Finance

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Monday, May 31, 2004

Diversify to survive in 2005
With Rick Glass

Q. With the reimbursement cuts scheduled for 2005, which areas of HME/Respiratory will mostly likely add value for my efforts over the next several years?

A. With the continuing attacks on reimbursement rates for oxygen and respiratory medications, we see many dealers looking for ways to profitably diversify their business model. There are several things to keep in mind as you consider possible alternatives.

Look first at expanding your services to other complementary products that share your same referral sources and expertise. If you provide oxygen, make sure that you are positioned as a full service respiratory specialist by offering CPAP’s, BiPAP’s, nebulizers and other respiratory equipment. Also review your contracts and make sure you have access to as many of the payors as make sense for your existing product lines.

In evaluating new product lines, consider products that provide an uncapped recurring revenue stream from each patient. Enteral nutrition is one area to consider. Others might include various types of supplies (diabetic, urological, etc). As with any new line of business, be sure to evaluate where your referrals will come from and which payors will be important to any new market segment. You may also want to consider alternative operational models like mail order or drop ship to help you achieve a profitable scale in some of these areas.

Whichever direction you go, focus your efforts. The one stop shopping concept is not one that we have ever seen work profitably. And don’t lose sight of the fact that oxygen will remain one of the most profitable lines of business, even after any MMA cuts.

Richard Glass is the President of SRA, specializing in the growth and sale of HME/Respiratory companies. 800-813-4984.

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