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Comments from CEO on Discontinuation of Service to Nantucket Island

Posted on Jun 28, 2016

Yesterday, after careful consideration and analysis, Cape Medical Supply began notifying our professional partners that effective July 1, 2016, we would no longer accept new patients for service on Nantucket Island. We were left with no choice after Medicare reduced reimbursement over 50% since December of 2015.

Here at Cape Medical Supply we often use a quote from Lean management expert W. Edwards Deming to guide our thinking: "A bad system will beat a good person every time." Our industry is filled with good, caring people, who work to help patients live safe and independent lives in their homes with the assistance of high quality medical equipment and caring, responsive providers. Against a backdrop of rising overall healthcare costs, Medicare sought out ways to produce savings and settled on making massive cuts to reimbursements in the DMEPOS field. Why they chose DMEPOS, which constitutes such a small overall percentage of overall healthcare spending, is beyond me. My guess is that we were a convenient and well contained lab rat they could experiment on to see if their pet theories would work, and they concocted their "Competitive Bidding" program to select rates and providers. This idea sounds wonderful on it's face; who doesn't like competition to help save federal dollars? The problem since the very beginning has been that the program lacks institutional control. To say it is imperfectly designed would be a wild understatement. The system Medicare conceived lacks even the most basic auction theory concepts (a procurement practice used to select a winner from a large number of competitors spread across a wider range of prices) and has produced unrealistic and unsustainable reimbursement levels. This would be surprising were it not perfectly predicted by 167 auction experts, computer scientists and operations researchers, all the way back in 2010. Which brings me back to the good people and a bad system quote: Medicare designed and implemented a horrific system, put a bunch of good people through it and the results have been as devastating as predicted. What Medicare failed to understand is that an experiment carried out on one part of the American healthcare system has cascading effects across the entire landscape. Making it impossible for homecare providers to do business will impede our ability to serve our patients and healthcare partners. What was predicted in 2010 has come to pass and we are having to make difficult decisions like this on a near weekly basis. 

One of the arguments Medicare will make is that these rates were set through a "market process" designed to produce efficient pricing. They were not and this is patently false. The system is so thoroughly corrupted that come July 1st, if you are a Medicare patient in Boston and you need a nebulizer, the closest provider to you who can provide that product is in Alabama. That's right, the closest provider to you, in Boston, Massachusetts, is in Alabama. How Medicare could believe that's an appropriate or sustainable distribution arrangement for a product routinely prescribed to avoid hospital admissions and frequently needed for emergency department or urgent care departures, is beyond my scope of imagination. Don't take my word for it though! Use Medicare's handy "Zip Code Lookup Tool" for yourself; enter Boston Zip code (02108), for service on or after July 1, 2016, select "nebulizers and related supplies" and scroll to the bottom and click "Search." I have included a map view, which would make the process visually hilarious, were so many patients and healthcare professionals not going to be harmed by it.

One further example illustrating the foolishness of this design was the passage of a bill to require providers bids to be binding. How Medicare launched an auction process without binding bids in the first place is remarkable in its own right. That Congress saw fit to pass legislation to fix it was admirable, however they allowed another entire round of bidding go through, the Round 2 Recompete. So Congress passed a bill, acknowledging significant program shortcomings, in 2015, which won't have a market impact until the next round, in 2019. Medicare continues to use a broken process to produce artificially low prices and refuses to take even marginal steps to strengthen the program, which is why there are going to be issues across the United States in the coming weeks and months. Providers are making hard decisions because Medicare has backed them into a corner, leaving them little choice. Any anger regarding access to medical equipment must be directed at Medicare and Congress, not the hard working providers who are crumpling under the weight of these new regulations and prices.

I have wasted more hours and dollars than I care to count traveling back and forth to Washington DC over the past decade pleading with Congress to fix this program, warning them that there would be access issues, and trying to convince them that Medicare doesn't understand the consequences of their actions. Unfortunately, to date all of this activity has been to no avail. So here we are today, having to tell an island community that because of feckless Medicare policies and inaction by Congress that we can no longer provide life sustaining equipment to their residents. This is a sad indictment of a broken political and regulatory process. Congress almost did their job and passed a bill, but alas they did not, and here we are. The fact of the matter is the proposed bill was a bandaid, a small delay of the second half of a cut - the first half alone will likely prove too large for most rural providers to survive.

The reality is fairly simple. The cost of acquiring and maintaining equipment, paired with the cost to provide the required services and support to patients, now far exceeds the reimbursement associated with that equipment and service. Because of that simple fact we need to make extremely difficult decisions, focus on our core markets and work to continue to grow and sustain an organization that has provided high quality service and care to our communities for nearly 40 years.

If you are as outraged by this as I am, I urge you to contact your federally elected officials, no matter where you live. This is a national problem that requires a national solution. Without it, we will watch as Medicare dismantles a provider network that is essential to maintaining high quality, low cost care to patients looking to live independently and not bear the cost (for themselves or the healthcare system) of high cost, in-patient and residential care.

If you are a healthcare professional you have likely dealt with issues from Medicare's bidding system already. The bad news is it's likely to get much worse, especially for healthcare professionals in rural America. The relationship you have with your local provider is going to change. I hope that your chosen provider can survive and I hope they can continue to service you and your patients in substantially the same manner as they have historically. Sadly, I very much doubt that will be the case.

We thank the people and professionals on Nantucket and wish them the best as they seek a reasonable alternative. We are sorry it came to this and you have my word that we did everything we could to try to get Congress to fix this.

We remain as committed as ever on providing compassionate, responsive healthcare solutions. If you have read this and are concerned by what you've read, reach out and contact your federally elected officials to discuss Medicare's handling of this market. If you rely on medical equipment at home you understand how essential it is to your safety and comfort. We need our elected officials to grasp this fact and advocate for policies and positions that will not continue to harm the providers you rely on everyday.

Thank you for your time and interest. For more information on the "Competitive Bidding" program, we suggest you visit our information center for details, facts and information.

With thanks, 

Gary Sheehan, MBA
President and Chief Executive Officer
E: gsheehan@capemedical.net