When you turn onto Whitfield Industrial Way in Sarasota,
Fla., you're turning into Hoveround territory. In an unassuming
industrial park, Hoveround Corp., homegrown by Founder and
President Tom Kruse, spans several buildings and a process that
begins with raw steel and ends with customer delivery of its
well-known power wheelchairs. “I like control,” Kruse
states simply.
Since breaking with tradition to sell its products direct to
consumers, the company has occupied what some would call an
enviable, and others objectionable, position in the HME industry.
There is no question that its national television advertising
remains controversial. Many beneficiaries say that Hoveround has
bettered their lives; many manufacturers and providers view the
company as an arch-foe.
Recently, Kruse spoke with HomeCare about his company's
background and its integrated business model, along with his
thoughts on the industry, its future and Hoveround's place in
it.
HC: How did you come up with the idea for
Hoveround?
Kruse: I saw a need for a product.
The fact of the matter was that power chairs were getting bigger
and bigger. They were really manual chairs with motors on them, and
to accommodate the motors and the batteries, they got to be bigger
and bigger chairs.
At that time, there were 500,000 older people living in mobile
homes in Florida. They couldn't get down the hallway and into the
bathroom in a power chair. They couldn't get down the hallway and
into the bathroom in a manual chair. And retirement centers were
complaining that their residents were complaining that the chairs
were dangerous, big. People couldn't turn around in the elevator;
there were accidents with people getting hit by chairs, etc.
So I came up with the idea that if I could build a small,
super-maneuverable chair that could turn on itself, and was round,
which made a lot more sense than square, that it would be a niche
market. I thought it would be a very cool, small Florida market for
mobile homes and retirement centers.
That was my first invention and first patent. I built the first
prototype in my garage and took it to the nursing home and
retirement center administrators, and that's how it all
started.
HC: Was there much product differentiation at that
point?
Kruse: I felt, obviously, there was. Now someone else may
say differently, but we were really the first small maneuverable
chair. That was our claim to fame coming out.
We started in 1992 right at the advent of the [Americans with
Disabilities Act]. In fact, one of our first sales was to the
University of South Florida. Someone using a wheelchair went into
the library and was unable to reach the books on the seventh shelf
of the stack and called the ADA police or something. At that time
nobody really knew what to do. All the law said was you had to
provide reasonable accommodation for people.
The library was confused, and everyone was confused. They asked
if we could build a chair that could not only get through the
stacks, which were very narrow, but could raise up so people could
get to the books. We built two custom Hoverounds for the
University, and that was considered to be reasonable accommodation.
Their alternative was to spend a small fortune to bring the stacks
down to four from seven, and commensurately expand the size of the
library.
So the timing was right to distribute a product that was more
maneuverable that would accommodate people. One of our mottos in
the very beginning was, “Let's build a chair that can go
anywhere someone can walk.” Instead of accommodation for ADA
being to move the desk, move the file cabinets or widen the doors,
we said, “Why do the chairs have to be 30 inches
wide?”
HC: Explain your philosophy in selling direct to
consumers.
Kruse: We tried to go the dealer route in the beginning,
and it was very difficult.
We got a lot of acceptance for the product, but we found that we
were unable to break through to the “Class A” dealers
because they were on other agreements with the big manufacturers in
the industry that said they had to buy all of their product, or a
large percentage of their product, from that company.
And we didn't have any money to speak of. The company was
started with $150,000, which I borrowed from family and friends. I
wasn't a bigwig going into this.
We then decided in 1994 — and it was June 28th of 1994
that I sent a letter to all of our dealers saying that we were no
longer selling to dealers — that we were going direct,
because essentially, we really had no choice. We knew if we
followed our program it would work.
The problem was that if we developed consumer interest and
business for some dealers, they would not only have our chair but
they would have everyone else's chair, and someone else's chair
could be sold off of my work, my marketing work. I felt that I
needed to control that, and over time in business and building this
model, I find that the more control we have over things the better
the outcomes …
The direct model allows us to have complete, utter and total
responsibility for everything we do. I designed the product. I
manufacture the product. I distribute the product. I evaluate for
the product. I do the billing. I do the service after the sale.
You call one number to have someone evaluated; you call the same
number for a purchase order; you call the same number three years
later if there's a problem with service. We can't run, we can't
hide. I can't say the manufacturer didn't ship me the part. I can't
say that it's on the truck. It's my truck, it's my manufacturing
and it's my total responsibility.
Going from there — and this may be a bold statement
— nobody can provide service like we provide service. It's
impossible …
We've got control of the whole thing. If you have to do a recall
or if there's a problem, we have a direct line all the way to the
end user.
HC: Some providers feel that you're waving a red flag
at the government with advertising that says “at little or no
cost to you.” Explain your advertising strategy, and your
perspective on HME advertising overall.
Kruse: My general perspective is, one, that this is
America. First of all, I have every right in the whole wide world
to tell the world what I do.
Two, there's the FTC. The FTC controls false advertising if
we're making claims that aren't true. And we also are under the
auspices of FDA controls. You're basically not allowed to say
things that aren't true, and you're not allowed to make claims
about the product that would not be true, or not part of its
intended use.
So relative to the part of the intended use and what we do, I
say how am I supposed to do business? I see that those same DME
dealers market in their areas sometimes through television,
sometimes ads, sometimes health fairs. They have their way of
putting their hand out to the public. My business is broader than
that. I have to put my hand out to the United States because that's
my market.
Relative to little or nothing out of pocket, and that's exactly
what we're saying, is that the disclaimer, if you will, says if you
have proper insurance — that could be Medicare or it could be
VA, it could be Medicaid, it could be private insurance — and
you meet the qualifications, they will buy that for you.
We're saying to people that this is a medical device, and if you
meet the medical criteria for it, it is something that is provided
to you. It's not a handout, and it's not free. People paid for
this. That's their benefit.
HC: How much of the power wheelchair market does
Hoveround have?
Kruse: Last year (2003) we had about 41/2 percent. I was
about the fourth largest provider of power chairs in the United
States.
HC: What about 2004?
Kruse: I would venture to say that probably, now that
they've wiped out most of the fraud and some of the abuse, I'm
about at 8 percent or so.
HC: Do you have a goal for what percentage of the
market you'd like to have?
Kruse: It depends on how competitive bidding goes. But I
see no reason why Hoveround can't have 20 percent of the
market.
I have great prospects for Hoveround. Hoveround is, in
everything we do and with all forms of business, about an $85
million company. I personally think that our model is an excellent
model, and the model that could achieve substantial market share
going forward.
HC: What are your feelings about the government's
Operation Wheeler Dealer?
Kruse: I thought it was long overdue. I was in Tom
Scully's office on July 18th of 2002, and I brought to his office
the graphs of the utilization of the [K0011] at that time [where]
it seemed the spike was particularly in one region. I was asking
for CMS to deal with it right then and there, and as quickly as
possible.
Sometime later came the discovery of the abuse in Harris County
(Texas) for one, and there were others. But in Harris County, we
know there was one doctor who wrote 25,000 scripts. Medicare is a
huge program … a lot of people think they should have caught
the fraud, and that it shouldn't have happened. Take a Visa card,
go down and start buying jewelry in Palm Beach and see how long it
takes Visa to call you. A lot of people think as taxpayers, who is
at the switch, who is at the helm?
That being said, they got rid of the fraud. These were criminals
the same as bank robbers are criminals, and those people belong in
jail. It's a good thing that a lot of the fraud was taken care of.
A lot more of the fraud will be taken care of in the future as the
agency raises the quality and accreditation standards.
HC: Do you think a Certificate of Medical Necessity
(CMN) is sufficient for reimbursement of an HME claim?
Kruse: The decision by the judge in California* went the
wrong way, as far as I'm concerned. There are a lot of people now
that think they have a license to go back and operate on a CMN
only.
Hoveround, in its history, has never done business on a CMN
only. That's not how we operate. I believe that the government has
every right in the world to ask for and seek additional
documentation on a product that's this expensive. I don't want
people that don't qualify for the product to get the product.
Medicare told us many, many years ago that we were responsible,
financially and otherwise, for the chairs we deliver, meaning that
if, in fact, at the end of the day we can't prove medical necessity
that it's never going to be the onus on the doctor — it's us.
We either have it or we don't have it. Either we can get it or we
can't get it, and we decided to take responsibility from the
get-go. The responsibility is on us to assure that only people who
need and qualify for the chair get the chair.
*In June 2004, U.S. District Court Judge Lawrence Karlton of
the Eastern District of California issued a preliminary ruling in
Maximum Comfort v. Thompson stating, in effect, that a supplier
need only use a CMN to provide information for the determination of
medical necessity for Medicare power wheelchair claims. As of press
time, a final ruling had not been made.
HC: Where do you stand on mandatory accreditation, and
do you believe that will also help to stop fraud and abuse?
Kruse: Absolutely. We have been Joint
Commission-accredited for many years. We did that voluntarily.
We're not in the trampoline and bicycle business. We're in a
very serious medical business here.
I ask any dealer that's not accredited, why? Because it can't be
price if you're billing the Medicare system and you're operating a
viable business. Even if it's a micro-sized business, the fee for a
[JCAHO] survey is $3,300. It's a triennial issue, so it's $1,100 a
year. It's part of doing business.
With accreditation, it's an opportunity for our industry to
prove itself, and for all of us to prove ourselves. Whether we're
in the competitive bidding areas or not, I think it should be
mandated 100 percent across the board. We're the only sector of
health care left that doesn't have to prove itself.
It's not asking too much. If we want respect on [Capitol] Hill,
respect from [CMS and HHS] and everyone else we deal with, we ought
to step up. If we had policed ourselves years ago, we wouldn't have
the problem that we have today.
HC: Some in this industry have said they don't believe
DME competitive bidding is going to happen. What do you
think?
Kruse: I do, because it's law. It would take an act of
Congress for it not to happen. The people that I've met on the Hill
and talked to on the Hill are pretty well convinced that they can
get a better price and higher quality.
As a surprise to many people, Hoveround was never on the Hill in
favor of competitive bidding on price alone. [When it was clear
competitive bidding was coming], my mission then became one of
assuring that quality became part of that process. I went up to the
Hill, and I said if you're going to do competitive bidding, you
have to have a quality standard that precedes that. If you don't,
you will have the opposite effect: The lowest common denominator,
the lowest price with the lowest level of service and cost
component will win, leaving the best players losers.
If you do the opposite, though, and you bring quality in at the
forefront, then you're going to have the very best players with
essentially the same cost structure competing for the bid. The
winners will be the very best players rather than possibly the
worst or lowest-common-denominator players.
HC: Do you plan on participating in the competitive
bidding program?
Kruse: Yes, we plan on bidding. We plan on bidding in
every [metropolitan statistical area] in the United States as they
come forth, and we think that we will be very competitive.
I think the industry is watching what we're doing. I think the
industry is well aware that we're probably the only company that
will be bidding that has all the pieces to the puzzle. We're the
manufacturer, we're the retailer, we're the service agent, we're
the biller. We know what all those things cost, so when I bid, I'm
going to bid with a heck of a lot of knowledge.
HC: How do you think competitive bidding will affect
small providers?
Kruse: My understanding of the intention of Congress and
of [CMS] is that they're going to achieve better pricing.
What does that mean to small businesses? One, what that means is
that, hopefully, you will have to be accredited before you bid, and
two, some people will not make the cut. Because of being small,
they will not possibly be able to purchase as well as larger
providers.
[But] I don't think it's a God-given right to be in business.
This should not be a business that has ease of entry, nor should it
be one that if you don't keep up with it that you have a right to
stay in it. If you will not prove your quality, you shouldn't be in
this business. If you are not going to operate under ethical
standards, you shouldn't stay in this business.
If you can't provide a high-quality product and service for a
good price for the largest payer in the world, too bad. That's the
way it is.
HC: Do you have plans to enter any other segments of
the HME market?
Kruse: We have our eye on the bariatric market, because
we see that the very people that we provide a bariatric power chair
to are buying a bariatric bed or bariatric commode the next day. So
we're looking at that.
We are also engaged in the Barton* program in one area of the
country, and we're looking at expanding that to other areas of the
country. We're a dealer for them. The reason we are, and why I
broke out of my mold for that product, is because I just think it's
the most unbelievable product. I love it. That's an example of one
of the products that I'm passionate about, and we're going to
distribute.
*Barton Medical Corp. offers positioning and transfer systems
to allow a single caregiver to transfer non- or limited-ambulatory
patients.
HC: You have a lot of locations around the country
now. Are there any plans for expansion into actual retail store
locations?
Kruse: Let me put it this way, yes and no.
The mobility business we're in doesn't lend itself to [retail],
really. No matter what, we are going to the person's home. We will
not sell a power chair unless we evaluate the person. If somebody
says, “My aunt has one, I've driven it, I love it, send me
one, I'm sending you a check,” I'm sorry. We don't do it, and
we won't do it without seeing the patient and the patient's
environment.
The flip side to that is, I guess, yes, because we are opening
our first Wal-Mart location in St. Petersburg in January
…
We believe that given the demographic of St. Petersburg, which
fits our market and fits our geography well being so close to us,
that being a business partner with Wal-Mart is a good thing for our
company. It's a good partnership.
We'll have our products. We'll have mobility. We will have
scooters. We will have lift chairs for the first time, and then
we'll have basic patient assist items, bath safety and other assist
items, for the home.
We believe it's a great opportunity for exposure for our name as
well as the sales that we make.
HC: What do you see in the future for HME? How do you
think this business is going to look in three years, five
years?
Kruse: I think there's going to be some general
consolidation. People, for some reason, believe that this business
is protected from normal business evolution, and I don't believe it
is.
I believe that the government wants fewer, smarter, more
sophisticated, compliant partners to deal with. It makes sense.
They can save money by having fewer, more compliant suppliers.
This is an ever-changing atmosphere we're in. People have to be
able to adjust — and there are big adjustments coming. Who
can do it better, faster and cheaper? And I say
“better” when I say “cheaper,” because I
think we can do both. I think that we should strive to do both.
HC: What would you most like the industry to know
about Hoveround?
Kruse: People believe that Hoveround somehow is a
competitor that has either some sort of unfair advantage or that
we're making some ridiculous profit. And I will say this to them,
that my profits, I would think, would be no different than theirs.
That [profit] has been invested in quality, in systems, in getting
more efficient and being more effective at what we do so that we
can be competitive into the future.
As time goes on, models are going to have to be streamlined. The
model that the DME industry has today is the same model it had 25
years ago. Everybody wants to hold on; I understand that. But the
volume has quadrupled, the users have quadrupled, and everybody
just wants to do business as usual? No. I think it's either get on
the train or it's going to leave you at the station, as they
say.
We work very, very hard to provide a great product, and we work
very, very hard in Washington to make sure that this platform is
respected and that the DME platform and DME business is respected
relative to what we do.
This industry over the years has not done a very good job up on
the Hill because it has fought every initiative to raise the bar.
We should accept the bar being higher. We should go meet those
standards and exceed those standards, and come through as a
brand-new industry that can provide a great service, so that as
more and more people come out of the hospitals and more people are
getting older and living longer, we're here to provide products for
them.
Hoveround Profile
Founded: April 1992
Headquarters: Sarasota, Fla.
Employees: 480, with 280 at corporate headquarters
Locations: 70 sales, service and distribution centers
Operations: In 44 states, with reach “to about 95
percent of the American population,” says Kruse. (No
locations in Alaska, Hawaii, Maine, Montana, North Dakota or
Wyoming)
Product lines: Standard and custom power wheelchairs,
scooters
Managed care contracts: Approximately 150
Product testing: University of Pittsburgh and MET
Labs
Accreditation: JCAHO (Joint Commission on Accreditation
of Healthcare Organizations), in Home Medical Equipment and
Rehabilitation Technology Supply
ISO 9001: 2000 (includes Medicare billing procedures)
FDA: 510(k) on all Class II products
Units: Approximately 60,000 chairs in use, with 1,200 to
1,500 units provided each month
Monthly inquiries: 20,000 to 25,000 from all sources
including professional and user referral, television, print and
direct mail
Denials: “Over 90 percent of our claims are paid on
initial submission. After technical errors are corrected and
appealed, we clear approximately 97 percent of our claims,”
Kruse says. “We fight every claim, because we know we
wouldn't have delivered the equipment in the first place if we
didn't believe there was a legitimate need and clear medical
necessity documented.”
Distribution: Four semi-trucks crisscross the country via
a geographic routing plan to deliver bulk chairs and accessories to
warehouses. More than 200 Ford E-150 vans (called
“HoverVans”) deliver and service products in local
areas.
Compliance: Plan designed by Latham & Watkins and
Ernst & Young; annual audits by Deloitte & Touche
Financial auditing and consulting: Price Waterhouse
Coopers
The Hoveround ‘Pipeline’
Hoveround's Kruse estimates that 68 percent of the company's
business comes from television advertising versus other sources,
such as direct mail or managed care referrals, with about 20,000 to
25,000 initial calls a month. Once an initial call comes in, it
goes through a step-by-step process that the company calls its
“pipeline,” involving qualification, evaluation,
insurance verification, scripts and delivery. About 130 of the
company's employees are RTSs (Rehab Technology Suppliers) including
occupational and physical therapists (OTs and PTs), nurses,
Assistive Technology Practitioners (ATPs) and Assistive Technology
Suppliers (ATSs) involved in evaluation and delivery. Kruse
explains the process:
“When the initial call comes in, the call center asks a
series of eight to 12 questions, depending on how they are
answered, that eliminates a lot of people.
“A lot of people don't understand that qualifying for a
power chair ultimately is up to their doctor. So right off the bat,
about 75 to 80 percent are going to fall off right there, right in
the beginning. They don't understand the qualifications.
“But we get a chance to make a friend. They're in our
database, because typically, most of our users are older. These
people have progressive diseases. Obviously age is progressive as
well, and eventually if you live long enough with a disease or
condition, you will need a chair.
“So we're down to 20 to 25 percent. That 20 to 25 percent
are going to get evaluated. We're going to dispatch an RTS to their
home, and we're going to do the eight-page evaluation. After the
evaluation comes through … if they get through the insurance
verification … it then would go through the script process.
Now we're down from 20 to 25 percent to less than half of that, at
12 percent of the original 100 calls that have made it through all
of this.
“Then we're going to do final insurance verification.
That's where we're going to get the actual pre-certification letter
if necessary.
“We're also starting to build this specific unit for the
person if necessary. In other words, if we have to do what we call
a CMR, customer modification request, those modifications can
involve anything right down to the raw frame that we have to put
something on for a tie-down, or a special bracket for an
environmental control unit or a ventilator or whatever, then that's
something that has to be done at the metal stage or at the factory
level, and not in the field. Then the final step is the delivery,
and that's how the process works.
“Off of that original group of people, the final number in
the immediate term is about 8 percent.”
