A sign of things to come

A sign of things to come

Yesterday Insulet (NASDAQ:PODD), who owns Neighborhood Diabetes announced that Neighborhood would no longer accept Medicare patients and would be exciting the Medicare business for diabetes testing supplies. With the new reimbursement rate set at under $11 for a box of 50 test strips the company stated there was just no way they could make any money and it didn’t make sense to remain in the market.

Also yesterday the American Association for Homecare issued a press release entitled;  “Layoffs And Business Closures Caused By Medicare Bidding Program Will Harm Patients Says AAHomecare” – according to that release;  “The Medicare bidding program for Durable Medical Equipment (DME) is devastating small and large businesses in communities across the country. And Medicare beneficiaries–senior citizens and people living with disabilities–are being endangered because of delays in obtaining critical homecare equipment, such as oxygen therapy, power wheelchairs, and diabetic testing supplies.”

Next the National Community Pharmacists Association (NCPA®) also issued a press release which stated; “The National Community Pharmacists Association (NCPA) today commended a bipartisan push for the Government Accountability Office (GAO) to review the impact on patients of sharp reductions in reimbursement for diabetes test supplies (DTS) provided by community pharmacies to Medicare beneficiaries.

Reimbursement for these products is scheduled to be reduced in April and then again July 1st when one national payment rate is adopted by the U.S. Centers for Medicare and Medicaid Services (CMS). The two cuts combined represent a 72 percent average decrease in reimbursement for retail pharmacies.

U.S. Reps. Diana DeGette (D-Colo.) and Ed Whitfield (R-Ky.) – have sent a letter to GAO urging it to study the effect of the cuts. The two leading lawmakers serve as Co-Chairs of the Congressional Diabetes Caucus, which is comprised of nearly 200 Representatives, and also on the House Energy and Commerce Committee.

“We are concerned about the impact of this reimbursement reduction, and what it will mean for beneficiaries’ access to DTS and their ability to maintain their current brand of testing strips (and their corresponding glucose monitor),” they wrote. “We ask that you begin this study immediately as we believe that it is of the utmost importance to diabetes patients in America. We think it is incumbent upon us to make sure that the current quality of care is upheld.”

Specifically, the Representatives asked GAO to examine the cuts’ impact on the number of DTS suppliers; the quality of the DTS available to beneficiaries; the distance beneficiaries may need to travel in rural areas to obtain their supplies; patient adherence to their testing regimen; and the degree to which beneficiaries receive DTS via mail that they did not request or do not need.

Previous surveys of independent community pharmacists have found that 92 percent would be forced to stop offering DTS rather than accept below-cost reimbursement. Moreover, pharmacists often provide patients with face-to-face counseling on the proper use of these essential medical supplies. In addition, most independent community pharmacies currently offer same-day, home delivery.  However, along with the drastic cuts that will be imposed on community pharmacies, they will also be prohibited beginning July 1, 2013 from providing home delivery of DTS to Medicare beneficiaries and to beneficiaries in Assisted Living Facilities (ALFs). Independent pharmacies, in particular, often serve rural or inner-city areas where patients may have limited access to other health care providers.

“NCPA fully supports and appreciates the efforts of these lawmakers on behalf of their constituents and the community pharmacists who serve them,” said NCPA CEO B. Douglas Hoey, RPh, MBA. “They are rightly concerned about the well-being of patients in their districts. Round 1 of CMS’ competitive bidding for DTS made two things clear. Patients’ overwhelmingly prefer to use local health care providers for face-to-face service and that mail order auto-shipping is a source of both inconvenience to patients and wasteful spending for Medicare and taxpayers.”

The decision by Insulet and the corresponding series of press releases illustrate the two most common approaches to dealing with the impact of competitive bidding. Given the dramatic nature of the cuts to reimbursement Diabetic Investor suspects we’ll see more companies following Insulet’s lead and deciding to get out of the Medicare market.  On the other hand there are many who believe that with enough pressure the government will change their mind or at minimum allow for higher reimbursement rates. Although Diabetic Investor sees this lobbying effort as a longshot, it will be interesting to see what groups like AARP do when competitive bidding goes into full effect.

As we have noted previously the strong possibility exists that Medicare patients will be told they can no longer use the system they have been using and must switch to another, likely unknown import system, because of the new reimbursement rates.  Given that Medicare is no longer the domain of people of advanced age and politically active Baby Boomers are making up a greater percentage of Medicare recipients, the question becomes will these Baby Boomers who are used to getting their way put up with being told they cannot use their existing system and are forced to change to another system from a company they’ve likely never heard of.

Believe it or not there is a third approach as there are actually companies in the BGM world who are just ignoring the impact and actually believe that competitive bidding will never be implemented. This approach is not just foolish but extraordinarily stupid.

The harsh reality is the government knows what everyone else knows, in that; these new reimbursement rates will save the government, i.e. taxpayers boatloads of money.  Issues like patient choice, patient access and long term impact on Medicare make for interesting reading but don’t overcome the central premise for the cuts in the first place; saving money.

This is one reason we’re about to see a steady stream of press releases and news stories about how the government in their zeal to save taxpayers money is putting Mom and Pop business out of business. A story that will play very well as the media just loves to portray the government as the bad guy and nothing pulls at the heart strings more than seeing a Mom and Pop business which has been around for generations being “forced” out of business because of a government program. Add in the fact there is a diabetes angle, a disease which impacts nearly 10% of the population, is growing at epidemic rates and you have all the makings of a 60 minutes segment.  Lobbyists know that the best way to change a program is to prevent it from getting it off the ground in the first place, it is far to paint a drastic picture than have to deal with the reality of cost savings.

It’s possible this lobbying may be successful at changing the competitive bidding process however we view as a longshot that it will results in the reimbursement rates going up and an even longer shot that competitive bidding will not be implemented. Here we are facing our latest budget crisis, this time called the sequester where billions of automatic spending cuts could impact everything from flying times to military readiness; does anyone seriously believe that the government would all of sudden change course on a program that is projected to save billions- let’s get real here.

Diabetic Investor would be amazed and astonished on the attitude of some companies who seriously believe that competitive bidding will not be implemented, that is of course until we consider the companies who hold this crazy belief. This is after all the wacky world of diabetes where anything can and usually does happen. It’s also the world where stupid is as stupid does and there are plenty of very stupid companies in BGM.  It’s time to wake up and smell the coffee, competitive bidding is coming, it’s here to stay and companies better start getting ready as the impact for the unprepared will hit them like a raging tsunami and leave nothing but wreckage in its wake.