The turbulent legislative and regulatory issues that sent home medical equipment providers on a screaming roller-coaster ride this year apparently haven't affected their buying plans. According to the results of HomeCare's annual reader survey, HME/DME dealers are forging ahead to 2004 with intentions to buy products in a pattern that has changed little over the past several years.
Manual wheelchairs remain in the No. 1 spot on providers' product shopping list, followed by ambulatory aids and nebulizers, bath safety products and beds and mattresses. But for the first time, power wheelchairs broke into the list's Top 10 territory, reflecting a general increase in consumer awareness of — and demand for — the products that can improve their daily lives.
In fact, providers told us they expect power wheelchairs to be their fastest-growing mobility product next year — edging out manual wheelchairs by a small margin — and to account for their second-largest revenue gain, behind only respiratory products. This is in spite of “Operation Wheeler Dealer,” an initiative by the Centers for Medicare and Medicaid Services aimed at curbing fraud and abuse of the Medicare power wheelchair benefit. Of course, at the time of the survey, providers had yet to feel the full impact of the CMS action.
In the respiratory segment, a growing, educated patient base also is driving the market in sleep disorders. A whopping 84 percent of the respondents who are involved in the respiratory market say they sell sleep disorder therapy equipment. Continuous positive airway pressure (CPAP) and bi-level devices, on 59 percent of respondents' purchase intention lists for next year, edged out oxygen concentrators.
However, as the incidence of asthma and chronic obstructive pulmonary disease (COPD) continues to rise, nebulizers will be providers' top respiratory purchase overall.
Providers are maintaining strong buying strategies as well despite a slate of business challenges, headed, they say, by the prospect of competitive bidding, reimbursement cuts, local competition and consumer-direct selling by manufacturers. It must be noted that information for the survey was gathered before Congress passed Medicare reform legislation in late November that turned some of these threats real.
Nevertheless, in true entrepreneurial fashion, the industry's providers are preparing to deal with the tough environment as they plot business maneuvers for 2004. On the positive side of the ledger, they cite the aging population, the growing popularity of home health care, more referrals and increasing sales, improved technology and better products — and consolidation or closing of competitors.
More than 75 percent of survey participants said they expect their company's revenue to increase in 2004. Their plans to beef up the bottom line range from the inevitable cost-cutting to improving efficiency, stepping up marketing, expanding product lines or exiting those that are unprofitable and giving better service. Twenty-seven (27) percent said they plan on enlarging their showrooms or adding locations.
Whatever their strategies, it's evident that the majority of providers responding to the survey are determined to stick around — and to make a profit.
Consolidation as a Fact of Life
Providers participating in this year's survey pegged consolidation as having the greatest impact on their business in 2003 — as long as it was not their business that was being consolidated. According to these providers, consolidation of their competitors, along with their own company's acquisitions and consolidation of internal processes helped their business.
Other positive developments were the growth of the sleep disorder arena, the implementation of new or more aggressive marketing plans and the increased number of people who need, or simply know about, home medical equipment.
On the flip side of the coin, the picture is all too familiar. Survey respondents overwhelmingly identified reimbursement cuts, the Health Insurance Portability and Accountability Act and overregulation as the Holy Trinity of negative forces affecting their company last year. And, they say, you can add to those issues increased operating expenses, overloaded staff and dirty-dealing competitors.
Perhaps in response to the threat of competitive bidding (a reality as of Nov. 25) and other cuts to reimbursement for products and services, or perhaps in response to failed cost-cutting measures over the last couple of years, more providers — 92 percent versus 78 percent — say they intend to cut costs in 2004 than in 2003.
More than half (55 percent) say they will do so by buying products from fewer vendors, while 47 percent plan to buy products in bulk. Thirty-nine (39) percent will buy products through wholesale distributors, and about a third will buy cheaper products or buy products less frequently. A quarter of survey respondents say they will cut costs in 2004 by offering fewer products or by increasing computerization.
However, providers still shy away from cutting staff (14 percent), freezing salaries (11 percent) or cutting services (7 percent).
Looking for Profits
Although the majority of respondents still expect their company's earnings to increase, the number of providers optimistic about revenue growth has fallen to 75 percent from 85 percent in our last survey. Another 16 percent predict their revenue will stay the same, and 6 percent expect their company's income to decrease.
Of those providers who are looking for an increase in revenue, a quarter expect to realize growth of 6 percent to 10 percent.
What product areas will help providers' revenue grow? Respiratory tops the list, with 44 percent of survey respondents choosing this sector as the market that will account for their company's largest revenue growth in 2004. Next is power wheelchairs, chosen by 18 percent of providers, followed by sleep disorders (11 percent), scooters (9 percent), diabetes (8 percent) and manual wheelchairs (8 percent).
Eighty-four (84) percent of survey respondents say they will buy these products direct from manufacturers in 2004. A little more than half (54 percent) will buy products through distributors, and 38 percent will purchase through a buying group. Surprisingly, only 13 percent plan to buy products online.
When it comes to getting paid, Medicare and Medicaid remain the top payer sources for the providers who responded to our survey, making up 40 percent and 17 percent of their revenue, respectively.
Industry consultants who have been pushing providers to diversify their payer sources will be pleased to see that those numbers have come down slightly. In last year's survey, 43 percent of providers' revenue came from Medicare reimbursements and 18 percent came from Medicaid reimbursements.
The decrease in Medicare and Medicaid business appears to have been funneled into cash sales, which increased three percentage points, from 12 percent of revenue to 15 percent. And this trend may continue. Forty-four (44) percent of providers surveyed say they plan to increase their sales of over-the-counter products in 2004.
Survival Plans from the Fittest
An indication of just how resilient HME providers are comes from response to a question about their plans for survival through the industry's current changes. Though 49 percent of respondents felt they would be forced to change their present operations (another 35 percent said they were unsure about any changes yet), providers overwhelmingly said they are prepared to do so. And, they gave us a number of answers about how.
In tandem with cost-cutting measures, providers said business expansion and more aggressive marketing will play a role in survival, as growing revenue covers many problems. HME/DME dealers also plan to diversify their businesses through a variety of ways: the addition of product lines and services; joint ventures and partnerships that offer competitive advantage; development of more walk-in, over-the-counter sales and exploration into areas that don't require third-party reimbursement.
Many providers also mentioned plans to increase service, both to patients and to referral sources. To improve the day-to-day workings of their companies, providers said their tactics will include better housekeeping methods intended to streamline operations and boost productivity and efficiency. They intend to offer more and better training for staff; increase automation and make more use of technology; keep a close eye on billing procedures; tighten control on referrals; and institute better ordering and inventory systems and processes. Where buying is concerned, some said they would be looking to manufacturers for better pricing.
One significant attitude adjustment providers shared with HomeCare: Many said they plan to stay more aware of, get more involved with and be more vocal about legislation that shapes this industry. Providers stated they intend to let Congress and local legislatures know how they feel about the measures that affect their businesses — and their patients.
One savvy provider wrote that he now plans to “stay ahead of the curve” by making any necessary changes before he is forced to. Another said he plans a “constant reevaluation of goals and strategies” to respond to any new changes. Still another explained that he will keep his company “updated, flexible and responsible to the ever-changing environment.” To sum it all up, one provider stated that he plans simply to “change with the changes.”
All told, it sounds like the industry's providers won't be content just to survive. Instead, they will continue to strive to give the best service, run the best companies — and be the best in the business.
To purchase a complete copy of the 2004 Forecast Survey, visit our Web site at www.homecaremag.com.
For the Record: Questionnaires for HomeCare's 2004 Forecast Survey were mailed on Aug. 26, 2003, and responses were accepted through September. Survey methodology conforms to all accepted research methods and procedures. Percentages are based on responses from 354 companies. Not all respondents answered every question, and some totals may add to more than 100 percent due to multiple responses.
2004 Product Shopping List
| 1. Manual wheelchairs | 76.0% |
| 2. (Tie) Ambulatory aids | 73.7% |
| (Tie) Nebulizers | 73.7% |
| 4. Bath safety products | 73.4% |
| 5. Beds/mattresses/pads | 73.2% |
| 6. Lift chairs | 62.7% |
| 7. Patient lifts | 62.1% |
| 8. CPAP/bi-level devices | 59.0% |
| 9. Oxygen concentrators | 57.3% |
| 10. Power wheelchairs | 56.5% |
| 11. (Tie) Incontinence | 56.2% |
| (Tie) Portable oxygen systems | 56.2% |
| 13. Scooters | 54.5% |
| 14. Oxygen conserving devices | 51.7% |
| 15. Orthopedic soft goods | 51.4% |
| 16. Compressed gas regulators | 50.0% |
| 17. Support surfaces | 49.7% |
| 18. Diabetes products | 48.6% |
| 19. Seating and positioning | 47.7% |
| 20. Scooter/wheelchair lifts | 46.3% |
| 21. Pulse oximeters | 44.1% |
| 22. Sleep disorder treatment products | 43.8% |
| 23. Wound care/pressure sore prevention products | 43.5% |
| 24. Bariatrics products | 41.8% |
| 25. Ramps | 41.2% |
| 26. Urological/ostomy | 40.7% |
| 27. Home nutrition | 39.8% |
| 28. Hot and cold therapy | 38.4% |
| 29. Skin care products | 34.5% |
| 30. Orthotics/prosthetics | 33.3% |
| 31. Pediatric mobility | 30.2% |
| 32. Liquid oxygen systems | 28.8% |
| 33. Pediatric respiratory | 28.2% |
| 34. Sports medicine and physical therapy products | 24.6% |
| 35. Sleep diagnostic products | 24.0% |
| Respiratory | 44.1% |
|---|---|
| Power wheelchairs | 17.8% |
| Sleep disorders | 11.0% |
| Scooters | 8.5% |
| Diabetes | 8.2% |
| Manual wheelchairs | 7.6% |
| Orthopedics | 5.9% |
| Beds/mattresses | 5.6% |
| Seating/positioning | 5.1% |
| Bath safety | 4.2% |
| Women's health | 2.8% |
| Pediatrics | 2.3% |
What measures are you taking to survive the industry's current changes?
In answering this survey question, more than 200 individual providers shared their thoughts. Following is a representative sample of the responses providers gave in their own words.
“Accreditation”
“Aggressively marketing to expand local share”
“Any and all forms of education and training”
“Automate paper flow and procedures”
“Being aware of legislative issues and voicing opinion”
“Build customer base”
“Bulk purchasing”
“Buy better, cut overhead”
“Constantly reevaluate our goals and strategies”
“Cost cutting”
“Cut non-profitable lines and look for new niches”
“Diversification”
“Elimination of certain product lines”“Expanding product lines”
“Expanding geographically”
“Expanding into new areas of service”
“Exploring areas that don't require third-party reimbursement”
“Forcing manufacturers to give us better pricing”
“Good customer service”
“Increased efficiency”
“Increased productivity”
“Keeping our company updated, flexible and responsible to the ever-changing environment”
“Keeping our unsurpassed service, our low prices and staying in touch with the changes”
“Learning to go with the flow”
“More cash sales”
“Much tighter controls on intake of referrals”
“No more Medicare, Medicaid”
“Reduce inventory levels, cut back on companies we order from, find cheaper product, improve customer service, step up marketing efforts and build stronger relationships with customers and referral sources — be better than the competition”
“Stay ahead of the curve and make changes before we are forced to”
“Streamlining billing, staying on top of referral sources”
“Using technology”
“Work harder and work smarter!”
Is your company currently accredited?
Although some said accreditation had a positive impact on their business, and others said they would investigate accreditation as a way to improve their companies, the majority of providers participating in our survey — 60 percent — remain unaccredited. Of those, at the time of the survey, only 22.5 percent said they planned on becoming accredited in 2004. However, because of mandatory accreditation that Congress included in Medicare reform legislation, these numbers may change over the next few years for HME providers who contract with Medicare to provide products. At present, according to survey results, the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) remains the dominant accrediting organization in HME, especially among larger providers, followed by the Community Health Accreditation Program (CHAP) and the Accreditation Commission for Health Care (ACHC).
Respondent Profile
| Home medical equipment provider | 83.6% |
| Pharmacy/chain drugstore with HME | 9.3% |
| Specialty home care (e.g. home IV, pediatrics) | 4.8% |
| Other | 2.3% |
| Less than $1 million | 33.3% |
| $1-$2.99 million | 28.2% |
| $3-$9.99 million | 14.1% |
| $10 million or more | 16.7% |
| Competitive bidding | 58.8% |
| Government reimbursement cuts | 56.5% |
| Local HME competition | 26.3% |
| Manufacturers selling directly to consumers | 26.0% |
| Managed care contracting | 24.9% |
| Keeping up with legislation/regulations | 23.4% |
| Compliance | 23.2% |
| Hospital-based HME competition | 22.6% |
| Paperwork/administrative activities | 22.3% |
| Staff issues (training, retention, etc.) | 22.0% |
| HIPAA | 20.9% |
| Mail order/web-direct HME sales | 20.3% |
| National HME competition | 15.0% |
| Retail pharmacy with HME | 7.1% |
| Quality patient care/services | 6.2% |
| Concentrating buying with fewer vendors | 54.8% |
| Buying in bulk | 46.9% |
| Buying through wholesale distributors | 39.3% |
| Buying cheaper products | 33.3% |
| Buying products less frequently | 31.1% |
| Cutting product selection | 25.1% |
| Increasing computertization | 24.6% |
| Cutting staff | 13.8% |
| Freezing salaries | 10.5% |
| Not cutting costs at present | 7.6% |
| Cutting services | 6.5% |
