Competitive bidding is not the issue; the end of government entitlement programs is the real concern. In recent years, we have transitioned from 13 to four full-time employees supporting each Medicare beneficiary—and by 2020 the ratio will be 1-to-1. To survive this radical change, an HME business’s revenue stream must find alternative sources within the next year or two.
I have been a proponent of retail HME for more than 20 years, and continue to see retail sales increase nationwide. Many HME businesses with retail locations have a revenue mix of 40-60 percent Medi/Medi, 30-40 percent private pay and 20-30 percent retail. The last two years, profitable retailers have decreased their Medi/Medi to 20-30 percent and increased their retail to 40-50 percent. Lately, we’ve seen the opening of retail-only HME stores that are in the black by the end of their first year of operation.
- Other important retail benchmarks:
- Retail locations with showrooms of 800 to 1,500 square feet generate $800 a year per square foot with combined retail and insurance, from $400 to $500 per square foot a year with retail sales only.
- Employees generate $150,000 to $200,000/FTE/gross sales/year.
- The average retail sale takes 20 minutes; the average Medicare patient takes an hour for intake and verification. If the same staff is responsible for both types of clients, then for every Medicare patient, you lose two retail sales per hour.
- Gross profit margin averages 48 percent. Expensive and competitive products might be only 40 percent gross profit margin while soft goods and generics are often 100 percent gross profit margin.
- Net profits average from 8 to 12 percent per $1 million gross sales.
There are numerous other options to Medicare and Medicaid: