Dick's Homecare is an Altoona-based vendor of home medical equipment like walkers, hospital beds and oxygen.
As of early this year, Dick's could claim about 40 percent of the home medical equipment business in Blair County, according to General Manager Jim Young.
Since the spring, however, the company has endured a crippling loss of referrals, reducing gross revenue by an annualized $860,000 and slashing its share of the home medical equipment business in the county to about 20 percent.
"The numbers don't lie," Young said.
Dick's blames it on changes in referral practices at Altoona Regional Health System and its affiliated companies, largely in response to provisions of the Affordable Care Act.
Altoona Regional and its affiliates probably aren't doing anything illegal, according to a pair of Washington, D.C., lawyers contacted by the Mirror.
But what they're doing may not be ethical, according to an Ohio professor.
The change that hurt Dick's the most was the decision by Home Nursing Agency's hospice program to seek a single supplier of home medical equipment.
The program sought proposals, and Dick's submitted one. But the program chose Home Health Resource - which, like Home Nursing Agency, is an Altoona Regional-affiliated company.
That eliminated virtually all referrals for Dick's from the Home Nursing hospice program, according to Dick's President Randy Dick.
Also this year, referrals from Altoona Regional and affiliated doctor groups like Blair Medical have dried up, according to Young.
Case managers and discharge planners at the hospital formerly presented patients needing home medical equipment with a sheet listing Dick's as an option, Young said.
Now, case managers at the hospital manage the equipment referrals verbally, according to Young.
They ask patients whether they've used home medical equipment before and if they have and want to deal with them again, the manager makes the arrangements, according to Young.
If not, then the manager makes the arrangement with the affiliated firm, Young said.
Recently, an email from "upper management" at Blair Medical urged employees to make sure all home medical equipment referrals go to the affiliated medical equipment firm, Young said.
As a result, the hospital and doctor referrals have declined about 70 percent since early this year, Young estimated.
Blair Medical Associates didn't respond to requests for comment.
The hospital's side
Altoona Regional tells a different story.
"Any time a patient/family needs home care equipment, home health, skilled nursing or any other service, we provide a list or have a discussion of all the choices available within their service area and under their insurance policy," stated hospital spokesman Dave Cuzzolina.
"They are free to choose among those, and we make the referrals," Cuzzolina stated.
If the patient has a provider already, the patient can continue using that provider, he said.
"If they have no preference, we tell them that the health system has its own DME [Durable Medical Equipment, equivalent to home medical equipment] and home health providers, and that if they agree, we can make that referral," he said.
The hospital also tells patients that if at any time they change their minds or don't like the service of the affiliated companies, they can change, provided it fits with their insurance, Cuzzolina said.
Why it's happening
The Altoona Regional-affiliated companies are funneling patients to their sister firms at a higher frequency than before in response to cuts in reimbursement from Medicare.
The shift is in keeping with health care reform changes set in motion by the Affordable Care Act, including accountable care and bundled payments - changes designed to enhance quality while increasing efficiency and controlling the burgeoning costs of health care.
Accountable care uses single ownership, group practice, partnerships and group ventures to coordinate individual patients' care across settings that include doctor offices, hospitals and long-term care facilities, states a heathcare.gov website on the health care reform outlined in the Affordable Care Act.
This vertical integration prevents mistakes and saves lives, especially for patients with chronic illness like diabetes, according to the website.
"Bundling" payments - setting a fixed amount for a range of services needed to treat a single episode of illness, and paying that amount to the organization in charge - ensures that organizations have the financial incentive to keep costs down.
Bundling is "the future," although Medicare hasn't yet moved there "in a big way," according to Ron Wisor, a partner at the Washington, D.C. law firm Hogan Lovells.
Shrinking Medicare reimbursements for services like hospice have also been nudging organizations toward coordination of care, according to Rebecca Willnecker, executive vice president at Home Nursing, whose hospice program no longer uses Dick's.
Nationally, hospice care will be getting $6.8 billion less from Medicare over 10 years, Willnecker said.
The federal government can exert great leverage on health care with Medicare payments.
"We're doing more with less," Willnecker said.
Contracting with a single home medical equipment provider helps to do that. So does working within the affiliated "system."
If price or service were unsatisfactory, however, Willnecker said Home Nursing would look elsewhere.
"We are always given the ability from the system to make choices," she said, recalling conversations with Altoona Regional CEO Jerry Murray.
Home Health Resource CEO Joe Fromknecht never learned what Dick's or other companies bid for the hospice contract. He said any price advantage for HHR came through the contract itself, because it allows his firm to buy items in bulk, for a discount, because of the volume it needs.
There are several hospice agencies in the area, and most have preferred, contract providers for home medical equipment, Fromknecht said.
Before getting the hospice contract, Home Health Resources had about 50 percent of Home Nursing's hospice business, Fromknecht said.
From the perspective of Altoona Regional management, which oversees both Home Nursing Agency and Home Health Resource, awarding a home medical equipment contract to an affiliated company is an advantage, Fromknecht agreed.
"There's a synergy within the system in working together," he said. "And help[ing] the system to grow."
Willnecker said she believes in patient choice, but the financial squeeze put on by Medicare cost cutting has left the program with "very little choice," she said.
Dick's Vice President Zac Lytle wondered whether his company can get any legal traction to fight for hospital-affiliated referrals.
It's not likely, according to Wisor and his partner Robert Leibenluft.
On the statutory side, anti-trust laws are designed to protect competition, not individual competitors, Leibenluft said.
"One would have to show there's really an impact on consumer choice," he said. "It's often a hard case to make."
On the regulatory side, it doesn't look any better.
Medicare provisions don't require hospitals, doctors or other providers to offer patients a choice of suppliers, according to Wisor.
"There's little in the law to prevent steering of patients," provided the hospital and its affiliated companies are following the rules on not rewarding physicians or others financially for their referrals, Wisor said.
While the laws and regulations don't require hospitals to give patients a choice, Medicare rules dating back to the Balanced Budget Act of 1997 do require hospitals to offer patients a choice among home health agencies, Wisor said. Skilled nursing facilities enjoy the same benefit, according to attorney Connie Raffa, in an article for her law firm, Arent Fox of Washington D.C.
That BBA provision resulted from lobbying to protect community home health care nonprofits that weren't affiliated with a hospital, Wisor said.
Current trends make it unlikely such lobbying would work nowadays, he said.
Wisor doesn't think the current situation necessarily dooms equipment suppliers that are unaffiliated with local hospitals.
The ACA may give affiliated suppliers the edge, but if independent companies can give hospitals a better price than their own in-house firms, hospital executives will choose them, he predicted.
"It's a make or buy decision" for hospitals, Leibenluft said. "Does GM make or buy its own wheels?"
Other experts take a more expansive view of the choice requirements for hospitals.
Courts allow hospitals to channel or steer patients to downstream providers, provided there is "no showing of increased prices, reduction in supply or decrease in quality," according to attorney Mark Mattioli of Post & Schell in Philadelphia, in a briefing for the American Health Lawyers Association entitled "Does a Hospital Have a Duty to Cooperate with Downstream Providers?"
But Medicare law still requires that patient choice be honored, he wrote.
Likewise, while the Code of Federal Regulations
doesn't include Home Medical Equipment Suppliers among the kinds of organizations that hospital discharge planners need to list explicitly for patients, it nevertheless orders hospitals to make patients aware of their after-care options.
"[T]he process by which such referrals are made can mean the difference between a successful referral and expensive antitrust litigation, especially where established proprietary agencies had previously received the bulk of the hospital's referrals," Mattioli wrote.
Medicare law requires hospitals to tell patients they can choose to get home medical equipment from any qualified provider, attorney Jeffrey Baird stated in a February article in Medtrade.
Medicare law also requires hospitals to disclose their financial connections with any organization to which they refer patients for post-hospital care, Baird wrote.
Professor Bob Frampton of The University of Findlay in Ohio takes it further.
He sees nothing wrong with vertical integration, provided patients have an option to freely choose where to obtain services.
"[But] if patients are not given the freedom to make choices as to the services they consume, then it is steering, and that is ethically wrong," he said. "[It] leaves a bad taste on my palate."
Health care lawyers don't all agree with how far hospital systems must go to "vindicate the patient's right to choose," Wisor said.
A former competitor of Dick's, Healthy Alternatives LLC in Tyrone, has found a comfortable niche, safe from health-reform-inspired changes in referral patterns: in the corrections system.
"We saw the handwriting on the wall," said Chuck Banas, executive vice president.
The company took action about four years ago, curtailing its provision of medical equipment for homes and instead subcontracting with agencies that operate prisons.
Healthy Alternatives now supplies medical equipment to all 28 state prisons, lots of county jails and a handful of federal prisons in Pennsylvania - as well as some prisons out-of-state.
Asked if the move has been successful, Banas said, "We're here."
Among other area sellers of home medical equipment, Cambria Medical Supply and Penn-Med Home Health Care Center had no comment.
Despite its distress, Dick's is not planning legal action. But it will ask Altoona Regional to give it more exposure in connection with discharge planning. It would help if the hospital included a Dick's listing in its admission packets, Young said.
Dick's has also begun fight back with advertising, informing potential customers they can ask specifically for the company's equipment.
"We're getting squeezed," Young said. "I want people to know they do have a choice."
Mirror Staff Writer William Kibler is at 949-7038.