

One final significant consideration is to enhance operational efficiencies creating more cash to the bottom line. Look from the outside in to see where you have duplicative efforts, where you rely on manual systems, and where you waste time. This type of cost savings may help you maintain profitability. As always, whichever path you take, you will position your company for its future.