1. http://playbook.vgm.com/

2. Our Contact Information: Mark Higley, Vice President - Regulatory Affairs mark.higley@vgm.commark.higley@vgm.com O: 888.224.1631 C: 319.504.9515 Ronda Buhrmester, Reimbursement Specialist ronda.buhrmester@vgm.comronda.buhrmester@vgm.com O: 888.665.6518 C: 217.493.5440

3. http://playbook.vgm.com/

4. The 2016 HME Playbook Whether your service area is within a competitive bid area, a non-bid but metropolitan area, or covers rural areas, this session is for you! Designed for company execs and managers, it offers tips and tools to prepare, adjust for, and perhaps mitigate some of the reimbursement pressures providers will encounter in 2016 and beyond.

5. Today’s Program… Revenues, demographics and new market potentials remain strong, but with cuts looming, HME businesses have to retool and retrain to deal with the challenges providers are facing from every direction. As reimbursement and regulatory changes continue to expand their presence in the home medical equipment industry, it is important to create a plan for the future. at no charge VGM members can download the 2016 HME Business Playbook – at no charge - to help you evolve your HME business to succeed in today’s changing market.

6. What We Know: 2016 & Beyond Will See Continued Reductions in Per Unit Reimbursement! Enormous pressures on reimbursement ▫ Healthcare cost increase not sustainable ▫ Cuts across Healthcare continuum ▫ Federal policies (e.g. competitive bidding rates) mimicked by states and carriers ▫ Natural order of maturing industry Prepare for another 25% reduction in per unit reimbursement on existing product lines But…let’s look at some actual data…

7. Major Findings for National Health Expenditures: 2016-2024 For 2016-24, health spending is projected to grow at an average rate of 5.8 percent per year (4.9 percent on a per capita basis). Health spending is projected to grow 1.1 percent faster than Gross Domestic Product (GDP) per year over this period; as a result, the health share of GDP is expected to rise from 17.4 percent in 2014 to 19.6 percent by 2024.

8. Although projected health spending growth is faster than in the recent past due to the combined effects of the Affordable Care Act’s (ACA’s) major coverage expansions, stronger expected economic growth, and population aging, it is still slower than the growth experienced over the last three decades prior to this most recent recession. After six years of growth below 5 percent, national health spending is projected to have grown 5.5 percent in 2015. The insured rate is projected to have increased to 89 percent in 2015 (from 86 percent in 2014) as 8.4 million are projected to have gained coverage.

10. Projected Per Capita DME Expenditures ($) Source: National Health Expenditure Projections 2014-2022 http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2014.pdf

11. Medicare… For 2016 through 2024, projected Medicare spending growth is expected to rebound to 7.3 percent per year due to increased enrollment by the baby boomers, greater utilization of care, and higher payment rates driven by improved economic conditions, which increase growth in the cost of input goods and services used to treat Medicare patients. These drivers of growth in HME will be partially offset by slow growth in payment updates due to “provisions” (!) in the Affordable Care Act.

12. In Fact…HME's Share of Medicare Spending Has Dropped to 1.25% of Total Outlays!!! While overall Medicare spending has increased over 175% from 2000 to 2014, home medical equipment spending has not kept pace, including an overall 4% decline from 2012. HME took a 1.25% share of overall Medicare spending in 2014, dropping from a 2% share just ten years earlier.

15. Our continuing industry arguments…

20. ACA: National Impact of insuring more people 30 to 50 million fewer uninsured people over next 5 years Insured people spend 220% more on healthcare than uninsured Up to 4% increase in DME spend

22. Keeping Up Affordable Care Act Promoting ACO by reducing number of hospital readmissions and using outcomes Competitive Bid and Rural Rollout Reimbursement reductions Commercial Payers Rules and rates change on the fly  End Result = less revenue (margins decline), audits continue (may increase), leaner (less staff wearing more hats)  Duplication –Watch > Efficiency –Maximize> Accountability --Key

23. ABN – Advance Beneficiary Notice An Advance Beneficiary Notice (ABN) is a written notice that suppliers may give to a Medicare beneficiary before providing items and/or services that Medicare otherwise might NOT pay for – examples:Advance Beneficiary Notice (ABN) Lack of medical necessity Same / similar denial Equipment upgrade Quantities exceed Medicare allowed amount Equipment not considered safe and effective The ABN allows the beneficiary to make an informed consumer decision as to whether or not to receive the items or services for which he or she may have to pay out of pocket or through other insurance HCPCS code for the item that is provided (but that does not meet coverage criteria) with a GA modifier on one claim line and the HCPCS code for the item that meets coverage criteria with a GK modifier on the next claim line. (Note: The codes must be billed in this specific order on the claim: want vs need)

24. In box D you must enter the items that are expected to deny and in box G the reason Medicare may not pay E1390RRGA (expected to deny) oxygen concentrator, monthly rental Medicare requires room air oxygen saturation of 89% or less for coverage criteria. Your ordering physician has results from 5/31/16 at 95% on RA at rest, and Medicare will deny this claim as not medically necessary if you choose to receive this item $300.00 per month Oxygen therapy

25. Upgrades – Patient Wants Can shift liability to patient when they CHOOSE to upgrade Want versus need Charge patient difference between –using your usual and customary charge Must be within the same range of services that are appropriate for medical condition Can upgrade from standard walker to rolling walker, but cannot upgrade from a walker to wheelchair  WANTS: E0143NUGA (Patient requested upgrade and valid ABN on file)  NEEDS: E0130NUGK (Reasonable & necessary item associated with GA)

26. Upgrades – No Charge The supplier CHOOSES to provide patient with upgrade and no additional charge for upgrade Does not need to sign an ABN—because not charging more than normal deductible and co- insurance Charge patient difference between –using your usual and customary charge One Example:  You choose to only keep semi-electric beds (E0260) in stock to keep inventory down  Doctor orders fixed height (E0250) and patient meets coverage criteria  E0250RRKXKXGL  Chose to delivery a medically unnecessary upgrade to patient at no charge, and no ABN was signed  Add note in narrative on claim what patient actually received using HCPCS, make/model and reason for upgrade

27. Participating VS Non-Participating An assignment agreement is between a supplier and a Medicare beneficiary. The option of accepting assignment belongs solely to the supplier. Suppliers have a choice to become a participating or non- participating Medicare supplier. Suppliers can change their participation status annually. Participation status is part of the enrollment process through the National Supplier Clearinghouse (NSC). Open enrollment occurs every November through December 31 – must be post marked by Dec. 31 to change status for Jan. 1

28. Participating  Participation means the supplier always agrees to accept assignment for all services furnished to Medicare beneficiaries during a 12-month period, beginning January 1 of each year.  By agreeing, the supplier always accepts the Medicare allowed amount as payment in full and doesn't collect more than the deductible and coinsurance from the beneficiary.  By accepting assignment, the payment is sent to the supplier.  Suppliers awarded a CB contract must accept assignment.

29. Non-Participating  Suppliers who choose not to sign the participation contract are referred to as non-participating suppliers.  The non-participating supplier can choose on a claim by claim basis whether or not to accept assignment, except where CMS regulations require mandatory assignment. Non participating suppliers are not required to file a claim to secondary insurance.  Non-assigned claims, the Medicare payment (80% of allowed amount) is sent to the beneficiary (if approved).

30.  The non-participating supplier on non-assigned claim can then bill the beneficiary for the difference between the submitted amount and the Medicare allowed amount, as well as the deductible and coinsurance on non-assigned claims.  Suppliers are able to collect the payment upfront from the beneficiary.  Non-participating suppliers are required to accept assignment when beneficiary has both Medicare and Medicaid.

31. Affordable Care Act (ACA) Requirements Face to Face and DWO Section 6407 of the Affordable Care Act established a face-to- face encounter requirement for certain items of DME. The law requires that a that a physician, nurse practitioner, physician assistant or clinical nurse specialist has had a face-to-face encounter with the patient. The encounter must occur within the 6 months before the order is written for the DME. This DOES NOT apply to PMDs or O & P.

32. List includes 164 HCPCS Codes Some of the main items include: Oxygen and related equipment All Manual Wheelchairs & accessories All Hospital Beds & accessories included heavy duty beds Overlays TENS Units Rollabout Chairs Blood Glucose Monitors Traction-Cervical Equipment Ventilators PAP and RAD devices All Nebulizers Seat Lift Mechanisms And other items “The List”

33. Face to Face and DWO The face-to-face encounter conducted by the physician, PA, NP, or CNS must document that the beneficiary was evaluated and/or treated for a condition that supports the item(s) of DME ordered. In the case of a DME ordered by a PA, NP, or CNS, (UPDATED 9/9/15) a physician (MD or DO) must document the occurrence of a face-to-face encounter by signing/co-signing and dating the pertinent portion of the medical record. The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) eliminated the requirement for physicians to document face-to-face encounters conducted by allowed nurse practitioners, physician assistants, or clinical nurse specialists.

34. Face to Face and DWO Detailed written orders (DWO) are required for all transactions involving DMEPOS Someone other than the physician may complete the detailed description of the item (except when specified by policy) However, the treating physician must review the detailed description and personally sign and date the order to indicate agreement Date stamp must be clear when received by the supplier Order must be within 6 months of F2F visit

35. Face to Face and DWO The DWO must contain: The beneficiary's name The physician's name The physician’s NPI [Only for Items subject to the Affordable Care Act (ACA) Face-to-Face Requirement] The date of the order or the start date, if start date is different from the date of the order Update 11-2015 standard language, policies being updated The detailed description of the item(s) (see below for specific requirements for selected items) The physician’s signature and signature date

36. Face to Face and DWO For items provided on a periodic basis, including drugs, the DWO must include: The item(s)/drug(s) to be dispensed The dosage or concentration, if applicable The route of administration, if applicable The frequency of use, if applicable The duration of infusion, if applicable The quantity to be dispensed The number of refills, if applicable For the “date of the order” described above, use the date you were contacted by the physician (for verbal orders) or the date entered by the physician (for written dispensing orders).

37. The Round 2 “Recompete”: Some Quick Facts & Observations… On March 15, CMS announced the new single payment amounts and began sending offers via its “Connexion” portal to eligible bidders for the competitive bidding Round 2 Recompete product categories and the national mail-order recomplete for diabetic testing supplies. The Round 2 Recompete and the national mail-order recompete contracts will become effective on July 1, 2016 and run through December 31, 2018, taking the place of original Round 2 and national mail order contracts currently in place. More than 12,000 contract offers have been made to 637 Round 2 Recompete bidders. Nine companies received offers under the national mail order recompete for diabetic testing supplies.

38. Eligible suppliers had until March 31 to accept the contracts. Dozens of HMEs were disqualified due to various submission errors or failed a non-transparent financial analysis threshold.Dozens of HMEs were disqualified due to various submission errors or failed a non-transparent financial analysis threshold. Most requested CBIC (CMS) review; only a handful prevailed.Most requested CBIC (CMS) review; only a handful prevailed.

39. Observation… What is frustrating is the unbridled discretion that CMS has. [Note that it is CMS, not the CBIC, that makes the decisions. The CBIC merely carries out CMS’s instructions.] The law does not even provide for appeals (officially called “informal reviews”) of disqualifications. The informal review process is something that CMS and the CBIC came up with on their own. HMEs do not have the right to appeal the 6/6/16 decision letter.

40. “Options” are few… The HME can deliver to its U.S. Senators and U.S. Representatives (i) the initial disqualification letter, (ii) the appeal letter (and attachments) that were sent in to the CBIC, and (iii) the June disqualification letter. The HME can ask the Senators/Representatives to contact Laurence Wilson, Director of the Chronic Care Policy Group, CMS, 410-786-4603, and laurence.wilson@cms.hhs.gov. This approach will be a “Hail Mary.” The HME can sue CMS. This will be expensive and time consuming. The chances of success are low. The HME can “buy its way” into competitive bidding. (See my PPT from the Wednesday 4pm session.) The HME can serve as a subcontractor for a bid winner.

41. Did your company “get bumped” by a small supplier?? If the number of contractors, per category, per CBA, that are considered “small business” by the CBIC ($3.5MM in total revenue or less) is less than 30% of the total contractors, then additional offers must be made to reach that threshold. However, there were not many of these “30%” offers. The CMS already released that greater than 50% of the offers are to small businesses. To be clear – this is not a “set aside” program. It just guarantees 30% of the contracts are to small businesses…NOT 30% of the reimbursements. The small business with the contract may get $0 and not violate this requirement.

42. To find the new HCPC reimbursement amounts (SPAs) and the number of contracts initially offered to suppliers in each metro area, go to: http://www.dmecompetitivebid.com/spa http://www.dmecompetitivebid.com/Palmetto/Cbi crd2Recompete.Nsf/files/23_R2RC_Contract_Offers.pdf/$File/23_R2RC_Contract_Offers.pdf http://www.dmecompetitivebid.com/Palmetto/Cbi crd2Recompete.Nsf/files/23_R2RC_Contract_Offers.pdf/$File/23_R2RC_Contract_Offers.pdf

43. Bottom line… 49 percent reduction The competitive bidding contractor (“CBIC” - Palmetto GBA) shared their estimate that the Round 2 Recompete prices represent a 49 percent reduction overall when compared to the 2015 schedule. Timeline: The Round 2 and national mail-order program contract periods expire on June 30, 2016. Round 2 Recompete and the national mail-order recompete contracts will become effective on July 1, 2016 through December 31, 2018.

45. How do we find the “final” array of contract suppliers?? Here’s a quick step by step review…

49. Tell me once more how to convert the “SPA” to the “purchase amount” for CPAP Capped rental – which includes items like CPAP are paid in 13 months. Here is how to convert:

50. Very simply, the “SPA” you see for capped rental items is the payment you will receive on the first, second and third month of the rental. It is equal to 10% of the purchase price of the final bid program payment. As before the bid program, you receive this amount for the first three months (of the 13) and then that amount is reduced by 25%. Example: SPA is $100. That means the purchase price (how you bid) must have been $1000. You receive $100 for the first three months. Then you receive $75 (think 75% of the SPA) for 10 more months. Add it up! 3 X $100 = $300. 10 X $75 = $750. Total = $1050. If your patient uses the capped rental equipment all 13 months you will receive 5% “more” than the purchase amount ($1050 versus $1000)

51. Quick math! Take the SPA for capped rental items and multiply it by 10.5. That is the amount you will be paid assuming the patient uses the equipment all 13 months.Quick math! Take the SPA for capped rental items and multiply it by 10.5. That is the amount you will be paid assuming the patient uses the equipment all 13 months. Once more: $100 SPA. 10.5 X $100 = $1050.Once more: $100 SPA. 10.5 X $100 = $1050.

52. One frequent comment: “I bid 20% higher than the SPA and still was offered a contract. How did that occur?” At the risk of boring readers with any statistical mumbo-jumbo, the bidding offers had a “positive skew” (see graphic next), with the right tail of the distribution fairly long. And most suppliers listened to our coaching about not offering high unit capacities in their bids…

53. Huh?? Well, what it means is that many companies who bid at the higher end of the cut- off—and—offered minimal units—were still offered contracts. But, to be clear, the program “rules” require the SPAs to be at the median bid. The graphic, unfortunately, illustrates the outcome of requirement.

54. Let’s move on to the July regional/rural application of competitive bid pricing.Let’s move on to the July regional/rural application of competitive bid pricing. Unless this program is delayed it brings further reductions to the entire U.S……Unless this program is delayed it brings further reductions to the entire U.S……

55. As you are most aware, the new adjusted pricing for DMEPOS CBP items began January 1, 2016. This will be a phase-in process over 6 months; allowables have already been reduced by 50% this 1/1/16 and 100% on 7/1/16 (unless mitigated…) A rural area will be defined as a postal zip code that has more than 50 percent of its geographic area outside of a metropolitan area (MSA) or a zip code that has a low population density area that was excluded from a competitive bidding area. The payment amount will be 110 percent of the average of all of the eight “regions” where the unweighted SPAs of all the areas are taken into account.

57. By the way, more than two-thirds of areas outside of a CBA have been be considered “rural”. You can access ALL the rural ZIPS (by state in numerical order) here: http://www.vgmncbservices.comhttp://www.vgmncbservices.com Our vgmncbservices.com page also includes the new January 1, 2016 fee schedule.

58. Let’s look at some of the common codes…

59. Are there variances among the regions or by CBA? Yes! And we are working on a summary. In the meantime, it appears that the “brick and mortar” licensing states have fared better (well…comparatively…none of these new reimbursements are acceptable) than those states without such restrictions. Take a look using the same 5 high-use codes…

60. These two states had brick and mortar restrictions in place before the R2RC bid…

61. These two states had legislation relative to licensing but still some R2RC out of state bids were received due to enactment timing and/or enforcement/exceptions allowed…

62. How could we have lowered our reimbursements by 50% compared to the 2015 fee schedule??? Most suppliers, when asked, will suggest something to the effect of “there is no way we bid that low”… The reality is – and acknowledging there continues to exists a “transparency” (conspiracy theory??) issue where the industry will not be able to view the actual bid submissions, capacity offerings, and so on – is that many in the supplier community did in fact offer extremely low bids, ostensibly to further ensure a contract offer.

63. There was scattered conversations that suggested the programs might be changing in the future and hence it was important to secure contracts now…at any price and…perhaps the most interesting (controversial??) issue of all: “Well this time I can always sell the contract offer”…. Again – I covered this on my Wednesday seminar and the material is available on the Heartland web-site.

64. Our Contact Information: Mark Higley, Vice President - Regulatory Affairs mark.higley@vgm.commark.higley@vgm.com O: 888.224.1631 C: 319.504.9515 Ronda Buhrmester, Reimbursement Specialist ronda.buhrmester@vgm.comronda.buhrmester@vgm.com O: 888.665.6518 C: 217.493.5440