Products & Technology

Making the e-Commerce Connection

Retail-minded providers are realizing the potential of e-commerce, but there are many crucial considerations that should go into their business plans long before consumers start clicking 'buy.'

• By David Kopf
• Aug 01, 2016

For providers that have long suffered through Medicare reimbursement frustrations and cuts, retail sales has served as a ray of hope when it comes to driving new revenues. And, as they have explored retail sales one thing is becoming abundantly clear: e-commerce represents a tremendous opportunity for them to expand those revenues even further.

Make no mistake, there is a lot at stake. The Census Bureau’s latest estimate of U.S. retail e-commerce sales for the first quarter of 2016 saw a 3.7 percent increase from the previous quarter to a total of $92.8 billion, and Statista.com puts health-related spending at 5.6 percent of total e-commerce. That amounts to $5.19 billion — in one quarter alone.

Add in numbers related specifically with the HME market, and the case for e-commerce becomes even more compelling.

“With 78 million “Baby Boomers” retiring at the rate of 10,000 per day, the demand for DME is increasing exponentially,” says Jeffrey Baird, Esq., chairman of the Health Care Group at law firm Brown & Fortunato, P.C., who has studied the retail market, e-commerce and how it impacts providers legally. “… Boomers are Internet savvy. They are comfortable with purchasing products online. If Boomers are comfortable with purchasing clothes, tools and dishes online, then they will be comfortable with purchasing most DME items online.”

Any provider with even the faintest sense of entrepreneurial spirit can’t bother taking notice of the numbers and how tapping into them could boost the bottom line.

The question is, how do providers do it right? Making a solid e-commerce connection comes down to proper planning. One weak link, and what might have initially looked like a solid business plan could fall to pieces, advises Robert Duryea, president of VGM Forbin, a business unit of VGM Group Inc. that specializes in helping providers create their web sites and e-commerce businesses (see the sidebar, “E-Commerce Resources”). E-commerce requires commitment and smart planning.

“E-commerce is not for everybody,” he says. “It’s not a magic elixir and money is not going to simply fall from the heavens. If it matches your business plan, and you can provide certain value online to your customers, then it absolutely makes sense, but it does require work.”

Providers must start by asking the kinds of questions that will help them start thinking ahead.

“What are competitors doing in your local business area,” Duryea suggests. “What are your national competitors? ‘Do I want to go online with CPAP supplies and compete with some of the national big boys? What are the prices like? What is the value I can provide and can I communicate that online?’ If they can do that, and they know what they can focus on, then by all means do it, and it can be a tremendous revenue opportunity. But you need to be very thoughtful about it, and have a plan going in.”

Local Appeal on a Global Scale

HME providers have traditionally traded on a reputation for product and care expertise, and particularly at the local level. That has been their sweet spot and the value that they bring to the home medical supplies and equipment market. Most people would reasonably look at the global reach of e-commerce, and conclude that the business model would be very different. Moreover, it presents providers with the challenge of having to provide the same things that make them appealing to their local or regional market, but on a larger scale.

“If you provide a valuable service to your customers at your brick and mortar location, then you need to do that just as well online,” Duryea says. “So that means being very deliberate about how you enter into that, and key when entering the e-commerce world, because there are going to be people out there that have been doing it for a while, and they’re going to have [their business model] ironed out.”

The best way to start that process is by considering scale. Do providers sell everything they have available, or do they focus on certain items that translate well to an e-commerce environment? What specific items map well to that business model? How do they ensure they provide the same high-touch service to their customers online?

“Because if [your customers] are online and they don’t like something, then they are probably going to talk about it online, as well,” Duryea explains. “And that’s going to go bad for you very quickly. There’s not a lot of wiggle room in there to make mistakes.”

To be certain, online, news travels fast, and bad news travels even faster, so providers want to approach e-commerce with care and caution, and an eye on ensuring they can live up to their reputation.

The issue of scale must be foremost in a provider’s mind when outlining an e-commerce business plan. The reach of e-commerce represents a doubleedged sword: On the one hand, providers have access to a massive, previously unreached customers base. However, if a provider’s site catches on, their e-commerce business can escape their grasp relatively quickly. In essence, too much success too early can lead to premature failure.

“That’s the beauty of the online, digital age,” Duryea says. “Your ability to scale and contact people anywhere and everywhere is very fast and cheap, but let’s say I work in South Florida, I’m selling this product online, and now I’m shipping to the northwest, the southeast, the southwest, to all over the place. Can I scale up? Can I get enough product from my manufacturers, and in a timely enough manner?”

These are important questions to ask in a world where everyone in the modern, “connected” world expects two-day shipping from Amazon.com. Telling customers you don’t have product in stock and are waiting on a shipment can lead to complaints with an equally global reach. Very little wiggle room exists.

Bearing that in mind, Duryea suggests approaching e-commerce in stages. Providers should start out seriously thinking of two or three products they can offer online and how well those products can scale quickly if the provider sees some initial success. Can they get enough from their vendors? Are their vendors confident they can maintain that supply? And then the provider needs to think of the next two or three or products that can translate well to e-commerce. This gives the provider the ability to ramp up.

Managing Your Reach Through Marketing

That said, providers can maintain some control over scale if they plan their marketing correctly.

“Maybe I don’t want to play nationally,” Duryea says. “Maybe I just want to advertise within my state or my 10 counties, or something like that, first. And then I can push wider once I start figuring out how that works for me.”

It turns out that even though the web gives providers national reach, they can fly under the radar and limit their exposure. Since there are so many players online, if a provider decides to focus geographically, the rest of the world will likely see other businesses, while the provider is chiefly visible to just its local market.

“There are a lot of other companies advertising for a lot of different areas,” Duryea explains. “… This isn’t ‘Field of Dreams. There are a lot of people out in this space. So if you have a product that you provide and you provide it well. You can advertise to those customers in those areas.

“So if you’re actively spending the money online marketing to go after people in certain zip codes and on certain keywords around very focused types of medical equipment, then you’re going to find them and they’re going to find you,” he continues. “If you’re not doing that, there is enough money out there and enough companies out there in the e-commerce business that the odds of [customers] finding you are pretty slim. They’re going to have to be looking specifically for you.”

Prioritizing the User Experience

So assuming a provider understand that scale is an issue, that they should start with some key offerings, and that they can limit their scale based on smart online marketing, how should they dive in? How do they start creating their e-commerce offering?

It beings with finding a service provider that can help the provider set up their e-commerce site. It all comes down to user experience, so the provider wants to find an e-commerce provider that is going to focus on ensuring sites that highlight the customer experience.

“If a user doesn’t like a shopping experience on an online shopping site, and is having trouble finding their cart, or deleting items from it — if that’s not a good user experience, cart abandonment is very big, and people will leave you, and go somewhere else. So make sure that experience is very smooth and very tight.”

Once that is set up, the provider needs to consider how the payments are going to be handled: Will this be strictly credit card with an existing processing company? How will it be tied into the existing business?

Reputation management is another key consideration. Companies such as VGM Forbin and ARI strive to help their e-commerce clients ensure that their online reputations remain positive, and that customers leave reviews to help raise the provider’s online profile.

“Credibility is something very important,” Duryea notes. “Nobody knows you from Adam, because you’re [new e-commerce providers] not all that much of a face [online]. So how are you creating, for the customers, a reason for them to trust you and the services you provide?”

Building out the Back-end

This is where the actual mechanics of e-commerce come into play. Providers must ensure sufficient inventory, and fast fulfillment of orders. Moreover, the packing has to be professional and sturdy. The provider must ensure it is addressing all the nuts-and-bolts fulfillment elements that clients have come to expect in an Amazon.com world. Similarly returns must be handled efficiently and within clients’ customer service expectations.

“It sounds simple to go online and fire up your e-commerce site, but there are a lot of little things thought through and to have [an e-commerce] provider that can help you do all those things for you is something you need to have,” Duryea notes.

This means that a provider must plan in dedicated staff, warehouse space, shipping resources, and other “real world” assets to ensure that it adequately supports its nascent e-commerce business.

“You’re going to have to have dedicated personnel based on the size of your operation,” he says. “They’re going to see the orders come in, they’re going to going to go out on your floor and get the product, they’re going to package it up, and ship it out.

“What’s your relationship with your carriers?” He asks. “FedEx, UPS and USPS? How quick are they? Are you taking the orders to them? Are they picking them up? How are you controlling your costs from that aspect?”

And from an IT perspective, the provider must also examine how the e-commerce offering will tie in with its existing software infrastructure. Can e-commerce link up with typical HME management systems’ to check available inventory, or update customer purchase records?

“The short answer is yes,” Duryea says, adding that this is where a good e-commerce provider is important. “It’s just creating that kind of connectivity. Whoever is providing the e-commerce connectivity needs to be familiar with it and have done that before.”

The Legal Aspects of E-Commerce

Another element of e-commerce that providers absolutely must understand when formulating their business plans are the legal requirement related to such an enterprise. It’s important to remember that while e-commerce concerns retail sales (at least for the moment), that doesn’t mean that retail is not entirely free from legal concerns. Just like on-premises retail sales, HME providers must live up to various legal requirements.

“As suppliers enter the e-commerce space, they need to be aware of federal and state laws that govern the space,” Baird explains. “Many of these laws apply to all e-commerce, not just health care e-commerce. However, there are other laws that are specific to the healthcare space.”

Starting with healthcare and non-healthcare products that might be transacted via e-commerce, Baird lists a number of laws that could impact providers selling products online. This is particularly true when it comes to their marketing efforts. Baird suggests providers keep the following in mind:

E-Mail Marketing. This is one of the most critical marketing-related legal consideration. “Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act) imposes restrictions on the sending of commercial e-mail,” Baird notes. Providers should be very familiar with this Act’s requirements. Learn more at bit.ly/29Pvt2Y.

Telephone Solicitation. “Telephone solicitation is the subject of several federal and state regulations,” Baird says. “Telephone calls and messages designed to encourage the purchase of products or services are regulated by the Federal Communications Commission (FCC). Likewise, the Federal Trade Commission (FTC) enforces rules and regulations that protect against deceptive, misleading, and abusive telemarketing practices. All 50 states have some statutory version of the FCC and FTC regulations that regulate telephone solicitation and telemarketing as well. All telephone solicitation is regulated in some form or fashion, but additional constraints are placed on telephone solicitation that is considered telemarketing.”

Telemarketing. The FTC penalizes abusive telemarketing acts and practices. If a telephone solicitor qualifies as a telemarketer, the FTC Telemarketing Sales Rule (TSR) applies, Baird advises.

National Do-Not-Call Registry. “Calling telephone numbers on the national do-not-call registry is punishable as abusive telemarketing,” Baird says, but notes a key exception: “Carved out from this definition are calls made to those with whom the seller has an established business relationship.”

State Do-Not-Call Registries. Similarly, there are many restrictions and limitations placed on telemarketers and telephone solicitation by the states, the most important of which are registration and bonding requirements and statespecific do-not-call lists, according to Baird.

Telephone Consumer Protection. Under the Telephone Consumer Protection Act, the FCC implements regulations to protect the privacy rights of citizens by restricting the use of the telephone network for unsolicited advertising, Baird states.

Direct Mailing. Direct mailings must comply with the laws of three regulatory agencies: (i) FTC, (ii) U.S. Postal Service and (iii) State Attorneys General, Baird notes.

Registration as a “Foreign” Corporation. “If a supplier is shipping products into other states, as to whether or not the supplier must register in the other states is determined by whether or not the supplier has a ‘nexus’ with the states,” Baird says. “Normally, merely shipping product into a state will not establish such a nexus.”

Next, there are several laws related to providing healthcare services and products that providers must comply with in their e-commerce efforts, according to Baird. Those requirements are:

State DME Licensure. “If a DME supplier is shipping products into other states, then it is highly likely that the supplier will be required to obtain DME licensure in those states,” Baird says.

Sales Tax. If a supplier is shipping products into other states, as to whether or not the supplier must collect sales tax in the other states is determined by whether or not the supplier has a nexus with the states, Baird explains. “Normally, merely shipping product into a state will not establish such a nexus,” he adds.

Telephone Solicitation Statute. “There is a federal law that is specific to DME suppliers,” Baird warns. “It says that a supplier cannot call a Medicare beneficiary unless one of three exceptions are met. Two exceptions apply to existing customers of the supplier. The third exception applies to potential customers. It says that a supplier cannot call a potential customer (who is a Medicare beneficiary) unless the beneficiary has first given his prior written consent (‘blue ink,’ or electronic).”

HIPAA. HIPAA imposes a number of restrictions on health care providers (including DME suppliers) if they desire to use “protected health information” of their customers for the purpose of marketing, Baird notes.

Supplier Without a PTAN. “Assume that a DME supplier does not have a Medicare Part B supplier number (PTAN),” Baird explains. “Assume that the supplier sells DME over the internet for cash. The supplier must inform its Medicare-aged customers that the supplier is not a ‘Medicare supplier,’ and that Medicare will not reimburse the customer for the product he purchases from the supplier.”

This article originally appeared in the August 2016 issue of HME Business.