It's tough to find a good-news story in the home medical equipment sector these days. Burdened by the threat of competitive bidding and legislative cuts, surety bond and accreditation mandates, the 36-month oxygen cap and nosediving reimbursement, most providers are simply trying to stay alive.
But in Norcross, Ga., a five-year-old, single-location HME called Extrakare is thriving with a growth rate of 50 percent each year and revenue that jumped from $493,371 in 2005 to $4.6 million in 2008. That growth — 834.6 percent, to be exact — earned Extrakare a place on the elite Inc. 500 list, where the company ranks as the 271st fastest-growing private business in America, the 25th fastest-growing private health care business in America and the eighth fastest-growing private business in Atlanta.
What's Extrakare's secret?
“We don't do anything that is particularly unique,” says company President Scott Lloyd, who partnered with Kevin Godwin to open the business in 2004.
Don't you believe it.
Lloyd and Godwin, who were colleagues at a top audio-visual integration firm and who both have business degrees — Lloyd an MBA from Emory University's Goizueta Business School and Godwin a BBA in management from Georgia State University — intentionally set out to build an HME company on a firm foundation of professionalism and productivity.
The Right Plan
You might say that Extrakare came about because Lloyd and Godwin were tired. The two traveled a lot on business, which became both wearing and wearying.
“We were looking for something to do where we could sleep in our own beds at night,” Lloyd says.
A mutual friend had an oxygen business in Florida and, over the years, he had often remarked how much he enjoyed the business. “You guys should really be in this,” he'd tell Lloyd and Godwin. Finally, early in 2004, the pair traveled to Florida to visit their friend and take a look at his oxygen business. That's all it took for them to start researching the industry, which evolved into a business plan and a mission “to deliver superior patient care in a home setting.
“We really set out to create an oxygen company solely designed around non-delivery technology,” Lloyd says. “We built it around Invacare's HomeFill, which was the only mainstream product [of its kind] at the time …
“The decision we made about non-delivery technology was not tied to reimbursement because there was complete reimbursement neutrality [then] and there were not, at least to us, any indications that was likely to change. It seemed to us that, in a reimbursement-neutral world, it would, over the long run, be a more profitable model.
“I think we partly guessed right up to this point in time,” Lloyd continues. “We feel like having a non-delivery model allows us to grow faster than we otherwise would be able to because it simply requires less human resources.”
In addition, he notes, “There has been a lot of genuine demand for some of the new oxygen technologies … both from patients and referral sources.”
So Lloyd and Godwin invested heavily in the in-home transfilling machines.
“As it turns out, in the Medicare world [there is] additional reimbursement if you are using [oxygen generating portable equipment],” Lloyd says. “Everything we have seen seems to preserve that OGPE technology. And that I would categorize as dumb luck.”
There was, and is, some definite business strategy propelling Extrakare forward, however. First, the two owners hired employees with expertise in the industry — the company now has 33 employees — and they put together a very complete business plan.
“We think that business success is tied to performing the right activities,” Lloyd explains. “If you do the right thing, the right results will present themselves. We stay very focused on the individual activities of everybody in the business — the salesperson, intake, the clinician. We know that if you do ABC that is likely to yield D if you have the right plan.”
Theirs is a disciplined operating model, Lloyd says. “Our model includes lots of things — a range of financial benchmarks that we attempt to achieve, some of which we budget to achieve in the current year, some of which we hold as goals. We budget on intake numbers,” he explains. “We know that X percent of our oxygen patients are going to decede in a month and if you don't take in any new patients, you're going to have a pretty good indication what your population is going to go down to.”
You also know how many new patients you must bring in to continue to grow, he adds. Toward that end, his sales force works five days a week and each person has a defined territory and referral sources to call on.
The sales staff delivers what Lloyd calls “a very product-centric marketing message. We talk a lot about non-delivery technology. We provide other technology when that is requested by the patient or physician, but if there is a way to get them into a non-delivery product, that's what we are going to do.”
At the heart of it all, though, is patient care.
“There is acceptable and unacceptable service. You're either good enough or you aren't,” Lloyd says bluntly. “We spend a lot of time talking about the product we are going to provide and how the patient will benefit.”
Extrakare's growth is one person at a time, Lloyd says. “We don't have big contracts. We earn our referrals one referral at a time,” he says.
But Lloyd and Godwin have also held a tight rein on product growth. For the first two years, Extrakare specialized in oxygen, with the goal of becoming a major player in the Atlanta market. “Then, about two years into the operation of the business, we became attracted to sleep and recognized that as being a complementary business to the oxygen business.
“We spent some period of time putting together a program where we had all the pieces in place to successfully be in that business,” Lloyd says.
Here again, the management duo opted to go with “innovative, patient-friendly products” like auto-titrating PAP devices as the standard of care.
“We've always taken a premium-product strategy where we offer what we believe are best-in-class products, including offering auto-titrating products if they are prescribed. We think that, plus our follow-up program during the compliance period and our resupply program that we rolled out [in 2008] has paid off with recent growth in sleep,” Lloyd notes.
The sleep component was added in 2007, and while the oxygen business still exceeds sleep and is growing, Lloyd expects the company's sleep segment to outpace its oxygen business by next year.
Although Extrakare carries basic HME as an accommodation for its referral sources, Lloyd says he and Godwin are resisting adding other lines and, so far, other branches.
“We think that part of being successful and growing is to stay pretty focused,” he says. “We already juggle two balls right now.” Operating from a single location controls costs and communications. And, he points out, there is room to grow in both the oxygen and sleep sectors. There are 5.1 million people in his metro Atlanta coverage area, Lloyd says, and Extrakare still holds only a single-digit percentage of the market.
“There is considerable runway ahead of us. We can go a long way,” he says.
Ready for the Future
Don't be fooled by that sense of optimism — Lloyd and Godwin aren't looking through rose-colored glasses. They know the challenges they'll face as they move ahead.
“There's a lot of stuff going on, and there are consequences and most of them are not trivial,” Lloyd says, remarking on such industry concerns as prepayment audit programs. “But those of us who are in the business believe that some of it is good. To the extent that [regulators] are legitimately weeding out fraud and keeping the bad guys out of the business, they have improved the legitimacy of the industry.”
Still, there are some giant hurdles ahead for HME providers.
“Unquestionably, the biggest challenge is the specter of competitive bidding,” Lloyd says, adding that Extrakare will be bidding for the Atlanta area respiratory business in Round 2.
“We can make every right business decision and [then] guess the wrong [bid] price, and that would have a huge impact.”
Some 50 percent of Extrakare's business is Medicare, he says, adding, “You've got to be doing Medicare. I suppose you could have a sleep-only business that didn't do Medicare or a pediatric business that relied only on Medicaid.
“But if your goal is to have a significant oxygen business, then you better be doing Medicare and you need to figure out how to do that in a profitable way.
“At the end of the day,” Lloyd believes, “success is going to be about operations. Nobody is saying, ‘We don't want to pay for oxygen.’ They are saying they don't want to pay what they have been paying.”
Providers need to support positive legislation, such as the Meek bill (H.R. 3790), which would eliminate competitive bidding, “but after all that's done,” Lloyd says, “we need to adjust our operations and manage them in a way that the business is profitable. We have a lot of assets, and it is our job to see that they are revenue-producing assets.”
While he wants competitive bidding to be eliminated and is working with his legislators to make that happen, “I wouldn't be the person to bet that it would go away,” Lloyd says.
Consequently, right now “we're running our business in a way that we expect we'd have to [under competitive bidding],” he says.
At the same time, Lloyd doesn't expect Extrakare's 50 percent growth rate to continue. The blueprint for the future, he says, calls for the company to “triple our market share in Atlanta. I don't know what the revenue will look like because the reimbursement will be dropping. We think it will take us eight to 10 years to do that because we aren't going to be growing at the same rate.
“Our goal would be a 20 percent average annual growth rate.”
He recognizes that regulatory and legislative mandates could impede Extrakare's plan, and he's particularly wary of the Senate's health care reform proposition to tax medical device manufacturers.
Acknowledging the oxygen non-delivery model requires a large upfront investment, he says the company has only been able to handle that through vendor financing programs. “Our business to a large degree is dependent on manufacturers' financing plans,” he says. “If they have losses in financing, that is going to impact our ability to grow.”
Consequently, Extrakare has developed a contingency plan. “We're not talking about it because we don't want everyone to have our contingency plan,” Lloyd says frankly. But he believes every company should design a plan of its own so it has options for staying in business.
“We think the future looks good,” Lloyd says. “Our feeling is that there is a solid base of demand for the products we provide, and we expect that to grow. So what it really comes down to is that reimbursement levels will be set and it will be up to us in the industry to figure out how to operate in a way that it will be profitable.
"We're very optimistic about the business," he continues. "I like it. It's a joy coming to work most days."
And sleeping in his own bed at night.
- Read the "Extrakare's Keys to Success" sidebar to learn what Scott Lloyd's seven "must-dos" are for a successful company.
Extrakare's Keys to Success
Scott Lloyd, president of Norcross, Ga.-based Extrakare, believes a successful company operates on several "must-dos:"
Develop a Plan B. It's a "don't put all your eggs in one basket" notion that allows options if the industry reimbursement picture doesn't work out under your company's Plan A.
Make sure you have a business plan. "We have a very extensive, detailed business plan," Lloyd says. "It is reviewed annually, revised annually. It is beyond a budget."
Take care of employees. While that can be done in many ways (through financial awards, recognition, flex time, etc.), Lloyd believes that paying attention to staff is crucial. "With all the pressures on businesses right now, lots of things can have a negative effect," he says. "Taking care of your employees is very, very important."
Employees need a division of duties so each person can become an expert in his or her area of responsibility.
Share information with your employees. "We have monthly all-hands meetings where everybody gets together," Lloyd says. "We share a lot of very detailed financial information, and I believe that helps employees understand what you are trying to accomplish with the business. It's easier to rally them around your objectives and goals and it is easier for them to understand what an impact they have on the business.
"We talk about revenue numbers, collections, cash flow, negative or positive, net census numbers, comparisons to prior year, to budget, etc. I think employees at all levels are smarter than managers think they are and can understand more than the managers think they can."
