Bid winners and losers need new strategic plans

Thursday, August 5, 2010

YARMOUTH, Maine - Competitive bidding will reduce Medicare reimbursement by 32%, on average, and it's going to be tougher than ever for HME providers--winners and losers--to borrow money to help grow their businesses. But it's not going to be impossible, say industry watchers.

"Financing is going to be there but you've got to have a good story to tell," said financial consultant Don Davis. "The story has to be documented. It has to be something people can read and digest and understand and follow so they can decide if they want to lend or invest into that industry."

A "good story" is just another term for a strategic plan--a clear explanation of how providers expect to make money in this new era of greatly reduced reimbursement.

It's highly unlikely that any lender--either inside or outside the industry--will loan money to an HME provider who can't do this, say industry watchers.

"It's not all about financials," said Kurt Schmitz, vice president of sales for VGM Financial Services, which, along with Invacare, is one of the industry's biggest lenders. "We are probably going to have more conversations with people about their business plans and what their business models are going to look like in the future."

Providers who won bids, for example, must show how they are going to grow their business to offset the lower bidding prices. Providers who lost bids must demonstrate how they plan to grow by focusing on profitable lines of business that were not part of the bid, said Carl Will, senior vice president, Invacare Homecare.

"Whether you are a provider and you won a competitive bid, lost a competitive bid or won some and lost some, you have a new business," Will said. "Because the business is new, you should do things that successful new businesses do in their planning phase."

That means before a provider approaches a lender, he said, they should: Establish a business plan that identifies funding requirements, target markets, revenue projections, resource requirements and risk factors.

"Folks who put together the most realistic plan and who identify sources of funding, and then execute their plan, those are the (providers) most likely to survive," Will said.