Home Medical Products: Why They Are Exorbitant

Our Healthcare Consumer Explains Why Home Medical Products Are Exorbitant

Keith is a wheelchair user who writes that he is appalled at the prices often charged for items supplied to the disabled. As an example, a replacement battery charger for his power wheelchair was billed at over $480 and he was personally responsible for paying over 30% of the price with the insurance company paying the remainder. Keith didn’t say if this was billed to his private insurance company or if he was a Medicare beneficiary, but he thought that the right price should have been in total the amount he had to pay, $160.

Keith, the Healthcare Consumer couldn’t agree with you more. But before we offer our opinion, in the interests of full disclosure, we should tell you that one member of the Healthcare Consumer team runs VidaCura, a company that sells these kinds of items.  Nevertheless, you’ll find our perspective interesting and considering the national dialog on healthcare, very relevant.

First of all, Keith, you’re talking about the area of healthcare that is referred to as “Home Medical Equipment” or “Durable Medical Equipment”, or DME / HME for short. HME products include walkers, wheelchairs, oxygen supply devices, scooters, things to make trips to the bathroom easier, hospital beds used at home and the like.

Let us introduce the participants in this drama:

A Medicare Beneficiary might be you, Keith or someone else who qualifies for participation in Medicare, etc.  By the way, people assume that just because you are using Medicare that everything is covered including all HME. This is not true. There has to be a proven medical need, CMS-imposed conditions must be met and even in cases where the need is proven, generally the beneficiary must pay a percentage of the price. (We could write an entire other column on those late night TV commercials that promise to get you a power scooter for free!)

The Centers for Medicare and Medicaid Services (CMS) is the federal agency that administers the Medicare, Medicaid and CHIP health insurance programs. CMS produces a fee schedule that lists the items they will pay for and what they will pay (“reimburse”) for each of those items.  This fee schedule is public information. You can download and look it over here if you have Microsoft Excel. CMS also sets the rules that all medical providers including doctors and HME dealers must abide by if they desire to accept Medicare/Medicaid patients. One important and relevant rule to this column says that if you are a Medicare provider, you may not sell a particular item to anyone for less than Medicare pays.  Put another way, CMS sets the “floor” price for all HME items. As you can guess, because of the massive scope and size of the Medicare program, it influences most other areas of healthcare.

The HME manufacturers and dealers who make, sell and then deliver durable medical equipment to homes and medical facilities across America. When a manufacturer produces a new product or device, they lobby CMS first, for their new item to be paid for by Medicare in the first place. And then, if CMS consents to that, then they lobby for a fee schedule price. (Are you as tired as we are of hearing about lobbying?) As for the dealers, most HME dealers are so heavily dependent on Medicare that following CMS rules and accepting Medicare payment rates for the most part, govern how they run their businesses.

Health insurance companies like Aetna, United Healthcare, Blue Cross, etc. have their own fee schedules as to what they’ll pay. There are two things you need to know about insurance company fee schedules. The first thing is that if we’re talking about an item that appears on the Medicare fee schedule, the insurance company must pay more. It must be this way because since most HME dealers also accept Medicare, they cannot sell to a private insurance company for less. The second thing you need to know about insurance company fee schedules is that they are secret.  Insurance companies don’t want you to know what they pay. Lastly, they can and often do change the rules about coverage for HME on the fly leaving the insured to pay a percentage of what the insurance company paid instead of a flat co-payment.

So let’s compare business models:

In the healthcare model:

A power wheelchair manufacturer decides to market an extra battery charger as an accessory or if the original one is lost or broken. They lobby CMS to allow their product to be reimbursable and then to convince them to make the reimbursement rate as high as they can. They do this ostensibly for several reasons; first because then they can charge the HME dealer more for the item and secondly, on behalf of the HME dealer, the price needs to be high to make up for the fact that the federal government often takes an inordinately long time to pay its bills.

Then, by law, private insurance companies set their price for that same item, making sure that its even higher than the Medicare fee schedule price but we don’t know how much higher for sure. What we do know is that if the prices are too high, the insurance company simply raises the premium charge to your employer possibly risking your job or future raise and you will need to pay 20-40% of [a much higher] secret number.
A not-so-hypothetical free market model:

A laptop computer manufacturer decides to market an extra battery charger as an accessory or if the original one is lost or broken. Their marketing people meet with one or more of their dealers and collectively make some guesses as to what the consumer would pay for it presuming that the dealer makes a reasonable profit and agrees to all the other terms including how fast they will pay the manufacturer.

Together, they bring it to market and the consumer sees it on the shelf. If the consumer believes the price represents a reasonable value, they buy it and everybody is happy. If the consumer doesn’t think it’s a fair price, then one or more of the following things happen:  the manufacturer stops making it; the dealer stop selling it, they lower its price if they can or another manufacturer steps in and makes one available at a lower price.

So there you have it Keith. While the Healthcare Consumer is a staunch believer in universal healthcare as a moral imperative for all Americans, even with the recently passed reform there is more work to be done. That so many are claiming that the reform package doesn’t do enough to control costs is true. But it’s not just a matter of weeding out inefficiencies. The process needs to be re-engineered.  The Healthcare Consumer has an answer. We believe that if health care consumers (that would be all of us) are given the tools to be intelligent shoppers, including price visibility and information to allow intelligent choices to be made that they will be encouraged to do what they already do for big screen televisions and digital cameras.  Lastly, if you really want to change buyer behavior, change the system so that the consumer has skin in the game.

By the way, VidaCura doesn’t accept Medicare so they don’t have to be encumbered by the minimum pricing rules. Larry believes that if an item is priced to represent good value in the first place, that most consumers will do the math and realize that the price is in line with whatever the percentage of a much higher price that they would have had to pay if Medicare or an insurance company were involved.

The Healthcare Consumer is written by Larry Berk and Delaney La Rosa,RN,  healthcare and insurance professionals with over 25 years of combined experience. Larry is the President of VidaCura, Inc. a health and wellness products company. VidaCura can be found online at www.vidacura.com. Delaney has been a healthcare professional for more than 18 years with a background in healthcare fraud investigation and is a registered nurse. Got a question, comment or suggestion for a column? Write to them at thehealthcareconsumer@yahoo.com.

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