The question a lot of home medical equipment providers are asking these days is, "Is there life without Medicare?" Gerald Choate has an answer: Yes.
The owner of Tulsa, Okla.-based Sooner Mobility & Rental gave up the Medicare slice of his pie two years ago and, instead, beefed up his retail sector. He has not regretted it.
"When we stopped taking Medicare, we had a fairly good, diverse mix between retail sales, repairs and third-party payers," Choate says. "Medicare was about 12 percent. We didn't want to lose that 12 percent, but neither could we justify all the expenses and headaches to get that 12 percent."
So Sooner got out of the Medicare business and, Choate says, took back control of its future. It wasn't necessarily painless nor was it without expense. It may not be for everyone, but for Sooner, it was the right move.
"We were apprehensive at losing 12 percent of sales overnight, and it wasn't easy for us to tell the first few customers we can't provide what you want," Choate says. "It wasn't an easy transition, but it was a necessary transition."
Goodbye, Medicare
Choate doesn't claim to be a visionary or to have a crystal ball. He just got tired of dealing with the extreme vagaries of Medicare reimbursement, its constant snarl of red tape, declining reimbursement and the threat of competitive bidding.
"There was no specific instance," he says about the trigger to dispense with Medicare. "We've always had a pretty good showroom. When it came time to renew our Medicare contract, we looked at the reductions in reimbursement, the scrutiny of claims, competitive bidding — it made sense to me to look at another [model] that was not dependent on a single-payer source, especially not Medicare. A provider should not have to jump through hoops like that to get paid."
Expanding the retail showroom seemed to be the answer. After all, Sooner Mobility has been a fixture in a sizeable Tulsa shopping center near one of the city's major intersections for about 18 years.
"Sixty thousand cars a day pass by," says Choate, who has owned the company for 11 years.
It had the showroom, it had the traffic, it had just under a dozen longtime employees. With an investment and some adjustments, Choate decided, he could walk away from Medicare and concentrate on retail.
"We had to do a couple of things [before dropping Medicare]," Choate says. "We had to improve our internal processes so we were operating as efficiently as possible."
That meant talking to vendors to see if they could cut prices and finding ways to save on utility rates and phone service. "Everything we could negotiate to get a better price, we did," Choate says. "Some of that involved buying in quantity. Controlling the cost of goods is very important in retail. You have to keep the price of goods where you are making a profit, but you are competitive."
In addition, he said, "We tried to decide what we could do to make us more marketable."
The Sooner Mobility team identified expanding the showroom, inventory and training the entire staff to be more retail-focused as marketability keys. Choate grew his retail space to 2,800 square feet. He filled it with options for his customers: 40 rollators in eight different colors, 12 to 15 lift chairs, a full line of scooters and a vast assortment of bath safety products and aids to daily living.
In essence, he doubled the amount of inventory.
"None of that is inexpensive," Choate says. "But we felt it was important to do so that customers think they have shopped and they have seen all the options."
He believes in keeping in stock the things people want and need. So he carries crutch tips, for example.
"Someone might have been to your store for a 50-cent crutch tip. That could be the most effective advertising you've ever done because you provided what they needed," Choate says. "They'll remember you when they need a $5,000 power chair."
He also ramped up his repair business and now employs two-full-time technicians to do repairs — not only for his own customers, but also for customers of other businesses in Tulsa.
In addition, Choate increased his stock of rental equipment for cash customers who wanted short-term rentals, such as wheelchairs, hospital beds and scooters.
"I actually rent short-term. People do like the idea of renting before they purchase. We do allow them the option to rent or purchase, and we will apply some or all of that rental to the purchase price," Choate says.
He chose one person to answer the phone, "the person that absolutely comes across as the most knowledgeable and friendly," Choate says. "The customer can't see your showroom, can't see you, can't see your prices — all they know is do you sound knowledgeable and helpful."
Then, Sooner employees began telling customers about the impending transition.
"We began telling them we were no longer going to accept Medicare unless there are changes," Choate says. "We explained that reimbursement was not enough for us to make a profit and we certainly did not want to downgrade the products. We had stopped taking capped rental a few months before then, and we don't do infusion, respiratory or IV therapy. We simply stopped taking new Medicare claims."
They also stopped taking insurance, although Choate isn't opposed to that.
"A lot of insurance companies are more flexible than Medicare," he says. "The downside is that many say you have to have a Medicare supplier ID and we don't have a supplier number."
So now, it is cash — or check or credit card — on the barrelhead. That doesn't please everyone, Choate acknowledges.
"There will always be a stigma that they want insurance or somebody else to pay for it," he says. "But there are a lot of items in the retail market that insurance has not and does not pay for. There is a huge line of opportunity there for a provider if they stock the equipment and effectively market it."
Choate uses direct mail, newspaper advertising, Yellow Pages, TV and radio spots to do just that. Radio hasn't worked so well, he says, but direct mail and Yellow Pages have reaped particularly good results. Perhaps the biggest — and best — advertising venue is the Tulsa State Fair. Choate is there every year, not as a spectator, but as an exhibitor.
"Basically, I set up an entire showroom there that is probably 1,600 square feet," he says. Scooters and lift chairs are hot items at the fair, and even if people aren't in a buying frame of mind, they see the Sooner Mobility name.
As a result of all these marketing efforts, customers are coming in. "A lot of times I will get new customers who say, 'I didn't know you were here,'" Choate says.
"This is not impulse shopping. This is stuff that no one wants to need. So there is a continual base of new customers that need this equipment for the first time. I think that is why it is important to keep a steady, consistent marketing program. There will always be a new customer base that needs your equipment and doesn't know where to shop."
Even with a $100,000 investment for the changes and the immediate 12 percent drop from the loss of Medicare revenue, "the transition really was not a catastrophic change for us because we had good rental stock, a good repair business and we still had revenue coming from claims that were pending at the time," Choate says.
Hello, Stability
Once he dropped the mantle of Medicare, Choate found the freedom to chart his own course. For example, he controls the prices of his products, not a third-party payer.
"In a retail environment, a dealer is free to increase prices as they are forced to," he explains. "With Medicare, you can almost look at the current rates and predict that within the next few years, you are going to be paid 20 percent less.
"You can adjust your pricing and purchasing power as you need to supply the needs of the business," he adds.
He doesn't have to wait to be paid or be concerned that the payer will want its money back some years down the road.
"The chances of someone coming back two years later and saying, 'I don't think we should have bought that,' that's not a concern," Choate says.
The burden of getting the sale — courting physicians and other referral sources — is gone, too.
"The sheer amount of effort in getting the sale is greatly reduced for the provider," Choate says.
People come in, they look around, they get friendly help and they generally leave with what they were looking for — and then some.
"A customer came in today and bought a $20 wearable cold pack," Choate says. After looking around, the customer purchased several more items. "Because we had the item, the customer spent almost $200 today, 10 times as much as the cold pack."
He has been especially gratified by the gain in productivity and employee hours from not having to spend time tracking down documentation for Medicare claims. "Our service time has increased by not having to work through paperwork nightmares," he says.
There are some downsides to retail, he admits.
His competition, he said, is "lowballers on the Internet" that sell a product for cost plus 5 or 10 percent, and his local Walgreens, which sells scooters for $599. He really can't compete with either in terms of price, he says, but he can beat them at service — and people do value service.
"I think service is one of the most important things a provider can sell," Choate says. "A consumer needs to feel they are [getting something extra] — friendlier people, a cleaner, nicer showroom. You have to give the customer an edge for shopping with you."
The vagaries of the weather can also affect business, Choate has discovered. "A blizzard in February stopped traffic. We were able to take phone calls, but customers absolutely are not going to fight snowfall or icy conditions to come in."
Spending decreases in a depressed economy, too, and a provider must be prepared to weather that dip. But the biggest challenge, he says, is trying to control costs and overhead effectively as employee, gasoline and overhead costs keep increasing.
Choate, who has a background in accounting, once took an intensive Marine Corps business program, and he hasn't forgotten lessons learned.
"Manpower, money, material, time and space — those are five controllable aspects that every manager or business owner needs to look at impartially and ask, 'How can I effectively control each of those aspects in my business?' I do that at least quarterly," Choate says.
As a result, he's modified business hours, employee schedules and inventory. For example, he stocks more travel scooters in the summer when they are more in demand.
"In the wintertime, anyone with arthritis can tell you their hands ache. That's a great time to stock more moist heat packs," he says.
Choate is constantly refining his company, but these days, it's because he's working to satisfy — and draw — customers, not because Medicare is changing the rules. He honestly cannot imagine going back to those days.
"I'm not looking to get back into doing Medicare," he says. "If competitive bidding was repealed and Medicare went back on track, would I consider going back to that business again? Realistically, I don't think so. I don't have enough faith to put my faith in Medicare and their good intentions."
Besides, Choate says, Sooner Mobility is doing OK — better than OK — the way it is now.
"What we are doing has worked out relatively well," he says. "We have got back that 12 percent, and when people talk about days sales outstanding, I have no days sales outstanding."
What he has is a business that is growing, employees who are happier and less stressed, and a sense that, as much as possible, he is controlling his company's destiny. It is, Choate believes, a pretty good trade-off.
