The future of HME lies in cash products
by Jack Evans
Tuesday, March 13, 2012

Competitive bidding is not the issue; the end of government entitlement programs is the real concern. In recent years, we have transitioned from 13 to four full-time employees supporting each Medicare beneficiary—and by 2020 the ratio will be 1-to-1. To survive this radical change, an HME business’s revenue stream must find alternative sources within the next year or two.

Retail Benchmarks

I have been a proponent of retail HME for more than 20 years, and continue to see retail sales increase nationwide. Many HME businesses with retail locations have a revenue mix of 40-60 percent Medi/Medi, 30-40 percent private pay and 20-30 percent retail. The last two years, profitable retailers have decreased their Medi/Medi to 20-30 percent and increased their retail to 40-50 percent. Lately, we’ve seen the opening of retail-only HME stores that are in the black by the end of their first year of operation. 

  • Other important retail benchmarks:
  • Retail locations with showrooms of 800 to 1,500 square feet generate $800 a year per square foot with combined retail and insurance, from $400 to $500 per square foot a year with retail sales only.
  • Employees generate $150,000 to $200,000/FTE/gross sales/year.
  • The average retail sale takes 20 minutes; the average Medicare patient takes an hour for intake and verification. If the same staff is responsible for both types of clients, then for every Medicare patient, you lose two retail sales per hour.
  • Gross profit margin averages 48 percent. Expensive and competitive products might be only 40 percent gross profit margin while soft goods and generics are often 100 percent gross profit margin.
  • Net profits average from 8 to 12 percent per $1 million gross sales.

Diversifying Revenue

There are numerous other options to Medicare and Medicaid:

  • Third-party insurance companies often reimburse at regional rates. Until they use the Competitive Bidding Program rates as benchmarks, they will still be more profitable than Medicare and Medicaid.
  • Self-insured corporations are the least visible and highest pay. Their HR departments seek corporate rates on products and services to keep their employees healthy and at work.

  • Hospices negotiate directly with HME providers and will pay established regional packaged rates for services, such as delivery and pickup, and products.
  • Prisons and VA medical centers contract directly with providers at negotiated rates that are also more profitable than Medi/Medi rates.

Sell Multiple Products per Customer

Stocking “better” and “best” product options is ideal in retail, as these items generate higher sales-per-customer and higher profits, and become the add-on, related cash products in addition to reimbursable items.

Traditional HMEs often provide one reimbursable product per patient, but retail HMEs often sell multiple products per customer. Instead of starting the sales process by asking what insurance a patient has, they qualify the end-user and then demonstrate all of the core and related products that will meet their home health care needs. This method targets the Medi/Medi patient as a retail sales opportunity, usually resulting in one reimbursable product billed and one or more retail products sold for cash.

Making HME Affordable

In many communities, residents do not have the disposable income to afford paying for HME out-of-pocket. In these situations, businesses must make HME affordable for their customers.
A few popular retail sales techniques are:

  • Low Cost Acquisition Line Carry the least expensive full-line vendor you can find to offer basic, inexpensive products to your cash customers. These include generic and private label products.
  • Lay-Away Program Advertise two or three payments of the respective fraction of the total cost, and allow customers to pay monthly until they have paid the total amount and can then take the product home.
  • Financing Program Local banks will offer finance programs on products over $1,000—just like they offer for purchasing cars. Customers can take their products home the same day they take out the loan.
  • Used HME Similar to new and used cars, many retail businesses are now offering new and used HME products. This provides customers with less expensive options. 

HomeCare, March 2012