In a climate so hostile it is literally killing off home medical equipment providers, Rich Lerner is weatherizing his company so that at the end of the day, Allcare Medical is still standing.
It's the biggest challenge of his nearly 25 years in HME, he says, but Lerner is determined that his four-branch company, based in Sayreville, N.J., will survive the firestorm that includes DMEPOS competitive bidding, crippling audits, diminished reimbursement, increased red tape and a floundering economy.
"Our philosophy first and foremost is to provide excellence in care for our patients, at the same time being fiscally responsible so at the end of the day, when the smoke clears and the dust settles, Allcare will be one of the companies that is surviving," he says.
How is he fortifying Allcare for the future? Think reinvention.
Not His Father's HME
If there is one thing of which Lerner is certain, it is that the future of HME will look very little like its past — or even the present.
"I started in the business in 1987 in my father's drug store," Lerner recalls. "He had a small convalescent aid section. Mostly, he did fittings. He never accepted assignment, never got involved in billing insurance companies or Medicare. He was the community pharmacist."
When Lerner began attending seminars and Medtrade, he saw the possible scope of HME. "We started to do what we had to do to grow it," he says. "This was really pre-managed care. In New Jersey, it was in the early '90s when managed care started coming into our market."
Under Lerner, the little pharmacy began aggressively pursuing managed care contracts and marketing the Medicare part of the business. Then, in 1993, his dad decided to retire.
"With me not being a pharmacist, we sold the pharmacy to a chain," Lerner says. Committed to HME, he moved to a new location and became president of a small 1,500-sq.-ft. operation with four employees.
Two years later, Lerner's company purchased Allcare Surgical and expanded to the northern half of New Jersey. In 2003, Lerner opened a distribution center outside of Philadelphia to cover the southern part of the market, which allowed him to garner even more managed care contracts.
Today, his company does $25 million in revenue, much of which is from managed care and subacute facilities. Medicare comprises about 20 percent of the business, as does Medicaid.
"That is really important regarding competitive bidding," Lerner says. "In a worst-case scenario, we lose the Medicare business, but we would still be able to survive, though in a smaller capacity, and we would have to reinvent ourselves."
Actually, Allcare is reinventing itself anyway, Lerner says. Round 2 of competitive bidding is looming and the company will be in it.
"At this point, it is a big unknown for us in Round 2," he says. "What we do know is that if you're a winner, the rates are not going to be pretty. We have an idea where they are going to have to fall, and that is pretty scary. Many of the other payers will probably follow suit, so our rates will tumble accordingly."
Then there are the audits.
"The audits are becoming more cumbersome," he says. "It's getting more difficult to get paid. You put out a product in good faith, then you have to wait to get paid, and if you do get paid, there are recoupments."
No, the business is not like it used to be.
"We DME owners have to look very closely at the efficiencies of our operations and we have to operate lean and mean," Lerner says. "Only those who are very efficient are going to survive. We are re-evaluating our efficiencies, looking at our organization under a microscope." Recently, he hired a consultant to examine his operation from intake to cash posting.
"If we aren't efficient now, it is going to be too late when competitive bidding comes to town," Lerner says. "We are also looking at product mix."
What's In, What's Out
While Allcare has two retail stores, Lerner is fairly certain no more are in the offing.
"The retail operations have actually diminished for us," he says. "We feel the reason for it is the Internet. Years ago, before the Internet, people had to come into a retail store for an item."
Not so anymore. But while retail doesn't work so well for Allcare, two other niches do.
"We are one of the largest hospice providers, and the hospice market is growing," Lerner says, noting that hospice comprises another 20 percent of Allcare's current business. He likes that it's a clean operation.
"There is no competitive bidding, no paperwork requirements, no audits, no recoupment and you're paid pretty quickly. You don't ever have to worry about an audit or a recoupment or that the doctor won't provide the appropriate documentation," Lerner says. "It's really helped to infuse our cash flow."
It has also boosted Allcare's name in the medical community, since many of the hospices are associated with hospitals. "It leads into other opportunities for us," Lerner says.
Allcare has also entered another niche market: orthotics and prosthetics.
"The reimbursements are higher and the paperwork requirements are less burdensome than your standard DME items, so it is an easier business and a more profitable business," Lerner says.
Another big chunk of Allcare's business is complex rehab. "It is very complicated, very labor intensive, but over the years it has helped us get managed care contracts and referrals," Lerner says. "Also, Group 3 power wheelchairs are not part of competitive bidding, and we do a lot of high-end [wheelchairs]."
To support that clinical side of the business, nine years ago Lerner hired his sister-in-law, Karen Lerner, RN, ATP, CWS.
"Her role in operations as a clinician has been very unique to Allcare, and the services that we provide through Karen give us an exposure in the community," Rich Lerner says.
Karen Lerner, who started off developing Allcare's support surface business, is now the company's director of clinical education, working to educate fellow clinicians on solutions for their patients.
"We are viewed as a clinical resource, not an equipment deliverer," she says. "I'd say that we help our referral sources really provide individualized product lines for the end-users. We can provide a dozen different cushions, 13 different positioning backs. The challenge is doing that in a profitable manner."
That's not only challenging but extremely challenging, Karen Lerner says.
"Our instinct is to continue to help the patient stay safe and healthy even if it means several trips and doing minor adjustments and repairs on owned equipment," she says.
"But as margins are reduced to zero, we have to stop providing many of our added-value services that we used to not think about twice. As a patient advocate and clinician, that is what I hate most about the looming competitive bidding environment."
"When we feel we can't provide a particular product, [Karen] will go out because she is a product expert and really try to educate referral sources about an affordable equivalent that is also adequate for the patient," Rich Lerner says.
"We can't just say, 'whatever you want.' We can't do it anymore. That business model will no longer work."
In the Public Eye
It is that concern about patients and his ability to run a business committed to excellence that catapulted Rich Lerner into political activism. Long a member of the Jersey Association of Medical Equipment Services and the American Association for Homecare, Lerner believes he has no choice but to campaign for his rights those of his patients.
"Each of us as an owner is obligated to be involved at a grassroots level," he says. "This is our livelihood. It is government making these poor decisions. You can't expect one lobbyist going to Congress to change anything."
It is important to impress upon legislators how their decisions "are going to affect jobs in their districts and result in poor patient care and access," he continues. "If you ignore that now, it is your own fault when these laws get passed."
He is well aware of the HME community's wretched reputation with regulators. "Our leaders look at us as complainers, that we were overpaid for years and there has been fraud and abuse, and they really want to wipe out the industry and start all over," he says. "They really have no idea what we do."
Lerner says he could not just sit back and accept that regulatory outlook. "We are clinically strong and we are patient advocates and we are advocates for our employees. To turn our head is not an option for me," he says.
So when Allcare was invited to testify before a House of Representatives committee on competitive bidding in September, "we were delighted," Lerner says. He asked Karen to make the presentation.
"He said, 'You're going to testify before Congress' and I just laughed and said, 'Yeah, right,'" Karen Lerner recalls, noting that JAMES and AAHomecare helped prepare her for the experience. "It was fun. It was like studying for a college exam, and the final was an oral," she says.
"My job was to bring it down to the level of impact on the patient. Being an RN, I think I was able to do that."
But when she concluded, there was only a single question, and her response was interrupted mid-sentence. The hearing organizers, she says, were just "being polite by having our side represented by one person."
Still, Allcare's education of its patients, referral sources and legislators continues.
"We will continue to provide the best care we can, support our patients and our referral sources in the community, but in a new time and with a new business model," Rich Lerner says. "It certainly will be a totally different industry than we see today. As soon as Round 2 rolls out, the majority of providers will not be around."
He doesn't intend to fall into that majority. "Those who are preparing their businesses now, who are one step ahead — that is very important," Lerner stresses, "because once you fall into the hole, it is going to be one big hole to climb out of.
"You have to restructure your business while you can."
Keeping Allcare Medical Sound and Around
Allcare Medical owner Rich Lerner is a hands-on kind of guy who believes the following practices will help the company survive in the HME business:
- Run an efficient operation that's "lean and mean."
- Re-evaluate your payer and product mix.
- Hold each employee accountable to produce or to meet his or her goals.
- Keep your accounts receivable under control. Focus on days sales outstanding; continue to reduce it, and set goals to keep reducing it. "You have to have the cash flow," Lerner emphasizes. "Keeping on top of your A/R and DSO is very, very important."
- Don't be afraid to look outside your operation for help. "There are experts out there that can sometimes look at your business and see what you don't see," says Lerner.
- Be open to feedback from your own management. Lerner says he often asks his team what they would do to run the business more efficiently and more profitably.
"It takes a village. I need their buy-in," he says, adding that he gets good ideas from his employees and often uses their suggestions. "The worst thing to do is to come to work and feel you don't have a voice, to see problems and to feel that no one listens to you," he says. "You want to know you're listened to, valued."
