Cape Medical reels in big fish

SANDWICH, Mass. - Cape Medical Supply, a 28-year-old HME servicing Cape Cod, Mass., and the surrounding islands, completed its first-ever acquisition in mid-December, and it was a significant one: The deal more than doubled its number of home oxygen patients. Cape Medical decided to grow its home oxygen business, despite a Medicare landscape that includes a 36-month cap on Medicare oxygen reimbursement. "There's still long-range opportunity in the industry," said Gary Sheehan, general manager and 27-year-old son of owners Mark and Nancy Sheehan. "I understand that we're up against some pretty severe regulatory headwinds, but growth is the key to surviving." Cape Medical's acquisition of nearby Cape and Islands Home Oxygen and Personal Care Center adds 330 home oxygen patients to its existing roster of about 160. The two acquired companies were formerly owned by Cape Cod Health Care. With the hospital group out of the HME picture, Cape Medical plans to develop a better relationship with Cape Cod Health Care and its Cape Cod and Falmouth hospitals, Sheehan said. "When there's a hospital group in your market that owns an HME, you don't see much business from the them," he said. Cape Medical has wanted to acquire Cape and Island Home Oxygen for some time, and Bob Leonard, an M&A associate with the Braff Group, said he's not surprised the hospital group finally decided to jump ship. "It seems to go in cycles, and for a while, each hospital wanted its own HME," he said. "But that has pretty much reversed. "We're now seeing a lot of hospitals getting out of the HME business and getting back to their core business," he continued. "They've realized they diversified too broadly--they got out of their area of expertise." To handle the additional home oxygen patients, Cape Medical hired four employees from Cape and Islands Home Oxygen. Since the Dec. 16 acquisition, it has hired four other employees, bringing its total number of employees to 34. Cape Medical has also expanded its 10,000-square-foot location by 2,000 square feet, and it's looking to expand elsewhere. Despite an uncertain Medicare landscape for home oxygen, Cape Medical has diversity on its side, Sheehan said. The provider serves not only home oxygen patients but also oxygen patients in hospice and skilled-nursing programs. Cape Medical's payer mix consists of of Medicare (30%), Medicaid (20%) and private insurance (50%).