Loss leaders draw blood both ways

Friday, August 31, 2007

Reductions in reimbursement driven by such initiatives as competitive bidding are likely to turn "loss leaders" into real losers as suppliers seek redress in the new business climate, according to a recent HME NewsPoll.
Suppliers intend to discard select low-margin product lines, as well as low-margin patients; seek additional, more profitable product lines; alter vendor relations; cut employees and revisit the financial wisdom of adding on costly initiatives such as accreditation.
The knee-jerk reaction to compromised product lines is widespread and simple: drop product lines.
"We are going to have to drop hundreds of items out of inventory, which means customers will have to now wait while we special order them and have to pay a higher price to cover the freight cost," said David Chestnut, owner of Pennyrile Home Medical in Cadiz, Ky.
Wound care items, medical supplies and folding walkers that must be delivered are examples of non-starters, even as loss leaders in the age of competitive bidding. At Iowa Home Health Care in Des Moines, Iowa, they've been carrying these items mainly as a convenience, but inconvenience (for patients) is now on the horizon.
"We have recognized for quite some time that these items (at best) are a break even venture," said Greg Molloh, the company's HME operations manager. "Recent legislative action regarding cuts and competitive bidding have now placed that program in doubt. It is likely that we eliminate supplying (and billing) these items."
It's the same deal for high-service patients -- for example, ambulatory oxygen patients. For some suppliers, $36 per month to provide portable oxygen just doesn't wash.
"We made the decision to only take night-time oxygen patients over two years ago and we have not been sorry," said Helen Kent, owner of Progressive Medical in Carlsbad, Calif. "We give those patients to one of our 'friendly' competitors while they give us their PAP patients. Now that's using your noggin."
But dumping product lines, no matter how unprofitable, is a double-edged sword for all HMEs.
"If I'm unable to fulfill too many of the requests from referral sources because I simply don't carry something, I will lose that referral source quickly," said Diane Mason, DME operations manager at Providence Medical Equipment in Waco, Texas. "I do draw the line at items where I clearly lose money, but I feel the need to 'suck it up' on certain items that have only break-even or small profitability."
Likewise the sentiment at Oxymed Homecare in Trenton, N.J.: "No referring physician or case manager likes to hear, 'We do not carry this item,'" said Imran Ahmed, the company's compliance officer. "If providers know what is good for them, they will avoid having to utter these dreaded words."
One alternative to dropping product lines is drop-shipping. At Oxymed, they avoid inventorying costly losers, like TENS units, by offering them to Internet shoppers who can use the company's site to order through a local distributor.
Previously, Marie Clark, the owner of Chattanooga Mobility Center in Tennessee, selected her loss leaders based on brand preference. Now she's calling the shots if the vendor's freight policy is attractive.
"I must use vendors whose freight policies are affordable and whose products are at least decent," she said. "I hurt for my customers!"
In Jackson, Tenn., David Scott of AlphaMed has responded to diminished returns on his loss leaders by "investing more time and money" in the search for new, more profitable products. In Norway, Maine, the office manager at Ketner Pharmacy, T. Sperdakos, let go a full-time office assistant in response to crummy reimbursement.
"Now we are not sure if paying the accreditation company is really worth it," said Sperdakos.