Invacare 2013 Annual Report Download - page 25

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Reduced government reimbursement levels and changes in reimbursement policies have in the past added, and could continue
to add, significant pressure to the Company’s revenues and profitability. For example, in 100 metropolitan areas, CMS introduced
a national competitive bidding program (NCB) which set new, lower payment rates for medical equipment and supplies. Round
one of NCB for nine metropolitan areas in the U.S. went into effect in January 2011. The reimbursement rates for nine product
categories were reduced by an average of 32 percent in these nine metropolitan areas. Effective July 2013, CMS commenced
round two of the NCB program, which was expanded to include an additional 91 metropolitan areas. CMS announced that Medicare
reimbursement rates were cut an average of 45 percent for those providers participating in the round two of the NCB program.
CMS announced that the NCB program has resulted in $202.1 million in savings in its first year of implementation in the nine
metropolitan areas with significant savings primarily in oxygen and oxygen supplies, mail-order diabetic supplies and standard
power wheelchairs. The CMS Office of the Actuary estimates that this program will save Medicare an estimated $25.8 billion,
and beneficiaries an estimated $17.2 billion, over the next ten years.
Similar trends and concerns are occurring in state Medicaid programs. These recent changes to reimbursement policies, and
any additional unfavorable reimbursement policies or budgetary cuts that may be adopted in the future, could adversely affect the
demand for the Company’s products by customers who depend on reimbursement from the government-funded programs. The
percentage of the Company’s overall sales that are dependent on Medicare or other insurance programs may increase as the portion
of the U.S. population over age 65 continues to grow, making the Company more vulnerable to reimbursement level reductions
by these organizations. Reduced government reimbursement levels also could result in reduced private payor reimbursement levels
because some third-party payors index their reimbursement schedules to Medicare fee schedules. Reductions in reimbursement
levels also may affect the profitability of the Company’s customers and ultimately force some customers without strong financial
resources to go out of business. The reimbursement reductions may prove to be so dramatic that some of the Company’s customers
may not be able to adapt quickly enough to survive. The Company is the industry’s largest creditor and an increase in bankruptcies
in the Company’s customer base could have an adverse effect on the Company’s financial results.
Outside the United States, reimbursement systems vary significantly by country. Many foreign markets have government-
managed health care systems that govern reimbursement for new home health care products. The ability of hospitals and other
providers supported by such systems to purchase the Company’s products is dependent, in part, upon public budgetary constraints.
Various countries have tightened reimbursement rates and other countries may follow. If adequate levels of reimbursement from
third-party payors outside of the United States are not obtained, international sales of the Company’s products may decline, which
could adversely affect the Company’s net sales.
The impact of all the changes discussed above is uncertain and could have a material adverse effect on the Company’s
business, financial condition and results of operations.
The adoption of healthcare reform and other legislative developments in the United States may adversely affect the Company’s
business, results of operations and/or financial condition.
The Affordable Care Act includes provisions intended to expand access to health insurance coverage, improve the quality
and reduce the costs of healthcare over time. Specifically, as one means to pay for the costs of the Affordable Care Act, the law
imposes a 2.3% sales-based excise tax on U.S. sales by manufacturers or importers of most medical devices beginning January
1, 2013. The excise tax is deductible by the manufacturer or importer on its federal income tax return. The Company has determined
that most of its products are exempt from the tax based on the retail exemption provided in the Affordable Care Act as defined by
the regulations. However, certain products that it sells for institutional use are subject to the excise tax. Based on its interpretation
of the regulations, the Company's impact from the tax was approximately $400,000 for 2013, the majority of which the Company
was able to pass on to the market. However, the excise tax may increase the Company’s cost of doing business, particularly if the
exemptions do not ultimately apply as the Company expects based on its interpretations of the regulations.
Other provisions of this legislation include provisions to improve the quality of health care that can lower cost for beneficiaries.
In 2012, Medicare Accountable Care Organizations (ACOs) began participating in the Medicare Shared Savings Program and the
Pioneer Accountable Care Organization Model. These programs encourage providers to invest in redesigning care for higher
quality and more efficient service delivery. CMS has published that Medicare ACOs participating in the Shared Savings Program
generated $147 million in net savings for Medicare in their first year while continuing to deliver high quality care.
The Affordable Care Act includes a number of policies to promote non-institutional long-term care programs that will help
keep people at home and out of institutions. Forty-four states and the District of Columbia are now participating in the "Money
Follows the Person Program" to help rebalance their long-term care systems to transition Medicaid beneficiaries from institutions
to the community. Over 31,000 people with chronic conditions and disabilities have transitioned from institutions back into the
community through Money Follows the Person programs as of December 2012. Seventeen states are participating in the "Balancing
Incentive Program," which gives states incentives to increase access to non-institutional long-term services and supports and