Today’s home medical equipment (HME) operational landscape is complicated by geography, a multitude of funding sources and policies, and a number of economic factors all happening at once. At the heart of this storm of challenges is the HME provider, working to support patients with medically necessary equipment and services.
As an example of those complexities, consider Lifestyle DME Group in Valparaiso, Indiana.
“Technically, we are part of the Chicagoland metro area,” said Pete Yelkovac, Lifestyle DME Group’s president. “We’re in an interesting spot, because we are within range of a [Medicare] competitive bid zone, a non-competitive bid zone, and a rural zone. So we get the best of all worlds, the worst of all worlds.”
Speaking on a panel at the HME Business FUTURE conference in Nashville, Tennessee, in late August, Yelkovac and two other HME executives — CEO Jay Wendt of SG Homecare and David Pietrzak, VP of supply chain for Reliable Medical — discussed their daily operational challenges and the funding issues currently having the greatest impact on their companies.
Growing and evolving in the HME space
Wendt noted that following the April acquisition of Western Drug Medical Supply, SG Homecare, headquartered in Tustin, California, now has approximately 30 locations and about $150 million in topline sales.
The acquisition “essentially doubled the size of the company,” Wendt said. “We are in the middle of integrating both of these two organizations together with a private equity group that wants things to happen sooner than later. For those of you who may have experienced that — what I’m checking on most of the time is we’ve got to rename the company, rebrand it. And I’m just making sure that all of the 15 different work streams that we’re trying to integrate are going according to plan.”
Pietrzak, who has worked in the industry for approximately 25 years and joined Reliable Medical nine months ago, said Reliable currently has 38 locations in 14 states, with sales in the $150-160 million range while largely focusing on Complex Rehab Technology.
“But we are pretty diversified,” Pietrzak said. “We have some respiratory business that was the core of Reliable Medical, that started 30 years ago or so. And we do quite a bit of DME [durable medical equipment] business as well.
“So the challenges that we face, or at least that I face, is really the balance between the products in those different areas and categories. Every client needs and deserves the same type of attention, whether it be needing CPAP supplies or new wheeled mobility.”
Pietrzak described another goal that is always front of mind. “I think continuing to create a destination employer for the entire space of DME — that’s an overarching thing,” he noted. “The challenges that we are all facing relative to reimbursement: decreases and long payer cycles and things like that. I think those are still the things that keep us up at night.
“But at Reliable, we have gone through some significant growth in the last 18 months. And so, similar to what Jay mentioned, is the integration of two very large companies and making sure that we’re all we’re all heading in the same direction. The leadership above me has created an amazing culture, and that’s paramount to us, to making sure that we create a home for the folks that want to want to work in the industry as well.”
Funding policies and partnering with manufacturers
New technology such as continuous glucose monitors can be a boon for patients with diabetes, as well as for their clinicians seeking better medical outcomes. But with new technology come new operational challenges for providers.
Yelkovac described Lifestyle DME Group as a “regional DME.”
“Our products really are threefold,” he said. “We do a significant amount of work in PAP, and especially resupply CPAP/BiPAP. We also do a significant amount of work on CGMs. And our most fun part, in my opinion, is orthotics bracing, which we really enjoy. So we’re a little bit smaller, but I always say we’re small but mighty.”
Still, he said, “The things keeping me awake are the same things that I’m sure keep David and Jay awake. And that is our deliveries through the mail, through UPS, through FedEx being accomplished and delivered to the correct house. For drop-ship products — which we don’t do a lot of, but our CGMs are drop-shipped, and we’re working with major distributors for CGMs. They have the same issue that keeps them awake at night, because they cannot control their deliveries. They’re not Amazon; they have to rely on third-party shippers. So more and more, it keeps me awake knowing if things are being delivered to the right house.”
Speaking of CGMs: “Our business models is a little bit different,” Wendt said. “About half of the company is a fee-for-service model, and the other half the company is capitated. Obviously, in the California market, the capitated model is very different. So just as an example, this last year with CGMs, Medicare, as most of you know, made a change, which created better access for patients for CGMs — which in the fee-for-service business is great.
“But when you have CGMs that are capitated and you’re paid on a per-member/per-month basis, it’s an expensive product, especially on the on the continuous resupply side. We had to go back and really work with those clients to understand the surge in utilization that we saw with our CGM product, and we renegotiated almost all of our capitated agreements, because our margins just disappeared overnight on that one product line. So that was one of the challenges.”
Asked how supply chain issues — which made headlines during the pandemic, but linger today — have complicated daily operations for providers, Pietrzak said, “It forced us to become intelligent in areas that we weren’t necessarily paying attention to before. At least in the CRT industry, you took a lot of stuff for granted — like, it took 30 days to do this, and that was your transaction cycle time. Which is obviously too long, but if all of a sudden it’s not showing up at that time….
“We had to start learning when things were getting here on containers, and really connecting with our manufacturing partners, who are closer to the supply chain portion of this. We have to have some kind of a guarantee of when we can expect this, so we can start to plan. You’ve got to have the product to deliver the product, to bill the product, to collect the money for the product.”
If there was a silver lining to the entire world suddenly becoming aware of supply chains, Pietrzak said it was “our education and growth in that area that has allowed for additional efficiencies, and really trying to help reimbursement, keep up with the technology that’s associated with CRT or DME or home health. The continued intelligence and really staying close with our manufacturing partners and getting those on-time deliveries is really paramount to being able to service the client.”
What’s coming up next
As for trends expected to impact HME businesses moving forward, Yelkovac — who works with beneficiaries in Medicare competitive bidding areas as well as beneficiaries outside those areas, said, “Of course, [our] other large percentage is commercial insurance — commercial insurance directly through employer plans, and commercial insurance through Medicare Advantage plans, which now constitute approximately 50% of all Medicare plans. And of course, CMS [Centers for Medicare & Medicaid Services] has made no secret of its ardent desire to make [Medicare Advantage] 100% of all Medicare plans.”
Yelkovac added that he and his team recently examined the number of different fee schedules and structures that Lifestyle DME Group works with. “We’re in network with most, if not almost all, of the payers who service areas that we service,” he reported. “I counted, just a very casual count: 12 different reimbursement structures for the exact same products.
“So the trend is Medicare Advantage, not traditional Medicare. And CMS will do everything they possibly can to accomplish that, for better or for worse. In some ways, better. In some ways, perhaps worse, in terms of the funding.”
“I think you’re going to see the capitated at-risk model continue to see grow,” Wendt said. He referenced a company called Synapse Health. “Tony Kilgore is their CEO,” he added. “He’s a very good friend of mine, and was a former partner of mine when we were in [HME provider] Apria. And you know that that particular reimbursement model is on its way.
“I don’t know if you are familiar with how Carecentric used to operate, probably 20 years ago, where they had an agreement with Cigna, and all of Cigna patients ran through the Carecentric model. But look up Synapse, because that particular reimbursement model is on its way. They cover all the back office needs that you have. So by the time the provider gets the patient referral, it’s clean, ready to go, and you just make the delivery, and you get paid. So that’s one reimbursement model or change that’s on the horizon.”
Through all of today’s challenges and tomorrow’s potential operational evolutions, Pietrzak noted that providers need to remain patient centered.
“The continued intelligence and staying close with our manufacturing partners and getting those on-time deliveries are really paramount to being able to service the client,” he said. “Which is really important for us to continue to remember. We aren’t delivering products. We are servicing individuals.
“You talk about challenges internally as companies grow. You start to become more analytical, and looking at data and things like that, which really helps to understand the business. But I think at the heart of it, we have to continue to make sure that we are focused on the end user, the client, the individual, and that every single one of our clients is just as important as the next one.”