Why sell HME retail? Just do the math. After 30 to 40 percent
reimbursement cuts annually from Medicare for the past several
years and with competitive bidding rolling out nationally, whatever
profit margin you once enjoyed will be reduced by at least
two-thirds.
In contrast, if you view every Medicare patient as a sales lead,
then you will focus on meeting their complete home health care
needs instead of billing only for their Medicare-reimbursable
products.
Your patient's reimbursable item now represents your basic
revenue, while the related, add-on products represent your
increased profits from additional sales per customer.
Why Retail?
There are two components that both traditional DMEs and retail
HMEs share.
The first is Medicare billing, as they must either outsource the
billing or purchase billing software and hire qualified billers.
The other is referral source marketing, because all HMEs must
generate patient referrals by calling on their clinical referrals
sources on a regular basis.
But one significant change in the home health care marketplace
— our customer base — illustrates the difference in
traditional and retail business.
Ten to 20 years ago, seniors were both our customers and the
end-users. But today, they are primarily the end-users as they are
older and less mobile. Our customers are now their adult children
or other relatives who are their family caregivers.
This difference impacts our product selection and the ensuing
growth of retail sales. Seniors are Medicare recipients who are
accustomed to receiving their basic “entitlements”
without any additional costs. They are focused only on meeting
their medical necessities.
However, their adult children and/or family caregivers are more
concerned about maintaining and improving their overall daily
quality of life. They are willing to pay out-of-pocket for products
and services that they think will better meet the health care needs
of their loved ones.
The end result today is that to close sales in a retail HME
store, you need to offer a complete product selection. This usually
means at least two choices for every product: a basic option and
then an upgrade.
In the big ticket categories such as lift chairs and scooters,
this usually translates into numerous good/better/best product
options. And by demonstrating the best product first and then
working down to the basic option, retail salespeople are usually
able to sell over half of their customers an upgraded model.
The Value of Retail
By offering this complete product selection, retail HMEs report
higher sales-per-customer, margins and profits.
The average retail HME is approximately 2,500 to 3,000 square
feet with a 1,000- to 1,500-sq. ft. showroom. The average
sales-per-square-foot in a retail HME equals $1,000/ft. in annual
gross sales. A 1,000-sq. ft. showroom would help to generate at
least $1 million in total sales at any given location. (And that
figure could easily grow to $3 million to $5 million after a few
years.)
This retail HME scenario reflects sales revenues that range from
30 to 60 percent retail. But the national average for traditional
DMEs is much less than that at roughly one-third retail (or even
less), one-third Medicare/Medicaid and one-third managed care or
other third-party payers.
Another important sales indicator for retail HMEs is that most
customers purchase two or three items. In other words, for every
transaction, be they Medicare/Medicaid or cash, a customer also
buys other related products.
For example, with every bed rental, approximately $400 of
related products are also sold for cash, such as sheets, a foam
support surface product and other aids to daily living.
The Retail Ingredients
There are several other significant differences between
traditional home care companies and retail HMEs. The following list
highlights issues you need to consider if you are thinking about
making this transition:
- Location
Most traditional DMEs are located in industrial or commercial
areas where they can afford the luxury of maintaining large
warehouses. However, retail businesses such as drug chains are
successful retailers because they build only in locations that are
highly visible and convenient to access.
Because the rent is higher than for a warehouse, retail HMEs
place only retail operations at these locations, such as the
showroom and sales staff. The back room operations such as
insurance, warehouse, rental equipment, pickup and delivery, are
based nearby in a less expensive garage or warehouse building.
Most traditional DMEs look more like storerooms than showrooms.
Products are lined or stacked up everywhere, and boxes are often
piled on shelves for storage.
In contrast, what sells in retail is display. Product needs to
be displayed out-of-the-box so that customers can touch and try
before they buy. Walk into any Apple, Brookstone or Sharper Image
store to see how this process works so successfully.
Many traditional providers just offer rental equipment or focus
on either respiratory or rehab. If someone requests a walker or
bath safety product, they send the patient down the street to a
full-service competitor.
Why send business away when the goal in retail is to become a
“category killer” and meet all of your customers'
needs? To become the local home health care retail destination,
first you need to determine the home health care needs of your
customer base and then display all of the core and related products
in those related categories.
The first person a patient comes into contact with at a
traditional home care company is the insurance intake coordinator.
This simplifies and facilitates the billing process. However, most
of these Medicare/Medicaid patients leave as soon as the paperwork
is done.
In contrast, when a patient or customer enters a retail HME, he
or she is immediately greeted by a customer service representative.
That CSR qualifies the customer to find out as much as possible
about the end-user, and then explains and demonstrates all of the
home care products that would be of benefit to this person. The
insurance intake does not take place until after this
customer/patient qualifying, education and demonstration.
Jack Evans, president of Global Media Marketing, Malibu,
Calif., is a home health care educator and marketing specialist who
works with HME providers, pharmacists, distributors and
manufacturers to develop both business-to-business and
business-to-consumer marketing and advertising programs. His retail
HHC programs include showroom design, demographic merchandising,
product and sales training, marketing and advertising. Evans can be
reached at 310/457-7333 or at www.retailhomecare.com.
How Do You Process Your HME Rentals?
Scenario #1: Traditional DME
A patient from the referral source is directed to an insurance
intake person. All Medicare forms are filled out, and home delivery
is arranged.
Goal: Process as many Medicare intakes per hour as
possible (i.e., spend as little time as possible with each
patient).
Scenario #2: Retail HME
The patient or end-user is qualified by a customer service
representative and shown all core and related products that meet
their home health care needs. Then insurance is discussed, the
intake process occurs, home delivery is arranged and several
related products are rung up as cash sales.
Goal: Cross-sell as many related products as possible for
each Medicare/Medicaid patient (i.e., spend as long as possible
with each customer).
Maximize Profit from Your Core Category
The more product displayed on the showroom floor, the higher
your sales and profits. This means items like scooters, power
chairs, lift chairs, wheelchairs, and oxygen delivery systems.
Displaying a complete product selection of features, benefits
and prices helps to close sales:
- 2-3 lift chairs displayed = 1-2/month sold
- 5-6 lift chairs displayed = 3-4/month sold
- 10-12 lift chairs displayed = 2-3/week sold = 8-12/month
sold - 15 lift chairs displayed = 4-5/week sold = 16-20/month
sold!
| Traditional DME | Retail HME | |
|---|---|---|
| Payer | Medicare/Medicaid | Medicare/Medicaid and/or cash |
| Revenue Mix | 90% Medicare/Medicaid, 5% cash | 40% Medicare/Medicaid,25-60% cash |
| 35% Medicare Cuts | 35% × 90% = 31% less | 35% × 40% = 14% less |
| Average Number of Products/Transaction | 1 (medical necessity) |
2-3 (medical need) |
| Cash Cycle | 90% = 69 days | 30+% = 1 day |
