Observation Deck

It's Time to Move on

Providers have known for a long time that competitive bidding would spell the end of big public payer profits. So why keep pining for the past?

• By Wayne Slavitt
• Sep 01, 2019

For many years, trade publications in the HME industry have been full of articles covering various aspects of competitive bidding. It’s nearly impossible to pick up an HME magazine that doesn’t have a story about competitive bidding on its front cover, as well as numerous other articles focusing on some aspect of this subject.

Hundreds of “retailers” that still participate in competitive bidding continue to pine for those long-lost days when Medicare/Medicaid billing meant big, fat profits. Medtrade still rents space to Medicare billing companies, as well as trade associations still trying to find relevance in the world of competitive billing. To all of you wishful thinkers, I say this: It’s time to move on!

For the many of you who are dependent on Medicare and other such payers for your livelihood, I am by no means trying to belittle you or denigrate your business. However, I am questioning your viability if you refuse to come to grips with the fact that you are in an unsustainable business. Eventually, you will be unable to survive in a regulated world with diminishing margins. The math is just not working in your favor.

Just look back at your business before the start of competitive bidding. If you were the typical HME dealer, you were enjoying strong Medicare sales and margins. No longer. To paraphrase Ronald Reagan, “Are you better off now than you were 10 years ago?” I doubt it. Approximately 600 fewer HME retail locations are taking Medicare than there were before competitive bidding.

What surprises me a lot is how many retailers I have met who still think that participating in the competitive bidding program is a sound decision. They tell me that, while margins are thin, they can “make it up in volume.” Really? I doubt it. They also tell me that the foot traffic for competitive bid items benefits the non-competitive sales. That actually might be true, but the problem I see with this is with the quality of the products offered. Since the focus in selling HME products in the competitive bidding program is on low price and feature-poor items, this also tends to be the emphasis on the noncompetitive bid merchandise. Cheap begets cheap.

Moving to a Better Model

When I created the concept of Mobül, a high-end, all-cash HME retail store, in 2012, I predicted companies around that country would copy my idea. I opened our second store 14 months after the first store as a defensive move to potential competition in the Southern California market. I was wrong. The only new stores added in our market area have followed the typical HME model: Small footprints, poorly laid out displays, limited inventory, and uncaring, untrained staff.

To you remaining, insurance-dependent retailers, I suggest a reality check. How predictable is your future cash flow? Do you envision an improvement in your cash flow under your current payor model? Please note I didn’t ask about revenues or margins. I asked about cash flow. Is your business mix paying the bills or do you have to borrow money or add funds yourself to make payroll? Working capital lines are fine for timing gaps, but not to fill needs created from fundamental shortcomings in your business model.

Being squeezed down 10 percentage points on margins cuts into cash flow rather dramatically. If you’re not offsetting that loss with an increase in volume (taking into account the costs attendant with the higher volume) or with new, more profitable business, it is just a matter of time before your cash balances start to dwindle.

So, what should you do if you decide to “move on”? If you have decided to be honest with yourself and your business, you need to undergo an in-depth analysis of how likely your business can eliminate its Medi/Medi dependency and convert to an all-cash model. Your analysis should cover the following areas: Product offering; Store size and layout; Staffing; Systems; Market area, demographics; and Competitive landscape.

Let’s look at each of these areas. Most Medi/Medi dependent HME retailers I have visited have a limited product offering. Since their emphasis is on insurance billing, they tend to be hesitant about offering a deep product selection. Lift chairs, scooters, beds, car lifts, and ramps are exceptional cash items to appeal to a broad audience. On the lower-priced items, it is essential to offer choices at a variety of price points. For example, we display wheelchairs ranging in price from $250 to $1,038 — something for everyone. On the rollator side, we offer a basic (yet very high quality) rollator at $178 up to a Rollz for $1,195. When you don’t have to live under the limitation of insurance, you can present a great selection to fit any need and budget.

Our store is 5,000 square feet with over 3,800 for retail space. That is much larger than the average HME retail store. In my opinion, size matters. If you do not have at least 2,500 square feet, you will limit your success. However, if you are stuck with your current lease for several remaining years, there are ways to make it work until you can move. Judicious use of POS displays, for example, can increase the utility of limited space. There are many other retail tricks we can use to increase your product offering in a limited space.

Perhaps the most crucial part of converting your store to all-cash operation is your staff. At Mobül, we distinguish ourselves in many ways, but our team is likely our most significant distinction. Is your staff not just knowledgeable, but also compassionate, friendly, and caring? Remember the old saying that “People don’t care how much you know until they know how much you care.” If your staff is unable to provide a remarkable shopping experience for each and every customer, you have the wrong people. Also, remember, you can’t train someone to be nice. They either are, or they’re not.

One of the major benefits of converting to a retail model is eliminating the need to bill. You won’t need a billing system. Life is much easier. A proven POS system, such as QuickBooks, will take care of the front end and the back end, as the sales side communicates seamlessly with the accounting side.

Now that you have to market your business like a regular retail store, it is important to understand your market area. That understanding must include a proper assessment of the size of your market, including population, age silos, housing, and other demographic data.

As part of your assessment of the market, you will want to understand who your competitors are, how close they are to your store(s), how large their stores are, what products they sell, how their stores are set-up, and what distinguishes them from others.

It may seem like a daunting project to say goodbye to the world of billing and stand on your own two feet in the world of cash retail. Moreover, while it is not easy, it has been done by many other HME stores, and it can be done by you. Take the first step right now by admitting, “It’s time to move on!”

This article originally appeared in the Aug/Sep 2019 issue of HME Business.