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It seems more than just small providers are absorbing the brunt of federal cost control initiatives aimed at reducing health care spending. Two large home care providers filed for Chapter 11 bankruptcy protection in August, while a third posted huge third-quarter losses.
Memphis, TN-based Medshares and its affiliated home care companies filed for bankruptcy after running out of cash and being cut off from additional money by its lenders. HealthCor Holdings in Dallas has filed for bankruptcy protection for similar reasons. HealthCor was removed from Nasdaq last year because it could not keep the required minimum share price and now trades over the counter.
Mariner Post-Acute Network, one of the nation’s top three nursing home operators, posted a fiscal third-quarter loss of $405 million, including a charge of $351 million. The Atlanta-based company blamed changes in Medicare payments for the severe losses.
Medshares was recently forced to restructure its operations only 10 months after buying 70 home health agencies from Columbia/HCA Healthcare in Nashville, and six months after acquiring the home nursing division of Integrated Health Services in Owings Mills, MD. After the acquisitions were completed Medshares suffered a cash shortage, which was coupled by delayed federal and state reimbursement.
HealthCor has been divesting nursing and medical equipment operations in the last few months — its Texas community care services offices to Nashville, TN-based Auxi Health; all its HME operations to Lincare Holdings in Dallas; and its home care operations in League City, TX, to Unique Drawing, a subsidiary of Houston-based ComTech Consolidation Group.
Mariner has sold off some of its rehabilitation clinics and laid off thousands of workers to reduce costs. The company was formed just over a year ago when Atlanta-based Paragon Health Network and Mariner Health Group of Connecticut merged. Company officials pointed their fingers at the 1997 Balanced Budget Act for reduced payments of about $115 per patient day.
The Health Care Financing Administration (HCFA) issued a proposed rule in August that creates special payment limits for five durable medical equipment items and one prosthetic device. HCFA employed a rarely used provision that allows the agency to make reductions based on inherent reasonableness.
The proposed rule would cut reimbursement for the six items between 22% to 57%. The six items included are folding walkers, wheeled walkers without seats, commode chairs with fixed arms, TENS units (2 lead), TENS units (4 lead) and vacuum erection systems. The reductions would be phased in over two years to four years.
HCFA based the revisions on a comparison of the 1998 fee schedule and what the Department of Veterans Affairs (VA) pays for those items. HCFA then marked up the 1998 VA wholesale price by 67% to come up with the new fees.
Critics in the DME industry complained that HCFA did not give any consideration to current retail prices when they came up with the payment limits. HCFA argues that the current fee schedule for the items are unreasonable because they are excessive compared to what the VA pays for the same items. "We kept hearing whispers from HCFA that this was in the works, but we did not know what items were going to be included," says Erin Bush, a spokeswoman for the Health Industry Distributors Association in Alexandria, VA.
HCFA, however, may not have the final word. House Ways and Means Health Subcommittee Chairman Bill Thomas (R-CA) has asked the General Accounting office to examine whether the agency overstepped its authority, and a report is expected no sooner than the fall.