The Distributed Provider
A look at some of the strategies and services that are helping providers outsource inventory, distribution and fulfillment to drive down costs, increase convenience and expand revenues.
- By Joseph Duffy
- Sep 01, 2017
Welcome to the world of next-level business efficiency for HME providers. Although practices such as enhanced inventory management, predictive ordering, warehousing and product delivery services have existed as business strategies for quite some time, they are finding their way into the world of home medical equipment. And now, there are now turnkey services providing these functionalities that are gaining in popularity among HME providers, in part because of two driving forces:
- In an industry of cuts, caps and competitive bidding, turnkey services are a way to obtain fairly low-maintenance, low-cost cash sale revenue streams.
- The advent of digital business has caused a sea change on how customers obtain products and information, and turnkey services offering e-commerce modules are an easy way for HME providers to jump into the digital space and meet customer expectations.
How a Turnkey System Works
As a basic function, a turnkey service usually gives an HME provider access to products that they don’t own, and lets them market those products as if they were part of their own inventory. HME providers will sell these products in a number of different ways, such as via their website, print catalog, in-store, or even during at-home visits. Once a product is sold, the distributer/manufacturer picks the product(s) from inventory, fulfills the order for the HME provider and delivers the product to the customer’s residence or, sometimes, to the HME store.
This service is usually invisible to the consumer, with packaging material indicating only the HME provider. A turnkey service can be used for both retail and funded products (see “Legal Perspective: Selling Funded Products Using Turnkey Services,” page 20), although currently the majority of transactions through these services are cash sales.
The benefits of using a turnkey system can vary widely across different services but some of the typical benefits you find among platforms include:
- Access to cash sale revenue streams
- Little or no upfront costs to boost your product inventory
- No warehouse rental or personnel costs
- Frees up in-store space
- Creates a digital business platform
Let’s take a look at three companies offering inventory, fulfillment and home delivery services for HME providers.
Health Mobius (www.healthmobius.com)
The mission of Health Mobius is to offer HME, DME, pharmacy and home healthcare business customers a way to grow retail sales without having to manage an e-commerce presence.
The company started out as health, medical and fitness product distributors in 1999 and today offer more than 25,000 products, including aids for daily living, bath safety, incontinence, compression and post-surgical garments, diagnostic, respiratory, orthopedic, and fitness/physical therapy. Kamal J. Haddad, CEO and Founder of Health Mobius, says that more important than the mix of cash sale items is the company’s ability to provide these items in a turnkey, all-inclusive, fully managed web store that is branded for the HME customer. Heath Mobius offers customers two platform choices:
- Health Mobius manages their clients’ web store, giving their clients the ability to sell thousands of products at retail to their customers through their own website that they set up, host and manage. Clients earn the difference between the retail selling price and the wholesale cost. The program costs $150 a month, with no minimum orders and free shipping on every item.
- Health Mobius is the distribution source. Clients can use the vendor portal to access the same cash sale products at “buying group” wholesale pricing so they can stock them in their location or sell them on an e-commerce store that the client manages.
“Our customers are not interested in becoming e-commerce experts and taking on the web ‘stuff’ – they want someone to do it for them so they can focus on their core business,” Haddad says.
According to Haddad, the key benefits of using this turnkey service include:
- A single access point to retail sales on more than 25,000 products with no minimum purchase requirements
- Not having to invest time establishing relationships with multiple vendors
- Working with on-staff experts to manage your webs store and fulfillment without the need to hire additional staff
- No upfront costs
To support the turnkey program, Haddad says his company has partnered with web marketers to assist customers in promoting their business and web store to existing and potential patients, members and clients. He says they can add SEO, Google AdWords, merchant reviews, social media and blog post services. These add-on services range from $100 to $500 per month.
When it comes to selling funded products on this turnkey program, Haddad says he is still trying to figure out the best strategy.
“It is still a challenge to sell funded items through a web store,” he says. “We are still trying to figure out the non-cash sale items that can be billed or partially billed. We anticipate being able to handle each transaction differently once the industry experts are able to come up with a consensus or rules on how these transactions should be handled. In the meantime, the turnkey services we offer focus on the profitable, incremental cash sale items.”
Jessica Fairbanks of NuCara Home Medical uses Health Mobius, along with other vendors, to streamline their ship-to-home services. One of their goals is to get products to their patients as soon as possible. Approximately 10 percent of her company’s business uses a fulfillment model.
Benefits of the turnkey system, she says, is it decreases inventory needed in the actual store and allows for quick turnaround time to the patient. It also gives her staff more time to handle other tasks, she says.
Regarding challenges using turnkey services, she says that educating their patients that they can order products online is an ongoing task.
For providers considering turnkey services, Haddad advises, “Do your homework. Assess your options. Take the most profitable path with the least resistance. Selling retail home health products is a no brainer. Finding the right partner and program that enables you to keep up with new products, manage online pricing and scale up with technology in a quick, efficient way is critical.”
VGM Fulfillment (www.vgmfulfillment.com)
VGM Fulfillment offers a CPAP patient re-supply service on behalf of HME providers. This includes providing custom integration with any billing system and custom reporting based on providers’ individual needs. Re-supply orders are fulfilled using relationships with UPS, USPS, and FedEx.
“Providers are able to outsource their entire CPAP resupply, freeing up time they would have spent on warehousing products and owning all the logistics of patient re-supply,” says Shalini Douglas, implementation and automation manager for VGM Fulfillment. “With our fulfillment services, providers have no cash tied up in product on their shelves; they pay for the product only when it is sold. We carry resupply products offered by more than a dozen manufacturers. With our consignment operation, product is on our shelves, and contracted pricing remains between the manufacturer and the provider. VGM Fulfillment only bills for shipping and handling.”
Douglas says there are no upfront costs to use the service and providers pay for orders as they are shipped and maintain their pricing arrangements privately with the manufacturers.
To help boost HME providers’ success using their turnkey service, VGM Fulfillment can insert flyers and other custom print pieces into patient orders on behalf of the provider. VGM has an in-house design team and printing business that handles the design and printing of these pieces. There is a fee for marketing services. Prices vary based on the project’s scope.
“Our goal is to establish a partnership to create a relatively seamless transition into our fulfillment system.” Douglas says. “There are some minor onboarding steps to get them incorporated with our system, but after that it’s a matter of simply submitting orders and we handle the rest. Our integrated systems make the ordering process simple, allowing more time for providers to tend to other business needs.”
Before choosing a turnkey service, Douglas says that HME providers should consider:
- Which internal software systems to use that integrates with VGM
- Personnel that will be handling the day-today processes
- Invoicing processes with the manufacturers and VGM
- Inventory management/reconciliation
“The great thing about fulfillment is it is very adaptive to customer needs,” she says. “Our staff guides providers on the best direction to get them integrated with our services. We work with companies of various sizes, anywhere from your single rooftop DME to a 1000-plus order-a-day company. We’ve got a very knowledgeable team that is willing to work with the customer through the process.”
Gina Owen is the assistant director of Mayo Clinic Stores, which currently uses two fulfillment services, one of them being VGM Fulfillment. She says that approximately 60 percent to 65 percent of her company’s business is done through a fulfillment model.
Owen says that VGM drop ships all their CPAP supplies, except machines, and all inventory is on consignment from the manufacturer.
“When products are sold in an order from Mayo, VGM drop ships to patients, and the manufacturer invoices Mayo for the products,” she says. “Tracing reports are sent to the manufactures weekly for them to invoice Mayo. A shipping and handling fee of approximately $9.50 is charged by VGM to Mayo Clinic Stores. We are currently expanding this drop ship program with VGM to compression stockings and garments with the major manufacturers. We anticipate all manufacturers will be on board by the fall.”
Mayo Clinic Stores does not have a website, but its mail order business, when in-house, was the largest sector of its business. According to Owen, outsourcing this function has resulted in the following advantages:
- Patients get their product quicker.
- Mayo Clinic Stores does not have to carry a wide array of products in-store, and can easily drop ship from a warehouse that inventories many more products.
- The company’s costs have been greatly reduced.
- The pick, pack and ship strategy is more accurate with the automated systems these vendors use to manage orders.
- Mayo Clinic Stores gets excellent customer service from the vendors.
- As the company is on a hiring pause, it has been able to reassign its mail order staff to taking more orders, rather than picking, packing and shipping.
When considering using a turnkey service, Owen says the first question to ask yourself is: Does your system have an easy way to get drop ship orders to the vendor, and receive tracking numbers back into their system when shipped?
“If an HME provider is looking to grow their mail order business and improve accuracy, they should analyze the cost benefit of going with an outside vendor,” she says. “For us, the decision was easy. We could not improve customer service by having a full range of products in-house, offer the pick, pack and ship efficiency and FTE and minimize our costs without these vendors. We are very pleased with how it has grown our business.”
Tom Stinson is a Business Process Consultant, Lean Six Sigma-Black Belt, with McKesson Medical-Surgical. He consults with McKesson customers to help them improve their business. One of the McKesson programs he champions to help customers be more cost effective is called Patient Home Delivery.
McKesson’s PHD model helps decrease an HME provider’s need to manage its own inventory and shipping. Providers gain access to McKesson’s 40,000-plus SKUs in a network of 35 distribution centers. So instead of owning this inventory — and paying for staff and warehouses to manage merchandise, freight and repair costs, and capital expenses — the provider simply takes orders from customers as usual. Those orders are then sent electronically to a McKesson distribution center, where the item is picked, packed and delivered to the end customer’s doorstep.
“The process is invisible to the HME’s customer,” says Stinson. “The shipping label and packing slip include only the provider’s information. As far as customers are concerned, they are receiving the product from their local HME.”
The McKesson PHD catalog, which contains the majority of McKesson product inventory, can be managed either through McKesson’s ordering portal or via a provider’s software system, such as Brightree or Universal Software Solutions. The provider can view critical information, including what is in stock and shipping and delivery confirmations.
“Many DMEs we work with will deliver their initial order to the discharged patient’s home on their first visit,” says Stinson. “After that, all recurring orders will go through McKesson’s PHD program. This reduces the amount of inventory the DME needs to keep on hand to serve their customers.”
Provider costs for using the service, which are incorporated into the total cost of delivering the product, depend on sales volume, and size and frequency of orders. But Stinson pointed out that providers can end up saving exponentially by avoiding delivery, fulfillment and other related costs.
In summary, Stinson says the PHD program offers providers the following benefits:
- Helps bring down the provider’s cost to serve customers
- Helps reduce working capital expenses, which can be used elsewhere in the business
- Helps save freight and delivery expenses
- Allows for less inventory needed on-hand
- DME/HME can have a smaller physical location but a larger distribution footprint
- Don’t have to worry about expired stock
“Our national sales team will consult with DMEs/HMEs to assist them in coming up with the solution that works best for them,” he says. “This consultative sales approach is focused on improving the bottom line of our customers.”
Jeff Bowman, vice president of homecare for McKesson, has been in the HME business over 25 years, either running his own business or working for McKesson.
“Never have I seen a higher sense of urgency and need for HMEs to take a hard look at how they are doing business and work with companies like McKesson, which are bringing much more value than just a widget or price to the market,” he says. “That only sustains you so long. Providers have to make hard decisions now to offset the challenges in the market, and given the chance, McKesson has the scale and resources focused on this market to help.”
Skip Matthews, president of Louis & Clark Medical Supply, uses McKesson’s PHD. He says the service lets his company deliver products to a customer’s home through a package delivery service, such as Fed Ex or a local courier service. There is no additional cost to the customer and typical product categories include incontinence, urological, nutritional, and wound supply. Matthews says that about a third of his company’s revenue comes from using this turnkey service.
Matthews says the benefits of using the service include lower delivery costs, a consistent process and system, and a reduction in inventory. On the other hand, challenges can include failed deliveries and customers with extreme product, communication or complex needs.
“Quick, good internal and external communication is key,” he says. “Having quality partnerships helps very much.”
If HME providers want successful outcomes using turnkey services, Matthews suggested that they have a key manager or key contact own the program.
“Computer integration and training helped,” he says. “The fulfillment company helped quite a bit with training and providing interfaces and tools. It was fairly easy to install once we were committed and communicated how and why we were changing our processes.”
Establishing trust and a process with a partner vendor is also important, he says, suggesting that HME providers spend some time vetting the potential fulfillment company and ask for references.
“Handle issues quickly and openly, and commit to a better way of improving efficiencies and consistency for your company, your customers, and your vendor partner,” he says. “Once you commit, commit fully and with your end in mind, work through the difficulties caused by any change in business processes.”
This article originally appeared in the September 2017 issue of HME Business.