Special report: HME industry forges a new identity

YARMOUTH, Maine - In an industry that has become accustomed to incremental changes through the years, external forces are now combining to greatly accelerate the shift away from the old fee-for-service (FFS) Medicare system to a value-based payment model that places more accountability on providers.

Though there are many external forces directing this metamorphosis, there are three major catalysts: consolidation, change in scope and information technology.

Consolidation is resulting in strategies for increased leverage and scalability; changing scope, in new business opportunities in post-acute care; and information technology, in improved operational  efficiencies.

'Tech will make it all possible'

Alan Morris, director of business development for Crown Point, Ind.-based HealthCall, which provides communications solutions for chronic care, says these three catalysts are intertwined, but each is stamping its own imprint on the industry.

“Reduced reimbursement and growing demand are driving change in HME,” he said. “The dynamic shift from volume-based to value-based purchasing models, paired with the rapidly growing elderly population, is beginning to drive a massive spike in demand for post-acute services. Data and technology are empowering HME to do more with less. The market is growing and the HME provider community is consolidating, but technology will make it all possible.”

New players, new money

In terms of influence, Mike Mallaro, CFO of Waterloo, Iowa-based The VGM Group, believes consolidation—throughout health care—is having the deepest impact on the changing industry.

“Consolidation is occurring on multiple fronts—dramatic payer consolidation has been occurring over the past several years and will continue,” he said. “With fewer, larger payers, the balance of power between payer and supplier is skewed and puts the supplier in a vulnerable position. Payers are able to drive lower reimbursement, narrow panels and demand supporting services that they, otherwise, could not compel providers to supply.”

Consolidation will also create a new economic environment, Mallaro says, as large providers seek to leverage their scale to create points of differentiation over smaller competitors.

“This leveraging of scale creates advantages in insurance contracting, cost efficiency and ability to invest in expansion and technology,” he said.

Consolidation is also bringing new players into the market, Mallaro says, pointing to “a tremendous amount” of European money and private equity investment in the HME market over the past several years.

“This new money has different perspectives on our market and new ways of looking at our business—that will drive changes and will affect the entire industry,” he said.

Risk is the only option

Jettisoning previously successful methods in favor of new, unproven and unfamiliar practices takes nerve, dedication, aptitude and faith—yet this risky approach may be the only option for survival, says Gregory LoPresti, CEO of Upstate Home Care in Syracuse, N.Y.

“It has been a long gradual change from FFS to what is now being contemplated with accountable care organizations and patient-centered medical homes,” he said. “But if you don't move away from FFS, you will never cut your way to profitability. You have to add new lines of business.”

Part 2 next week: Technology gives Geneva Woods a leg up