Cash Sales Checkup
What’s the prognosis for HME’s retail revolution in the ‘New Economy?’
- By David Kopf
- Apr 01, 2009
Ever since competitive bidding reared its ugly head and the HME industry began feeling increasing funding pressure from CMS, providers have been looking for alternative ways to drive revenue to their business. For many, cash sales have looked to be the solution to that problem.
However, a funny thing happened on the way to the cash register. Just as providers were revving up a retail revolution, the economy fell apart, and consumer spending became more “austere,” to put it gently. Have tightening consumer budgets have put a cramp in HME retails sales?
“A lot of [cash sales items], while they are healthcare, they are still somewhat discretionary,” says Mike Mallaro, Chief Financial Officer of The VGM Group. “A scooter purchase is a discretionary purchase, and everything discretionary is affected by this economy.”
How long that will last is tough to judge. Patients might be scared into tight-fistedness for a certain amount of time — even though they might have the money to pay for even high-ticket cash sales items, such as auto access products — but that will only last so long. In fact, however small recent upticks in consumer prices might be, they at least help calm worries about an impending deflation. Besides, how long can a patient put off purchasing something that will improve their life enjoyment or health?
“I don’t think that will last that long,” Mallaro says. “There have already been some indications from traditional retailers that has been a little bit of a thawing somewhat. I don’t share this doom and gloom that we’re going to be in this calamity of an economy forever. But for the rest of the year a lot of the discretionary component of [cash sales] will be more reserved than it has too.”
Regardless of the tough economy, Mallaro says the value proposition of retail sales is still holding up. “I would say that it’s been a success for providers,” he argues. “I believe that from a number of different sources, both surveys and anecdotal information, that cash sales, the patient pay portion of the business, is the fastest-growing payor segment for at least a majority of the providers.
“Now, that’s not all retail cash sales,” Mallaro continues. “Some of it is a component of the consumer having to pay more out of pocket because of health plans and so forth. ... If cash sales is not the biggest payor source increase in most HMEs, then it’s right up there.”
That said, providers need to manage their expectations when it comes to cash sales. While retail is a key element to HME businesses’ success, it is not necessarily the panacea it was originally proclaimed to be. Any provider that thought it would instantly yield huge increases was not being realistic.
“I don’t know that it has completely lived up to its promise because in many ways the promise has been over-hyped,” Malloro explains. “The promise is definitely a long-term play versus an immediate, ‘I’ll get in this and six months later I’ll have a significant portion of business.’”
So the realistic outlook is that cash sales will buttress HME businesses, but it’s something that providers have to work on over the long haul. It’s not something they can expect to produce instant results, according to Mallaro.
“It’s a long-term play, and it’s a long-term strategy, and I think that it’s playing out but it’s not an immediate nirvana for providers,” he says.
Perhaps a good way to get a prognosis for the whole of cash sales is to inspect some of its parts. To monitor how HME retail sales are performing and how their performance might be affected over the next six to 12 months, let’s take a look at some key retail categories in HME.
Mallaro says that the outlook for retail scooter sales is still very strong due to the public awareness these products enjoy, and in fact might be emblematic of how providers should approach retail.
“I think some of the larger direct marketers have discovered for many years that when you make the consumer aware of this device and that it can make their life easier, consumers want the device,” he says. “I think it also foretells the opportunity in other cash sales categories: As more consumers become aware of a device or some kind of assistive technology that can make life easier and their quality of life higher, they are going to flock to it, and buy it.”
True, patients might initially see if they can get reimbursed for scooters, but ultimately if they have to come out of pocket for it, they’re going to do that, he adds.
Cy Corgan, national sales director for retail mobility products for Pride Mobility agrees that the outlook for scooter sales remains somewhat sunny despite any current challenges. “The 9.5 percent cut obviously is a challenge, but the one thing about scooters is that it is a highly profitable retail product for the provider,” he explains.
Like Mallaro, Corgan agrees that patient awareness is crucial for cash sales success in the scooter category, and adds that besides the value the scooter delivers to the patient, it should be a product they find familiar.
“Look for a branded product that customers recognize,” he says. “That’s number one —consumer recognition of the brand. We know that on our web site we get a tremendous number of hits from consumers looking for information about our product and that translates over when they go into the provider show room. They see those brands and they recognize those brands.”
Like scooters, Corgan says auto access represents a very high profit margin cash sales category for HME providers. As for how providers should reinforce their auto access business over the near term, Corgan adds that providers should look at scooters and auto access as retail dynamic duo that can help insulate their c ash sales business from any downward trends in the overall retail space.
“Scooters and vehicle lifts and ramps always should be sold as a package, so that when the provider is merchandising them on the showroom floor, or when there are individuals being trained on them, they should always be discussed as a package sale,” he says. “That is the best way to increase the cost per sale.”
It’s also important to have selection, Corgan says. “Don’t have one item in a specific auto access category, have multiple. That will attract and sever a much broader range of consumers coming into the showroom, and is particularly important with vehicle lifts and similar auto access where consumers need to fit the product to their vehicle.
“For the provider, when they ask ‘Why would I go with a certain vehicle lift company?’ they really need to look at the strength of the technical service and the applications that are acceptable for a particular manufacturer – how many vehicle applications they can work with,” Corgan explains, adding that trading on a brand’s reputation will help providers weather tougher economic conditions.
What might give some providers pause over auto access as a cash sales is that is a broad category that ranges from fold-up ramps an entire vehicle conversion. This might prevent a barrier to providers wishing to jump in, but it might also offer an on-ramp, as well. Corgan suggests providers seek products that ensure ease of installation. For instance external vehicle lifts that connects to trailer hitch and wire to an external power source, rather than being hardwired to the car, could offer a good entry point for HME providers into auto access.
Over the near future, Corgan expects that the market for scooters and auto access products will remain solid, because of demographic trends. “People want to maintain their active lifestyle, and these products let them do that in an easy and economical way,” he explains. “So the demand will always be there.”
Home Access and Bath Safety
On the home side, Mallaro says VGM is seeing a lot more interest form providers in terms of how they can tap into helping patients better access and navigate their homes, and ensure bath safety.
“It’s definitely been a strong growth area in the past 12 months,” he says. “There’s no doubt that these are fast growth categories — stairlifts and ramps and bath improvements and items in the home that make it easier to use and live in your home.”
He adds that the biggest factor affecting that segment is not the complexity of home access, but rather the same thing that affected scooters, roughly five years ago: a lack of patient awareness in terms of their options. Patients simply know that they can’t access their bathroom or homes as they want to.
“But people don’t know what they solutions are,” he says. “They haven’t been made aware on a widespread basis of solutions.”
Mallaro says the providers that will benefit are those that have been doing a good job of marketing and getting out to the home shows and places where they can inform patients about solutions and show them what options are available.
“We’re talking about $1,500 to $10,000 projects that can make a big difference in a person’s daily life,” he says. “These aren’t things that require them to redo a whole house and spend $60,000 on a remodel. I think the providers that figure out how to communicate that to the senior effectively are going to be the huge winners.”
Portable Oxygen Concentrators
While not instantly apparent, portable oxygen concentrators were quickly discovered to have a solid cash sales appeal for patients who might not necessarily have immediate access to them through third party funding. The key is to do it right, otherwise it will impact the marketplace.
“I think they’re a great product for cash sales if done correctly,” says Dan Berry, territory manager for HME provider Homecare Concepts. “There’s a right way and a wrong way. The main thing I see with them being sold incorrectly is that the conserving technology of most of them, except for the SeQual Eclipse or the Eclipse 2, are only capable of doing pulse dose, and those pulse dose settings are like snowflakes, no two of them are alike.
“And if they’re not set properly, patients can be under the impression at they’re getting the proper prescribed rater when in fact they might not be,” he says.
Also, Berry says that providers should be concerned about POCs being sold over the Internet. “First of all, oxygen requires a prescription, and a lot of these [online] places are just drop-shipping these machines,” he says. “Nobody’s checking patients out or training them on how to use them.”
This also leads to concerns about whether or not patients are getting proper saturation when they’re sleeping. If they are using a pulse dose POC while sleeping, they might not be getting the proper saturation. “If you dig deep into the owner’s manuals of all these pulse-dose only machines they all recommend an overnight oximetry to confirm whatever setting you’re on is properly saturated,” Berry says.
So, if all parties selling POCs on a retail basis don’t maintain a decent standard of care, the overall marketplace will suffer. Berry says the strategy for providers is to make strong efforts to educate their patients and customers to ensure they are aware of the issues related to using POCs, and the important of having providers assist them select and use their device. That will reinforce not only the patient-provider relationship, but the market for POCs (cash sales or otherwise).
“It’s not just about getting a sale,” he says. “Okay great you made money, but is that important to hurt the reputation of the company just to get the sale — and possibly hurt the patient. You could be giving them something inappropriate. I get a lot of referrals from patients that have become referrals because I take the time to educate them on the pros and cons of all these machines. ”
As for the future of POCs as a cash sales item, Berry says he feels optimistic, because as their usage becomes more prevalent, he expects the cost for them to come down, which will increase their retail appeal.
“As technology evolves and the products evolve, the prices come down and the technology gets better at the same time,” he says. “My understanding is that there are already machines being developed that will be even smaller and deliver continuous flow at higher settings. At the end of the day, they are great products whether they are through your insurance or through retail sales.”
This article originally appeared in the April 2009 issue of HME Business.