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.