Demise of the independent called premature

YARMOUTH, Maine -- With all the talk of mergers and acquisitions and industry consolidation, you might think that independent HME providers are an endangered species. Well, that's not the case, at least not yet. Last year, for example, the MED Group grew 15% and expects approximately the same growth this year, said Dan Smith, vice president of membership. VGM added 246 new members in 2004, said President Jim Walsh. Sure, most of the members VGM loses are acquired by other companies, Walsh said. But the annual addition of new members adds up to an interesting fact. "It says there is still ease of entry into the market," Walsh said. "People can still open shop. It's not as easy as it used to be. There is licensing and credentialing and people at CMS who want to make it hard for you to get the provider number. But even with all those things and mandatory insurance and what not, there are still people opening doors in the HME business every day." Not surprisingly, as companies struggle to develop business models that address the changing reimbursement climate, today's start-take a variety of forms. "The nearest thing to a trend is that they seem to have an attitude that they are going to do it differently because the status quo is not going to work, " said industry consultant Wallace Weeks. "They have learned enough to know that they can't just take an existing business model out there, rubber stamp it and do it all over again." Even companies that appear to be embarking on a traditional service and delivery model are making upfront investments in document imaging and other technologies that promote efficiency and allow them to do more with less. Others orient their businesses more toward a retail format or embark on an internet venture, say industry watchers. "Whenever you have (industry) changes like this, it creates a whole new set of opportunities," said MED Group President Bill Elliot. "At one point, the demise of the not-for-profit community hospital sector was predicted, but it is stronger than ever today. It is just in a different form. I'd say the (HME) independents, similarly, will be a strong sector in this industry. They just need to take a little bit different form." While everyone talks about favorable demographics when discussing the industry's future, Walsh sees another reason for optimism. "I think we are starting to see a turn in the attitudes in payers that they need to find a long term solution," he said. "They can't just squeeze suppliers. There has to be a way to control utilization and make people better shoppers, and I think they are starting to realize that." It's also interesting to note, as did Bob Leonard, an M&A broker with the Braff Group, that the more things change, the more they stay the same. "People have been predicting the demise of the small local for at least 25 years," Leonard said. "The reality is there are not a lot of entry barriers, so there is an opportunity for a small local guy, if he understands the formula, to build a nice little business and they can out service anybody because they are going to do whatever it takes to be successful."