ATLANTA — As Round 1 of competitive bidding leaves the HME landscape littered with casualties, as audits cripple revenues and the futures of both Medicare and Medicaid become increasingly uncertain, providers are looking to move out of their comfort zones and find new ways of doing business. For some, that means opening the door to retail.
"More and more [HME companies] are expanding into retail, some in a desperate, last-minute stab to stay alive, others as part of an orchestrated strategic plan to diversify their revenue stream," said Jack Evans of Malibu, Calif.-based Global Media Marketing. "Retail is not the only answer, but it is one viable option to help decrease [Medicare-Medicaid] dependency."
Evans, a longtime industry consultant, recently formed the Alliance for Retail HomeCare, an organization that offers regular webinars on both basic and advanced retail solutions and allows providers to connect and share ideas via online forums.
"Every week, I get two to three new members," Evans said. "The majority have multiple locations. They are running retail spokes off the main hub store."
However, while cash sales look attractive to providers beleaguered by stalled reimbursement and declining revenues, retail is not for everyone, Evans cautioned.
"A lot of people don't make it," he said candidly. "You have to have the right location, the right staffing, the right management, and you have to advertise." Evans said most HME providers spend an average of 5 percent of their revenue on advertising; retail HME providers spend 15 percent or more.
In addition, he said, "HMEs cannot afford to compete on price with marts and chains, as their acquisition cost is often what the latter sell at retail, so they need to first shop these other channels locally and make sure they will stock different brands than those big-box operations."
A retail operation is very different from a traditional HME model, he said.
"The number one mistake HME [companies] make when they expand into retail is that they simply create a showroom in their current location," Evans said. "Most traditional reimbursement-driven [providers] are located in industrial or commercial areas where they can have large warehouses at low rates. They deliver 90 percent of the products to customers. But when they transition into retail, this location becomes a destination that is difficult to find and not convenient."
If such a provider is going to run a successful retail operation, it must open a second location, a "strictly retail showroom" that is at least 1,000 square feet and is visible and accessible, Evans said. Good candidates for a retail showroom: a shopping mall, a location on a busy retail street or a store near a medical office building or hospital.
There needs to be a change of mindset, too, Evans said. Providers can't just move their back-office employees onto the showroom floor and expect sales to flourish.
"They need retail salespeople in order to be successful in selling HME retail," Evans said, noting that insurance intake, verification and documentation specialists do not naturally spend time with customers to determine their medical conditions and daily physical issues, then demonstrate the various products that might improve their quality of life. A retail salesperson does that, resulting in multiple sales as customers buy the main product and ancillary items as well.
"Hire by attitude and train them on HME," Evans advised.
Ideally, the retail sector will grow to at least 30 percent of the business, while managed care and Medicare-Medicaid revenues comprise about one-third of the pie each.
"If you have 30 percent retail, you can have a viable business," Evans said. "I find that HME providers that have a minimum of 30 percent retail are profitable because they are now focusing on Medi/Medi patients as retail sales opportunities, and every patient is now a customer who leaves with one or two add-on related cash items."
For more of Evans' advice on retail HME, see his "Retail 101" columns.
