New Medicare regulation slashes revenue and profit margins
New York, NY (PRWEB) July 01, 2014
The Home Medical Equipment Rentals industry rents medical equipment for home use to seniors and people with temporary or permanent medical conditions and disabilities. Operators primarily rent oxygen and respiratory therapy equipment, such as oxygen tanks and concentrators, as well as mobility aids, such as wheelchairs and crutches. Since seniors aged 65 and older are all insured by Medicare and are the largest market for industry services, Medicare payments contribute to about half of the average operator's revenue. Although the number of senior citizens continues to grow and to drive demand for industry services, Medicare payments to operators have been cut significantly due to recent regulatory changes. As a result, industry revenue is expected to decline at an annualized 2.5% in the five years to 2014. This drop includes a forecast decline of 7.0% over 2014, bringing total Home Medical Equipment Rentals industry revenue to $5.6 billion.
According to IBISWorld Industry Analyst Amal Ahmad, “The US government has been phasing in a new competitive bidding program to regulate coverage and reimbursements under Medicare to home medical equipment suppliers.” Under the program, which was expanded significantly in 2013, suppliers may submit bids to provide medical equipment at lower-than-current prices; Medicare then uses these bids to lower the amount it is willing to pay for such equipment. Although the Program helps Medicare save money, it drastically reduces the price most operators in this industry receive for their services. The result is lower revenue and slashed profit margins, as rental prices are lower while costs remain unchanged. Profit is expected to fall to 4.2% of revenue in 2014, down from 11.6% of revenue in 2009.
“Moving forward, industry revenue is expected to continue declining due to federally mandated low rental prices, although the industry itself remains mature,” says Ahmad. The competitive bidding program has been extended into President Obama's 2015 preliminary budget; in addition, the program is expected to begin regulating Medicaid coverage, lowering the price received for rentals to low-income households. Radical restructuring of operations and cost structures is expected to aid industry recovery in the long-term.
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IBISWorld industry Report Key Topics
The Home Medical Equipment Rentals industry rents devices that are designed to aid in the diagnosis, monitoring or treatment of medical conditions to individuals in their homes. Examples include respiratory and mobility aids such as oxygen tanks, crutches and wheelchairs. The industry also rents hospital beds for home use. Operators in this industry do not rent medical equipment or beds for use outside of homes.
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