It is no secret that home medical equipment companies have to evolve to remain in business. The industry has changed dramatically over the last several years and will continue to do so as legislative, regulatory and reimbursement issues affect operations.

Unfortunately, it is difficult to make tough decisions when it comes to running any type of company. For many HME providers, it is not just a business; it is a way of life. Employees are like family. Customers and patients are considered to be the same. Yet change is integral to survival. One Texas company set out to make these changes, and the results are substantial.

Laura Hafford, vice president of Texas DME in Cleburne, Texas, owns the company with her husband Tom, who is president and CEO. They bought the then two-year-old company in 1990. Through the years, they grew the business to two locations, a warehouse and a rehab repair center and focused on rehab, oxygen therapy and traditional DME.

Then the first round of national competitive bidding came to their neighborhood. The Haffords knew they needed a new plan to remain in business.

“At the beginning of 2008, we had 95 oxygen clients. Ninety days before the start of competitive bidding, we stopped accepting new Medicare oxygen referrals and began to prepare clients for the transition,” says Hafford. “Even after the first round of competitive bidding was cancelled, the prospect of severely decreased reimbursements and increased costs of doing business as a bid winner, including increased reporting and delivery areas, forced us to reevaluate that segment of our business.”

According to Hafford, they saw “little value in competing for Medicare clients.” The financial reports the couple used to make the decision highlighted weaknesses in the company — they lost money in 2008 — and forced them to reexamine the composition of the entire operation. Instead of exiting the market, they decided to consolidate locations and product lines.

The process was multi-faceted and involved an in-depth look at overall operations. Hafford knew there were efficiencies that could be gained, which is why she challenged her staff with a unique task.

For years, Texas DME’s owners and employees had attended Medtrade. However, 2009 would be different for all. They were charged with going to Medtrade Spring to fulfill a concise action plan.

Hafford and her staff created a list of 10 objectives for those employees who were attending the event. Following, she shares those objectives and their outcomes:

OBJECTIVE: Attend educational sessions relevant to Texas DME’s products, services and market profile demographics.

RESULT: Three staff members participated in a total of 19 classes at the event in Las Vegas.

OBJECTIVE: Network with other attendees from similar markets to share ideas.

RESULT: Methods of supply distribution were discussed with several companies. New ideas on computer tracking of supply customers improved the previous system.

OBJECTIVE: Dedicate time each day to analyzing new information, and create a game plan for implementation immediately upon returning from the show.

RESULT: Twenty-one new ideas were discussed at the show; 14 of those have been implemented. New forms, procedures and policies were among the successful strategies learned at the show.

OBJECTIVE: Attend exhibit hall demonstrations for possible new product ideas that match the 2009 goals and new direction for the company.

RESULT: Retail products were evaluated for possible additions to the product mix. Although several items were discussed, only one new product has been added this year.

OBJECTIVE: Visit vendors in the exhibit hall to discuss problems or suggestions relating to the company’s orders.

RESULT: Two of Texas DME’s primary vendors spent a great deal of time answering specific questions about the company’s issues. Problems were resolved; later, contract negotiations were enhanced.

OBJECTIVE: Get ideas for showroom displays to build retail sales without committing additional cash.

RESULT: The entire showroom floor was rearranged at no cost based on the concept of grouping similar items for add-on sales.

OBJECTIVE: Find ways to implement new regulatory guidelines with a minimum of additional manual paperwork.

RESULT: Many of the current requirements are now printed on work orders and retail tickets, rather than on separate forms. The educational sessions reminded employees of current guidelines and allowed the staff to update former language.

OBJECTIVE: Learn ways to inspire enthusiasm and optimism among management and staff during challenging times for the industry and the economy.

RESULT: While visiting with other show attendees, Hafford and her staff realized that some companies had adopted an attitude of survival. Implementing processes that simplify tedious tasks, requesting input from staff for growth opportunities and frequently rewarding exemplary achievements have created new energy and enthusiasm.

OBJECTIVE: Keep an open mind to new ways of doing things and overcome up to 19 years of old habits.

RESULT: “This year, we attended Medtrade Spring with a different perspective. Keeping open minds and a willingness to listen to new ways of doing routine procedures has allowed us to become more efficient and profitable than at any time in our company’s history,” says Hafford.

OBJECTIVE: Enjoy the learning opportunity while having a good time together.

RESULT: “It was easy to have fun together when the show was such a success for our company,” she says.

In addition to setting objectives and working toward meeting those challenges, the Haffords have also made some of those difficult decisions that many owners are hesitant to consider.

One year after their decision to change, the results are significant: The company has consolidated to one location, staff has been reduced from 38 to 19 full-time employees, all oxygen patients have been transferred to another provider and, unlike 2008, the company is financially profitable.

“The changes have resulted in several things,” says Hafford. “We have staff that is easier to train and manage, and their suggestions are easier to assess and implement. Also, there is now less inventory to manage, and a smaller product mix allows us the ability to track financial results on a weekly basis, rather than annually. Finally, profitability has been restored.”

Today, Texas DME has 1,000-plus patients, and its product mix includes disposable supplies (60 percent), rehab products (30 percent) and DME (10 percent). The company’s payer mix is heavily reliant on Medicaid at 70 percent, with 20 percent private insurance and only 8 percent Medicare. Revenue is estimated at $2.5 million-plus.

For Texas DME, Hafford says the company’s future plans will be based on knowledge, patient care — and reality.

“Our long-term goals include steady growth and profitability in our core competency areas. We will continue to provide our clients with the personal and efficient service that is now possible under the new rules for our industry, but we know federal and state reimbursements and guidelines will present challenges to successful completion of these goals,” says Hafford.

“We believe that staying aware of the proposed changes, taking an active role in adjusting them and working closely with our state associations will assure the survival of Texas DME and the industry.”

• Read the “Making Mobility Work” sidebar for information on Texas DME’s owner handled some of the pressing issues facing mobility providers.

Making Mobility Work

Rehab is a substantial portion of Texas DME’s business. In this Q&A, co-owner Laura Hafford, answers questions on some of the most pressing issues facing mobility providers.

Since a significant portion of your business focuses on rehab, are you worried about the elimination of the first-month purchase option for power wheelchairs?

Hafford: The elimination of the first-month purchase option is probably going to be limited to consumer power. That will cause us to not accept new Medicare consumer power clients. A cash sale would be the only option for many Medicare clients, including ours. Although the first-month purchase will probably be retained for group 3 and custom power, the 9.5 percent reduction taken this year has caused us to stop providing most Medicare-funded rehab products. We continue to provide private pay and Medicaid-reimbursed rehab equipment on a purchase basis because they were not subject to those reductions.

Rehab experts have been vocal about the high number of wheelchair denials across the country. Have you experienced this in your market?

Hafford: We do not accept assignment on Medicare complex rehab clients. We do accept assignment on certain consumer power equipment after extensive documentation from the doctor, including copies of chart notes documenting medical necessity. Our denial rate is low, but our acceptance of customers is limited to those that clearly qualify.

Do your referring physicians work with you to help you get paid?

Hafford: A few physicians understand the need for the required documentation and provide it. Since we pre-qualify all Medicare paperwork, our problems are on the front end. Getting the beneficiary to be his or her own advocate is the best way. We do not provide the equipment until all documentation is received. Unfortunately, sometimes clients do not get the new equipment.