Higher product costs and supply chain bottlenecks continue to challenge HME

May 10, 2021

Even as vaccination rates grow and new cases of COVID-19 are slowing nationwide, HME suppliers and manufacturers remain in the grip of another side effect of the pandemic: higher product costs and increased operational expenses.

HME suppliers first began seeing these impacts in early 2020, as demand for personal protective equipment (PPE) surged, with shortages and higher costs quickly following. Additional impacts of the pandemic were confirmed in a May 2020 survey on supply chain disruptions and increased costs for HME providers sponsored by AAHomecare.

Delays and higher costs were most widely felt in obtaining PPE as well as increased costs and supply challenges for oxygen equipment, ventilators, and hospital beds – but a significant number of suppliers reported higher costs for most major HME product categories.

One year later, suppliers are still dealing with significantly higher costs.

“I’m getting notices of 3-4% price increases from manufacturers every few weeks, almost always citing higher raw material costs as the reason,” says Craig Rae, President of Penrod’s Medical. “We’ve seen increases for individual parts as high as 30%.”

These increased costs and other new operational burdens are especially hard to bear since suppliers can’t pass along these costs to many of their patients who are covered by established Medicare and Medicaid fee schedules, or by other payers who peg their rates to Medicare.

Supply bottlenecks and higher shipping prices are a major driver of the challenges faced by the HME community. The Health Industry Distributors Association recently summarized transportation issues impacting medical products, noting significantly increased ocean shipping and offloading times. On the ground, driver shortages, rail delays, and a pandemic-lockdown-fueled surge in e-commerce have all contributed to the problem.

Mike Scarsella, Vice President, HME for Compass Health has a first-hand view of the transportation impacts.

“Raw material cost increases, currency fluctuations, container availability, shipping capacity, port congestion, and outbound freight issues have all dramatically impacted our costs, product supply and logistics efforts over the past 6-8 months,” Scarsella explains. “The cost of inbound freight, with per container costs rising more than 3-4 times their pre-covid levels, has probably been the most significant factor for us.”

“Manufacturers are seeing major increases in their raw material costs, as well,” Scarsella notes. “Steel and aluminum costs have both increased tremendously since April 2020 – and the cost of foam has gone up 240% in the same timeframe. As a result, we’ve seen multiple rounds of price increases from our manufacturing partners.”

Derek Lampert, CEO of Drive DeVilbiss Healthcare, is seeing similar problems.

"The situation our industry is experiencing throughout the supply chain is unprecedented," says Lampert. "Between the container backlog in Asia, ever-increasing freight and raw material costs, and the ongoing effort to keep employees safe at manufacturing and distribution centers, we are dealing with challenges that are often out of our control."

"COVID-19 has created demand for oxygen and oxygen-related products at levels no one could have predicted or prepared for," Lampert continues. "We are doing everything possible to keep up with production so suppliers can continue to provide the equipment so desperately needed during this pandemic."

Rae is also acutely aware of the problems shipping delays are causing.

“We are also dealing with supply chain problems with parts, which our manufacturers tell us are being caused by their inability to find containers in China to ship to the U.S.,“ Rae says. “Patients that depend upon their power wheelchair for mobility can’t understand how it can take 8-10 weeks to get a part. We also have been assessed shipping surcharges, and it’s taking longer and longer to get deliveries due to carriers being overwhelmed.”

New operational challenges rising from the pandemic are also increasing costs for suppliers. In our May 2020 survey, 92% of suppliers said they were spending more time cleaning and sanitizing facilities and vehicles, and 83% reported increased delivery times.

An April 2021 HME delivery cost survey by VGM shows these issues are still present. Longer round trips, which push up fuel and labor expenses, combined with new PPE expenses, are leading to overall delivery cost increases of around 30% or more in most areas, with suppliers in the Great Lakes region having the highest increase at 43%.

Rates Must Reflect Reality
These new operational requirements, supply chain constraints, and higher costs that are expected to persist for HME suppliers starkly underscore the need for reimbursement rates that reflect these market realities. As AAHomecare and other industry stakeholders prepare to engage Congress, the Administration, and other third-party payers to make the case for sustainable, market-based rates, we need to make sure policymakers clearly understand the cost and operational environment for HME.

“HME suppliers can’t be saddled with rates that are based on a round of competitive bidding from six years ago as they deal with higher product costs and other new operational realities that are going to be with us for years,” concludes Tom Ryan, AAHomecare President & CEO. “We have to unite as an industry to make it clear that we can’t continue under this rate and cost structure, and we need to start making our case now.”

“The value of HME has never been clearer than it is today. Congress needs to understand that, the Administration needs to understand that, the public needs to understand that –- and we need to be compensated to reflect that. Making that happen is the top priority for AAHomecare and it has to be the top priority for everyone in the HME community.”