In a climate so hostile it is literally killing off home medical
equipment providers, Rich Lerner is weatherizing his company so
that at the end of the day, Allcare Medical is still standing.
It's the biggest challenge of his nearly 25 years in HME, he
says, but Lerner is determined that his four-branch company, based
in Sayreville, N.J., will survive the firestorm that includes
DMEPOS competitive
bidding, crippling audits, diminished reimbursement, increased
red tape and a floundering economy.
"Our philosophy first and foremost is to provide excellence in
care for our patients, at the same time being fiscally responsible
so at the end of the day, when the smoke clears and the dust
settles, Allcare will be one of the companies that is surviving,"
he says.
How is he fortifying Allcare for the future? Think
reinvention.
Not His Father's HME
If there is one thing of which Lerner is certain, it is that the
future of HME will look very little like its past — or even
the present.
"I started in the business in 1987 in my father's drug store,"
Lerner recalls. "He had a small convalescent aid section. Mostly,
he did fittings. He never accepted assignment, never got involved
in billing insurance companies or Medicare. He was the community
pharmacist."
When Lerner began attending seminars and Medtrade, he saw the
possible scope of HME. "We started to do what we had to do to grow
it," he says. "This was really pre-managed care. In New Jersey, it
was in the early '90s when managed care started coming into our
market."
Under Lerner, the little pharmacy began aggressively pursuing
managed care contracts and marketing the Medicare part of the
business. Then, in 1993, his dad decided to retire.
"With me not being a pharmacist, we sold the pharmacy to a
chain," Lerner says. Committed to HME, he moved to a new location
and became president of a small 1,500-sq.-ft. operation with four
employees.
Two years later, Lerner's company purchased Allcare Surgical and
expanded to the northern half of New Jersey. In 2003, Lerner opened
a distribution center outside of Philadelphia to cover the southern
part of the market, which allowed him to garner even more managed
care contracts.
Today, his company does $25 million in revenue, much of which is
from managed care and subacute facilities. Medicare comprises about
20 percent of the business, as does Medicaid.
"That is really important regarding competitive bidding," Lerner
says. "In a worst-case scenario, we lose the Medicare business, but
we would still be able to survive, though in a smaller capacity,
and we would have to reinvent ourselves."
Actually, Allcare is reinventing itself anyway, Lerner says.
Round 2 of competitive bidding is looming and the company will be
in it.
"At this point, it is a big unknown for us in Round 2," he says.
"What we do know is that if you're a winner, the rates are not
going to be pretty. We have an idea where they are going to have to
fall, and that is pretty scary. Many of the other payers will
probably follow suit, so our rates will tumble accordingly."
Then there are the audits.
"The audits are becoming more cumbersome," he says. "It's
getting more difficult to get paid. You put out a product in good
faith, then you have to wait to get paid, and if you do get paid,
there are recoupments."
No, the business is not like it used to be.
"We DME owners have to look very closely at the efficiencies of
our operations and we have to operate lean and mean," Lerner says.
"Only those who are very efficient are going to survive. We are
re-evaluating our efficiencies, looking at our organization under a
microscope." Recently, he hired a consultant to examine his
operation from intake to cash posting.
"If we aren't efficient now, it is going to be too late when
competitive bidding comes to town," Lerner says. "We are also
looking at product mix."
What's In, What's Out
While Allcare has two retail stores, Lerner is fairly certain no
more are in the offing.
"The retail operations have actually diminished for us," he
says. "We feel the reason for it is the Internet. Years ago, before
the Internet, people had to come into a retail store for an
item."
Not so anymore. But while retail doesn't work so well for
Allcare, two other niches do.
"We are one of the largest hospice providers, and the hospice
market is growing," Lerner says, noting that hospice comprises
another 20 percent of Allcare's current business. He likes that
it's a clean operation.
"There is no competitive bidding, no paperwork requirements, no
audits, no recoupment and you're paid pretty quickly. You don't
ever have to worry about an audit or a recoupment or that the
doctor won't provide the appropriate documentation," Lerner says.
"It's really helped to infuse our cash flow."
It has also boosted Allcare's name in the medical community,
since many of the hospices are associated with hospitals. "It leads
into other opportunities for us," Lerner says.
Allcare has also entered another niche market: orthotics and
prosthetics.
"The reimbursements are higher and the paperwork requirements
are less burdensome than your standard DME items, so it is an
easier business and a more profitable business," Lerner says.
Another big chunk of Allcare's business is complex rehab. "It is
very complicated, very labor intensive, but over the years it has
helped us get managed care contracts and referrals," Lerner says.
"Also, Group 3 power wheelchairs are not part of competitive
bidding, and we do a lot of high-end [wheelchairs]."
To support that clinical side of the business, nine years ago
Lerner hired his sister-in-law, Karen Lerner, RN, ATP, CWS.
"Her role in operations as a clinician has been very unique to
Allcare, and the services that we provide through Karen give us an
exposure in the community," Rich Lerner says.
Karen Lerner, who started off developing Allcare's support
surface business, is now the company's director of clinical
education, working to educate fellow clinicians on solutions for
their patients.
"We are viewed as a clinical resource, not an equipment
deliverer," she says. "I'd say that we help our referral sources
really provide individualized product lines for the end-users. We
can provide a dozen different cushions, 13 different positioning
backs. The challenge is doing that in a profitable manner."
That's not only challenging but extremely challenging, Karen
Lerner says.
"Our instinct is to continue to help the patient stay safe and
healthy even if it means several trips and doing minor adjustments
and repairs on owned equipment," she says.
"But as margins are reduced to zero, we have to stop providing
many of our added-value services that we used to not think about
twice. As a patient advocate and clinician, that is what I hate
most about the looming competitive bidding environment."
"When we feel we can't provide a particular product, [Karen]
will go out because she is a product expert and really try to
educate referral sources about an affordable equivalent that is
also adequate for the patient," Rich Lerner says.
"We can't just say, 'whatever you want.' We can't do it anymore.
That business model will no longer work."
In the Public Eye
It is that concern about patients and his ability to run a
business committed to excellence that catapulted Rich Lerner into
political activism. Long a member of the Jersey Association of
Medical Equipment Services and the American Association for
Homecare, Lerner believes he has no choice but to campaign for his
rights those of his patients.
"Each of us as an owner is obligated to be involved at a
grassroots level," he says. "This is our livelihood. It is
government making these poor decisions. You can't expect one
lobbyist going to Congress to change anything."
It is important to impress upon legislators how their decisions
"are going to affect jobs in their districts and result in poor
patient care and access," he continues. "If you ignore that now, it
is your own fault when these laws get passed."
He is well aware of the HME community's wretched reputation with
regulators. "Our leaders look at us as complainers, that we were
overpaid for years and there has been fraud and abuse, and they
really want to wipe out the industry and start all over," he says.
"They really have no idea what we do."
Lerner says he could not just sit back and accept that
regulatory outlook. "We are clinically strong and we are patient
advocates and we are advocates for our employees. To turn our head
is not an option for me," he says.
So when Allcare was invited to testify before a House of
Representatives committee on competitive bidding in September, "we
were delighted," Lerner says. He asked Karen to make the
presentation.
"He said, 'You're going to testify before Congress' and I just
laughed and said, 'Yeah, right,'" Karen Lerner recalls, noting that
JAMES and AAHomecare helped prepare her for the experience. "It was
fun. It was like studying for a college exam, and the final was an
oral," she says.
"My job was to bring it down to the level of impact on the
patient. Being an RN, I think I was able to do that."
But when she concluded, there was only a single question, and
her response was interrupted mid-sentence. The hearing organizers,
she says, were just "being polite by having our side represented by
one person."
Still, Allcare's education of its patients, referral sources and
legislators continues.
"We will continue to provide the best care we can, support our
patients and our referral sources in the community, but in a new
time and with a new business model," Rich Lerner says. "It
certainly will be a totally different industry than we see today.
As soon as Round 2 rolls out, the majority of providers will not be
around."
He doesn't intend to fall into that majority. "Those who are
preparing their businesses now, who are one step ahead — that
is very important," Lerner stresses, "because once you fall into
the hole, it is going to be one big hole to climb out of.
"You have to restructure your business while you can."
Keeping Allcare Medical Sound and Around
Allcare Medical owner Rich Lerner is a hands-on kind of guy who
believes the following practices will help the company survive in
the HME business:
- Run an efficient operation that's "lean and mean."
- Re-evaluate your payer and product mix.
- Hold each employee accountable to produce or to meet his or her
goals. - Keep your accounts receivable under control. Focus on days
sales outstanding; continue to reduce it, and set goals to keep
reducing it. "You have to have the cash flow," Lerner emphasizes.
"Keeping on top of your A/R and DSO is very, very important." - Don't be afraid to look outside your operation for help. "There
are experts out there that can sometimes look at your business and
see what you don't see," says Lerner. - Be open to feedback from your own management. Lerner says he
often asks his team what they would do to run the business more
efficiently and more profitably.
"It takes a village. I need their buy-in," he says, adding that
he gets good ideas from his employees and often uses their
suggestions. "The worst thing to do is to come to work and feel you
don't have a voice, to see problems and to feel that no one listens
to you," he says. "You want to know you're listened to,
valued."
