Part of the Picture

When Mike Marnhout looks into the murky future for the home medical equipment industry, one thing is clear: His company will be a part of it.

He fully recognizes that it will not look the same, but Bluegrass Oxygen, based in Lexington, Ky., will still be in the HME picture, he says firmly. In fact, Marnhout says, he plans to grow.

Grow? In this environment where, it seems, HME is the target of relentless reimbursement cuts, ever-stiffer regulations and calamitous projects such as competitive bidding, which threatens to shut down massive numbers of HME providers altogether?

“There’s always an opportunity in life and in business,” Marnhout says. “You do what you can with those opportunities.”

It’s a philosophy that has paid off for Marnhout, who has been in the business for 29 years and who started Bluegrass 13 years ago. In addition to headquarters in Lexington, Bluegrass Oxygen has five other locations and boasts 47 employees.

“We cover about 122 counties and six states — Kentucky, Indiana, Ohio, West Virginia, Virginia and Tennessee,” Marnhout says.

Evidence of his faith in the future is Bluegrass’ new $1 million, 18,000-sq.-ft. administrative hub. The company, which formerly had housed its billing and administrative functions in two rented buildings, moved into its new home June 1. The new nerve center also serves as a central warehouse and an intake center, Marnhout says.

And he’s got even bigger plans.

“We’re going to have our own repair center for oxygen concentrators. I’ve got the room to do it. And we are looking at doing all of our own refills,” the Bluegrass president and CEO says. “We’re buying a truck and we’re doing it. You’ve got to streamline.”

The Writing on the Wall

If all this sounds a bit too enthusiastic in this glum and often-frightening HME era, make no mistake. Marnhout might revel in the notion that his new headquarters is three minutes from his home and five minutes from the golf course, but he’s a serious provider with keen business instincts. He knows very well the threats to this industry and the perilous positions in which some providers find themselves.

When he talks about taking advantage of opportunities, Marnhout recognizes that some are not in a position to do that. “Some [companies] can’t because they are so heavily loaded with Medicare, and it crushed them,” he says. “Fortunately, we are big enough to absorb this.”

Not that his business has not been hurt.

“We lost almost 500 Medicare patients in January,” Marnhout says, referring to the effects of the 36-month oxygen rental cap that was implemented Jan. 1. “I knew it was going to happen with the cuts and the cuts and the cuts.”

Five years ago, he saw the writing on the wall and started making changes. He began the hunt for a location that could house all of the company’s administrative and billing work and reduce costs. He finally found it early this year. The place required some work; the parking lot needed new asphalt, the interior and exterior needed sprucing up.

To pay for it, Marnhout got a bank loan for 50 percent of the cost, put up 10 percent of his own money and applied for a Small Business Administration loan to cover the other 40 percent. His good credit allowed the SBA application to sail through, and it was approved in four days, he says.

“It took us two months,” Marnhout says about the renovation, which also included new software and communication systems. Already, it is paying off.

Each location used to purchase its own supplies. Now, says Marnhout, “We’re able to buy in bulk and get it out to the offices instead of their waiting. You can have scheduled deliveries for everything from office supplies to equipment.”

Buying in bulk allows him to get cheaper prices on goods and pay less, if anything at all, in shipping costs, he says. The result is that Marnhout expects to realize a savings of at least “a couple of hundred thousand dollars in the first year.”

As well, he says, “All the shipping comes in here. It’s extremely convenient. We’ve got the loading docks for the big trucks. That’s always been a nightmare before. This has worked out very well.”

His new communications system is also a money-saver. Marnhout got rid of his former telephone system and now uses local companies to provide his phone service. It’s not only easier (“If I want to call one of my other locations, I just need to punch in four numbers,” he says) it is also on track to save him $50,000 to $60,000 a year “easily.”

He’s also sold on the company’s new Brightree software system. It has allowed Bluegrass’ new headquarters to function as a central intake center, he says, and that lessens the possibility of mistakes in input. Best of all, he says, it has positioned Bluegrass for the future.

“We’ve been planning this for a long time,” he says. “With all the changes that are coming, this gives us an opportunity to grow.”

While oxygen accounts for 70 percent of the company’s revenues (with 60 percent of its business from Medicare), Bluegrass handles all other DME except power wheelchairs and it doesn’t do infusion — yet.

Marnhout is on the lookout to buy an infusion company, he says. “I’m looking at smaller companies in outlying areas. I get a lot of calls from people who have been in the business for quite a while and they want out. They’re scared, which is understandable.”

Consolidation and future acquisitions aren’t the only changes on Marnhout’s radar screen.

“Consolidation has helped us save money, definitely,” he says. “But you have to look at every aspect of your business and figure out how to save money and serve your patients. That’s what it’s all about.”

For example, he says, “We had to change our delivery patterns. We had to become more efficient with our fuel and our labor. We cut back to once-a-week delivery in some areas. We got into HomeFill (Invacare), and those are working out for us.”

While he has long used a navigational system on his trucks, Marnhout says he is looking into purchasing a more sophisticated model to build even more efficiencies into the Bluegrass system.

Sticking with Quality

It’s maintaining the quality of care that concerns him most, Marnhout says.

“Our biggest challenge is to continue with the professional quality of care that I have [established] and to be able to sustain the workforce that we have without any further cuts. We’re going to do it even if I lose money.”

It’s always been about the people at Bluegrass. Marnhout’s philosophy, he says, is to provide the “highest quality of care and equipment that [patients] can possibly receive. That’s what it’s been and that’s what it will always be. If you take care of the people first, your profit is going to be there,” he states firmly.

“If you run your business as you should and have good quality people, the profit will be there.”

He learned that from his mom and dad, he says. In 1982, when Marnhout wanted to start his first HME company, he went to his folks to borrow the money.

“They didn’t have it either, but they lent it to me and said, ‘OK, here’s the deal. We’ll loan you the money, but you take care of people whether you get paid or not,’” Marnhout recounts. “We have never turned anybody away.”

By the way, he paid his parents back in four months, and he still relies on his mom’s advice. A former hospital administrator, she knows her stuff, he says. “We talk every day, and she tells me how to run the company,” Marnhout says, chuckling.

Bluegrass got accredited by The Joint Commission in 1997 because his mom told him he needed to. Now, he says, it is a way of life. “You don’t get ready for Joint Commission, you stay ready,” he says.

He’s also made sure he gives back to the community. “We give to all the charities, the schools,” he says, “and we do a lot of work with churches. Whatever the community needs and we can help with a little bit, that’s what we want to do.”

His retail location in Lexington is located next to the entrance of St. Joseph’s Hospital and over the years, he’s formed a bond there. He’s on the hospital’s foundation board and is involved in an annual golf tournament that has earned more than $1 million for the hospital over the years.

It all comes back in good will, Marnhout says. “Tie that into the service component that we do and there’s a trust in what we do in the community,” he says.

Speaking Out

That trust and good will has helped not only Bluegrass but also the overall HME community. For years, Marnhout has been on the stump for HME to legislators and regulators. Educating legislators about what HME providers really do is critical, he believes, and there’s no one better to do that than someone who uses the equipment and works with providers.

“I have my patients call their legislators,” Marnhout says. “This [equipment] is what keeps them alive, makes their lives a little easier … Let them raise hell. That’s been pretty effective.”

Still, that doesn’t negate the responsibility of providers themselves to make their voices heard, he says, especially with the HME sector at such a critical juncture. Competitive bidding looms, and while he is ready for the next go-round — he went through Round 1 last year — he’s frustrated that CMS “hasn’t fixed anything.”

Marnhout feels there are still likely to be fly-by-night companies that win contracts, and service is likely to decline unless providers can impress upon legislators the dire consequences of the bidding program.

“The government wants half of us to go away,” he says. “I feel that is going to happen, if not more. We’re going to see a lot fewer companies, service levels are going to drop until the politicians realize that what we really do is preventive maintenance, which will keep people out of the hospital.

“We need everybody’s voice, and a lot of people don’t get involved,” he continues. “I just hope that everyone gets involved and tries to correct the situation — everyone, big and small, so our patients can be cared for and our industry can survive.”

Survival Tips

Mike Marnhout, owner, president and CEO of Bluegrass Oxygen, has ridden the wild waves of the HME industry over the years, but the ride has never been as rough as it is now. Still, he’s found some tried-and true survival tips.

• Your first concern should always be to provide quality care to your patients.
• Streamline your business.
• If possible, expand your product line.
• Diversify your payer mix.
• Be politically active to protect the industry and your company.