How to Decipher the Elimination of the First-Month Power Chair Purchase Option

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act, a bill that makes sweeping changes to the nation’s healthcare system. One of those changes is the elimination of the first-month purchase option for standard power wheelchairs, which will have a dramatic effect on medical equipment suppliers.

Crunching the Numbers

Due to go into effect January 1, 2011, this new law will significantly change the way suppliers do standard power wheelchair business. Instead of receiving a lump-sum payment up front as is commonplace today, reimbursement will be based on monthly rental payments for 13 months. Rumor has it that CMS is considering including only power wheelchairs that are coded as K0813-K0829; all other codes would maintain the first-month purchase option.

Rental payment policies will be slightly different than how manual wheelchairs are reimbursed, as power wheelchairs will receive more reimbursement up front. During the first three months, suppliers will receive 15 percent of the current purchase allowance, followed by payments of 6 percent for months four through 13. Based on today’s K0823 allowable of $3,641.40, this will calculate to $546.21 for each of the first three months and $218.48 for each of the remaining 10 months for a total reimbursement of $3,823.43.

Sure, that’s an extra $182.03 or 5 percent — but waiting 13 months to realize such a modest increase does nothing to counteract the cash flow problem that spreading the payments out is going to create.

The Impact on Your Business

To date there are more questions than answers, as not much detailed information about how this process will be implemented has been published. The biggest concern obviously is how suppliers will remain afloat as their cashflow shrivels initially.

To put it in perspective: A supplier will need to deliver six to seven times as many power wheelchairs as they do today to receive the same upfront cashflow of a single chair under the current reimbursement system. Suppliers may be able to sell more chairs, but there will inevitably be a need for more capital to operate smoothly until volume ramps up over time.

Manufacturers will step to the plate with financing terms to help minimize upfront costs and share in the slow down of cashflow, but they won’t be able to shoulder the entire burden. With the current economy, finding loans to bridge the cashflow gap could be difficult, which in turn could create potential access issues in some areas.

Product diversity and cost efficiency are areas that suppliers can explore to help generate the cash needed to make ends meet.

Another issue that will cause problems is repairs on the equipment. Repairs are not covered during the rental period and are the financial responsibility of the supplier until the patient takes ownership of the chair after 13 months. Providing quality products should be of particular interest to suppliers going into this environment because any repairs during the first 13 months will add unreimbursed cost to the chair. Manufacturers’ warranties may provide some reprieve, but there will be times when out-of-warranty repairs are necessary. The cost of any repairs performed during the first 13 months will only come from one place: the supplier’s margin.

Next, what happens if a patient passes away during the rental period? The supplier still owns the equipment, but now it’s used, and they quite possibly haven’t received enough reimbursement to cover their acquisition costs yet. The chair can be delivered to another patient, but there will be additional costs incurred to clean and refurbish the chair before doing so. Delivering used or reconditioned equipment to patients who may in turn rent for the full 13 months and take ownership of the product is not ideal for either party.

For an end-user, there is no cost break between new and used rental equipment, so there is no cost advantage. They are still responsible for paying their full co-insurance. It will be like buying a used car, but still paying the brand-new sticker price. Who wouldn’t want new equipment if they are paying the new-equipment price?

As for suppliers, they are now on the hook for another 13 months of potential repair costs on a chair that is only getting older. Repairs on power wheelchairs can be significantly more expensive than on manual wheelchairs to begin with, so adding rental time to a power wheelchair creates the risk of more unreimbursed repair cost. This concern should be minimal, since the qualifying criteria for power wheelchairs are geared toward people with long-term medical conditions, and consumers who do qualify will require the chair for longer than 13 months. Otherwise, they would get a manual wheelchair or another lesser mobility assistive device.

Now that you have some food for thought, how will you handle the elimination of the first-month payment option on standard power wheelchairs? One thing for certain is if you plan to continue providing this type of equipment in 2011 and beyond, you should start developing your game plan now. There is a lot to think about.

This article originally appeared in the July 2010 issue of Mobility Management.

About the Author

Jim Stephenson is Reimbursement & Coding Manager for the Rehab Department of Invacare Corp.

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