Bring It On

One of the most famous commentaries on the pursuit of happiness came from a group of shaggy rock stars in 1969: “You can’t always get what you want,” The Rolling Stones told us. But not getting what we want is only part of the problem, according to Daniel Gilbert, a psychology professor at Harvard. When it comes to predicting happiness, Gilbert says, “The problem is you can’t always know what you want.”

At the heart of Gilbert’s theory is the idea that humans tend to overestimate the impact of events — both good and bad — on their lives. We predict that winning the lottery will solve all of our problems. We predict we’ll never recover from the loss of a job or the end of a relationship. And we do this because we underestimate our ability to adapt, he says.

The truth is humans are hard-wired with a remarkable ability to adapt, especially when it comes to catastrophic events, Gilbert explains. When something bad happens, our defenses kick in automatically, helping us to acclimate to whatever comes our way.

For home medical equipment providers, Gilbert’s theory has broad implications that resonate with the industry’s past, its present and its predictions about the future. But in pondering the tough changes brought about by Medicare reform, most providers are confident they’ll make it in the new environment and are already formulating business strategies they believe will see them through.

That’s not to say it will be easy — quite the opposite, in fact, and the providers HomeCare spoke with for this story note that the choices they must make to protect their companies will be difficult. But when it comes to serving customers and preserving profits, these providers say they will do whatever it takes.

“I’m not worried about all of the changes. I’m looking at it as another challenge,” says Randy Freeman, owner of Mediwell in Fort Worth, Texas. “That’s what gets me fired up.”

Efficiency May Be Cure for This ‘Broken Leg’

“When really bad things happen to us, we defend against them,” Gilbert says. “[But] people, of course, predict the opposite. If you ask, ‘What would you rather have, a broken leg or a trick knee?’ they’d probably say ‘trick knee.’ And yet, if your goal is to accumulate maximum happiness over your lifetime, you just made the wrong choice. A trick knee is a bad thing to have.”

Chronic problems, like a trick knee, or in providers’ case, the continuous, underlying threat of reimbursement cuts, can cause significant angst. Because these problems are not intense enough to trigger our defenses, they can get under our skin and wear us down, little by little.

But now that longtime threats of freezes, competitive bidding and reimbursement cuts have become law, providers’ defenses — true to Gilbert’s theory — are in full swing. No more trick knee. This time, it’s a broken leg.

In spite of the sobering outlook, HME companies are setting themselves up to adapt quickly. The following comments from providers of all sizes throughout the country reflect a range of individual strategies.

“I think I’m going to have to tighten up more than I already have,” says Joan Cross, co-owner and vice president of C&C Homecare, in Bradenton, Fla. “We have no excess employees now. In fact, we’re probably under-staffed. So we’ll just have to work harder to provide the same quality service we’re used to providing.”

Echoing these sentiments, Clark Robichaux, president of Wilmington, N.C.-based Oxycare, says, “The industry will have to step back and, in order to survive, make some changes in the way we do business. To cut costs, we’re not going to be able to drive 50 miles to deliver Grandma’s walker. We’ll have to run a lean staff and not add new people. We’re going to have to just work harder at what we do.”

Mediwell’s Freeman believes Medicare reform will require providers to make “efficiency” their mantra. “At this time, we’re evaluating every area of the company. We’re looking at how we can lower our costs internally. For example, we’re looking at going all-digital with our phone services. We also figured out how to decrease our equipment-disinfecting time from seven hours to two hours per day. We purchased a piece of disinfecting equipment that cost $12,000, because, in the long run, it will provide huge savings in time, which is money.”

“We are looking at all of our costs,” notes Joel Marx, president, Medical Service Companies, Cleveland, Ohio. “Product cost is an important part, but [we also are] improving efficiencies through vehicle [global positioning] systems, document-imaging technology and reduction in time from order date to CMN receipt. We are reviewing service costs/intervals for respiratory equipment and determining whether managed care contracts are appropriate for our business at this time.”

April Mason, president and COO of Lifeplus Inc., Raymond, N.H., says her company has “implemented a more aggressive sales strategy to capture more market share. We are scrutinizing our expenses and determining where savings can be achieved without impacting customer service or employee benefits. We are focused on streamlining our administrative processes that are costly and redundant. We are reducing overhead by managing our human resources differently and have implemented a company-wide restructuring plan as a result.”

Even large, national companies are looking to cut costs by increasing efficiency. “Primarily, we are looking at technology and other ways to streamline some of our operations that are conducted in the background and do not have a negative effect, by any means, on patient care,” says Lisa Getson, executive vice president of Lake Forest, Calif.-based Apria Healthcare. “For example, we are the first home care company to adopt UPS Ground software and customize it for the home care industry.”

Planning, Planning and Lots More Planning

Across the board, one theme continues to emerge: that of planning. Drawing on their substantial defenses — the ones that got them through capitation in the 1980s and the Balanced Budget Act in the 1990s — providers are hunkering down and suiting up, one might say, for the rough weather ahead.

According to Julie Bowman, vice president, HME division, Pediatric Services of America, Norcross, Ga., “We are taking a hard look at the products and services we offer, trying to do some forecasting to see how product lines will fare. We’re also trying to be proactive in establishing strong relationships with states and Medicaid programs. We are members of AAHomecare and supportive of lobbying efforts, but once we’ve had as much of an impact at a government level as possible, we will have to look and see if it will be cost-effective to continue with certain product lines.

“We are a very clinically oriented, service-oriented company, and we don’t want to have to compromise that.”

“Our strategic planning session this year focused on preparing for [national competitive bidding],” says Cindy Ciardo, director of operations for Knueppel Home Health Care Services in Milwaukee. “Likely, we will not be able to compete with the pricing the nationals can offer. So, to survive NCB, we are concentrating on our niche markets and attempting to become as indispensable as possible. We’re keeping a high company profile and trying to find yet another way to reduce operating costs.”

As to the future of the industry, Ciardo predicts that there will be “fewer providers, restricted patient choice and access to care and a reduced level of service.

“With diminished financial resources, providers will look for less-expensive product, and manufacturers may have a more difficult time selling new, innovative — but more expensive — products. And, what often goes unsaid is that, although our profession is ripe with rewards because we’re helping people and there is gratification in that, it has become more and more frustrating when we are unable to provide the product we really feel is best due to ridiculous qualifying criteria and reimbursement rates that often don’t even cover the costs involved in selling the product.”

Some providers might decide to sell their businesses if they are daunted by the challenges ahead, says David Pfeil, who entered the industry more than 20 years ago and now is director of health care automation for Arrow Professional Enterprises, an information technology consulting firm based in East Brunswick, N.J. But these decisions, far from signifying the decline of a thriving industry, are part of a natural progression, he insists.

“I came into the business in 1981, before strict Medicare regulations took effect,” he remembers. “At that time, there were people getting into the industry who didn’t have a lot of business acumen. Many of them were medical technicians who saw a need among the elderly population. Their businesses grew during the ’80s, when there was less regulation.”

But during the late ’80s and ’90s, capitation and BBA prompted many industry veterans, including Pfeil, to sell their businesses, in part because of the reimbursement changes but mostly because it was time for a change, he says. “What really happened was you had a whole generation of HME providers who reached 55 and 60 and decided to sell.”

Dramatic changes in the reimbursement climate “are like a forest fire,” Pfeil continues. “What’s left after the fire, after the trees burn, are seeds, then new trees grow up. I think what we’re seeing now is a changing of the guard from the industry’s founders — some of whom [entered the industry] more than 25 years ago — to younger, more business-savvy providers who see big opportunity in HME.”

Optimistic in Spite of It All

The specter of Medicare cuts and competitive bidding has haunted the HME industry for years. At the end of the 108th congressional session, when the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 took effect, the reform law brought with it nearly every HME provision against which the industry has fought. But as the specter took shape, providers came together like never before to speak out for an industry in which they believe — one that offers cost-effective health care solutions that patients prefer.

On this point, Tim Pontius, president of Young Medical Services in Toledo, Ohio, and incoming chairman of the board for the American Association for Homecare, couldn’t agree more.

“If I could wish for a change in our industry, it would be that we have officially been hit with legislative and regulatory impositions so significant that the time finally has come for this industry to come together as one,” Pontius says. “For too long, the work to support the home medical equipment industry has been done by a relative few. It is this separation of our collective numbers that makes us an easy target for [the Centers for Medicare and Medicaid Services] and Congress.

“In the last six months of 2003, I was very proud of this industry, because we did get more companies, and more individuals within those companies, who got involved. Just because we didn’t get what we wanted … is no reason to think we failed. In fact, I think we are in a position to get right back in the saddle and go after Congress again, and let them know there are some bad provisions in the Medicare prescription drug bill.”

Providers certainly didn’t get what they wanted, but perhaps, as the song says, they got what they needed: a wake-up call for their defenses and a stronger community whose rewards will last far beyond the next congressional session.

To survive the changing landscape, HME dealers must learn to be Renaissance men and women who, in addition to being excellent service providers, can assume the mantle of political activist, efficiency expert, retailer, insurance professional and technology connoisseur.

Will the industry’s providers rise to this challenge? History — and Gilbert’s research — say yes. Lifeplus’ Mason expresses sentiments that are typical: “We are determined and committed to our patients and employees and will emerge as a stronger company than ever,” she states. “We are optimistic about the future of home care!”

How will Medicare reform legislation affect your business during the coming months and years?

“I won’t be forced into competitive bidding right away because I’m not in one of the 10 [metropolitan statistical areas where competitive bidding will begin]. But … I still don’t trust CMS not to use competitive bidding rates in non-competitive-bidding areas, through inherent reasonableness. I’m afraid they’ll actually decrease our fees.”
— Joan Cross, co-owner and vice president, C&C Homecare, Bradenton, Fla.

“Our cost of doing business is rising every day. We see it at the gas pump. Gas is running $1.75 a gallon, and this time last year we were paying about $1 a gallon. We’re sending trucks out 60 miles to deliver an item, and the cost of gas in some cases outweighs the profit of the item.
— Clark Robichaux, president, Oxycare, Wilmington, N.C., and president of the North Carolina Association for Medical Equipment Services

“Revenues and cash flow will be reduced by reimbursement reductions while our costs of doing business will remain static. HME companies compete on service and responsiveness and, as such, will need to compensate for lost revenues by reducing overhead expenses and managing leaner without compromising service.”
— April H. Mason, president & COO, Lifeplus, Inc., Raymond, N.H.

“We are already accredited by ACHC and certified by RESNA/NRRTS and BOC, so this is the only part of the legislation that will not have a large adverse effect on our company.”
— Cindy Ciardo, director of operations, Knueppel HealthCare Services, Milwaukee

How will Medicare reform legislation affect your business during the coming months and years?

“All of the provisions require that we watch our costs and focus on activities that will allow us to be the low-cost provider. This does not mean reduction in services, but [rather] focusing on technology investment and process improvement, and matching service levels with compensation.”
— Joel Marx, president, Medical Service Companies, Cleveland, Ohio

“I do believe that the competitive bidding measure will be a catalyst for some of the Medicaid programs to look at competitive bidding at the state level, and we do have a fairly high Medicaid population.”
— Julie Bowman, vice president, HME division, Pediatric Services of America, Norcross, Ga.

“Even if we win a competitive bid, we will not see an increase in volume until then. My advice to other providers is if you haven’t looked at other payers — and retail — it’s time.”
— Randy Freeman, owner, Mediwell, Fort Worth, Texas

“The impact from the freeze will be offset by improving some of our operational processes, including the staging of deliveries and pickups so that our delivery staff is making multiple stops while in the same geographic area. While most of us have done this, in theory, for some time, we still find ourselves making numerous special runs for good customer relations and to keep referral sources happy. Combining the freeze with the FEHBP reductions will force us to cut back significantly on the costs of delivery and pickup.”
— Tim Pontius, president, Young Medical Services, Toledo, Ohio, and incoming chairman of the board for the American Association for Homecare, Alexandria, Va.