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by: Mike Moran - Tuesday, November 16, 2010

I flew from Maine to Atlanta Sunday night to get ready for Medtrade, which starts at 10 am this morning. From all I've heard and seen so far, the industry's biggest trade show  looks like it will be a bit bigger than last year. That makes sense because if the industry does not come together in times like these, it never will. The show always produces a few surprises, but the one thing I know for sure is that the topic of conversation on everyone's lips will be competitive bidding.

The general consensus is that while the industry plans to fight like hell to eliminate competitive bidding, there's no guarantee that will happen. That means providers should hope for the best but plan for the worse.

That was a point of discussion yesterday during a panel discussion with industry leaders sponsored by The MED Group. One question was something like this: What's the best piece of business advice you would give providers?

Here are some of the answers:

Doug Frances, senior vice president, Drive: Start referring to patients as customers because that is what they are. In addition to the products they've been prescribed, what else do they need? This doesn't mean to sell them things just to make a sale, but to sell them products that will improve their lives.

Dave Jacobs, senior vice president, Medline: Must be something to this idea of treating patients like customers because Jacobs had a similar take. He advised providers to maximize the business they do with their current customer base. There's a great opportunity to do more business with patients who already trust you and probably need more of the products you offer.

Carl Will, senior vice president, Invacare: Make sure your company is generating cash or that you have a good source of funding. If you chase sales but don't have the cash to support that growth "it can be the end of you."

Scott Meuser, CEO, Pride Mobility: Too many providers have a business strategy to struggle instead of a strategy to win. Figure out what you are good at and work to be great at it.

And with that, I'm off to the show.

Mike Moran

by: Mike Moran - Thursday, November 11, 2010

There's no way HME providers will be cut out of the distribution model, right? I mean, who's going to deliver the product to the patient? Manufacturers aren't set up to do that, right?

That's been the conventional wisdom for years, but now I'm not so sure.

I say that because over the past month, a few stories surfaced that got me thinking that some changes may be afoot.

The story that really grabbed me was about Inogen winning six competitive bid contracts for oxygen. Inogen, as you probably know, makes a portable oxygen concentrator, the Inogen One. Back in 2008, when sales of the Inogen One didn't meet expectations, the company began selling direct to consumers for cash. Since then, Inogen has become accredited and received a Medicare supplier number. If providers don't want to distribute its product, fine. Inogen will do that itself, CEO Ray Huggenberger told me.

In addition to selling direct, Inogen has a network of preferred providers. Inogen advertises its product on TV and drives business to its HME partners. In markets where it doesn't have a provider partner, Inogen goes direct to the end-user, either as a cash or insurance transaction.

Inova Labs, which went national with its POC, LifeChoice, last summer, has no intention of getting a  Medicare supplier number, but it does have a network of preferred providers. Inova wants to work with providers committed to its technology. If you only want to sell a LifeChoice here and a LifeChoice there, don't bother calling, said President David Shockley

Finally, there's been a recent rash of M&A activity, with private equity groups snapping up HME manufacturers and distributors. When I saw this, I called industry consultant Wallace weeks. (Wallace is retiring from consulting at the end of this year, but until then, I'm milking him for all he's got.)

"What do you make of this Wallace?" I asked

Whenever a market, like HME, is in turmoil, investors like to swoop in, unleash new business practices/models that drive superior revenue and then sell in five years or so at a nice profit, Wallace told me. Makes sense. These investors aren't married to old ideas.

So, do I think we're going to see a rush of HME manufacturers going direct to the end-user any time soon? No. But do I think it's likely we'll see alternative distribution models emerge that minimize and/or redefine the role of HME providers? Wouldn't surprise me. Would it you?

Mike Moran

by: Mike Moran - Thursday, November 4, 2010

A friend of HME News forwarded me this Deutsche Bank-Equity Research analysis of Medicare's competitive bidding winners, which CMS announced yesterday. It's not very encouraging. The most interesting parts of this analysis are paragraphs two and three. In particular, this statement: "We believe CMS has shut the door, for now, on  real progress to change bidding rules for Rd 2."

Here you go:

The news: CMS announces DMEPOS Rd 1 Competitive Bidding contract
winners. CMS received signed contracts by 356 discrete suppliers in
1,217 separate contracts across the 9 CBAs. According to CMS' press
call, 76% of the contracts are w/suppliers that have an existing
presence in the markets and 90% of contracts are w/suppliers that
have experience in the product categories they plan to supply in the
CBA. CMS indicated the return rate was 92% (based on 1,324 contract
offers) and 51% of suppliers are "small businesses." As expected,
CMS will move fwd w/Rd 1 on Jan. 1, 2011.

Based on our review of the list of contract winners, we make some
observations: (1) several of the national chains have contracts in
multiple markets including Apria (8 O2 / 7 CPAP), American Home
Patient (8 O2 / 9 CPAP), Pacific Pulmonary (3 O2 / 4 CPAP), and
Rotech (6 O2 / 3 CPAP). As previously disclosed, LNCR is in 2 oxygen
markets. (2) we see several "non-traditional" business models in
several CBAs such as Inogen (a Venture backed product co.) in 6 CBAs
for O2, US Med, Inc. (a mail-order supply co.) in all 9 CBAs for
CPAP and Open-Aire (a product/service co. in the portable market) in
7 CBAs for O2.

CMS comments on Rd 2. CMS indicated it has met w/some the critics of
the CB program (such as Univ. of MD academics), but CMS leadership
stated the agency is confident in its methodology and has no plans
to change for Rd 2. CMS noted that it would actively monitor Round 1
for problems. CMS leadership suggested that the 92% acceptance rate
of the contract offers may put to rest some of the criticism. We
found CMS to be slightly abrupt on its press CC, and we continue to
wonder what (if anything) will get CMS to reconsider the bidding
rules for Rd 2. We believe CMS has shut the door, for now, on
real progress to change bidding rules for Rd 2.

Regards,
Darren Lehrich
Deutsche Bank Equity Research

Mike Moran

by: Mike Moran - Tuesday, November 2, 2010

Here's something from AAHomecare that landed in my email in-box a few minutes ago. It's a good laundry list of what the industry is up against these days.

CMS today released the 2011 Medicare physician final rule entitled, “Medicare Program; Payment Policies Under the Physician Fee Schedule and Other Revisions to Part B for CY 2011.”   The rule contains the following important provisions for the home medical equipment community:

- Adjusts the formula for calculating the annual update for DMEPOS items with a productivity adjustment;

- Eliminates the first-month purchase option for standard power wheelchairs;

- Modifies payment policy for oxygen equipment for beneficiaries who relocate their residence outside the provider’s service area;

- Addresses transition payments for oxygen and capped rental equipment when beneficiaries change providers;

- Adds an appeals process for contract providers terminated from competitive bidding program;

- Authorizes the implementation of a national mail order competition for diabetes supplies;

- Establishes additional rules for diabetes supplies (50% rule and anti-switching rule).

To read all about this in more detail, click here.

Mike Moran

by: Mike Moran - Friday, October 29, 2010

I ran across a study recently that made me sit up and say, Wow.

Check this out: People who smoke heavily in midlife more than double their odds of developing Alzheimer's Disease, according to Kaiser Permanente.

To be more exact, and I quote: Compared with non-smokers, those in the study who smoked two packs of cigarettes a day increased their risk of developing Alzheimer's by more than 157% and had a 172% higher risk of developing vascular dementia -- the second most common form of dementia after Alzheimer's.

After reading about this study, I had a thought: I wonder if this represents a business opportunity for home respiratory providers? They're already supplying oxygen to patients (mostly smokers or former smokers), and chances are many of these patients will eventually develop Alzheimer's. Why not also supply products, services and education for these patients and their caregivers?

I knew this was a big market, but I had no idea how big. It's huge. Here's some information I pulled from the National Institute on Aging:

According to recent estimates, as many as 2.4 million to 5.1 million Americans have AD. Unless the disease can be effectively treated or prevented, the number of people with AD will increase significantly if current population trends continue. That's because the risk of AD increases with age, and the U.S. population is aging. The number of people age 65 and older is expected to grow from 39 million in 2008 to 72 million in 2030, and the number of people with AD doubles for every 5-year interval beyond age 65.

With numbers like that, this market represents a big business opportunity for somebody, at least in the disease's early stages when the patient is still living at home. Maybe that somebody is you.

Mike Moran

by: Mike Moran - Tuesday, October 26, 2010

I received an interesting email yesterday  from an HME provider I've known and respected for several years. This provider, who asked that I not use his name, had a "few thoughts" on a blog I posted last week, "Just the facts, please." In that blog, I suggested that providers ought to diversify away from Medicare oxygen and more vigorously pursue retail sales. However, after reading and considering this email, I'm reminded once again that there's usually more than one way to skin a cat. Here's the email:

I just read your blog and have a few thoughts.

Patient spending on health care: It is true that patient spending on health care is on the rise - even for DME. But I be believe most DME suppliers (including my company) do not stand a chance in the retail space. Most retail DME purchases are for commodity items and they will be purchased online or at mass market retailers like Wal-Mart. But the bigger issue is that our entire organizations are designed around an insurance reimbursement model. Our services are defined by insurance companies. Our costs are geared around insurance reimbursement. So moving after the cash market is a much bigger lift than it may appear on the surface. Finally, people expect their insurance to pay for the stuff we provide. The mentality is that if my doctor wrote a Rx, my insurance will pay. Changing that mentality it much bigger than the industry.

Medicare oxygen: You describe the top line growth of 5-6% annually. It would be more accurate to say the census growth is 5-6% annually. No one knows what the top line (i.e. revenue) change will be - but my guess is it will go down considerably. I think your numbers are in the right ballpark on the number of new Medicare patient starts per month (but if you include other payers the number is a good bit higher). But here is the thing - there is plenty of opportunity for suppliers to make money in the Medicare oxygen business. It will require a lot of management (coming in at 10 and leaving at 1 will be tough most days) and planning. But the growth in demand will leave plenty of opportunity to make it all work out. And because companies are going to exit the market it is conceivable for companies to grow at double-digit rates for years on end (at least in census) despite the challenges. At my old company we sold microfilm equipment until 2002. I don't think there was a single image placed on microfilm after 1990. So we had 10 years for great margins and very little competition. It did eventually come to an end but we maintained a nice business for a dozen years after the industry "ended." There is a lot of money to be made in a declining market. And this market is not really declining when measured in census.

So I would say companies remain better off if they stay specialized in whatever areas they have expertise. Diversification will hurt most companies in this industry. They are simply too small to dedicate the energy, people and money into another area.

To me, all these changes do make it difficult to plan a clear exit strategy and I think that is a big part of the industry malaise. Everyone that has ever worked in this business has watched as everyone and their brother was successful and selling their business for some decent payday whenever they were ready to get out. That has created a disincentive for owners to make good long term investments in people, processes and assets. Perhaps as people recognize they will own their businesses for a long time they will run better businesses.

Mike Moran

by: Mike Moran - Thursday, October 21, 2010

Back in August I attended Invacare's Media Day, and recently Invacare emailed me a bunch of information from the various presentations. Many of the slides are relevant only in the context of the total presentation, but I was able to pull out some data that can stand on its own. Here's that data followed by my take on what it all means.

Digital Facts:
- Global Population: 6.6+ billion
- 21% Online: = 1.4+ billion
- 65+ Population: 15% = 1+ billion
- 65+ Population (US) = 77 million
- 65+ Online (US): 30% = 25 million

- Seniors spend on average 45 minutes a day online, and the majority of Baby Boomers use search engines to gather health-related information.
- Senior are more likely to click on online ads and more likely to purchase an item than younger people.

My take: When I see this kind of information, I can't help but think that HME providers really need to figure out how to use the Internet to reach potential customers. We're talking millions of people on line looking for health care information and products. This market is just going to keep growing. Think of your own buying habits. Aren't you buying more and more stuff online? I know I am. If I can point and click, pay with a credit card and have the product delivered to my door, what's not to like? This is one boat you don't want to miss. Somehow, someway, you need to figure out how to integrate internet sales and marketing into your business plan.

Patient healthcare spending
-Out-of-pocket healthcare spending in 2010 will reach an estimated $290 billion
-Average employee total out of pocket  costs for healthcare are estimated to hit $4,023 per person in 2010. This projection is $367 (10%) higher than  2009 figures.
-Collecting patient-owed balances is challenging and time-consuming and many providers are not pursuing these balances
- Many providers recover less than 40% of their patient-owed A/R
- Patient pay recovery is beginning to represent a provider's margin.

My take: You pay your co-pays and deductibles. Make your patients do the same. If you can afford to not collect 40% of your patient A/R, than your reimbursement is way too high. I dare you to try and convince me otherwise.

Medicare oxygen
In 2008, the Medicare oxygen market included 1.1 million stationary patients and 711,858 patients using portable oxygen; 64% of these patients used both stationary and portable oxygen; 36% used stationary only.

How to interpret this data:
- Stationary oxygen is a mature market with 5% to 6% average top line growth
- In 2008 there were approximately 1.5 million distinct Medicare O2 patient claims annually  with a monthly average of 1.12 million patients
- The combination of claims, patient life cycle and annual net growth suggests there are about 45,000-55,000 new patient starts/month
- Net ambulatory oxygen patient growth per year for all O2 patients = 57,000

My take: Hmmmm. A stable mature market with shrinking reimbursement. Lincare has begun to diversify and reduce its exposure to Medicare oxygen.  For most providers, it's time to play Follow the Leader.

Mike Moran

by: Mike Moran - Friday, October 15, 2010

Over the past week or so while performing my work here at HME News, I ran across the idea of “caring” several times. It made me realize that most of us take caring for granted. I know I do. It’s just what we do. We care about out jobs. We care about our families. We care about our friends. We care about our homes.  We pretty much care about all the stuff that makes up our lives.

In reading over the November issue of HME News, which we ship to the printers Monday, two quotes about caring struck me. Both came from people we interviewed and who will be speaking at Medtrade next month.

Erick Allen

HME News: Where do HME providers excel?

Allen: They care. You cannot find a more caring and compassionate group of people—they really want to do well. It is one of the most amazing groups of entrepreneurs you’ll ever see.

Jonathan Gordon

HME News: What do HME providers do well in the retail space?

Gordon: Really caring about the patient and really having the patient’s best interest in mind. That’s something they can leverage, because they already have that mindset. It gets them a lot of the way down the road toward what they need to do for customer service and marketing to build a retail operation.

I wanted to pass those quotes a long because people do notice the good work that HME providers do.

Now for another quote. This one is from Esta Willman, a California provider who is also a member of the Program Advisory and Oversight Committee (PAOC) on competitive bidding. As most of us know by now, competitive bidding is a lousy program full of flaws that will lead to disaster. The industry has said this for a long time, but recently 167 independent economists said the same thing in a letter to the House Ways and Means Committee.

Here’s what Willman told me a week or so ago, again it’s about caring

“I would hope there would be a delay long enough to have a look at what these economists are talking about and then from there making an informed decision. I hate to say that this thing ought to go through a rebid one more time, but at the risk of decimating an industry and curtailing patient access to things that they need and increasing Part A costs, that would be prudent. There should be no pride in this kind of a program. There should be no personal agenda. Not when you are talking about a national program that involves the health of people.”

The question now is: Do CMS bureaucrats care what these 167 economists have to day?

I hope so.

Mike Moran

by: Mike Moran - Thursday, October 14, 2010

Jon Jasperson, the president of Aspirant Education (www.dmetrain.com) emailed me this morning with a link to a story about how members of an "Armenian organized crime enterprise" bilked Medicare out of more than $160 million.

Just for kicks, I went up to Google and searched for Medicare Fraud. You should try this yourself. You'll find various versions of this story, plus a whole bunch of other stuff, including ads for products to "Stop Medicare Fraud."

A whole industry has grown up around committing and combating Medicare fraud. It's pathetic and disheartening to see our tax dollars wasted like this, especially with the country in the economic doldrums.

Why is CMS so helpless? Why is there no accountability? You'd think that after years of letting crooks pick the taxpayers' pockets there'd be some big shake up at CMS. Obviously, the bureaucrats who have been there for years are not getting the job done.

I bet they feel mighty lucky that they are not paid for performance.

Mike Moran

by: Mike Moran - Friday, October 8, 2010

When Len Serafino, the vice president of sales for CHAD Therapeutics, told me he'd written a novel and wanted me to read it, I'll be honest, I was not all that enthusiastic. This is no knock on Len. I've always liked Len and enjoyed talking to him. He's written a bunch of stuff for HME News over the years, and it's all been very good. But when it comes to the novel, you've got to know what you're doing or the result can be a mind-numbing experience, which, in general, I like to avoid.

Well, you know what? Len's a pro.

That's right. He's really good.  I read Len's novel, Back to Newark, and it's a page turner--and I'm not getting a kick back to say this.

It's about a middle aged guy who loses his wife (twice), his job and then gets bullied out of $450,000 by a boyhood friend turned mobster. In trying to get the doe back, which he planned to use for his retirement, the main characther, Phil Falco, goes on a journey of self-discovery. Along the way you meet his girlfriends (he's got a way with women); his daughter, a not too bright young woman who believes becoming a porn star is just the first stop on her road to Hollywood fame and fortune; and a couple of thuggish gangsters who give the book an air of danger.

If you are looking for something to read, you can order Back to Newark through Amazon.

As I was reading Back to Newark, it got me thinking. I bet there are a bunch of people out there in HME land doing really great stuff, but because it has nothing to do with home medical equipment, we never hear about it. For example, industry consultant Wallace Weeks is retiring at the end of this year and will devote himself to one of his passions, commercial photography. Check out his site. Wallace is really good.

If anyone else is doing something creative out there unrelated to HME, I'd love to hear about it. You never know, I may be sitting around late some Friday afternoon (like I am now), looking for something to blog about.

Have a great holiday weekend.

Mike Moran

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