Taking Stock of the Market

In a climate that appears to be hostile to the small home medical equipment provider, there's survival in numbers.

At least, that's what three South Carolina providers are banking on. The three businesses — Adaptive Medical in Spartanburg, ApneaRx in Clemson and Mobile Healthcare in Greenville — were rolled up into the newly formed Southern Home Medical, a publicly held company that, at press time, was set to debut this month. Nearly a dozen more companies are considering joining Southern Home Medical, according to Greg Tucker, owner of Adaptive Medical and president and CEO of the new company.

The hope is that the small providers will have more muscle together than apart. That could be a real boon in terms of services, purchasing power and generating operating capital, not to mention competitive bidding.

“When we got into the HME business in 1994, we knew it would be tough and competitive for a single-location operator,” says Tucker. “But consistently, we've watched as operators like us have always found a way to adjust. My hope is that locally owned stores across the U.S. would continue to do so. In our case, we just feel the odds of success will increase by operating as a public entity.

“It's a way of expanding our core product line. We want to draw on each other's market strengths.”

Seeking Survival

Southern Home Medical grew out of what Tucker calls an “awakening” in early 2005. “Everybody has that moment where they wake up and take notice of Medicare cuts, accreditation, competitive bidding and all of the other issues we have to face, and our awakening was a year-and-a-half ago,” says Tucker.

Concerned that HME providers this time were going to take multiple hits, he began talking to other owners about what they could do to survive.

“The only way that really made sense at the time was for us to be looking at a way to become a publicly traded company,” he says. “This step will allow us to raise operating capital, and it also allows us the ability to merge with or acquire single-location operators looking for a more effective way to grow their business. We're looking for the operators that are passionate about patient care, have a good reputation in their community and have a track record of success in growing a business on their own.”

As a publicly traded company, Southern Home will have a board of directors and a slate of officers. “Our board of directors and officer group will grow from within. In other words, we will work to the strengths of the independent operators that join our team,” Tucker says.

He fully expects that the companies will share their expertise with each other. Tucker's Adaptive Medical is primarily a respiratory company. ApneaRx's specialty is the sleep market, while Mobile Health Care's strong suit is mobility products. By banding together, Tucker says, “we can draw on each other's strengths. And we can become more of a player in the competitive bidding process. Each has different strengths to help us become more successful.”

The new public company, which is based in Spartanburg, also makes possible purchasing discounts, better financing rates and access to more labor, equipment and other resources, as well as the consolidation of billing and payroll functions.

“Most of the administrative functions will be centralized,” says Tucker, “but everything to do with patient care will remain local.”

For Tucker, another benefit is benefits. “As a private company, I'm sad to say that we had no real benefits program. As a public company, we will have the ability to contract with strong teams that will administer our payroll, benefits, 401K, workman's comp, liability insurance, etc.”

Employees will even have stock options, Tucker says. And now, rather than the ceiling for advancement being a single company, employees have the opportunity to advance to corporate positions, he notes.

A Brighter Future

Tucker's enthusiasm for the new company is matched by that of Todd Shriver, president of Mobile Healthcare, and Dennis Nowak, RT, owner of ApneaRx.

Shriver says bluntly that he was afraid his eight-year-old company wouldn't be around in a few years if he didn't take action. “The [durable medical equipment] industry is very volatile right now with all the changes,” says Shriver. “It is inevitable that mom-and-pop-style places really start looking closely at what they can do to stay around. The next two or three years are really critical for small companies. Southern Home Medical gives us a way to really compete that we couldn't do on our own.”

Shriver says his company has grown 40 percent a year for the last eight years. “We've grown from a small office space to the largest showroom in upstate,” he says, noting that Mobile Health has 4,000 square feet of working space, 2,000 of which is dedicated to retail. Some 30 percent of the company's business is retail, and it does a lot of home accessibility work — stair lifts and elevators for both residential and commercial projects. In addition, the company has a large service department that even services equipment for its competitors.

But even with all this, it would have been tough to keep going. The company tried to stay ahead of the curve by becoming accredited and also looked into other ways of growing the business, Shriver says, “but it would have been a slow process. This makes the most sense because it does enable us to have control of our company … It will really quantum leap us faster than we could grow organically.”

Nowak also felt his company's future was shaky in light of the industry's forthcoming changes. ApneaRx is only one-and-a-half years old, but it has come on strong in the sleep market. Still, it is a small business, and Nowak worried about the effects of competitive bidding and how he would afford accreditation.

“It's a great alternative for anyone who is worrying about competitive bidding and other things that are facing us in DME,” he says, adding that under the Southern Home Medical umbrella, “you can purchase better equipment, get better pricing and make a profit at lower charge rates … This is something that's a great opportunity for a small DME dealer who would like to move forward in a larger capacity.”

He recognizes that some providers might think making such a move means giving up control, but he doesn't see it that way. “There's a chance I wouldn't be in business if I didn't do it. You don't know if you would have the opportunity of selling to a Lincare or an Apria. This moves me onto a bigger platform. As we grow, it will give us all more opportunities.”

Besides, he says, Southern Home's goal is to allow everyone some input into the system. For example, with his expertise in sleep, the company could someday move into operating sleep labs. Since Shriver's company has gone through the accreditation process, Nowak can tap into Mobile Health's expertise in that area. And the new company might also take advantage of Mobile Health's service department.

Another thing Nowak likes is that his company will retain its identity as ApneaRx. “We want people to know that we aren't doing sleep as a sideline,” he says.

Indeed, the Southern Home Medical moniker will not automatically appear on every company within the entity. “In most cases, the names of each individual company will remain the same in order to tap into the brand recognition that has already been built,” says Tucker.

One of the other pluses for its companies, he says, is that each one's core business model will be evaluated to see if specialists need to be added to the labor mix or if the product mix needs to be diversified. “Southern Home may give them leverage in areas where they may not have any,” Tucker notes.

Tucker says he fully expects the company to change, even to the point where he is not its head. “You may not see me as the president of this company for long,” he speculates. “If I am still the president 12 to 18 months from now, we haven't done what we needed to do. There are strong leaders out there with a knowledge base and level of experience that far exceeds mine.”

Where the future once looked grim to Tucker, it now looks bright. “If you've been doing this 12 years, it's very easy to get complacent and it's easy to drop into a routine. The act of taking our operation public has snapped us out of that and has quickly put us on the track for growth. For the first time in quite a while, there's an excitement in the air.”

Company Snapshot

Southern Home Medical

• New publicly held home medical equipment company based in Spartanburg, S.C.

• An initial roll-up of three small HME businesses including Adaptive Medical in Spartanburg, ApneaRx in Clemson and Mobile Healthcare in Greenville

• Ticker symbol: SHMM