Medtrade Showcases An Industry On Life Support
By: Ken Robbins
Walking the floor of the Medtrade Conference felt a little like watching Nero fiddle as Rome burns to the ground. There was a lot of information and chatter on how to work with Medicare’s competitive bidding program as home medical equipment companies (HMEs) position themselves to scavenge for reimbursements.
Medicare is driving payments to rock bottom levels and forcing providers to submit regional bids, which lowers reimbursements in geographies that are more expensive to serve. It’s very much a race to the bottom and the industry is beginning its death throes.
The bright spot in the chaos was that although reimbursements are in free fall, demand remains high. Figuring out how to channel that demand into profitable sales is an enormous challenge and there are three primary ways that HMEs are changing to seek out margins:
1. Shifting reimbursements directly to patients.
HMEs are used to acting like medical providers, fulfilling orders with no payment and then filing insurance claims on behalf of patients and getting paid directly by Medicare. As reimbursements have fallen, they have absorbed the cost of withering margins while also paying staff or outsourced companies to handle the claims process.
Many are shifting this responsibility to patients by requiring them to pay cash up front and then filing their own claims. Payment delays, denials, and reduced reimbursements from Medicare become the patient’s problem. It’s a terrific way to reduce risk and expenses, but it’s terrible for customer experience and services.
2. Many smaller players are simply selling out.
Just like in any business, companies that can’t compete with larger players on price are forced out of business or get acquired. The competitive bidding process puts HMEs into pure price war mode all of the time, and that makes it impossible for all but those with the lowest expenses and margins to win. That’s ultimately bad for competition.
One veteran durable medical equipment manufacturer told me, “This show used to be three times bigger. I now call on one company who bought up seven of my previous customers.
3. Turning to “caretailing” to capture better margins.
Smart HMEs have realized that basing topline revenue on reimbursements from Medicare is a losing proposition. So they are adopting lessons from the retail world and treating Medicare sales as leads instead of endgames. This gives them opportunities to capture more profitable cash sales on things like upgraded equipment and complementary supplies.
When a customer walks into a store — and many are building actual retail stores — they are given choices beyond the basic equipment that Medicare allows. Because quality of life is so valued, consumers often select upgraded products that may not be necessary, but make their lives easier, less painful, or more convenient. This model also gives HMEs opportunities to sell complementary items that do not require prescriptions or instruction and are not covered at all. If a consumer is purchasing an adjustable bed allowed by Medicare, they can also be sold add-ons like extended railings, sheets, etc. — these items enjoy much higher margins.
Caretailing is gaining popularity as more Medicare recipients shop with adult children or family caregivers. These people are more likely to want to spend extra money to improve the quality of life for their loved ones and have the disposable income to do so. Transitioning to more cash sales is the best way for HMEs to combat plummeting reimbursements from the competitive bidding process.
It’s a scary time to be in the HME business, and that feeling permeated the entire show. This is an industry that is well out of growth mode and squarely defensive marketing mode. Medicare is helping drive the American healthcare system into mediocrity, but HMEs can still use the system to provide leads and focus on cash customers. It may mean letting some merchandise go and focusing on value added services, add-ons, complementary products, replacement parts, and servicing products.
Demand is strong, but not all demand is created equal. The winners will be the ones that sift out the high margin demand and the losers will die by Medicare’s sword.