Business Solutions

Rebuilding HME

• By Joseph Duffy
• Mar 01, 2014

Over the past several years, CMS policy has essentially blown up the Medicare business model for most HME providers. Competitive bidding Rounds One and Two have eviscerated Medicare reimbursement for key DME, and cut many providers out of geographies and categories they’ve traditionally served. Audits have caught many providers reimbursement in limbo — now up to two years with the ALJ delay — and put some providers in jeopardy of pre-payment audits for all claims. The face-to-face requirement on the majority of “high ticket” DME will create all new difficulty. And, oxygen providers and standard mobility providers have had to respond to having their businesses turned completely upside-down.

No aspect of the HME industry has been outside CMS’s blast radius. Longtime industry observer Joe Lewarski, vice president of Clinical Affairs for Invacare Corp., succinctly sums it up:

“Legislative initiatives, including the DRA of 2005 started the ball rolling by capping oxygen and imposing a 9.5 percent rate cut,” he says. “However, despite all of the various legislative programs and policy changes that negatively impacted HME, competitive bidding still has to be considered the most industry-altering event since the inception of the program.

“That said, the unprecedented audit pressure, which uses new and inconsistent interpretation of policy and which imposes a guilty-until-proven-innocent methodology impacts all providers, in all markets,” Lewarski continues. “Each of these alone is both a business and industry-altering event; together, they create a perfect storm for both providers and patients.”

Ron Bendell, president of VGM and Associates, points out that perhaps one of the biggest ironies to these cuts and caps is the industry’s client base is growing.

“Ten thousand people in the U.S. turn 65 every day. Demographics are in our industry’s favor,” he says. “The system will figure it out that HME is the low-cost alternative. CMS is obviously schizophrenic when on one hand, it wants to price out and audit away HME providers, and in the other create ACOs that are rewarded or penalized based on whether they keep patients out of the hospital and in their home.”

So as the storm Lewarski describes stalls overhead, providers are fighting the clock and seeking new funding sources to battle dramatically lower payments; rising operational costs; and the bureaucracy, cost and cash flow ramifications of audits.

So far, nobody has discovered a single formula for reviving the sunny funding days of 10 years ago, but some HME providers and industry experts are looking for ways to weather CMS’s onslaught by identifying unfulfilled needs, being creative and developing alternative revenue paths from being more aware of the knowledge they can offer. HME Business magazine talked to some of these providers and leaders, who share ways to help providers find a funding path that might lead you out of the storm.

John Eberhart, President, Eberhart Home Health

HME provider John Eberhart is the president of Eberhart Home Health, located in San Clemente, Calif. With 15 years in the industry and positions on various industry boards, he has watched his $2 million a year in revenue dwindle and his workforce fall from 10 to two. But with a 3,000 square-foot retail store in New Mexico, he has learned that a successful funding path might depend on the part of the country in which your business resides.

“We have a store in Farmington, New Mexico, and that has floated us quite a bit,” he says. “That is typically an underserviced part of the country and the local hospital has a hard time finding physicians who want to move to that area. People come and pick everything up and pay cash and that’s the difference between my locations in California and New Mexico.”

Eberhart says he doesn’t have that storefront option in California. But his retail success and oxygen expertise have given him the push to look to partner with California providers who do have a storefront model but are not doing anything with oxygen. He says that offering oxygen services to providers who don’t will help them increase foot traffic through their stores and generate revenue either through cash or PPO oxygen sales.

Another avenue for Eberhart is education. He got a sleep credential and uses that to expand his business. He opened a sleep lab in Albuquerque, which he says is “limping along.” He has hope that business will pick up.

“If you have the down time and can afford it, get educated,” he says. “Even if you are not changing fields, increase your education because during that process of education, you can network at the same time. You meet people who have similar interests as you. And when I was going through my certification, I met 100 people and those are the people I am looking
to now for guidance.”

He also says that providers underestimate what they know and are afraid to offer their services because they don’t want to look like fools. He says over 90 percent of the time, physicians need providers’ help to take care of their patients and you just need to let them know what you can do for them.

“I deal with these primary care physicians constantly in two different states and every one of them calls me with questions,” he says. “They need help getting their patients taken care of. My advice is to take advantage of the relationships that you have and don’t underestimate the knowledge you can provide because what is missing is service. Anybody can take a tank to somebody but not everyone can have an intelligible conversation with a patient regarding what’s going on in the industry or what’s going on with their insurance.” To Tim Hatt, chair of the HME/RT Advisory Council, American Association for Homecare, funding paths can lead to commercial payers, so HME providers must build meaningful relationships with them.

“In the past HME providers had, in general, superficial relationships with commercial payers,” Hatt says. “That needs to change. Education is paramount. Many commercial payers assume that ‘what’s good for the goose is good for the gander,’ meaning that if HME providers can absorb the 40 percent cuts of round two, surely they can absorb similar cuts from us. Nothing could be further from the truth.”

To be successful, providers need to educate the payor, detailing how the industry really works and what must be done to continue serving the commercial payer’s members.

“If there is a commercial payer in your service area that you have not developed a relationship with yet, you must step out of your comfort zone and do so at once,” says Hatt. “As is true with any customer and provider relationship, it is imperative to dialog with your customer with open ears. Listening carefully to what it is that your customer needs is key. Payers are scrambling too in this new environment. How can you, as a provider, best serve their members’ needs?”

Hatt also suggests that HME providers:

• Develop programs that use HME equipment to positively affect outcomes.
• Develop strong relationships at all payer levels.
• Seek out and partner with emerging entities, such as ACOs.
• Aggressively reduce operational costs.
• Exit unprofitable or secondary lines of business.

Ron Bendell, President of VGM and Associates

To speak about HME provider success stories in finding alternative funding sources, Bendell looks to the accessibility market.

A member of VGM’s Accessible Home Improvement of America (AHIA) division started doing free home safety assessments for customers. Even though Bendell says “free is generally not a great source of revenue,” in this case he argues that it actually does lead to receipts. The HME provider was already in the customer’s home to deliver equipment. Based on the diagnosis of the patient, the provider assessed the home to make sure it was safe for the client to move about. The provider was able to suggest equipment to the caregiver, such as bath safety, non-slip throw rug backing, ADLs, door entry solutions, bedside assist bars, etc. The average revenue generated for each “free” assessment has been just under $1,000, Bendell says.

Another suggestion that Bendell says can help providers create new funding opportunities is maximizing per-patient revenue. Providers should look for additional revenue opportunities with existing customers. An example is selling a CPAP pillow to a CPAP user or serving the CPAP users’ resupply needs.

HME business owners also must investigate retail. If there is opportunity to diversify revenue through retail, the dealer must be committed and willing to make an investment to move into retail.

“I’ve seen many HMEs successfully diversify if they commit,” Bendell says. “In retail, I feel pain management is a perfect product category. There are some great new pain management products in the marketplace (LaserTouchOne and WiTouch are products I have personal experience with). I’ll bet that most cannot think of a store in their community that is the resource for people with pain issues.

“Most people are willing to spend money to help reduce their aches and pain,” he continues. “VGM’s retail expert, Rob Baumhover, has worked with dozens of HMEs to either open a retail location or better merchandise and present their existing retail space. With proper promotion, the benefit is not only more customers but also more sales to their existing customers of items the customer was unaware were available to make their lives better.”

Bendell also touts the value of technology investment, noting that VGM has partnered with a number of technology companies over the years. Technology is now a driving force in the success of the HME provider, he argues. Bendell advises that providers should:

• Make sure they have a modern billing system, are collecting co-pays and improving methods of obtaining all the information necessary to minimize audit exposure.
• Electronic Medical Records integration will be playing a big role in providers audit-proofing their businesses.
• If they’re a CPAP supplier, automate the resupply follow-up.
• Implement outcomes programs. It’s been a buzzword over the years. Now it’s becoming a reality.

Miriam Lieber, Lieber Consulting

With shrinking margins, payer and product diversification is a must, says Miriam Lieber, HME industry consultant. She suggests that providers shed unprofitable business, aim to increase operational efficiencies
and use technology to boost and accelerate cash flow.

“HME providers are scrambling for their next move and oftentimes, they are seeking business that steers them clear of traditional third-party payors,” she says. “This means they are looking to hospitals, nursing homes, hospice, VA, associations and more. So create a database of alternative funding sources and you’d be surprised by what you find. There is actually money waiting to be allocated for what might just be your next patient’s equipment.”

Lieber also suggests the following alternative funding paths:

• Examine current payor and product mix and shed your non-core, non-profitable business lines.
• Determine your areas of interest and potential for change.
• Evaluate what the market needs and wants.
• Be prepared to expand, merge or buy another company — status quo will no longer suffice.
• Be open-minded and creative. Think outside the box for your next move.
• Look inward at your organization to explore ways to adopt a new scope of business, but first secure your operation and stabilize your flow and processes.

Stephen Ackerman, CEO of Spectrum Medical

Suppliers without Medicare contracts need to move to a cash niche, like retail, in order to survive, says Stephen Ackerman, CEO of Spectrum Medical. He says managed care and Medicaid will undoubtedly follow Medicare pricing and there is not enough left there to promptly provide a good product, bill it and make a reasonable return.

But trying to build a business on non-Medicare and non-retail payer sources will be difficult, if not impossible, he says.

“Margins have been decimated,” Ackerman explains. “Exclusive contracts that don’t require absurd levels of physician documentation might be the only way. The best example of an exclusive contract with little documentation is a Medicare hospice contract. Equipment ordered by a hospice nurse does not require extensive physician input because the hospice itself is paying for it out of their per diem from Medicare. Workman’s Comp and VA contracts also generally don’t require the same level of documentation as Medicare.”

Ackerman says his company is trying to adapt to competitive bidding while working to change it. The fact that it has severe uncertainty built in at the three-year mark (i.e., the contract could be lost in the rebid process) makes it extremely difficult to develop a long-term strategic plan and fund expansion. Ackerman says his company was fortunate enough to get some contracts, which have kept their phone ringing. However, capacity to take marginal business is also a real problem.

“In five years, I hope the industry will have built a bridge back to working collaboratively with CMS to solve the nation’s HME problems,” he says. “It is clear the current program lacks practical input from the people expected to execute it. We need to work back to a system that allows participation from all willing, qualified providers. And, doctors should be either trusted to order equipment or not. Right now it is easier to fill a prescription for Oxycodone than it is for a walker.”

In the meantime, Ackerman suggests getting your house in order by operating as lean as you possibly can at all levels. Look at every budget line item with a goal to reduce it or make it more efficient. The recurring rental revenue that has sustained many providers and supported high levels of service is now gone or severely diminished, he says. The shift to relying solely on sales revenue can be a difficult adjustment for some organizations. And you want to try and solve problems without adding personnel, if possible.

This article originally appeared in the March 2014 issue of HME Business.