Lending: 'You really have to get in the trenches'
DETROIT - For HME companies, dealing with financial institutions can be daunting and cumbersome. But when Mitchell Home Medical in Ypsilanti, Mich., reflects on its relationship with its lender, the Detroit-based Comerica Bank, this comes to mind: "We've never seen a large financial institution treat a smaller customer this good." Comerica's vice president of middle market banking, Jeffrey Lafferty, spoke with HME News recently about demystifying the relationship between financial institutions and HME companies.
HME News: How did you get yourself up to speed on the HME industry?
Jeff Lafferty: It has been a couple of years of learning continuously and getting acclimated. When you're dealing with an HME company, you really have to get in the trenches, in terms of understanding how it works. You have to dig into how they convert a referral into a CMN and, ultimately, collect on a receivable. You have to gain perspective on how they approach the sales function and who they market to.
HME: It sounds like you've gone to great lengths to understand the inner workings of the HME industry--not just whether a company is a credible borrower.
Lafferty: The approach that we take is that it's not going to be an effective relationship unless you try to live in your customer's shoes. You have to gain an understanding for how they approach their businesses and the challenges they face. Those are the factors that really create the bottom line.
HME: Does that make you less reactive to changes like reimbursement cuts and competitive bidding?
Lafferty: It really does. We recognize that the major changes that have occurred and are occurring in the industry present certain challenges, particularly on cash flow, but we've been able to creatively structure loans to support the ebbs and flows of the industry. Your best resource in trying to anticipate these changes is being in touch with your customer base day in and day out and having them convey the changes and industry-specific issues to you.
HME: Is that why your relationship with Mitchell is so good--you're constantly communicating with them?
Lafferty: That's the No. 1 reason. With Mitchell, I'm constantly asking questions about the business. They don't view that as nuisance; they view it as, 'Our banker is really trying to be more of a partner than a policeman.'
HME: What are some of the things you look at before lending to an HME company?
Lafferty: How quickly does your billing occur? What measures do you take to ensure prompt collection? What role does technology play? Are you fully integrated with the doctors; are you fully integrated with Medicare and the managed care companies? What are your product and payer mixes?
HME: What makes the HME industry a good candidate for lending?
Lafferty: It's a good candidate because you're dealing with a lot of motivated people who are really progressive thinkers. They understand that there's a major opportunity out there because of the changing population demographics. The companies that are going to be able to do it right--they're going to thrive. That's why it's so attractive to me. That's why I think the HME industry shouldn't be overlooked.
HME: What makes it a bad ?
Lafferty: You're very sensitive to major regulatory changes, and you have third-party risk. You have to say to yourself, 'If the company does see major change, how do they insulate themselves?'