A dinosaur named Sue and you

Sunday, September 30, 2007

Earlier this year, I took my grandchildren to the Cleveland Museum of Natural History to see Sue, the most complete T-Rex fossil ever discovered. As we were going through the exhibit, I found myself thinking about the extinction of the dinosaurs--how these large, strong creatures met their ultimate downfall by failing to adjust to the environment in which they once thrived. Actually, it reminded me a lot of the circumstances that we currently face in HME.
When reimbursement was high, HME manufacturers and providers were able to run their businesses profitably despite inefficiencies. In fact, I met with a customer recently, who shared that his company was successful without optimizing many business opportunities. Invacare had a similar experience. I have been in the HME industry for nearly 28 years, and until 2006, we had experienced 26 years of solid growth. We weren't always as efficient as we should have been, because we focused on growth--not efficiency.
Life in the HME industry is different now. Never before have we faced the magnitude of changes that have occurred over the past several years. The changes have been so dramatic that my management team and I have had to make many hard decisions about how to develop a new business model for Invacare. Like our customers, we had become a product of our environment, and as it became evident that reimbursement problems and the challenges of low-cost imports weren't going away, we had to ask ourselves tough questions:
* How rapidly can we shift manufacturing to lower cost locations like Mexico and China?
* Are there markets out there that we are not taking advantage of? Sleep? Bariatrics? Far East?
* Can we afford to keep Arnold Palmer as a company spokesman?
* Are we designing and producing our products in the most cost-efficient manner possible? Are we designing products that deliver a lower total cost for the provider, yet improve the quality of patient care?
* Can we afford to exhibit at Medtrade?
* Are we staffed appropriately given our business challenges?
* Are there product lines that we should exit?
* How can we become less dependent on Medicare?
* What actions should we take in response to a developing unfavorable exchange rate between U.S. and Chinese currencies, raw material cost increases and increased freight costs?
Addressing these questions and others was not easy. We suffered alongside our HME customers. And that continues to be true today.
Like Invacare, providers need to re-evaluate their businesses. We can no longer hope that the days of high reimbursement will return. We are working with a new industry model. Those who survive will adapt their businesses to the new market conditions. Those who do not will end up like Sue. Providers need to start asking themselves tough questions. I encourage you to consider:
* Can I afford to deliver a walker? What other options are available to me?
* Can I afford to service a wheelchair outside a 100-mile radius?
* Can I afford to not collect co-pays?
* Can I afford to be so dependent on Medicare?
* How can I expand my business beyond Medicare?
* Have I been accredited? If not, what am I waiting for?
* How can I get involved in AAHomecare, VGM and/or other networking organizations that can help me stay in business?
* Should I purchase products only from manufacturers that support me in Washington, D.C.?
* Can I afford to continue delivering oxygen despite falling reimbursement rates?
* Can I survive if I lose out in the Medicare competitive bidding process?
* Can I afford not to go to product formularies, which will substantially reduce my inventories and improve my operating results?
I am sure that you can add more questions to this list. But the important thing to remember is to plan your business and your bottom line. Take a step back and review your operations. If you determine that you will not be able to survive if you lose out in competitive bidding, start thinking of ways to wean yourself off Medicare. Perhaps you should consider retail or strengthen other areas of your business.
You also need to analyze your suppliers. Are they making your life easier? Are they helping you move from the old model to the new? When Invacare was reviewing the questions that I mentioned above, we looked at every product line. For example, we realized that Invacare offered 32 different walker models globally. Walkers are important, but was it necessary to have 32 models throughout our global channel? The new reimbursement model does not support that. We examined our entire inventory and started to streamline our product offering.
Invacare is continuing to look for solutions that will help our customers stay in business and eventually thrive again. As the largest creditor in the industry, we worry about the financial health of providers who lose at competitive bidding and are excluded from Medicare for three years. But we also realize that it is difficult for our customers to adjust to the changing environment. Invacare has a mission to create new products, services and programs that will make it clear that "Impossible Stops Here," at Invacare, for providers. We all have to adjust. We have to adjust in the way that dinosaurs failed, because if we don't, others who have learned how to adjust to the new environment will take our place. hme
Mal Mixon is chairman and CEO of Invacare in Elyria, Ohio.