HME Industry Outlook

Geographic perspectives for 2013

The 2013 outlook for HME providers largely depends on whether they serve a metropolitan statistical area (MSA) impacted by Round 2 of competitive bidding. As the year begins, uncertainty is the rule among many providers, anxious about how the next round will play out. Winners and losers will emerge, obviously, but industry consultant Alison Cherney of Cherney and Associates says providers should also keep an eye on the larger market.

Emerging trends such as concierge health care, Accountable Care Organizations (ACOs) and implementation of the Patient Protection and Affordable Care Act (Obamacare) have the potential to broadly impact the HME market in 2013 and beyond. “Things are brewing and you have to understand what’s going on,” Cherney says. She says HME providers should also watch what is happening among doctors, who could face a cut in Medicare reimbursement unless the “doc fix” continues to be implemented. If a large number of doctors decide to no longer serve Medicare patients, the disruption to referral patterns will impact HME providers.

Cherney says the HME market’s overall 26 percent price cut, as reflected in Round 1 of competitive bidding, points to a need for the industry to match its level of service to the associated price, such as offering high-end, mid-range and low-end pricing, each tied to a corresponding level of service. “The reality is that we are paid at different levels, but we just haven’t adjusted our service to those three levels.” An apt comparison is to the hospitality industry, says Cherney, where there are luxury hotels, business hotels and economy hotels, each with its own level of service expectation.

Cherney observes that providers looking at the year ahead typically fall into two camps, either the “deer in the headlights” camp of those who see competitive bidding as an insurmountable obstacle, or the opposite extreme of optimism and an eagerness to grab the opportunities of a changing industry. She says few providers fall in the middle ground between the extremes. “Companies that truly understand are doing very well.” There has been a weeding out of weaker players, with most of the remaining companies more well-positioned. “There are a lot of opportunities to build better customer relationships and to look at the cost side of the business.” Cherney sees managing an HME’s product selection as akin to tending a garden, with a continuous need to prune.

For a ground-level view of the business outlook into 2013 and beyond, HomeCare magazine interviewed providers located throughout the country in each of the Medicare Jurisdictions. Read about their experiences—representative of the overall state of the market—on the following pages.

Looming Impact

Landauer Metropolitan has about 38 locations mostly in the Northeast, from Maine to northern Virginia, operating under such names as Denmarks, Genox, Young’s, Miller Medical and American Homecare Supply. In all, the company has about 850 employees. More than half the business is respiratory, with the balance DME, and the Medicare share is about 22 percent.

All the HME locations operated by Landauer Metropolitan have worked to increase efficiency, embrace technology, market new products and eliminate any unprofitable lines. Some locations have been consolidated, either because of an acquisition or because they are located within 40 miles of each other, according to Alan Landauer, chairman of the Great Neck, N.Y.-based company.

“We’ve had a pretty good 2012, but with some cutbacks because of managed care,” Landauer says. “It’s beginning to be a much more difficult business than it was.” Landauer Metropolitan was not affected by Round 1 of competitive bidding.
“2013 will be a constant battle for growth and bottom-line profitability.” The expected impact includes all business lines and reflects a business in which the revenue rates are set by the Federal government, says Landauer. He sees audits as even more of a detriment to the industry than competitive bidding. “It’s a bounty system for companies running the audits.”

Pressures on smaller players have provided acquisition opportunities for the company, and Landauer expects the second round of competitive bidding to accelerate the process of consolidation. Round 2 will affect 37 different MSAs served by Landauer Metropolitan, including New York State, Boston and Springfield, Mass. and several areas in Pennsylvania.

Landauer says the industry will be very different in five to 10 years, with fewer distributors and more regional players who are financially strong enough to survive. He hopes Landauer will be one of them.

“There will be tremendous cost-cutting required by everyone in the industry and also a complete reevaluation of how we do business,” he explains. “Medicare thinks of us as a supplier, not a provider, so we will need to act like suppliers. There are modes of business in which we used to do things for a competitive advantage that we may not be able to do. It hurts the beneficiary.”

Survival Strategies

Business in 2012 was above the previous year’s sales, but not what Cindy Ciardo, BOC orthotist and CEO of Knueppel HealthCare Services, had hoped for. She expects a “wild ride” in 2013, with Round 2 competitive bidding in July precipitating either an increase in business or a substantial loss. “Our plan is to survive no matter what,” she says. Ciardo sees her biggest challenge as the documentation requirements imposed by Medicare. To boost efficiency the company is analyzing and streamlining procedures, as is almost everyone else in the industry.

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