The effects of Medicare's competitive bidding delay are a complicated matter. Home medical equipment providers and manufacturers have mixed emotions, ranging from exhilaration to frustration to a fear of complacency from some who believe the “war” is over.
But speakers and exhibitors at Medtrade 2008 say there is much work still to be done in Washington and it is time for the industry's providers to create a business model that is sustainable — regardless of what happens next.
“The delay of competitive bidding did not solve the problem. It gave us some breathing space,” says Ron Bendell, president, VGM & Associates, Waterloo, Iowa. “However, in September, [Acting Administrator] Kerry Weems said CMS is in the process of drafting competitive bidding ‘1.2’ and has issued an RFP for the first round, so it's not over in any way, shape or form. We hope this version would be more fair, but I wouldn't guarantee it.”
So once again, not knowing the rules or the outcome, providers must assess their businesses and ascertain what steps they must take to remain viable.
“Competitive bidding forced many of us to reevaluate our business models, and although the bidding process has been postponed, the net effect is a decrease in reimbursement,” says provider Richard Davis, director of human resources, Barnes Healthcare Services, Valdosta, Ga.
“Couple that with the oxygen cap coming up in January 2009, and it has created the larger need of becoming more efficient in how we do business. All of us are looking at ways to cut expenses to deal with less revenue. Of course, we all want to increase our sales, and that should remain a priority.”
Here's how the experts say you can prepare for 2009 and beyond.
STEP ONE: FACE THE CHALLENGES
There are a variety of stumbling blocks HME providers confront on a continual basis. Legislative threats, reduced reimbursements, operational issues. The ongoing burden fraudulent providers place on the industry continues to bring increased scrutiny from lawmakers and regulators.
Providers of home oxygen and respiratory care products and services face additional hurdles as the 36-month oxygen cap, mandated under the Deficit Reduction Act, becomes a reality in January. Companies offering sleep disordered breathing products are facing new rules under the DME MACs' recently revised local coverage determination on PAP policy.
And no provider is exempt from the 9.5 percent cut on competitively bid items, scheduled to take effect Jan. 1, as determined by the recently passed Medicare Improvements for Patients and Providers Act.
Ted Raquet, vice president, domestic sales, Pride Mobility Products, Exeter, Pa., says MIPPA could have a devastating effect on rehab providers if complex rehab is not “carved out.”
“Providers unable to adjust their business model in order to absorb a 9.5 percent payment reduction will be forced to discontinue providing this product category. This will result in access issues, especially in rural areas where there may only be one complex rehab provider in a 100-mile radius,” he says.
Raquet adds the universal cut will also lead to a significant reduction in the full range of diverse, medically appropriate products that are available to meet disabled beneficiaries' individual needs, thus creating adverse medical outcomes, preventable secondary medical complications and the curtailing of beneficiary independence.
“If that weren't enough, he continues, “providers must also face economic and market challenges.”
According to HME consultant Colette Weil, managing director of Summit Marketing, Mill Valley, Calif., those challenges include cash and financial management; market leverage and margin management; and customer and referral attention, management, control and affirmation of service superiority.
STEP TWO: GET ACCREDITED
As of Sept. 30, 2009, HME providers who participate in the Medicare program must be accredited. While CMS announced a list of notable exceptions for “eligible professionals” — including physicians, Pts and OTs, orthotists and prosthetists — on Sept. 3, most providers must still meet the deadline. This is not new information.
“You have to be accredited. It is not an option,” states Chris Yessayan, vice president and general manager of Elyria, Ohio-based Invacare Corp.'s Service Business Group.
But there is an upside to the process.
“Don't look at it as a burden. It should make you more efficient,” says Bendell.
“If you don't do it, you are out of luck,” adds Gretchen Jezerc, director of U.S. marketing for sleep disordered breathing for Murrysville, Pa.-based Respironics. ”However, there is a positive side. If providers take it seriously and use what they have detailed in the process, then it can be a real plus to their business.”
STEP THREE: KNOW YOUR BUSINESS
Weil says now is the time for providers to step back and conduct a comprehensive business audit to assess every aspect of their company's operations, marketing and sales, along with all relationships.
“Providers must critically assess their payer, product, service, pricing, promotion and delivery mixes to identify opportunities and limitations [and] … evaluate new strategies to improve productivity, perhaps selective price increases, changes in delivery methods and policies, expansion of profitable product lines, deletion of outliers and the addition of line extensions,” advises Weil.
Yessayan suggests providers create a “map” of their business that indicates core competencies and a measurement of each business function.
“Break your business down into small components and put metrics around each of these things. Understand where all the leakage points are for costs, and track these things and figure out where you can take costs out,” he advises. “Most people, if they have the data, will make the right decision. The hardest part is getting the data and knowing what data to look at.”
Kevin Gaffney, group show director, Nielsen Business Media, Alpharetta, Ga., says any business should have a living plan.
“Develop a plan that sits on your desk, not one that is created and filed away. Review it regularly and adjust the plan as the market conditions warrant,” says Gaffney, who is Medtrade's show director.
He notes that such a plan will prepare providers for whatever outcome results from the delay of competitive bidding.
“The plan should outline what they will do in all different scenarios, which eliminates the fear and panic associated with competitive bidding and other government mandates. It is not a single-line plan but one that includes sidebars and adjustments that address how to deal with competitive markets that are constantly changing,” he explains.
To accomplish your goals, Weil reminds providers to call on all the resources they have for help.
“Use all the sources that have helped build your company to now help audit your direction and changes to include, but not limited to, your board and advisors, staff, bankers, non-competing peers, consultants, manufacturer partners, distributors and advertising agency,” she says.
“You are not in this alone. You are a system integrated with many depending on your company for business, services, support and a future. Then, define your priority list by business initiatives, strategies and tactics.”
STEP FOUR: UNDERSTAND YOUR COSTS
Knowing the true cost of doing business can be complex, but it is essential.
“A lot of providers do not know their true cost of doing business. That is the basic fundamental truth. You have to know how much it costs you to do a transaction, how much it costs you to complete an order and how much it costs to deliver,” states Ron F. Richard, CEO of San Diego-based SeQual Technologies.
Davis adds that if providers are not aware of how much it costs to deliver products and services, then they are already “behind the eight ball.
“With the higher cost of fuel, the need to maximize efficiencies at all levels of delivery and service is imperative. At Barnes, we are shipping as often as it is feasible to deliver product, and we are taking advantage of technology to reduce the ‘tech time’ to service a patient,” he says.
“You have to have a monthly [profit-and-loss] statement and break it down by buckets of costs and understand where your leakage is and where your opportunities for taking out costs are,” says Yessayan.
“You just can't focus on product acquisition anymore; you have to look at your operating expenses going forward, so you have to know what your expenses are and break them down into buckets that are manageable. Then, collect data on these areas and analyze that data to determine where you can take some costs out.”
Mike Mallaro, The VGM Group's CFO, says being relentless about cost-cutting is a part of the industry and will always be critical in the third-party payer health care business.
“Accept it and embed it in your culture. There are many technologies available to help you cut costs from your organization. Look around the Medtrade Expo because there are lots of them for you to consider,” he says.
For years, the industry has been focused on managing denials, but there is another aspect that has been largely ignored, according to Bently C. Goodwin, CEO and founder of Memphis, Tenn.-based RemitDATA.
“Although the industry has been focused on denials, the next step is to determine if you got paid what you were supposed to get paid,” he says. “Most people are concerned with whether they got paid at all, but owners and managers are working under a false set of assumptions. They are assuming they are getting paid one thing, and in reality they are getting paid less.”
He advises paying attention to claims that are paid at a lesser rate than the contract states and tracking the amounts to determine how much money is actually being lost in these scenarios.
“It could be $10, $25 or more, and it adds up when it affects a broad number of your patient population,” Goodwin says.
Yessayan says to look at cost streams and determine which line items account for your costs.
“If you don't have enough detail, start putting in more detail lines, whether it is cost of goods, labor, overtime, fuel or capital equipment, but make sure you have lines. This will highlight areas in which you need to do something different,” he says. “It involves taking a hard look at the financials and understanding everything that drives cost in your business.”
STEP FIVE: FOCUS ON SALES AND MARKETING
It is easy to put sales and marketing efforts on the back burner when times are difficult, but these are the times when both are critical.
“When markets get very tough, it is imperative that firms do not disappear from the public landscape in their visibility. Testimonials, brand stories, advertising, public relations, promotion, and Web site integrity, along with an integrated sales direction, must be united for a strong, smart market presence,” says Weil.
Davis adds providers have to maintain their focus when evaluating new areas to increase sales. “We all want to increase our sales and that should remain a priority, which is why we need an aggressive and strategic sales strategy,” he says.
STEP SIX: DIVERSIFY PRODUCTS AND PAYERS
One way to beef up sales and marketing is to evaluate diversification.
Pride Mobility's Kirsten DeLay, senior vice president, sales management and operational planning, urges providers to consider branching into retail sales as well as having a varied payer mix.
“Historically, providers who have always done retail continue to do retail and do very well with it,” she explains. “[Cash sales] offers a different level and type of profitability to their businesses.”
DeLay says providers must have a showroom for retail products, but, “more importantly, they need to train their salespeople, and they need to set up incentive plans for their salespeople.”
She adds providers should also look at a variety of revenue channels. “Their only revenue channel should not be Medicare, or private pay for that matter. There needs to be a diversification of revenue channels,” she says.
“Recently, there have been a lot of distractions in the industry, prompting some providers to look [at other revenue sources],” agrees Respironics' Jezerc. But she cautions that diversification must be carefully thought-out and may not be appropriate for all providers. If you decide it is not the pat for your company, she says, then “stick to what you do best.”
Diversification can also lead to examining current product lines for profitability and worth.
“Financially, recent constraints have put such a burden on providers that they are at a loss for where to turn. Because of this, they should weigh the cost of doing business against the tighter rules and regulations,” counsels Miriam Lieber, president of Lieber Consulting of Sherman Oaks, Calif.
“Exiting non-profitable product categories is imperative today. As a community, we can no longer afford to carry the weight for the non-profitable items.”
STEP SEVEN: UTILIZE EMPLOYEES EFFECTIVELY
Employees are the face — and the backbone — of any business. They can be your greatest allies, but poor training or education, lack of executive support and ambiguous operating procedures undercut their ability to increase your profitability and can even result in poor customer service and lost contracts.
“My advice is to evaluate the biggest resource and largest expense for a business: the human capital. Now is the time to focus on increasing productivity and ensure every employee is in the right seat on the bus going in the right direction,” says Davis.
That means companies must hire the right people for all open positions, he points out.
“On top of this, a training and development program that adds value to the business is a must. The human resources function should be less administrative and more strategic to have a positive impact on the bottom line,” Davis says.
Invacare's Yessayan advises providers to look at each person in the company and assess how they are being utilized.
“Do a headcount and find out what function each person is performing. You won't have people performing at their best level if they are always multitasking. You can be good at one or two things, but the more you spread someone out in terms of expectations from them, the harder it will be for them to be an expert,” he says.
Keeping up employee training and education can be another important factor in running a successful business.
“Employers who support employees with paid time off to keep up with their certifications and help them sharpen their skills utilize a nice way to reward employees and keep them motivated,” says Jezerc. “If you do that for them, you create a certain loyalty and you have a better trained and more effective employee, which can make a difference.”
STEP EIGHT: SATISFY YOUR CUSTOMERS
With clinical patients, off-the-shelf and retail customers, referral sources including physicians, hospitals and case managers, and a mix of payer sources as customers, how do you satisfy them all?
“Providers who will survive are the ones who continue to provide the best clinical care and put action into place that show sound clinical programs and judgment,” says SeQual's Richard. “Likewise, so will those who work closely with referral sources and who keep up with trends in improving outcomes and use data to drive their decisions.”
Jezerc adds that the “future health and viability of the home care provider industry depends on providing value. A key value that can only be provided by the home care industry is that ‘care and feeding’ of the patients and the supply of good information about the patient's status back to the physician and other referral sources. That is the value that home care companies can and should do to remain viable.”
Medtrade's Gaffney says knowing your customer base is important from a strategic standpoint, noting that a majority of this industry's base is rapidly changing.
“The next generation of customers for HME products is less likely to fight through the Medicare system to get a few bucks back. This generation knows what they want to buy. They do the research and then they go out and buy it. They are not going to wait for Medicare to tell them what products they can have,” he says. “Understand your demographics so you can best market … to them.”
Keeping current and proposed standards in mind, Gaffney says, “this may mean you have a marketing plan that is directed to the Medicare population and then you also have a direct-to-consumer marketing plan.”
STEP NINE: SUPPORT THE INDUSTRY
This year, involvement from the HME community in legislative efforts was unprecedented. In face-to-face lobbying events in Washington and related events around the country, providers and manufacturers alike joined the fight. While it was effective in winning a delay of competitive bidding, now, say these industry advocates, is not the time to quit.
“Providers need to understand that they need to continue to take action, to educate and to fight for what is in the best interest of our industry and beneficiaries,” says Pride's DeLay. ”We cannot just settle for the 9.5 percent cut; we have to continue the fight here.”
Both Bendell and Gaffney say providers need to support the industry's legislative efforts and to become involved in both national and state HME associations.
“Be more active in your state association. It gives you the opportunity to meet with people who have the same business conditions that you have and allows you to talk about how to improve the situation,” urges Bendell, adding that providers need to be vigilant and involved in changing the perception federal legislators have of the HME industry. He also says there has to be a continued emphasis on reducing fraud.
“We need to show our advocates in Washington they were not wrong in backing us. We don't want them to be embarrassed for backing us. There isn't much worse than making someone look stupid,” Bendell says.
STEP TEN: MAKE THE MOST OF MEDTRADE
Providers headed to Medtrade, set Oct. 27-30 in Atlanta, can take in an amazing array of products and services as they mull the industry's future — and that of their own businesses. While tackling all the issues HME company owners and managers face may be tough, it can be done.
“This is all solvable,” says Invacare's Yessayan. “There is always a solution. It may not be that you fix it, but someone else can.”
The show's educational conference includes more than 100 sessions from the experts quoted in this article and others who can detail each of these steps for moving ahead and give take-away information to utilize immediately. The event also offers a good opportunity to network.
“At Medtrade, talk with your colleagues from across the country and ask them questions about how they grew their business. Peer-to-peer networking is one of the greatest values Medtrade provides,” says Gaffney.
Adds Bendell, “We have to learn that our competitor is not necessarily our enemy. In almost every industry, there is some level of knowledge-sharing that can help. If you do this in an environment such as Medtrade, where you can sit down and discuss these issues face-to-face, you learn things that you might not realize.
“There is always something that you have not thought of that the other guy did.”
Business Boosters
HME experts are quick to note there is no crystal ball or magic wand providers can use when it comes to refocusing their approach to profitability and sustainability in the industry's current market. However, they offer this list of ideas and approaches:
“Think out of the box. Do things that are not in the
normal course of business to improve efficiencies.”
— Ron Bendell, president, VGM & Associates, Waterloo,
Iowa.
“Providers have to look at all expenses through a
fine-tooth comb and determine which expenses are necessary to
provide exceptional service and which expenses can be sacrificed.
Executive management must spend the time necessary to educate all
employees to be fiscally responsible and operate their areas of
responsibility as if it was their own business.”
— Richard Davis, director of human resources, Barnes
Healthcare Services, Valdosta, Ga.
“Providers have a limited window to increase productivity
from now until the first day of competitive bidding. Whatever you
can do now to save money is going to go to the bottom
line.”
— Bently C. Goodwin, CEO and founder, RemitDATA, Memphis,
Tenn.
“Providers should be looking at a variety of revenue
channels. Their only revenue channel should not be Medicare, or
private pay for that matter. There needs to be a diversification of
revenue channels.”
— Kirsten DeLay, senior vice president, sales management
and operational planning, Pride Mobility Products, Exeter,
Pa.
