HME providers look for escape

YARMOUTH, Maine - Caught between a rock and a hard place, HME providers are asking other providers to purchase their businesses. 

“The bidding program locked them out of a lot of categories of products, and the audits crippled the categories they were still able to do, so there was really nowhere to go,” said Chris Rice, CEO of Riverside, Calif.-based Diamond Respiratory Care, which has been approached by several other companies in California.

A bustle of activity—companies looking to subcontract or sell—in the early days of Round 2 fell off in the last quarter of 2013, Rice said. It's since rebounded with the Round 1 re-bid in the first quarter of this year. Few have been attractive, he said, with most being asset purchase deals.

Providers have also approached Boardman, Ohio-based Seeley Medical looking for a way out. The company is often interested but remains judicious about where it is spending its money, says Joe Petrolla, president.

“Some people are like, 'Just take my business over,'” he said. “We're in conversations with businesses in our territory that can't do it, didn't win bids, don't know what to do, and have lines of business we think we can expand into.”

There's a similar situation in the mid-Atlantic, says Terry Luft, a vice chairman at Harrisburg, Pa.-based Dynamic Healthcare Services (DHS), which in April completed its third buy of this year. After a DHS acquisition is publicized, the company often receives several phone calls from other companies looking for an exit strategy, he said.

“If CMS wanted to tear the industry apart and take the 'mom and pop' out of it, this bid has been successful,” Luft said.

While there may be a lot of interest in buying and selling, there's usually a disconnect on valuation that keeps deals from closing, says Pat Clifford, a managing director at The Braff Group. Often, sellers turn down offers they think are too low, he said.

“I've talked to regional players who say they've offered some of these smaller players a way out and they haven't taken their offer,” he said. “I've heard a fair amount of talk about (deals), but haven't seen them get accomplished.”