Observation Deck

9 Ways to Thrive in Tough Times

There are proven ways HME businesses can rise above any barriers.

Several years ago, durable medical equipment competitive bidding was instituted by Medicare and the impact has been dramatic. Competitive bidding was so disruptive to the healthcare market that over 40 percent of DMEs are no longer in existence. Many smaller DMEs that could not successfully compete sold their assets, restructured their business, or simply closed their doors, with the owners moving on to new pursuits.

While these 40 percent of DMEs were in denial or frozen like a deer in headlights, other DMEs companies saw this market disrupter for what it was - an opportunity to be exploited with growth and increased profitability. In our national DME merger and acquisition practice, we’ve seen a number of success stories of companies that have both survived and thrived in this increasingly competitive environment. Here’s what they did:

1. They Ruthlessly Assessed the Healthcare Marketplace
Successful DME entrepreneurs realized quickly that healthcare is now being shaped by economics, managed care, rapid innovation, strongly-stated customer preferences, digital marketing, and new direct access to DME products. They then made a commitment to adapt to these changes rather than ignoring them, and they found a new, successful niche for their company.

2. They Partnered With Investors and Capital
Successful DME entrepreneurs scrapped the traditional “go it alone” strategy in favor of a new affiliation model, where competitors actively partner with one another in selected areas. They also brought in new investors, especially private equity groups (PEGs) that had abundant financial resources and saw an opportunity for disruptive innovation. In return for some equity for their partners, they signed up for a “second bite of the apple” that increased the overall value that was greater than what they could achieve on their own.

3. They Adopted a Millennial Perspective
Rather than the lethargic approach characteristic of many DME operators from the Baby Boomer generation, successful DME entrepreneurs have acted with a sense of urgency and agility that’s characteristic of high-tech firms, where most of the key employees are from the millennial generation. The technology aspect also enabled them to improve their operational capacity and enhance their total value for prospective buyers.

4. They Sharpened Their Strategic Clarity
Traditional DME companies often had a general sense of their strategic goals rather than a precise understanding of what would be necessary to succeed in a changed and changing marketplace. The most successful DME entrepreneurs set aside their historic biases, systematically assessed their risk/benefits, identified the resources necessary to succeed, and then aligned those resources strategically prior to taking action. To increase the liklehood of successful strategic plan implementation they also identified key dashboard metrics to help them monitor performance going forward.

5. They Have Leveraged Inexpensive Capital
Capital was fortunately relatively inexpensive at the time of the dramatic DME market changes, as it largely remains today. Many providers have accessed this capital to fuel their growth plans, including infrastructure improvement. In particular, they have leveraged depressed market valuations with inexpensive capital to acquire increased market share, add synergistic product lines and even attract new talent to their operations. These DME entrepreneurs heeded one of the basic rules for investing – buy low, grow quickly and then sell high.

6. They Focused on Precise Execution
In the past, DME companies often had good, but general implementation plans for their general goals. However, few were able or willing to execute those plans with precision, because such precision was not required in the old DME marketplace. The DME companies that have thrived (and there are quite a few) acted with conviction, evaluated their results, and quickly made course corrections in order to keep on growing and diversifying. They were and are ambitious, in the best sense of that word.

7. They Targeted Their Offerings
Traditional DME companies tended to offer a full line of products, regardless of whether those products were profitable or in high demand. As competitive bidding arrived, many DMEs stripped away these surplus offerings that offered little value, and they found themselves better able to focus on and market their key product lines. Today’s progressive DME companies tend to “drill down to core offerings,” while identifying cross-selling opportunities. This lets them quickly eliminate underperforming products, thereby increasing profitability.

8. They Have Learned to Learn Quickly
In order to take the actions described above, successful DME companies learned quickly from their mistakes and successes alike, incorporating those lessons into new offerings and new initiatives with a leaner management approach. Most importantly, they’ve learned that the DME market is continuing to evolve, like the rest of the healthcare industry, to a value-based, outcome-measured model that is especially favored by managed care. As a result, savvy DME companies have changed their approach and become the partner in care with the beneficiaries’ payors. In particular, they have consulted with their payors, identified their pain points, and then established models above and beyond the norm (fee for service) to ease or prevent the pain. Once the payors embrace this value proposition, the DMEs role becomes stronger with increased options for growth and diversity.

9. They Have Become Fanatical About Measurement
Funding entities and payers, whether public institutions, managed care organizations (MCOs), commercial insurance, or even consumers who pay cash, want to know about observable outcomes and value in terms of their healthcare. The most successful DMEs have incorporated outcome metrics in their operations that allow them to share their results with customers, payers and the general public. DME companies that can’t deliver these outcomes and value - or can’t communicate them effectively – are becoming irrelevant in our rapidly-changing market.

The disruptive approaches have helped DME companies survive and thrive despite the monumental changes in the industry. They also offer lessons learned that can guide you now and in years to come. Further changes are inevitable so keeping an agile perspective on the future will serve you and your DME well.

This article originally appeared in the May 2018 issue of HME Business.

About the Author

Bradley Smith, ATP, CMAA is a former DME owner, a certified mergers abd acquisitions advisor and is a Managing Director at Vertess Advisors, LLC, a national mergers and acquisitions advisory firm focused exclusively on the healthcare marketplace. He can be reached at (817) 793-3773 or bsmith@vertess.com.

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