Standard Power's Gear Change
How are providers of standard power mobility changing their business strategies to target new revenue sources with better margins?
- By David Kopf
- Apr 01, 2018
As any provider of standard power mobility will tell you, Medicare reimbursement cuts and changes have turned their businesses literally upside down. It’s as though they were rolling along in the fast line on cruise control, and suddenly found themselves screeching through the hairpin twists and turns of a challenging rally car race.
Competitive bidding significantly cut funding, and the removal of the first-month purchase option turned their businesses from a sales-focused business to a rental-focused business.
Given power mobility’s higher inventory costs, that’s a tough business proposition.
So how are power mobility providers adapting their businesses strategies to conform to this landscape, and where are they finding the opportunities to broaden and diversify their revenues so that they aren’t trapped in a maze of diminishing Medicare returns? To put it simply, where is the standard power money?
Is There a Workable Medicare Model?
Let’s start by reviewing standard power mobility’s current situation when it comes to Medicare. As mentioned, well-known reimbursement trends such as competitive bidding and the removal of the first-month purchase option have made running a standard power mobility business based on Medicare reimbursement a tough road to hoe — very tough. Medicare business still remains for standard power but it changed in recent years?
“When we talk about standard power it’s a really very different discussion than, for instance, complex rehab or scooters,” says Micah Swick, national sales director for pride mobility Products. Swick has seen the entire business change over recent years. “Standard power in terms of Medicare and private insurance is a rental opportunity today as opposed to a sale. And the problem is the numbers, it’s just simple math, the numbers just don’t add up. They’re required to offer a warranty period, and there’s a significantly reduced reimbursement schedule that is set up as rental.
“And at the end of the day it’s just like oxygen and other things that have happened in this realm, there just aren’t any dollars left for the provider to net much of a profit,” he adds.
There are ways that providers of standard power can stretch their reimbursement.
“The caveat is, is that they can rent used products, and so they can rent an item and get it out there for a period of months and then re-rent it,” Swick explains. “Having to buy a unit once and then rent it two or three times can help to offset that. If that’s part of their business model. Of course, that’s not good for me as a manufacturer, if providers are renting out one unit for three or four different circumstances as opposed to buying a unit for each one of those circumstances. But focusing on the retailer, that’s really the only way the provider can make the numbers work and come out profitably, and take any income off the top.”
But multiple rentals on the same item have their limits, considering that many mobility diagnoses are lifelong conditions.
“There are units that come back into play because of someone passing away; because of a further deteriorating conditions that make the power chair no longer an option; things like that,” Swick says. “But it’s a small portion of the business.
“And here’s the problem, you can’t build your business around unknowns,” he continues. “How do I build a profitable business: ‘Maybe I’m going to get some units back, or maybe I’m not. Maybe I’m going to get one back this month, or maybe I’m going to get three back this month.’ It’s not sustainable, it’s not predictable.”
What about Private Payer?
Naturally, if Medicare isn’t offering a decent model, the next option is to set a course for the private payer market. However, the private payer scenario offers more similarities than it does differences. The model is very much the same: the major carriers essentially match Medicare, both in terms of reimbursement rates and model.
“There are differences out there,” Swick says. “There are some unique situations out there but in general the private payers follow the Medicare model, they want to pay as little as possible.”
Moreover, in addition to the attenuated funding, there are just too many unknowns associated with renting to private payer beneficiaries.
“It’s made it so difficult,” Swick says. “When I’m talking to our customers — to the providers that are out there —it’s just not setup for success. They put so many restrictions and so many limitations on the providers in terms of what the reimbursement’s going to be, and what they can do, and what the warranty has to be, but then they don’t allow them to market or really promote or make any increased margin anyway.
“So what do you do?” he continues. “The answer has to be to look for other products, other mechanisms to generate revenue. And that’s where we get into discussions about retail and expanding your product offerings.”
Blending in Retail
Naturally, many providers have pointed their businesses toward a retail model. That makes a lot of sense given that it is free from the limits and frustrations of both the Medicare and the private payer reimbursement models.
The question is, how do standard power mobility providers do retail right? The answer isn’t as simple as one might initial assume.
“We can’t today say that the proven opportunity, the proven meat, is in retail because the truth of the matter is the majority the standard power business is still being done through Medicare and reimbursement,” Swick says. “Unlike scooters, which have made a real transition to retail, standard power is still largely existing there simply because of the nature of the device and the common perceptions of the products.”
Instead, what retail offers to standard power providers is the opportunity to gain margin, according to Swick.
“There’s the opportunity to build on your business,” he explains. “We have to say, ‘Okay, I’m drawing a customer and I have a known very small margin opportunity through Medicare and through private pay, private insurance. So how do I then build on that? How do I build incremental income? How can I grow my sales opportunities with that existing customer base or to other customers that are coming in? And how do I build that standard power business?’”
Also known as “caretailing,” a blended approach to retail sales is perhaps the most logical angle for standard power mobility providers, since the funded environment represents a sizable chunk of market — maybe not in terms of revenue or margin, but at least in terms of volume. What providers want to do is leverage the Medicare and private payer models to get customers in the door and then build on that.
A Key Revenue Multiplier
And when it comes to that blended or caretailing approach, there’s a considerable amount of upselling potential. A good example would be accessories for standard power mobility devices (read “Don’t Forget Accessories,” on page 21 to learn how to approach this critical revenue opportunity). Another is home access.
Obviously nearly anyone with a medical condition that necessitates a power mobility device will need some help accessing and using their home. Bearing that mind, home access is an important caretailing avenue, because not only does it let providers grow their revenues, but nearly all those revenues are retail. Home access products and services are largely cash-driven and cover a wide range of categories from bathroom grab bars to entire home remodels. But most importantly, they are items that mobility users truly need.
“I think about it this way: For anybody with a mobility problem, probably the first ought to look at is a stairlift, if they don’t have a ranch home,” says Bob Heffernan, president and CEO Access4U Inc., which makes access equipment such as ramps. “I go around my house and up and down the stairs three times as often as I go out. I imagine most other people do, too.
“So, if I was mobility challenged, I’d spend my first couple thousand dollars on a stairlift,” he continues. “And the businesses who sell power mobility, your DME providers, if they aren’t carrying any [stairlifts], they probably ought to.”
Plus, as a business opportunity, home access offers providers a pathway building a business that lets them get started now, and expand later. They can start by offering simple products, such as threshold ramps and simple bath safety items, and work their way up to more complex undertakings, such as vertical platform lift installations, as they build relationships and gain knowledge.
The best way to get started it to partner up with the right expertise, according to Heffernan. Providers can find local contractors and handymen that would partner up with a provider to home access equipment installations. The provider drives the sales and marketing, and the contractor does the installation. Both businesses focus on what they do best and figure out an amenable way to split the revenues.
Heffernan says the pitch would go something like this: “I go to any number of local people and say, ‘I want to get rich slowly. If you’re willing to partner with us, we send you the inquiry.’ Then, we agree on an install price, and we do business that way. But I don’t have to have a truck, a guy sitting around waiting for the work on my payroll, and things like that.”
Providers can get started by looking at local handymen and contractors. The key is to ensure they have the essential capabilities and tools, such as a a truck, saws, levels, and as Heffernan emphasizes, “a good attitude towards taking care of customers and being safe about it.”
That includes solid understanding of local building codes.
“The local codes, the local building codes, and what the building department is sensitive to are known by local contractors, far better sometimes than even the most professional organization coming in from outside,” he notes.
Similarly, Heffernan advises that providers work with installers and contractors that carry at least a $1 million insurance policy against accidents, liabilities, injuries and those sorts of claims.
When it comes to the marketing side of such an arrangement, the provider is in the best position to spread the word, because it already has the patient and referral partner relationships, as well as the local market presence. That said, Heffernan adds that providers should also look at local marketing venues that they might not have tried before, but that would work well for home access. Examples would include Angie’s List and Home Advisors. Any local home improvement web site could really help drive new leads.
“Call them up, and introduce yourself,” he suggest. “Let them know, ‘I’m here. I sell decks and ramps. I sell power mobility and stair lifts.’ That kind of thing makes a lot of sense to me. My impression is that most people these days start on the internet somewhere. And, whether they end up in the Yellow Pages or Yelp or something like that, that’s where they start.”
In fact, Heffernan generally advises that providers focus much of their local marketing on the web, as local television advertising’s value has been diminished by the proliferation of cable channel.
And of course social media plays a big role in online marketing as well, Heffernan notes. Some simple posts of jobs can go a long way for anyone looking to spread the word about their home access business.
“One friend of mine says he’s doing very well with Facebook,” Heffernan says. “He refreshes it pretty regularly and posts pictures on of jobs: ‘We did this project,’ or ‘we did that project,’ or ‘Mrs. So-and-so was happy with her ease of getting out of her driveway from her car.’ That kind of thing.”
Getting Educated on Access
While partnering up with an expert is advised, providers must still competently understand patient needs, the products that address those needs and the various complexities, business relationships and legal requirements that become involved in more in-depth home access jobs. In that regard, some education might help.
Fortunately there is an HME-oriented home access education option available. The VGM Group’s VGM Live At Home (previously known as Accessible Home Improvement of America, or AHIA) is a special network of providers and contractors that offer home access services and products, has outlined various levels of home access service capability for holders of its Certified Environmental Access Consultant (CEAC) credential.
The credential is available to independent living specialists, occupational therapists, physical therapists, remodeling contractors and builders, interior designers, engineers, rehabilitation specialists, case managers, public health nurses, assistive technology specialists, life care planners and other professionals creating accessibility or working in the environmental access field. Moreover, it is is recognized by payers and funding sources, such as claims adjusters, grant administrators, case managers, risk managers, healthcare professionals, federal and state social service directors, and professional organizations.
In terms of a learning curve, CEAC providers can work up from one level to the next while ensuring they cover the minimum standards for safety, competence and capability. Moreover, other home access businesses that might want to work with them will be able to get a clear picture as to the extent of the provider’s home access skill and knowledge. Those levels include:
Level 1 — The provider understands and can competently offer threshold and suitcase ramps, basic assistive transfer devices, bath safety, and multiple aids to daily living.
Level 2 — The provider can offer products requiring simple installation, such as portable ramps with handrails, standing poles, bedrails, portable patient lifts, trapezes, and bath and tub lifts. This also covers all products that require operational training and simple technical instructions.
Level 3 — The provider understands light remodeling and has the necessarily knowledge to comply with applicable local building codes and license requirements. These providers can assess needs and provision of products and equipment, accordingly. They are manufacturer trained for more complicated modular ramps, grab bars, and bridge lifts. Also included are modular ramps with platforms and turns, grab bars and handrails.
Level 4 — This designates CEAC (and CAPS; see Level 5) certifications to comply with all applicable local building codes and license requirements. Providers will give clients an assessment and have obtained manufacturer training. These providers can sell and install stair lifts, vertical platform lifts, and ceiling lifts. They can also sell and install roll-in showers, walk-in tubs, vertical and incline platform lifts, and wall- and ceiling-mounted track lifts.
Level 5 — This is a CEAC designation for Certified Aging in Place Specialists (a National Association of Home Builders credential), certified or licensed healthcare professionals, licensed contractors, and remodelers. Projects at this level are considerably involved and typically require a team approach. They include projects such as renovations, widening doors, additions, elevator installations and other advanced projects. These providers comply with any applicable building codes and license requirements along with involving the licensed trades, such as plumbers and electricians.
Of course, these items, both power mobility devices and their related accessories can get expensive. This means providers need to manage their cost, says Colton Mason, vice president of longstanding HME wholesaler Supreme Medical, which services thousands of companies across the country with a wide range of DME products, including standard power mobility offerings and related items.
Retail businesses must carefully manage their inventory, because if inventory sits too long, it can cut into cash flow as well as margins (see “Making the Right Choice,” on page 22 to read more about inventory turn times in retail). So, with standard power mobility providers trading in particularly expensive inventory, they need to make the right vendor partners.
“With all these reimbursement cuts, providers they want to keep as little inventory as possible on the floor,” Mason says. “That’s really where the wholesaler comes in; basically being that warehouse for [the provider], because we buy in volume like they would in the old days — 18-wheeler loads of product. We allow our customers to buy from us in small volume, so they can stock minimal inventory, but we’re still buying in huge quantities to pass on those savings to them.”
This lets providers keep items on the show floor so that their product can help do the selling.
“I’m huge a huge believer your patience can’t buy things from you they can’t see,” Mason says. “… People need to be able to see what you can offer them. What we tell providers is, keep one. You know, you need to have good, better, best options … but keep one. Don’t keep five or 10. Let us hold that inventory for you, and as you sell one, just reorder it that day.
On the fulfillment side of that business model, the provider has a couple of options: it can fulfill the product themselves, or work with the manufacturer, distributor or wholesaler (whichever business is “warehousing” the inventory) to fulfill the retail item. Mason says the product and the provider’s approach to customer service will dictate much of that. For instance, it might want its vendor to fulfill re-supply or disposable items, but opt to fulfill larger items.
“We can do either way,” he says. “A huge program that we do offer as a wholesaler is patient home delivery for the bulk of the supplies side of the business —the catheters, the ostomy, the wound care. Most providers use our warehouses to drop ship it straight to the patient. It gets there with their name on the box, their name on the packing slip, but they’re not ever touching that inventory. So, on the disposable end of the business, that is a fantastic idea.”
“On the equipment side of the business, when you get into items that do require set up, it depends on the provider. For example, a lot of HME/DMEs … they deliver everything to the patients’ homes themselves, because they really want to bank on the fact that, ‘Our drivers are going to come to your home, and they’re going make sure they got everything set up before they leave, because we’re selling on customer service.’ A lot of times, if they do that, they can command a slight premium in the market over say just an online website that’s going to drop ship everything”
Even then, Mason recommends that providers still determine how low an inventory they can keep on-hand, given that wholesalers such as Supreme and other vendors can get the product to the provider in short order. For instance, if the wholesaler can get an item to a provider in one or two days, how many units of that product does the provider need to keep on-hand in order to ensure that it can have a unit on the show floor, and sufficient supply to deliver to a retail customer and provide VIP service and set-up?
“I would veer more to the side of saying, keep very little inventory, deliver it on your vans, set it up for your patients. On any type of set up equipment I think that’s the best way to go,” he explains. “On the disposable side of the business, definitely opt for patient home delivery, because it’s the same stuff every month. Usually it’s recurrent shipments. Providers don’t need to touch that.”
Managing Price Points
Price is paramount in retail sales, and that’s especially true for retail power mobility items. With so much competition out there, providers must carefully set their price points.
“The number one marketplace for power scooters is e-commerce,” Mason says. “That’s just where everything has moved. It doesn’t mean you can’t compete with [online retailers], but you definitely have to take that in to account when you’re pricing items in your store.”
Providers or standard power mobility must take the time to set the price points so that they can make a profit, but also remain competitive. Don’t be shocked by that, because competition from online is a trend that all retailers have had to deal with for at least two decades now. It’s only new to HME, because retail is new.
“The days of marking things up 60 percent in a store are gone, especially on these big ticket things,” Mason says. “Take medical equipment out of the equation: if you’re spending $2,000 on a TV, you’re going to look that TV up online and make sure you’re getting the best deal.”
This is where leveraging that local presence comes in. Providers still have customers walking into their store.
“Take advantage of them coming to you, and that you’re the local guy,” Mason says. “You got the product, si use that to your advantage. Make sure it’s priced in line with what they’re going to find when they go to Google. You can command a slight premium for having it there, so that they can walk out that day with it, as well as the fact that you have the local customer service if anything happens in three months.
“But you can’t be 10, 20, 30 percent more than what people are finding online,” he continues. “I would encourage people to do your research, price it fairly, but know where you need to be, and then work with your wholesaler to get your cost of goods where you need it to be so that you can make money.”
This article originally appeared in the April 2018 issue of HME Business.