Payment reductions, economic uncertainty and more stringent claim scrutiny have all contributed to the turbulent times confronting home medical equipment providers nationwide. Invariably and understandably, companies have gone out of business, sold, merged or moved away from HME. Those that remain have made future plans that include payer diversification, acquisition/business takeovers, software changes and a more profound reliance on more profitable side businesses.

As I traveled around the country this past summer, I observed the various ways HME companies are looking at their future. Following is a recap of what those companies did to reinforce their future viability.

Payer Diversification

As we all know, among audits, competitive bidding, accreditation and overall allowable cuts, Medicare is working diligently to get rid of HME providers. After all, it is far simpler to do business with fewer companies. While companies that were never completely reliant on Medicare are well situated, others are scrambling to find additional payer sources.

For example, some companies buy truckloads of adult diapers and provide them to Medicaid recipients monthly. This type of business may have been shunned in the past; now it represents a stable, repetitive revenue stream that pays consistently and regularly. Likewise, despite being an intense and demanding business, hospice contracts, if negotiated well, also provide healthy and steady referrals with reliable payment flow.

Inventory Management

Companies that saw Medicare oxygen changes and competitive bidding cuts coming began planning for these cuts by reviewing their purchasing patterns, their vendor relationships and their delivery practices. Rather than relying on status quo, they asked “What if we change the way we purchase, from whom and what? Why not use more of a formulary type approach to purchasing?” The more dedicated you are to a vendor, the more likely the vendor will be to work with you when you need dating, better pricing, etc.

Further, knowing that competitive bidding was still a real possibility, some HME providers took seriously the notion that their purchasing patterns contributed appreciably to their bid prices. Still others looked into a more automated approach to inventory management by using bar coding and scanning with automated purchasing/replenishment when their inventory fell below a minimum threshold.

By merely managing via reports, many HME providers have been able to control their cost of goods, maintaining a lean inventory. This type of forward thinking enables HME companies to hone in on one of their two biggest costs: their inventory purchases.

Finally, providers that are heavily dependent on oxygen have had to endure cuts and capping, a double-digit blow to their previously insulated bottom line. Searching to find a way to survive these trying times, many have redefined service levels, employed fewer clinical personnel, accepted fewer high maintenance patients and more.

One approach that has helped quite a few providers, particularly medium-sized HME owners, was to switch to non-delivery oxygen — portable oxygen concentrators (POCs). Eliminating the need for most vehicles while requiring fewer after-hours calls and less personnel reduced oxygen-related expenses enough to save companies tremendous amounts of money.

Software Changes

Next, many HME companies have embarked on comprehensive software changes over the last several years. For some, this meant upgrading to new billing software. For others, it entailed overlays on their existing software to provide order intake dashboards and measures to ensure quality control.

Even software enhancements such as electronic billing and autoposting/EFT for the majority of third-party insurance plans created additional efficiency. Electronic eligibility verification, a solution that adds minimal cost — if any — continues to save HME providers considerable time otherwise spent chasing information from various payers over lengthy waits on the phone.

Finally, many HME providers implemented digital imaging systems and efaxing to enable a truly paperless environment. The result was that many businesses added revenue without adding human resources. Some even reduced personnel costs. Those that truly embraced paperless environments have barcoded their forms and are scanning HR manuals, insurance contracts and more.

The net impact of these sweeping automation initiatives created additional profitability, freeing the company to grow and measure outcomes, focusing on the bottom line and the future.

Other Business Reliance

Knowing that profitability would likely wane in the current economic climate, some HME providers proactively diversified into other business segments altogether or tapped into the resources of their existing businesses to meet the demands of the HME sector. For pharmacy/HME providers, resources from pharmacy helped when HME needed it. Similarly, for HME/IV companies, infusion has once again become a reliable business option. I’ve even seen companies with home health and nursing homes balance the bottom line for their HME venture.

Despite the global economy, people still need medical equipment and supplies, and some will pay for it if insurance doesn’t. Obviously, demographics are contributing factors, but when positioned properly, retail HME business can prove profitable.

Many companies with retail showrooms have experienced growth and enhanced profitability despite the economic woes. Some look at me and ask, “What economic slowdown are you referring to?” Realizing that higher-end prices generate easy revenue, providers selling seat lift chairs, scooters, stair lifts and more have been able to increase retail revenue without the hassles of insurance.

Acquisition/Takeovers

While some HME providers have looked to shake up their payer mix, others have looked around their own backyard to decipher the potential for market growth. Unexpectedly, many have found their companies are beginning to falter and are unable to make ends meet. Although they’d like to sell or merge, weaker companies are waiting too long. It becomes more of a salvage value than acquisition.

The stronger provider is able to claim the business without actually buying it and/or buying it for very little. In fact, the healthier company is actually picking up staff and inventory as well as market share. This strategy may become a trend in the HME industry. Companies that are well managed, lean and efficient will continue to reap the benefits of being prepared for a more challenging market. As the market shrinks, survivors will actually become more profitable and stronger market contenders.

In summary, rather than shunning that to which you are not accustomed, consider thinking outside the proverbial, insular box for cost-saving opportunities. For some, that means accepting more Medicaid business (incontinent patients), purchasing portable oxygen concentrators, adding a retail showroom, implementing an order intake and/or CMN tracking software overlay or capitalizing on other, less fortunate HME providers who are failing.

Regardless of which path you choose, capitalizing on the weak economy can help ensure your place in the market, now and for the future.

• Read the “Will You Eat or Get Eaten?” sidebar for information on how competitive bidding is changing the HME market.

Miriam Lieber is president of Lieber Consulting, Sherman Oaks, Calif., specializing in operations management and reimbursement for the HME industry. You can reach her at 818/789-0670 or by email at [email protected].

Will You Eat or Get Eaten?

With the revival of competitive bidding, providers in the first competitive bid areas are scurrying to decide whether or not to bid.

The National Supplier Clearinghouse has been bombarded with requests for status checks on provider application information. The CBIC is holding regular Special Open Door Forum calls on the bidding process and sending weekly listserv messages reminding providers about the Round 1 rebid.

Some providers have decided to forego bidding while others are preparing their rebids. Those that have decided not to bid are working to rid themselves of their Medicare business.

As providers determine their position for competitive bidding, some are aggressively pursuing locations in the CBAs knowing that many HME companies are going to opt out of the bidding process. Others will look to acquire companies in the CBAs, and still others will wait to purchase a company once they win the bid. Before you engage in any of these arrangements, it is best to work with counsel to ensure you remain within the legal confines of competitive bidding.

There’s no question that the HME market will continue to change and that there will be plenty of room to seize new opportunities. As companies falter and wobble, more stable HME providers will pursue the business.

If you believe you are a candidate for competitive bidding, preparation is still critical to your success. Be sure you can cover your entire CBA or plan accordingly. Know the marketplace in the CBA and stay abreast of the business changes that continue to unfold as bidding begins.