Q&A With Hoveround's Tom Kruse

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.”