The home medical industry is struggling to crest a wave called competitive bidding that will sweep it into a sea change — and a new future. What does that future look like and, perhaps more pointedly, what does the new provider look like?
We recently asked members of HomeCare's Editorial Advisory Board, which includes many of the industry's top thought-leaders, for their insights. While they don't necessarily agree on every issue, they are in accord on one fundamental point: No matter what happens to competitive bidding, the HME industry will never be the same, and only those providers who accept that and plan accordingly will have a chance of surviving.
Here are participating Board members' responses to five basic questions about the shape of things to come:
What is the root of this industry's greatest problems, and how would you remedy that?
Cara Bachenheimer: Our biggest problems continue to be Capitol Hill, CMS, the Inspector General and this belief that there are significant numbers of players in the legitimate industry that are bad actors. Yes, there are bad actors, but they are not industry people. The problem is that the government makes broad policies that hurt the legitimate providers. We all know a targeted policy would be better. The government doesn't have an appreciation for the value and what the vast majority of providers are doing. Turning that around is a long-haul process.
Jane Bunch: In this industry, we have to learn to speak up. With the cuts, changes in policy and insurance companies following Medicare guidelines with competitive bidding price and policies, as well as Medicaid cutting and going HMO, have you been to Washington? Have you contacted your representatives? This is our industry they are taking away from us. Get on your local radio or newscast and show what you are doing. Change the minds of everyone.
Alison Cherney: Lack of providers in this industry having a good image and reputation with payers. Providers have not proven their value in terms of cost effectiveness in quantitative terms.
Louis Feuer: The root of our problems is a very tangled and complex web. We originally allowed our hearts to dictate our business decisions rather than good business sense. We described ourselves as medical product providers and we were service providers. Since we do not manufacture the products we sell, we should have carefully calculated the costs we incurred beyond the purchase of the product, i.e. delivery, storage, setup, maintenance, clinical supervision, billing. We now find ourselves defending, describing and redefining our place in the industry.
Solutions to these challenges: education, a willingness to alter your business plan, a willingness to see the value of scrutinizing your financial reports and business trends, and encouraging the creation of a real team at work. Yesterday's business plan will not work.
Sarah Hanna: Lack of business acumen. Many providers, due to their business practices, have brought on many of their own challenges. It goes back to education, training and accepting the state of our industry and the requirements that are enforced. We can fight to make changes, but until those changes are a reality, we have to operate within the realm in which we live. You have to be as disciplined as a military officer and move your troop forward with strength and confidence. When a department is working at a loss, then strong management focus needs to be placed on that area to improve the outcomes.
Miriam Lieber: This industry started as a cottage industry with providers who opened in their garages after experiencing poor service when grandma needed a wheelchair. Further, the margins were so handsome and documentation so minimal that it was easy to make money.
Many unscrupulous providers were also permitted to easily enter an industry that is primarily made up of small businesses trying to do good for their patients/customers.
Now that that era is over, only providers with strong business skills will remain. Unfortunately, nice guys providing good service is not enough. Look for continued attrition and survival among those who think outside the box and who diversify their business.
What is the HME industry's biggest challenge?
Bachenheimer: Competitive bidding, competitive bidding, competitive bidding. It's obviously not going away in the short term. We've got to grapple with it one way or another.
Bunch: The biggest challenge I see is adopting and embracing change. We have an issue with this in our industry. Many providers treat aged accounts receivable that are uncollectable like their children and never write them off, but pay their personnel to work them regularly, praying for an angel to come down and pay those claims. Change is key.
Neil Caesar: We have tended to complain about proposed change and insist on fighting against it. As a consequence, the industry has established a reputation for being resistant to solutions rather than for being collaborative. Our unwillingness to move away from the payment model put in place 15 years ago has cost us a meaningful voice in Congress.
Hanna: It's a toss-up between the many audits that are occurring and competitive bidding, but I will pick the audits. HME providers are getting hit from all sides, and it's hard to prepare for the attack unless the organization has performed self-audits on their documentation or has hired an independent firm to audit their files.
Seth Johnson: The biggest challenge in 2011 will be managing through the significant documentation requirements and audit activities that are continuing to occur on the government funding side, adjusting to the elimination of the first-month purchase option for standard power wheelchairs and implementation of Round 1 competitive bidding, with the process for Round 2 scheduled to begin later in the year.
Lieber: I see the industry's biggest challenge as a two-part concern: 1) competitive bidding and 2) the audit epidemic. Competitive bidding will make it difficult for most of the industry's providers, particularly the smaller providers, to survive. Contract providers who have the size to leverage/muscle buying power and reach additional economies of scale will remain viable and potentially flourish in the business.
The audit craze will also cost many HME providers their businesses or, minimally, much of their profit. Some have already had to close. Others have invested additional resources in adding audit staff. Being hit from all sides with audit requests has increased costs and expenses, with the only gain being the right to keep their money.
Shelly Prial: There is one major handicap that must be eliminated. It is called "lethargy." Lethargy can be fatal to any business. Now is the time to change.
Cliff Woolard: Working to dispel the negative image that has been attached to our industry. How do we obtain/explain reimbursement for the actual services that we render, rather than for the product we provide? We need to be able to quantify that we are care providers, not equipment jockeys. Until we can effectively make that argument, we will continue to come up short against the payers.
What do you see as the future of the industry?
Caesar: The new reality is still evolving and probably will continue to do so for several years. But it clearly focuses on lower profit margins and higher volume bundling. We may well be heading over the next several years toward a model where full service is available for additional reimbursement to those beneficiaries whose conditions warrant the extra service.
Mary Ellen Conway: I think that we will see Medicaid HMOs in most states and for those who have discretionary income, paying cash for their items because they want them and they don't want to be limited to what Medicare does and doesn't pay for. I anticipate that more and more providers in urban areas will decide to no longer participate with Medicare. I know we will see many manufacturers selling directly to the customer, both for their survival and for the convenience of customers who cannot get those products in their local market.
Hanna: It looks like consolidation and going-out-of-business sales may be in the crystal ball unless we as an industry can band together and get reform legislation moving forward. Only the strong and efficient will survive.
Feuer: Our customer base will continue to grow and our business model may need to be altered. The future will be bright for those with expanded, retail-based creative marketing campaigns and the ability and drive to reach out to new customers.
Colette Weil: The industry will go through another life-threatening shakedown with competitive bidding, audits, paperwork hoops and more. Consolidation of providers, cuts in service, product quality deterioration and reports on providers seem inevitable. Continued losses of good community providers is also inevitable.
Woolard: On the one hand, I see the aging demographic and people's desire to be cared for at home, but I also see that third-party payers are going to be paying less and less for the services we provide.
How will providers have to change to survive?
Bachenheimer: We need to find ways to be more efficient, deliver services more effectively. Obviously, the companies that are doing better are the ones that have been doing this for several years.
Bunch: They will have to collect their accounts receivable and work their denials as soon as they hit the door. If you do not have an AR and collections department on top of things and productivity is not where it should be, you will not survive.
Caesar: Home care suppliers must figure out how to offer value that makes organizations eager to deal with them and to treat them as equals. The only way this will happen is when suppliers or a network of suppliers can make it easier or safer or more marketable for the organizations to work with them or to choose them instead of other options.
Cherney: It is really Marketing 101. Pricing strategies are shifting dramatically, and what needs to shift are products and services, distribution (place) strategies and then promotional strategies. Companies that get these in balance will have a bright future.
Conway: Providers will have to understand that they are a retail business just like those in the shopping malls, and be savvy with marketing, advertising, customer service and social media.
Hanna: Providers need to become more focused on their business and operational practices. By streamlining and increasing efficiencies within their workflow, costs will decrease and will assist in handling the reimbursement cuts associated with competitive bidding. There are some costs involved in becoming efficient, but purchasing technology and providing effective education will lead to fewer errors and decreased denials. Proper training will assist in compliant paperwork completion, which will lead to confidence when an audit request is received.
Lieber: Providers will need to diversify their payer mix. Some have already done so by enhancing their retail presence, and others have taken on more hospice and other contract business. I predict that providers will be left no choice but to obtain and solidify documentation prior to dispensing product. All providers will have to work harder and smarter regardless of their purchasing power. Their market share will likely grow if they market and use their position well. Regardless, many providers will exit the market (by selling or closing) as a result of competitive bidding.
Prial: Being so dependent on third-party reimbursements has prevented too many providers from looking around for other opportunities. Providers should build over-the-counter cash sales, become marketers and aggressively seek new products and ideas. In that fashion, the third-party business can be maintained and the company built around it so that Medicare or Medicaid is not more than 20 percent of annual sales. Really successful providers have all done this.
Weil: For the past three years, we have been seeing the transition and mobilization of businesses. They have decreased their reliance on Medicare and Medicaid, made staff cuts, expanded cash sales riding on reimbursement products, created new service components to commercial business sectors, affiliated with other organizations, built online presences and unrelated online businesses, built retail businesses and migrated to niche businesses. They have analyzed their core competencies, established diverse advisory boards for guidance and moved judiciously into new sectors. They have increased their professional visibility, stature and position in their communities. They are not leaving their businesses to Medicare's definition of who they are.
Woolard: Know your costs and don't settle for anything less than an acceptable margin. You may have a much smaller business and you still may not survive, but why give it away?
Are there some bright spots and, if so, what are they?
Bunch: The number of baby boomers we have today is huge. Someone has to be there to take care of them. Why not you? They tend to upgrade and spend the money for what they want, not just what is medically needed. Use that advance beneficiary notice. Take that cash, check, [payment] by phone, credit card. You don't have to wait 90 days for your money.
Caesar: For those people who know how, or will learn how, to thrive in a market with more competition and lower profit margins, the demand for home care services will continue to grow exponentially. The opportunity for substantial market penetration will be available in many markets for those suppliers who can see the future — and then seize the future.
Conway: Some of the "dead wood" companies that were doing a very poor job are out of the business, making room for providers who are on the ball.
Johnson: I see tremendous opportunity for those who are able to adapt and become even more efficient. With 78 million baby boomers — 8,640 people turning 65 every day — that demographic change alone, which is expected to continue over the next 18 years, brings a tremendous increase in the market for home medical equipment providers.
Lieber: Patients will start to accept the fact that they will have to pay more out of pocket to get what they need/want. Fraudulent suppliers will find it more difficult to participate in the industry. While they won't disappear in total, they will diminish significantly.
