ELYRIA, Ohio--It’s the home medical equipment industry’s age-old problem: Costs are going up, reimbursements are going down. Only this time the squeeze is so substantial that unless providers reshape their businesses, they may not be able to survive.
To help deal with the tightening home care market, last week Invacare rolled out plans for a full spectrum of services that, combined with its product offerings, will allow providers to focus on core competencies and transform operations, company officials said.
“Now when you look at where the market’s at and what’s really required, we need to hone in more on services,” said Group Vice President of HME Carl Will, who took over the position in 2006. “There’s not as much money as there was before, and the inefficiencies that exist in the market will not allow for a large number of providers to survive, so we’re focusing more and more on services as being a central player.”
"We want to make sure that Invacare is known for more than just its products," said Chris Yessayan, vice president and general manager of Invacare’s Service Business Group. “We’re focusing on taking costs out” of providers’ day-to-day activity cycle because “you really can’t go a lot lower” in cost-cutting on product pricing alone, he said.
Under the iPartner Solutions umbrella launched earlier this year, Yessayan said, Bonafide software addresses business management and operations improvement and Invacare’s 5 Star service plan, built on the acquisition of Roadrunner Mobility, offers in-home and in-shop repair along with replacement parts, delivery and set-up. While providers might offer repairs, many may not know “if that’s a cost center or a profit center,” Yessayan said. Today, he pointed out, “that is something you need to know.”
The company has held three “Service Summits” to help providers evaluate whether they are making or losing money on service and identify where additional costs could be eliminated from operations. Six more of the summits are planned this year.
Invacare has also added consultation on accreditation prep, sales and marketing best practices and product line diversification and, "if or when" competitive bidding ramps back up, Yessayan said, will provide help with bid preparation. The company is also looking at developing or acquiring a billing and collections arm to complete its services offering.
According to Yessayan, providers must not only look at diversifying away from Medicare but also at expanding on traditional product sales to remain viable. Maintaining the balance between managing operations, servicing customers and increasing revenue might mean outsourcing some of the service functions that take time and resources in order to concentrate on sales and marketing, he said.
“At some point you’ve got to stop talking about complaints … and focus on how to survive,” said Will. Referring to an across-the-board reimbursement cut set for January 2009, he added, “I don’t see any way out of that 9.5 percent [cut] … so the best providers are out there saying ‘It’s coming and I’m going to have to deal with it.’”
Will noted a provider in the Southeast who is sharing trucks with his biggest competitor to cut down delivery costs and maintain margins. “That’s where we’re going,” said Will. “You may have to take some unnatural steps.”
While “you’ll always have that population that is the frog that’s in the water that doesn’t realize it’s heating up,” he continued, “most providers [want to increase their business] and we’re trying to help them get there.”
The premise is simple, but Invacare Chairman and CEO Mal Mixon acknowledged it may not be so easy for providers to make the hard decisions that will be necessary.
The manufacturing giant has already made its own tough choices, he said--such as severing its long-term relationship with spokesman Arnold Palmer--in looking to take $100 million out of its costs from 2007-2009. The company has moved away from national integrated manufacturing facilities to regional assembly sites, slowed acquisitions (although next year “we will pick up the pace,” Mixon said, targeting sleep and wound care companies) and now relies on strong Asian sourcing.
And while providers are trying to move away from Medicare dependence, so is Invacare. In a worldwide growth effort, the company is working to globalize offerings and develop products that will be acceptable to both foreign and U.S. markets.
But, Mixon emphasized, “the industry we are in is still a damn good industry” as long as it can overcome some of the “Washington stuff.” The overarching problem, he said, is that “Congress still thinks we’re all a bunch of crooks … We need to be redefined not as ‘suppliers’ but as ‘providers.’”
To accomplish that, he said the HME industry must address four main issues, including:
--Working with CMS to replace national competitive bidding with
an alternative reform;
--Cleaning up DME fraud and abuse;
--Supporting an ongoing public relations campaign directed by
AAHomecare; and
--Developing oxygen payment reform. “If I had to pick an area
that will come at us again, it would be oxygen,” Mixon
said.