Round Two Reactions from VGM Membership

Mark Higley, vice president of Development for the VGM Group, recently polled VGM members about Round Two of Competitive Bidding. From main concerns to what they’ll do if they get/ don’t get a contract, here are words of advice from industry peers. VGM’s queries generated some thoughtful and thought-provoking replies:

What concerns you most about Round Two?

  • Competitive bidding will drive some HMEs out of business, significantly impact the ability of others to make debt payments, reduce HME profit margins and thus lower enterprise values of HMEs. Lower profitability of HMEs and increased financial risk will likely reduce capital flow to HMEs by raising their cost of capital. Capital is required to innovate and improve — with less capital attracted to HMEs, HMEs will be slower to innovate and prone to take fewer risks. HMEs will be forced to offset lower pricing by reducing labor costs and lowering wage rates, resulting in lower-trained employees, higher error rates and lower quality of care for patients.

  • Competing with providers from outside my market with no overhead or patient commitment.

  • Winning a contract at a price point that I can afford to provide appropriate patient care.

  • That providers made suicide bids after the Round One rebid and feel that they must bid lower than that amount to get in the bid. This is a result of them witnessing the number of businesses that have sold or closed during Round One.

What should providers be doing now to compete in a post- Round Two HME industry?

  • Obviously you need to streamline their operations. The art of efficiencies is the key to reducing your costs, and will ultimately allow you to do more with less and for less. Just-in-time inventory is critical to manage your cash flow and your inventory. Determine the needs of your customers or referrals, a product or service out there that they need, and provide it for them. CPM machines have been a great new product line for us, and it was out of the need from one of our referral sources that we decided to add that to our service line. It does not cap out, so you keep your asset and it does not require respiratory therapist to manage the patient, and it did not fall under the competitive bid product lines.

  • We are doing some diversification of business and looking at also adding some new features to our business (sleep transportation, sitter service, and online retail store).

  • We are also opening up smaller branches in non- competitive bid areas to help make up some of the loss revenue potential.

  • We are reducing our Medicare business and we might walk away from certain Medicare product lines. Medicare is turning into the Kmart of healthcare. Who wants their healthcare from Kmart?

  • We have been focusing for over a decade on diversification in our current space: (1) geographic — locations outside of Round One or Two; (2) payor — contracts with third-party payers and our state Medicaid; (3) product niche — maybe retail or other specialty; and (4) products like Homefill and other non-delivery products.

  • Get very lean, and develop non-Medicare payers and products, plus geographically expanding away from Round Two CBAs.

  • Shore up all and every facet of your business. Nothing is too trivial or unimportant to not analyze.

What should providers do if they get a contract?

  • You need to wait until you know what you will be reimbursed before you market the contracts; you may not want that business. However, if the pricing is sustainable you want to market that you have the contract.

  • Evaluate if you should walk away or if the loss-leader approach of serving Medicare is worth it.

  • Market the contract aggressively to gain more market share. Pray, as well!

  • Work with referral sources to program the most efficient way to move patients from facilities to homes.

  • If you have any margin at all, look at the incremental gross margin and make the most of it.

  • Analyze the bid numbers. If they work then market, market and market.

  • Review it carefully and make sure that you are not accepting something that is not profitable. The contract offer will most likely be less than what you bid. After implementation, accept new Medicare patients only after you have adequate documentation of the medical records showing medical necessity.

What should providers do if they don’t get a contract?

  • It seems many are waiting and not doing anything until they hear if they won. Is there even time to implement contingencies if they wait until bid winners are announced? They should have been meeting with their referral sources and building that relationship on service and quality and explaining what will happen if they don’t get the bid. They are the same strong, reliable organization with our without the bid and it will not diminish the quality of service that they can continue to provide their patients who have other coverage than Medicare.

  • I don’t think you can have a contingency plan unless you plan to purchase a winning company. If you don’t get a contract, I believe you will really have to modify what you are currently doing if you are greater than 20 percent Medicare. And if you haven’t started, then it’s probably too late.

  • Because of our 10-year preparation plan, we believe that we are in good shape with or without a contract. With a contract, we will build slowly and make sure that we can deliver products and services profitably. Without a contract we will reduce some of our staff as we focus our services to our ‘winning niche areas.’

  • They should be looking to diversify in any direction they can. Time is of the essence but later is better than never.

This article originally appeared in the January 2013 issue of HME Business.

About the Author

Joseph Duffy is a freelance writer and marketing consultant, and a regular contributor to HME Business and DME Pharmacy. He can be reached via e-mail at joe@prooferati.com.

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