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.