Forced Consolidation Damaging Healthcare

Flawed federal government policies are forcing a dramatic consolidation of healthcare providers across the nation.  This consolidation is greatly reducing competition among providers, reducing patient choice and severely limiting patient access to needed healthcare.  The most significant consolidation is occurring in homecare and home medical equipment, where government policies have been particularly aggressive in forcing consolidation.

SEE BELOW FOR COUNT OF LOST MEDICAL EQUIPMENT STORES BY STATE

In the past three and a half years, the number of home medical equipment suppliers and the number of locations has declined by 38%.  This is a staggering downsizing of suppliers in any environment.  This consolidation is even more egregious when considered in the context of a growing population of seniors brought on by the aging of the baby boom generation. The frail elderly and the disabled are the populations which rely upon home medical equipment suppliers to maintain quality of life.  Consolidation is occurring across the healthcare continuum.  Over the past five years, hospital system consolidation has occurred at higher rate than in any other five year period in history.  Over the three year period from 2012 to 2015, 12% of all physicians in the US went from an independent practice to being employed by a health system.  That’s 46,000 docs consolidating into health systems in just three years.

Drilling deeper into the home medical equipment consolidation provides a clear correlation between federal policy on the inaccurately named competitive bidding and consolidation.  In the 10 most populous states, where competitive bidding is focused, there was a 47% reduction in the number of HME suppliers over three and a half years.  In the fifteen lowest population states, where competitive bidding was largely absent, there was an 18% reduction in suppliers over the same period.  That tells us that a combination of federal policy changes and economic realities caused a significant consolidation, 18%, in home medical equipment suppliers.  But further, competitive bidding alone, the most deeply flawed of policies, caused a consolidation of nearly 30% of supplier in impacted areas.  And to be clear, that’s a consolidation over a very short window of 42 months.

Consider this, New Jersey, California, New York, Illinois and Connecticut each lost over half of their HME locations in just 42 months.  In the 15 least populated states, more than 200 HME business locations have shuttered in this same short period.  That means over 200 rural communities lost their access to a medical equipment supplier.

Competition is good for the consumer, it gives them choice and it forces competitors to provide exactly the things consumers want in order to win their trust and their business.  Consolidation eliminates competition and eliminates patient choice.  It has robbed patients of local access as many communities that once had access to providers no longer have that local access.  We must all advocate for reversal of federal and state policies which force consolidation and harm providers and patients.

Store locations LOST in just 42 months

Large States

California                  734
New York                  656
Texas                          493
Florida                       387
New Jersey               288
Illinois                       392

South

Tennessee                169
Alabama                    58
Mississippi                54
Arkansas                    55
Georgia                      291
South Carolina         84
North Carolina         29
Virginia                       115

Industrial Midwest

Michigan                    236
Ohio                            262
Wisconsin                  76
Indiana                       95
Minnesota                76
Iowa                            45

Great Plains

Nebraska                   28
Kansas                        59
South Dakota           9
North Dakota           3

Pacific Northwest

Washington              69
Oregon                       56
Idaho                          24
Montana                   15

 

 

The Power of NEW

NEW.  “NEW” is an important element in building a vibrant and lasting HME or O&P business.  Without NEW your business is slowly dying.  If you are interested in building value over the medium or longer term, you must seek to inject an element of NEW in your revenue streams.

Netflix offers us an example of NEW that we can all get our heads around.  Netflix spends an enormous amount of money on developing original programming (NEW).  Most of their content is movies and shows developed by others.  They also have a tremendous library of their own original content, developed in the past.  If they were to stop spending on NEW content today, their expenses in 2017 would go down dramatically and their earnings would rise a commensurate amount.  Their 2018 year would be similar.  Netflix financial results would be much better over the next two years if they stopped spending on NEW.  But by 2019 they would start to experience decline.  The loss of a NEW pipeline in 2017 and 2018 would impact revenue in 2019.  By 2020 Netflix, without the NEW content developed in 2017 and 2018, would experience an accelerating decline.  I doubt they would survive to the end of 2021. They are better off tomorrow without NEW, but over the medium term, they die without NEW.  You’re not all that much different.

NEW usually does not help profitability in the year it happens.  Often not even the next year.  But NEW is the fuel of future revenue.  Fuel of a vibrant enterprise.  Fuel of profits to come.  NEW comes in several forms for HME and O&P.  A new referral source.  A contract with an additional payer.  A facility not previously served.  Selling on-line.  Product and service lines not previously offered.  There are so many possibilities in NEW, from Philip’s non-invasive ventilation to Afflovest to Rifton’s Tram to Incrediwear’s compression sleeves.  The possibilities of NEW in our business are nearly endless.

All revenue sources follow a curve based on the laws of economics.  At their outset, NEW revenues usually have a lower profit contribution than our old favorites.  Entry costs, lower volumes, resistance and failure rates ensure this.  But over time profit contribution grows.  At the same time, OLD revenues, which tend to be your highest profit contributors, usually settle into a pattern of slow and steady decline, victims of the steady march of commoditization, aging technology and loss of energy.   Don’t abandon OLD.  OLD is your friend and will be almost all of your profit this year.   But you need to invest in NEW this year so that in 2019 and 2020 your business remains vibrant.  I challenge you to make NEW revenues 5% or more of your 2017 revenues.  If you do this every year, you’ll have the right mix of high-profit OLD and high-future-profit NEW to sustain your success.

 

Washington DC HME and O&P

What HME and O&P can expect in Washington in 2017?

We are two weeks away from a Trump administration along with strong Republican majorities in both Houses of Congress. What can we expect in the post-acute healthcare world, including in HME and O&P? Here are my New Year’s prognostications:

  • Obamacare will be largely repealed. I don’t see how the Republicans can do much short of repeal. They’ve preached repeal for the 7 years since Obama signed it into law. Their base has been conditioned to expect it. Many members of Congress are reluctant to repeal given the complexities and potential consequences of repeal. I expect them to repeal and replace with a very limited set of provisions such as allowing young people to stay on parents’ health plans and some protection for pre-existing conditions. Many of their “new” health policies will be punted down the road a few years.
  • Fewer people will have health insurance. The big threat to providers involving Obamacare repeal is the impact on the number of insured Americans. Consider two facts which loom large. First, today 17 million more people have health insurance than had it prior to Obamacare. Second, people with health insurance utilize twice as much healthcare as those without health insurance and their providers get paid for that care. The increase in people insured has had a positive impact on DMEPOS suppliers and the impending reduction in the number of insureds will have a negative impact on DMEPOS suppliers. The significance of that impact will depend upon the severity of the reduction in those with insurance.
  • Medicaid reductions pose a significant threat to DMEPOS suppliers and users. The majority of the people who gained health insurance as a result of Obamacare came from additions to the Medicaid ranks. Further, nearly 60% of the disabled population gets health insurance from a public plan, such as Medicaid. Compare that to 25% of the non-disabled population age 65 and under. People with disabilities, and those serving their healthcare needs, depend upon a strong Medicaid system. There will be reductions in the number of people covered under Medicaid, but the extent of those reductions will determine the net effect of repeal on DMEPOS suppliers and beneficiaries. This is the key issue in “repeal”.
  • Price to HHS is a positive. Georgia Congressman Tom Price as a cabinet member running HHS (which includes CMS) is a welcome development. In Price we have a person who understands healthcare delivery from a provider perspective (former orthopedic surgeon), understands DMEPOS and the people who use it. Too often the Obama Administration viewed profit motive in healthcare to be an evil in need of elimination. That thinking leaves behind a legacy of 40% reduction in the number of HME suppliers, lower profit in DMEPOS and a dramatic reduction in access to necessary medical equipment and assistive technology for the frail elderly and disabled populations. Price will be a huge improvement.
  • We have a real shot at reform of the falsely named “Competitive Bidding.”  We know the program isn’t working and a lot of folks in the Beltway now understand this also.  A 40% reduction in HME suppliers over the past 5 years has limited access to needed medical equipment and assistive technology, and obviously crushed businesses.  I expect to see modest reform.  But don’t get crazy – we won’t see large increase in reimbursement, but rather reform around the edges and correction of the most egregious elements.
  • New products will be an important part of the equation for DMEPOS suppliers and beneficiaries. The importance of new products in the DMEPOS business model will increase in coming years. Look for a change in philosophy at FDA and CMS away from being a safe keeper to much more of a facilitator of new products and technology. Smart suppliers of DMEPOS will capitalize on the flow of new products.
  • Growing consumerism and out-of-pocket obligations. Republican plans will likely lead to even more health plans where consumers pay large amounts out of their own pocket. This will occur in private plans and to a lesser extent in Medicaid. Higher co-pays and deductibles are problematic for healthcare providers. DMEPOS suppliers will need to get better at billing and collecting from consumers. Further, suppliers need to be more patient-centric and get better at presenting health solutions directly to patients and their families.