A dying breed: Home-based HMEs

BAXTER SPRINGS, Kan. - It's nice being your own boss and not having to answer to anyone. But as Cindy Prauser found out, running an HME business alone out of your home can also be exhausting. That's why the 42-year-old mother of four sold her business, Prauser Medical Equipment, in December to Mt. Carmel Medical Equipment, a hospital-based HME in Pittsburg, Kan. “After eight years of being on call every day of my life, I thought I'd try to sell it and see what happens,” Prauser said. “I didn't make enough money so that I don't have to work again, but I made enough to take some time off, which pays me back for all the years when I couldn't take any time off.” Prauser estimates she took only 14 days off since starting the Baxter Springs, Kan., business in 1995. Terms of the deal weren't disclosed, but it certainly wasn't a blockbuster. Prauser's rural patient base included 27 respiratory patients, most likely making her one of the smallest DME providers in the country, and part of a dying breed. “It was a model that existed to a great extent in the early to mid 1990s,” said M&A expert Dexter Braff, president of the Braff Group. “Someone, usually a respiratory therapist, would start a business out of their home, get 100 oxygen patients and leave it at that.” Times have changed. BBA '97 cut Medicare oxygen reimbursement 30%. That put the squeeze on all HME providers, but especially small one- and two-person shops like Prauser Medical Equipment. While bigger companies could find savings by leveraging their economies of sale, not so tiny mom-and-pops. They were already running lean and mean. “There are lots of small companies, but I haven't seen anyone working out of their house for a long time,” said Rick Glass, president of Steven Richards & Associates, an M&A firm in Tarpon Springs, Fla. Prauser got into the DME business by accident. While working as an anesthesia tech in a local hospital, she occasionally took messages for a doctor who owned a home medical equipment company. “I thought that was a job I could do myself,” said Prauser. “I researched the industry by talking to DeVilbis, suppliers and Medicare. I did that for six months before starting the business. I learned how it worked.” After deciding to take the plunge, she borrowed $25,000 and bought office supplies and enough respiratory equipment (concentrators, cylinders, carts, regulators and supplies) for five patients. She built her patient base in the usual way: by “schmoozing” doctors and providing good service. “I always had a good rapport with the elderly and felt like I was providing a real need,” Prauser said. “But now I want to do something that is 9 to 5 or a business where you could close the door and say, ‘See you in a week.' You couldn't do that in my business.”