With the multitude of changes and challenges in today's durable medical equipment (DME) marketplace, successful entrepreneurs are seeking new opportunities where they can employ their skill and experience. Ask yourself: What opportunities and markets are right for my company, my customers, and myself? How do I successfully enter new, parallel markets without jeopardizing my current DME operation?
What is a Parallel Market? (And why should you care?)
Parallel markets are environments where DME owners can utilize their expertise despite some differences of language or philosophy. Parallel markets allow a DME provider to diversify risk and opportunity, with the possibility of expanding offerings within existing populations served. Why? One of the silver linings in the aftermath of the initial competitive bidding phases is the emergence of a new diversification approach to the DME and related markets. For example, there are similar reimbursement sources to Medicare (e.g. Medicaid) that have been more stable with continuing growth as part of the Affordable Care Act expansion. While a successful DME owner may have a very strong market niche today, they know that considering other options within their skill set increases their prospects for the future.
The Path of Least Resistance
While some DME owners will consider organic (from the ground up) growth in parallel markets, most choose some form of acquisition. There are several good reasons why this is the case. First, acquisition will bring a DME into a new market much faster than organic growth, including the positive cash flow of an ongoing concern. Second, the human cost of acquisition to existing DME operations is generally less than a start up, resulting in decreased stress for the current management. Third, while some debt may be required, the financial returns of a well-chosen acquisition will often outweigh the anticipated savings of an organic start up. DME entrepreneurs are well positioned to consider the following seven health care verticals as they seek a synergistic opportunity.
In-Home Care/Home Health Care
Because of a number of demographic factors, the continuing Medicare/Medicaid emphasis on in-home care and managed care preferences for the cost effectiveness of those models, the home health care marketplace has been rapidly growing. The home health care (HHA) market specifically has seen tremendous growth and consolidation to increase profitability. DME companies are often operating in this area already, with significant opportunities to move into related markets with Medicaid and private pay reimbursement.
While reimbursement changes continue, especially with Medicare, most DME executives are quite familiar with this market because of service/product overlap. Medicare reimbursement, in particular, favors well-managed hospices. The aging baby boomer population will inevitably and significantly increase demand in this sector.
There are approximately 23,000 independent retail pharmacies that often interact positively with the DME marketplace. While margins have shrunk in many traditional pharmacies, there are strong niches (i.e. sterile/non-sterile compounding, unique medications, disease management, etc.) that offer a compliment to a DME company, including a cash reimbursement and online marketing component.
Specialty pharmacies are highly sought after due to increasing demand, especially in long-term care populations. They have attracted strong private equity interest and investment and, if located in multiple states, they command a high valuation. Depending on their chronic disease focus they may command prices approaching one times revenue.
Many behavioral health organizations, including those with a substance abuse treatment program, have existing relationships with DME companies. This has been historically a fragmented marketplace, but the positive impact of Medicaid expansion has led to great opportunities for acquisition ranging from the foster care arena to private population facilities that utilize DME services and products. Of all the markets identified, this may be the one with the greatest growth opportunity in health care.
Intellectual/Developmental Disabilities (I/DD)
The I/DD marketplace, with strong Medicaid/State funding, is a stable, growing market that totals nearly $100 billion of reimbursement in the US. As services have become less facility-based and more integrated in our communities, the possibilities for engaging with a DME have also increased. With the rapid expansion of Autism Spectrum Disorder services and related products, the prospects are strong. The medically fragile pediatric population continues to grow with DME opportunities, as well.
Urgent Care Centers (UCC)
With the new consumerism that pervades health care today, there is ample opportunity for DME entrepreneurs to use their business models in this vertical. UCCs are unique because they can be quickly established, the startup costs are often very modest and they can become profitable with good cash flow quickly. Our culture is increasingly favoring this time-efficient model of health care and the long-term future looks positive. There are likely other areas of parallel opportunity for acquisition by DME entrepreneurs, though these appear to be some of the strongest. Even if you only explore a single company you will inevitably expand your horizons with more creative, strategic possibilities for the future of your existing DME operations.