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 miriam@lieberconsulting.com.

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.