Will competitive bidding strip away the ability of an HME/DME provider to add value through service? That may be the grim view of many providers considering the nonexistent profit margins suggested by the latest round of rock-bottom bids.
However, several of the more optomistic HME providers are finding new success based on more service rather than less. Through expansion into non-medical caregiving, as well as home modifications, one provider is expanding the scope of business while continuing to preserve its core mission. In contrast, another provider is starting an entirely separate caregiving business as a franchisee based on a proven formula. A third provider, who has succeeded in competitive bidding, is providing home visits as part of clinical follow-up services.
They say the United States has an increasingly service-based economy. Let’s look at some examples to illustrate the importance of the continuing role of service in the HME/DME market.
Caregiving Services
Premier Home Care of Louisville, Ky., works to provide “a family of services” including HME/DME, home accessibility and non-medical caregiving services, all related to enabling sick, elderly and/or disabled persons to remain at home.
The three businesses work together synergistically and integrally as various aspects of a centralized and focused mission. The company includes four retail showrooms and five outlying locations, and the core DME business includes oxygen, CPAP, hospital beds, motorized scooters and wheelchairs, etc. Several years ago Premier looked to expand the business beyond DME and created the two new services within six months of each other.
The non-medical home caregiver business has grown to currently make up about 10 percent of the business, a larger share than the successful home accessibility business, which makes up roughly 5 percent of revenue (see “Renovating for Accessibility, HomeCare, October 2012, at www.homecaremag.com).
If someone is going home from the hospital, one call to Premier Home Care could arrange whatever he or she needs to function at home, whether it’s specialized equipment, home modification or non-medical assistance for day-to-day living.
Home caregivers can help a patient take a bath, transfer from a wheelchair into bed or back, drive a patient to appointments, run errands, straighten up the house, do laundry, remind them about their medicines, keep them from wandering, or whatever else they might need.
“Every situation is different,” says John O’Gallaghan, vice president of the home accessibility and caregiving division at Premier Home Care. “Some clients need short term help. Other times you have older parents with dementia, and a son or daughter doesn’t live in town. Instead of going to a nursing home, they would rather keep them at home.”
Premier Home Care’s non-medical homecare business includes about 60 caregivers (less than full time) who serve 40 or 50 clients. O’Gallaghan estimates annual employee turnover for the business at about 15 percent. Caregivers must be trained for two days before going into the field. Premier also has three care managers in charge of scheduling, training caregivers and introducing them to clients.
Care managers visit client homes to assess their homecare needs; if the needs involve home modification, a certified accessibility professional can also be called in. With the help of an administrative assistant, human resources handles recruiting, hiring and training.
O’Gallaghan emphasizes the important distinction between a non-medical caregiver and home medical or home health services, sometimes called “private nurses,” which involve qualified medical caregivers who administer medicine and perform other medical duties.
In practical terms, for example, a home caregiver can remind a patient to take a pill and even hand it to them, but cannot put it in their mouth, give an injection or perform any similar medical duty.
O’Gallaghan says it is problematic for an HME to provide home health services, specifically in the eyes of Medicare, which would consider the arrangement a conflict of interest akin to “self-referral.”
In contrast, if Premier Home Care receives an order for HME equipment, even if it’s being paid by Medicare, the company is perfectly free to sell that customer home modification or non-medical homecare services—both private pay—without breaking any rules.
In practice, offering all three enables Premier Home Care to build its business as a “one stop shop” for a range of services customers are likely to need suddenly, urgently or at the same time. A single company can simplify family decisions in a difficult time.
“The most benefit is at the family level,” says O’Gallaghan. “They say ‘you mean I don’t have to call three companies?’ They understand that we are a local company that cares about what’s going on with them.
“A lot of the progression of healthcare is disjointed and disconnected, and it helps to have one company to assist with a lot of needs that otherwise can be confusing.”
Caregiving requires strict policies and procedures that must be enforced. The difficulty of replicating a successful model, through trial and error, is one reason homecare franchises, which use proven policies and procedures, are so popular. O’Gallaghan says he prefers offering homecare as one of several services in a single unified company with related products and services.
O’Gallaghan adds that the home caregiving business has a unique set of challenges and requires focused individuals who really understand the business.
“You’re on 24/7, constantly having to manage caregivers, keeping them engaged and making sure they are doing a good job. The human resource aspect of the caregiving industry is tremendous.”
Caregiving services are charged by the hour—from $16 to $25, depending on the level of care. For example, a higher level of care might include bathing, transfers or other duties that require extra skill. A larger client, such as a bariatric patient, might require two caregivers.
Sometimes caregivers have duties for both a husband and a wife, with one needing more assistance than the other. For instance, a husband may have previously been caring for his wife with dementia but later is disabled by a stroke.
O’Gallaghan expects the homecare business and the home accessibility business to continue growing in the future, especially with competitive bidding and Medicare cuts taking a toll on the DME business. “It’s allowing us to focus our limited resources more on these two parts of our business,” he says.
O’Gallaghan’s advice to an HME/DME provider looking to get into non-health caregiving services is to “do your homework and due diligence. Barriers of entry may seem low, but things get intricate quickly and you can have liability exposure if you aren’t buttoned up.”
Provisions of the Affordable Care Act that penalize hospitals for readmissions within 30 days may increase demand for such services as time goes on. “Caregivers can guide patients through that critical 30 days after they get home,” says O’Gallaghan. “It’s a sensible, practical and commonsense approach to make sure patients do basic things like eat a healthy meal, take their meds on time and take a bath in a safe environment. It’s the least costly and most practical way to reduce hospital readmissions.”
Angels on Call
Changes in the HME market led Les DeFelice in 2007 to consider the future of his business, DeFeliceCare. Challenges of the third-party pay model, especially cuts in Medicare, led DeFelice to look elsewhere to grow his business. “I realized that HME would not be the business, it would be a business,” he recalls. In other words, one of several.
Headquartered in Wheeling, W.Va., and founded in 1995, DeFeliceCare has 50 employees and four locations in the northern panhandle of West Virginia, which borders Ohio and Pennsylvania. Serving 30 counties, additional locations are in Weirton and Morgantown, W.Va., and in Union Town, Pa.
Company operations are centralized in the Wheeling headquarters with sales, delivery and clinical setups also handled at the other locations. DeFeliceCare provides oxygen, sleep and other DME categories and has a pharmacy for respiratory meds.
Looking for diversification outside the third-party pay model, DeFelice became a franchisee of Visiting Angels, the nation’s leading, nationally respected network of non-medical private duty home care providers.
Visiting Angels allows customers to select their own caregiver for meal preparation, medication reminders, hygiene assistance, light housekeeping, errands, shopping and companionship. When a customer calls Visiting Angels, they are given an appointment time for an assessment involving the client and his or her family.
After assessing customer needs, Visiting Angels chooses a caregiver to attend a meet and greet with the client and family. “If there isn’t chemistry, we bring another one in,” says DeFelice. “They get to select their caregiver.”
DeFelice emphasizes that Visiting Angels operates completely separate from the HME/DME business. He evaluated several other national brands for non-medical home care before narrowing it down to Visiting Angels, based in Philadelphia, and becoming a franchisee in 2006. Importantly, non-medical private duty home care is almost 100 percent private pay.
DeFelice’s first Visiting Angels franchise overlapped much of DeFeliceCare’s existing service area, and he expanded the territory in 2011 by acquiring the Morgantown franchise. In 2012 DeFelice also began another Visiting Angels franchise in the state capital of Charleston, W.Va., an area not contiguous to the other territories. Just this year DeFelice purchased an existing, nine year-old Visiting Angels franchise in Pittsburgh, one hour away. The various franchises are managed as one, with a total of about 200 employees.
Currently DeFelice estimates that roughly 65 percent of total revenue comes from HME and roughly 35 percent from Visiting Angels. In three years he expects the ratio to be closer to 50/50. “I have no regrets about entering the HME business, but I wish I had become a franchisee 15 years ago,” he says. “There’s nothing like being a franchisee of a well-respected company that drives revenue as a leading brand in the market.”
He acknowledges the first-rate corporate staff of Visiting Angels, which he describes as a “first-class franchisor.” DeFelice also recommends attending the Multi-Unit Franchising Conference in Las Vegas as a source for franchise opportunities. DeFelice plans to continue growing his Visiting Angel territories and look for acquisitions within the region.
Employees of Visiting Angels undergo a seven-step background check, drug testing, random drug testing and training twice a year. Pay is well above minimum wage, and employees are eligible for paid time off and can participate in a 401K with company match. “We treat our caregivers like gold,” says DeFelice.
In fact, recruitment and retention of caregivers is the key to a successful Visiting Angels business, he says. “Recruitment and retention are everything. Don’t just give it lip service; make it count.”
An HME/DME who treats current associates well, and whose employees enjoy working for them, may be a good candidate to operate a Visiting Angels franchise. “Take those skills and apply them to employing a large number of lower-wage associates.”
DeFelice purposefully keeps his Visiting Angels business separate from his DME/HME business. “There is zero synergy between the two. I sought out non-medical homecare because as an HME, we take care of patients in the home. That’s as far as the analogy goes.”
He adds that the initial supervisory team for Visiting Angels included “some of the best people” from DeFeliceCare. He invites any HME providers to email him at lesd@defelicecare.com if they wish to further discuss Visiting Angels.
DeFelice has pursued diversification in other ways, too. In 2007 he founded a rural HME with physician partners. It was profitable in its second year. DeFeliceCare serves as a management service company for the rural HME, handling everything except sales, delivery and clinical setups in exchange for a percentage of net revenue (rural areas are exempt from competitive bidding.).
He also foresees additional diversification within DeFeliceCare, including new third-party pay equipment categories and targeting non-Medicare payors. The company has not entered the retail area, which DeFelice says is “not a core strength.”
Emphasis on Service
Service is helping Aeroflow Healthcare succeed in the tough HME market, and not as an expansion of the business but as an integral part of it. Additional service and support add value to the equipment Aeroflow Healthcare provides. There is no charge for the additional service; the benefits come in helping the business grow and thrive.
Aeroflow emphasizes clinical follow-up to ensure patient compliance with CPAP, nebulizers and other equipment. “We have a fairly aggressive clinical follow-up for the first 30 days to create a habit of compliance,” says Ryan Bullock, Aeroflow Healthcare’s director of sales.
“We also have a clinical team that follows up by phone and determines if a home visit is warranted.” Clinical follow-up services involve about 10 therapists, including LPNs, RNs and respiratory therapists on staff. After the initial period, customers are contacted every three to six months.
“You want to keep any customer as long as you possibly can,” says Bullock.
The additional service provides payback in the form of patients who refer others among their family and friends to the provider. “It builds our reputation for added service,” he says.
Additional service helps differentiate Aeroflow Healthcare in the marketplace, where equipment choices are increasingly interchangeable, says Bullock. “We bring a new level of service,” he adds. For example, the 24-hour support isn’t just an answering machine but involves actual Aeroflow employees on call 24/7 and able to dispatch a therapist or a delivery technician as needed.
Aeroflow Healthcare provides home respiratory and mobility equipment and service in three Southern states with North Carolina offices in Asheville, Gastonia, Hendersonville, Hickory, Waynesville, Wilkesboro and Winston-Salem; and additional offices in Spartanburg, S.C., and Johnson City, Tenn. Products and services include home oxygen, diagnostic sleep testing, CPAP equipment and supplies, nebulizers, aerosol medications, power wheelchairs and scooters.
The company’s staff of professionals includes respiratory therapists, occupational therapists and nurses, providing 24 hour on-call service to patients.
“Efficiency is one thing that has helped us to stand out from our competitors,” says Bullock. “When an order comes in, we have systems in place that send the order automatically to a clinical log for follow-up.”
The higher level of service has raised Aeroflow’s reputation among referral sources, too, he adds. Aeroflow also has existing relationships with local home health companies and can make suggestions to any patient who needs additional services.
Efficiency has allowed Aeroflow Healthcare to be successful in competitive bidding, and Bullock says the company will maintain its high service levels locally in the new lower-allowables environment.
Three of the provider’s current markets fell within Round 2, and the provider also won bids across 84 competitive bid areas (CBAs). Bullock says Aeroflow will fulfill winning bids in other geographic areas using subcontractors (whose service level will reflect local market expectations).
Ongoing uncertainty about competitive bidding makes it difficult to plan ahead how the contracts will be managed. “There’s no way of knowing right now,” says Bullock. “We have to be forward-thinking, and we are confident at this point. Not knowing what the future holds, we may have to reevaluate.”
“It’s life changing if you have to wear a mask on your face at night to sleep,” Bullock says. “There needs to be support and service to help patients get through that situation.” Aeroflow Healthcare provides that extra service in the course of doing business.
Web Services
Aeroflow Healthcare
www.aeroflowinc.com
DeFeliceCare
www.defelicecare.com
Premier Home Care
www.premierhomecareinc.com
Visiting Angels
www.visitingangels.com
