Taking on Medicare

  • Article by: JANET MOORE , Star Tribune
  • Updated: March 6, 2011 - 3:25 PM

Tiny Kalypto Medical is in a fight with the government over billing codes.


Kalypto boxes sit on shelves at Minnetronix after Medicare put a halt to their financial support.

Photo: Elizabeth Flores, Star Tribune

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A few months back, a callus on the bottom of Donald Clark's foot turned into an open wound that got infected. It landed the 83-year-old dairy farmer in the hospital for a week.

Once he got well enough to return to his home in Murdock, Minn., a home health nurse sealed his recuperating foot with a highly absorbent dressing that was hooked up to a pump the size of small book. The pump sucked out blood and pus from the wound, which then healed in about a month.

It's called negative pressure wound therapy, and the device Clark used comes from a small company in Mendota Heights called Kalypto Medical Inc. The company launched it in 2009, and executives claim it's better than competing models for treating skin ulcers and wounds -- and cheaper. Plus, it is paid for by Medicare, the nation's health plan for the elderly.

But in recent weeks, demand for Kalypto's device dried up after a contractor advising Medicare on billing codes reversed an earlier decision and assigned a miscellaneous code for the Kalypto product. Because doctors, clinical staff and home medical suppliers were unaware of the new code, confusion has resulted in the billing process and many claims were denied.

Now Kalypto has appealed to the Centers for Medicare & Medicaid Services (CMS) for a new Medicare code, or revision of an existing one. That could take at least a year -- and the delay is testing Kalypto's survival. With just 26 employees, the slowdown has caused the company to lay off three people.

"We're concerned about how long this will take, because our viability as a company depends on it," said Kalypto CEO Philip Vierling. "There's no guarantee that we'll get a new code. The uncertainty of it all is difficult."

Last month, six bipartisan members of Minnesota's Congressional delegation wrote to CMS Administrator Donald Berwick appealing for the agency to expeditiously review Kalypto's request.

Sen. Al Franken, D-Minn., called the Kalypto situation "one of these ridiculous bureaucratic things .... Here's a product that does the same job as more-expensive products, it saves taxpayers money, patients have more mobility, and it would preserve Minnesota jobs."

A CMS spokeswoman said the agency wouldn't comment until a response to the letter was crafted.

Government probes

Kalypto's predicament comes at a time when the $1 billion negative pressure wound therapy industry is under scrutiny by regulators. While the market has long been dominated by San Antonio-based Kinetic Concepts Inc., which has $2 billion in annual revenue, there are now 13 manufacturers making the product, including Kalypto, according to a government report.

Last month, the Food and Drug Administration issued a warning indicating that the therapy has been linked to 12 deaths and 127 serious injuries since 2007. The most serious cases involved reports of infection and excessive bleeding, and the agency issued instructions to doctors and caregivers on how to avoid complications. Vierling said the FDA warning does not apply to Kalypto's device.

The warning wasn't the first time the industry has attracted government scrutiny. In 2007, a report issued by the Office of Inspector General found Medicare payment for the pumps increased 583 percent to $164 million between 2001 and 2007. Suppliers paid an average of $3,604 for the pumps, compared with Medicare's purchase price of $17,165.

Vierling said the price of Kalypto's pump was "in the median."

In 2009, a CMS review found no significant difference between all of the negative pressure wound products on the market to warrant separate billing codes.

'Help it heal'

A negative pressure wound therapy system typically consists of a foam and gauze dressing that goes on the wound. A suction pump draws wound effluence through a tube to a canister for disposal. For billing purposes, there are three codes -- for the dressing, the pump rental and the canister.

Kalypto's system, however, doesn't need a canister. So only two billing codes are used, creating a savings of $80 to $100 a month, Vierling said. Kalypto sells its device to medical product suppliers, which rent the pumps for $1,400 to $1,500 a month. Each wound dressing is $25.

Aimee Hager, a nurse with home health care provider Gentiva Health Services in the Twin Cities, has used Kalypto's therapy on five patients with good results.

"People who have these wounds say, 'I'm so tired of this, help it heal quickly,'" she said.

Often, an alternative for patients with chronic wounds that don't heal is amputation. Each year, some 100,000 amputations are performed in the United States, the vast majority of them involving diabetics.

Kalypto used two billing codes for about two years, to great success. In 2009, the company reported $1.7 million in sales, a figure that soared to $8 million last year.

But last September, Vierling opened an e-mail from Noridian Administrative Services that made his stomach drop. The Fargo, N.D.-based firm, one of four Pricing, Data Analysis and Coding (PDAC) contractors nationwide that advise Medicare on billing codes, said Kalypto's billing codes were under review.

This was done, according to Noridian spokesman Paul Orth, at the behest of "other" PDACs, although he couldn't say which ones. Kalypto's appeal of the change was denied. Now the matter is with CMS.

Barb Peterson, CEO of Minnetonka-based Emerson Consultants Inc., which advises medical device companies on Medicare reimbursement, said Kalypto has a good shot at getting a new code. But that could take as long as two years, she said:

"It pretty much knocks them out of the market for a period of time, or at the very least, reduces their impact on the market."

Janet Moore • 612-673-7752

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