New Kids on the HME Block

As Winston Churchill said, “Attitude is a little thing that makes a big difference.” That is certainly true for those who choose to purchase or start a home medical equipment business. In an industry that is fighting for fair reimbursement, respect for its role in home health care and security for independent provider businesses, many may wonder why anyone would choose to enter the HME industry in this environment.

Basically it comes down to numbers, says Wallace Weeks, president of Weeks Group, a consulting firm in Melbourne, Fla. He says investors see a large customer base that is accessible with financially sound payers.

The sheer number of potential customers is what attracts entrepreneurs from other industries seeking an opportunity, says Marc Rose, president of Paragon Ventures, a mergers and acquisitions firm based in Philadelphia.

Additionally, Rose says there is also a spirit of entrepreneurship within the industry that drives people to own their own business. With the desire and ability to create a business model that can achieve success, they are entering the industry with fresh ideas and excitement, allowing these entrepreneurs to grow their businesses and become leaders in their markets.

Their attitude could be contagious, says Weeks. “Many of these new companies that are coming in are doing things differently than the incumbents. They have found new solutions to the same problems or have found new ways of delivering those solutions,” he says. “The lesson to be learned is that there are a lot of ways to be in this business, and you don’t need to get too embedded in the way you have been doing business in the past.”

Most often, new HME business owners are not jaded by the events of the last several years. In fact, they probably have an advantage because they don’t have to “redefine their machine,” says Weeks.

“They can define a new business model or a business around the current environment, whereas our incumbents in the industry have to revise their businesses, which is more risky than it is to start a new one from scratch,” he explains.

However, it is important to realize that by no means is the HME industry a cash cow. The impact of the Medicare Modernization Act is not yet fully understood, and the uncertainty has made some wary.

“There are more people who have turned away from getting into the industry than have actually pulled the trigger and have done it,” says Jonathan Sadock, Paragon Ventures’ managing partner. “We see many highly qualified investors who want to get into the business, but most shy away once they really examine the opportunity closely. The investors that do pull the trigger generally bring or acquire a management team with experience in the industry.”

But for those who choose to start or purchase an HME business because they want to make a difference in their community, the opportunity that awaits is exciting.

According to Rose, there will always be independent operators in this industry because it is a people business. “It’s a local business,” he says. “People are going to give a local provider business because he is their neighbor, friend, colleague and health care professional.”

Provider Spotlight

Company name: J & L Medical Services

Location: Waterbury, Conn.

Open for business: March 2003

Leadership: John Loyer, MS, RRT, and Lynn Tata, BS, CRT

Number of employees: 20

Accreditation: JCAHO

Why it works: A commitment to customer service and continuous quality improvement

There was probably quite a bit of speculation when John Loyer decided to leave his position in hospital administration and open a home medical equipment business. There were already close to 10 competitors in the area, and the entire industry was facing uncertainty regarding Medicare reimbursement. But Loyer knew he could succeed if he showed referral sources and clients that customer service was a priority — and then took steps to ensure that is what they received.

“Service is the most important issue in this industry,” he says. “The fact of the matter is many of us are delivering the same type of equipment, but it is the manner in which it’s delivered that makes the difference.”

Developing a final business plan took eight months and involved assessing the community’s need, local managed care contracts and potential service lines. Loyer and his partner, Lynn Tata, relied on their respiratory backgrounds and designed a company that focuses on respiratory care and sleep therapy.

Diversity in products and payer sources is evident in the business, though. J & L also provides standard durable medical equipment to keep a healthy mix of products.

“We really specialize in respiratory and sleep, but it is very important to be diversified,” Loyer explains. “You can’t do all sleep, and you can’t do all oxygen. If competitive bidding does come to pass, you will need the other service lines to stay afloat.”

The business plan Loyer and Tata designed includes community involvement — the company supports groups for chronic obstructive pulmonary disorder (COPD) and obstructive sleep apnea (OSA) patients — and a concerted lobbying effort to educate state representatives.

“I have been very active in writing letters to our legislators and keeping them aware of the challenges that we face,” says Loyer. “Letting legislators know what some of the issues are and that this industry is not like UPS where you can drop equipment off is critical.”

For J & L Medical Services, the future is exciting. Both partners are doing what they love.

“It’s awesome because we’re able to continue to deliver service that is needed,” says Loyer. “It is also quite an accomplishment to have your own business in a challenging economic time.”

Loyer attributes the new company’s success to several factors. First and foremost, he says, he and Tata are proactive and realistic about the care they can give and the products they can deliver. Additionally, the staff is dedicated and passionate about their jobs. Finally, he says, the company takes care of its customers.

Provider Spotlight

Company name: Peoples Home Health

Location: New Haven, Conn.

Open for business: March 2004

Leadership: David Marro

Number of employees: 20

Accreditation: JCAHO

Why it works: Product diversification and a pharmacy component

In many people’s minds, David Marro is already a success — he’s gone from driving the truck to owning the truck, so to speak. Marro first began working in the HME industry 15 years ago driving a delivery truck. Today, he owns Peoples Home Health, a full-service HME and pharmacy that he bought earlier this year.

After purchasing Peoples Medical, the existing company, Marro relocated the business to an area zoned for retail sales, which allowed him to include a full-scale retail pharmacy. He is able to provide customers with all their medication needs, respiratory services and HME products.

According to Marro, it is the people he is involved with — employees, vendors and customers — who will keep independents like him alive in the industry. By outsourcing the company’s billing, working with key manufacturers to get the best products on the best terms and showing customers that there are products available that will enable them to live happy, productive lives, he has created a customer base that is loyal to the company both for pharmacy and HME needs.

Yet, he acknowledges that he took a risk. The uncertainty of the effects of competitive bidding is an ever-present reminder that the company needs to be diversified and efficient.

“To be successful, the retail sales have to increase to help offset competitive bidding, but in the long run, I know it will work and [the business] will continue to grow,” he insists. “[Challenges] make us stronger and make us realize that we will have to continue to work hard to make profits, make payroll and keep our employees happy along with our customers.”

Marro is quick to reiterate the importance of customer and employee satisfaction. “It is important that your employees are happy. It really shows through their work, customer service and even their attendance,” says Marro.

Provider Spotlight

Company name: Total Health Solutions

Location: Metairie, La.

Open for business: November 2003

Leadership: Shelia Bond, RN, and Jeff Friedman, MPH

Number of employees: 7

Accreditation: Undergoing JCAHO

Why it works: Changing the way HME is done with an emphasis on retail sales

When Jeff Friedman realized he would need a new job, he didn’t go looking for a company to hire him. Instead, he chose to create one that would allow him to use his visionary skills and stay in the business he loved — health care.

Friedman had spent much of his career in health care management, most recently as director of syndications and acquisitions for Tenet Healthcare Corp.’s ambulatory surgery center joint venture projects with physicians and COO of Tenet Physician Services (TPS). There, Friedman was responsible for the daily operations of Tenet’s management service organization, which employed physicians throughout the country.

“My vision was to open up a large retail store where you would have everything from soup to nuts,” he explains. “I wanted a one-stop shop in a very highly visible location with great parking and great access and staffed with people with health care backgrounds who are compassionate and caring.”

And that is exactly what he and his partner, Shelia Bond, did. The company’s owners feel it has set a new standard in retail HME. The 4,200-square-foot store was designed to look like a Starbucks with stylishly painted walls, carpeting and wood floors, and beautiful counters.

There are sales associates on the floor at all times, and foot traffic continues to increase due to the $7,000 to $8,000 spent monthly on television, radio and newspaper advertising.

Total Health Solutions offers a full line of HME, with the exception of oxygen therapy and enteral feeding. Located within the store is the Caring for Women boutique, which provides women’s health products. Depending on the month, up to 50 to 75 percent of the company’s overall sales are from retail items.

Friedman and Bond, who worked together at Tenet Healthcare, are enjoying the departure from corporate restrictions and the opportunity to make changes and decisions that will benefit their company. Now, they are playing by their own rules.