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by: Mike Moran - Thursday, October 7, 2010

I came across this study the other day by Kalorama  Information, which predicts big changes are in store for the home respiratory market. Here's the executive summary, which I think you'll find interesting. MM

Internet Sales Challenge Respiratory Equipment Manufacturers, Says Report

NEW YORK-  Over six billion dollars worth of respiratory equipment is sold through online dealers, often discounted, one of the many distribution challenges that manufacturers of respiratory  equipment will face in coming years, according to healthcare market research publisher Kalorama  Information. Companies active in this product area will need to adapt their approach in order to stay  relevant in this new environment, says Kalorama Information, in its latest market report on the respiratory  equipment industry, "Market for Respiratory Equipment and Disposables, 4th Edition."

Kalorama Information believes that while product innovation and marketing will always be important in order to succeed in the $63.8 billion respiratory equipment market, distribution is also critical. The market includes items such as oxygen concentrators, ventilators, and airway masks, among many other items  which improve a patient's breathing function or deliver anesthesia. Where once manufacturers' sales reps and a few key dealers sold to hospitals, distribution now includes not only specialized home health care  providers and extended care facilities, but also retail drug stores, surgical supply houses, hospital and  HMO-based stores, mass merchandisers and increasingly, internet-based dealers.

"Where a respiratory equipment product is sold has become as important as the product itself," said  Kalorama Information publisher Bruce Carlson. "Internet price erosion is going to be a particularly important concern for manufacturers going forward."

Kalorama estimates that internet-based dealers now account for 10% of respiratory equipment sales and expects the internet to continue to grow in popularity. Products are often priced at a 25% to 30% discount online—and manufacturers are likely to respond with new high-value products or with products priced for  the discounted channels.

The report cites Respironics as an example of a company that has adopted multiple products at differing  price points for various levels of distribution. Its REMstar Series CPAP systems are low-cost, obstructive  sleep apnea therapy devices for the home care and internet market, while its BiPAP Pro and BiPAP Plus  are more feature-rich devices for standard distribution.

Kalorama's report, "Market for Respiratory Equipment and Disposables, 4th Edition," covers the  latest trends and developments in a variety of segments. The report provides market estimates and  projections, and profiles of major competitors in the industry, aiding industry participants to re-assess the  industry's growth areas and direct their resources to these areas. It is available here.

by: Mike Moran - Tuesday, September 28, 2010

Tom Walters is the president of Total Office Management in Columbia, S.C. And when he says Total Office Management, he means it. Walters consults on everything related to running an office. Lately, and probably this will come as no surprise, he's been spending a lot of time helping providers do self audits. That's one way to discover if a company has its bases covered before a ZPIC, MAC, RAC or some other audit agency walks through the front door looking for trouble. I talked to Tom recently about his work with providers, and here's some of what he had to say.

HME News: When you do an audit, how many claims do you look at?
Walters: I look at roughly half of 1%. If I see issues coming up within that, then we'll do a more focused audit.

HME: Are you seeing certain problems coming up over and over again?
Walters: Lack of documentation in the medical record. The justification for the equipment as outlined by the local carrier coverage determination.

HME: Don't most provider know what documentation is needed?
Walters: We've become complacent in the industry and CMS has adopted a very stringent attitude that if it is not documented it didn't exist. And in that regard, they are taking the LCDs and going through them step-by-step, looking for those items that document medical necessity. They are looking at coding. They are looking at medical record documentation. They are looking at duplicate services.

HME: What's your advice to providers?
Walters: No. 1. They have to become very familiar with the LCDs. No. 2. An ounce of prevention is worth a pound of cure. They need to do a mock self audit. And where you can, educate the ordering entities on Medicare rules and regulations. Tell them what is expected of them. Too often I hear from physicians, "I've never heard about this before. Where did this come from?" And it's been a part of the LCD forever.

Mike Moran

by: Mike Moran - Friday, September 24, 2010

I had a long conversation this morning with an HME provider who's trying to serve his patients well and make living. Unfortunately, this provider told me, and this is something we all know, CMS continues to pass rules and regulations to control fraud and abuse, but all they're really doing is making it  harder everyday for small HME providers to survive.

With that in mind, here's something the provider I talked to this morning told me. I'm passing it on because it strikes me as honest and true. It's also a great commentary on the sorry state of affairs at CMS, where accountability and effectiveness seem to be in short supply.

"Stop coming up with more rules and regulations. Enforce the ones you've got, and you won't have a problem. Who's causing the problems? The thieves and the crooks. Do you think another rule is going to bother them? They're breaking the ones that are already in place. Why does Medicare think they'll care about another one? All Medicare's doing is making it harder on us: The honest people. I'm just a common sense, down-to-earth person. I don't even have a college degree. I just have life experience. It's not that hard for me to see this. I don't understand why it is so hard for other people to see."

Mike Moran

by: Mike Moran - Tuesday, September 21, 2010

Yesterday, I called Karen Moore for some information on revenue per full-time employee for HME companies. Karen is a turnaround expert and a partner at AnCor Healthcare Consulting. I called Karen because in our 2010 Financial Benchmarking Survey, the number of providers with revenue per FTE of $150k  or more decreased significantly in 2009. That's not good, but don't take my word for it. Here's what Karen had to say on this very important topic:

As you know, revenue per employee is a key measure of operating efficiency.  The higher the company's revenue per employee, the better their profits typically are. There are, of course, other factors, but if you take two companies with comparable payer and product mixes and collection ratios, the company with the higher revenue per employee will likely generate the higher profit regardless of most other factors.  True, equipment acquisition and other operating costs influences profit but not to the extent that revenue per employee does. For this industry, companies generally want to have a revenue per employee of $165,000 or higher.

The revenue per employee for most companies has been increasing despite and also because of reimbursement reductions.  Most companies that haven't been able to increase their revenue per employee are no longer profitable.  One notable exception would be Lincare, whose 4th QTR 2008 revenue per employee was $167,000 and whose revenue per employee today is $165,000.  It's no coincidence that Lincare's profit dropped from $2.07 a share in 2008 to $1.34 a share in 2009.  Rotech and American HomePatient also have made only marginal improvements in their efficiency and without dramatic changes in payer/product mix and additional operating efficiency these companies are not going to be around for long. Rotech's revenue per employee for 2nd QTR 2010 was $130,000.

From my experience, some of the midsized companies ($10M to $50M) have done the best job improving their revenue per employee and overall operating efficiencies and may be best positioned to deal with competitive bidding and additional reimbursement cuts.

I think that is what they call food for thought.

Mike Moran

by: Mike Moran - Friday, September 17, 2010

I mentioned a while ago that I just received a fresh batch of DME data from CMS. As I was looking at this data, I thought it would be kind of fun to put together a little test. So here you go. Test your knowledge. The answers are at the bottom, but don't look!

1. If you expect to be able to battle competitive bidding and come out the other side, your company's EBITDA should be what?
a. 50%   b. 12%   c. 8%   e. 25%

2. How many Medicare beneficiaries have 3 or more chronic conditions?
a. 13%  b.7%  c. 47%  d.25%

3. How many HME providers in the United States received Medicare reimbursement of $10 million a year or more in 2009?
a. 9     b. 1066    c. 539    d. 54

4. Medicare reimbursement for intermittent urinary catheters (A4351)  changed by how much in 2009 compared to 2008?
a. 105%   b. -23%   c. 14.7%    d. 39.28%

5. Medicare reimbursement for CPAP (E0601) changed by how much in 2009 compared to 2008?
a. -13%   b. -16%    c. 11%    d. 2%

6 Which company received more reimbursement from Medicare in 2009?
a. Liberty Medical    b. Apria

7. How much reimbursement did Hoveround receive from Medicare in 2009?
a. $64M   b. 102M    c. 38M    D. 98M

8 Hospital in-patient services will vacuum up how much of Medicare's $509 billion budget this year?
a. 10%   b. 27%   c. 23%   d. 44%

9. Home care services account for how much of Medicare's 2010 budget?

a. 8%    b. 4%    c. 11%    d. 2%

10. What percentage of Medicare beneficiaries are 85+?
a. 12%    b. 21%    c. 8%   d. 4%


1. e   2. c      3. d     4. a     5. b    6. Liberty ($417M to $369M)   7. a    8. b   9. b   10. a


10 correct: You are on your way or have arrived

8-9 correct: You've got promise

6-7 correct: You've got a fighting chance

4-5 correct: You need to work harder

3 or fewer correct: Who cares? It's just a stupid game HME News made up.

Mike Moran

by: Mike Moran - Friday, September 10, 2010

I am just about to shut it down for the weekend, but first I want to share some Medicare data and statistics that that I've been collecting over the past few months for a future project.

Check this out:

* 47% Medicare beneficiaries have income less than 200% of the federal poverty level, which is $21,660 in 2010.

* 45% of Medicare beneficiaries have three or more chronic conditions.

* 24% of Medicare beneficiaries are enrolled in a Medicare managed care program, up from 13% 2005.

* In 2008, 46 HME providers billed Medicare for more than $10 million. In 2009, that number jumped to 54. I suspect the increase is do to consolidation.

* In 2009, Medicare's allowed charges for oxygen concentrators (E1390) totaled $1.8 billion. That's a decrease of 29.67% from 2008.

* Medicare's allowed charges for CPAP (E0601) totaled $213 million in 2009, a 15.84% decline from 2008.

* Medicare's allowed charges for K0823 power wheelchairs dropped 11.77% in 2009 to $547 million.

* Lincare received the most total reimbursement from Medicare in 2009 of all DMEPOS providers: $720 million.

Interesting stuff, isn't it.

Have a great weekend. And if you're looking for something to do Monday and Tuesday, join me in Nashville for the HME News Business Summit.

Mike Moran

by: Mike Moran - Wednesday, September 8, 2010

If you are in Washington next week, here's something you may want to check out:

WASHINGTON - The health subcommittee of the House Energy and Commerce Committee will hold a hearing on the Medicare "competitive" bidding program for HME on Wednesday, September 15, 2010.  The hearing is titled, "Medicare's Competitive Bidding Program for Durable Medical Equipment: Implications for Quality, Cost and Access."

The subcommittee notice stated, "This hearing will examine the conception and implementation of the competitive bidding program, the implementation of the Round One Re-Bid, and its potential effects on patients, providers, and physicians."

AAHomecare encourages HME providers and patients to attend the hearing in person to demonstrate their concern about the bidding program. Those who cannot attend should continue to press for repeal of the program, the association stated.

AAHomecare has asked to testify at the hearing, which may include a panel of representatives from the HME community after a panel of federal officials who will defend the program.

The hearing is slated to begin at 10:00 a.m. in Room 2123 of the Rayburn House Office Building, in Washington D.C.

by: Mike Moran - Friday, September 3, 2010

Dr. Steve Landers of the Cleveland Clinic said something very interesting this week at Invacare's annual Media Day. He called home care "futuristic."

That's not something you hear everyday, especially with Medicare and other payers cutting reimbursement right and left, and refusing, for the most part, to recognize the important role home care plays in keeping patients happy, healthy and out of more expensive institutional care settings. Heck, CMS seems intent on blasting HME back to the stone age.

Media Day included a ton of interesting speakers, but Landers, who specializes in home care at the Cleveland Clinic, really impressed me. I mean, here's a guy who still goes out on house calls. He understands how important remaining at home is to seniors. "Home care is very intimate, and often times, (seniors) will hug and hold hands with you," he said.

By futuristic, Landers means that home care is the future on health care, or at least a key component. It's inevitable that more and more institutional care will transition to the more cost-effective home setting. Remote monitoring, mobile diagnostics and other technology is already paving the way for this, he said.

During his 30-minute talk, Landers also said that "home is integral to one's health and well being" and that "seniors fear nursing homes more than death." I know from personal experience that this is true. My father-in-law, Bob, recently died at home after a long battle with pancreatic cancer. During his last days, Bob slept in a hospital bed in his office, getting up (with much help) only to use a commode. Toward the end he didn't get up anymore. My 12-year-old son sat at Bob's side, holding his hand. My 9-year-old daughter sat on the other side of the bed and dropped ice chips into Bob's mouth. Being at home, as much as possible, eased Bob's mind. Death was inevitable, but a hospice nurse, HME provider and family members made his last weeks as good as possible.

Landers is a good guy for the HME industry to have on its side. But I wonder: When will CMS and other bureaucrats in Washington get it?

Here are a few more tidbits from Invacare's Media Day:

* During a panel discussion, one of the questions asked was: What's the biggest thing HMEs can do to become more efficient? The unanimous answer: Use technology to do more with less.

* Invacare is not an "altruistic" company," and won't lend money to just any old provider, said Carl Will, senior vice president of Invacare Homecare. Picking the right HMEs to work with will determine a great deal of Invacare's success. The publicly traded company will help providers develop business plans that address competitive bidding and other reimbursement cuts, but it's up to individual providers to execute the plan. Will did not mince words. Executing a new business plan can be "treacherous," but providers have no choice and those that succeed will "reap rewards."

* Don't ignore the Internet. Seniors spend, on average, 45 minutes a day online, and the majority of boomers use search engines to gather healthcare information, said Daniel Lee, Invacare's vice president of marketing. "People are shopping more online and want to know what their choices are," he said. "As needs increase, consumers will speak up more about access issues."

* Even with reimbursement declining, the industry cannot cut corners, said Lou Slangen, senior vice president of worldwide market development. Manufacturers must make better products and maintain quality and reliability. Providers should consider outsourcing and other strategies that let them reduce costs and still meet patient needs.

* Mal Mixon, who suffered a mild stroke earlier this year, made a surprise appearance toward the end of the day. He started off by saying: "Hello, everybody, I've been wounded." Mixon has returned to his duties as chairman of the board, and while he's getting stronger every day, he's not sure if or when he'll resume his CEO responsibilities. "I hope to come back, but I'm not sure that I will," he said.

Mike Moran

by: Mike Moran - Friday, August 27, 2010

I'm flying out Monday to Elryia, Ohio, and will spend Tuesday visiting with Invacare and getting up to speed with all the stuff they are doing these days.  Before I go, I want to pass on this piece of news that came flying into my in-box at 3:46 pm this afternoon.

Here you go:

GF Health Products, Inc. ("Graham-Field") is pleased to announce the promotion of Ken Spett
to the position of President and Chief Operating Officer.

Spett's diverse background in the healthcare industry includes a variety of senior executive, sales, and marketing positions spanning more than 30 years. His global experience and in-depth industry knowledge are among Graham-Field's most invaluable assets. He began his career with Graham-Field in 1983 as Vice President of Operations for Labtron Scientific Corporation, then became Corporate Vice President of Marketing when Labtron and Graham-Field merged. He later served Graham-Field as Vice President of its Medical/Surgical Division, Senior Vice President, and most recently, Executive Vice President, where he was responsible for the Medical/Surgical, Homecare, Long Term Care, Consumer, and International Strategic Business Units, as well as Global Operations and Marketing.

Beatrice Scherer will continue, in her role as CEO, to oversee administration and strategic planning, while Spett will focus on operation and sales. Together Scherer and Spett will move forward to build on Graham-Field's winning framework: the manufacture and distribution of well-known, name-brand healthcare products that symbolize quality and value.

That's it. Have a great weekend, and I'll let you in next week on everything I found out while visiting Invacare.

Mike Moran

by: Mike Moran - Friday, August 20, 2010

I just finished reviewing the results from the 2010 HME News/Steven Richards Financial Benchmarking Survey. We'll present all of the findings at the HME News Business Summit next month in Nashville, so I don't want to give too much away here. But much of the data that we collected from almost 200 HME providers is bothersome.

For example:

* 38% of respondents said their revenue growth declined in 2009. That's up from 19.7% in 2008

* Half of all respondents are losing revenue or not growing

* On average, 37% of HME provider revenue comes from Medicare. That's down from about 43% in 2008, but Medicare still represents way too much of the average HME's revenue base

*Revenue per full-time employee does not look good, either. In 2008, 52% of providers said that their revenue per FTE was $150k or more. In 2009, only 44% of providers could say that.

The survey includes 54 slides of data, so what I just listed only touches on our findings. But overall, it appears that to survive reimbursement cuts, HME providers are cutting costs but not growing revenue. That's not good. You've got to do both because at some point you're going to run out of things to cut. Then what will yo do?

The bottom line is this:

The bell is tolling. HME providers much shore up their bottom lines now. Cash flow is obviously a critical factor, but providers simply cannot survive with the business model we are seeing in this report.

Mike Moran