Low-margin products: Gold for smart providers

Sunday, November 30, 2003

MILFORD, Conn. and HOLLISTON, Mass. - Patient base acquisitions and drop shipping distribution are two options available to relieve the headache of low margin product lines. The question is - which option is the best medicine?

Byram Healthcare is an industry leader in the patient base acquisition method aimed at helping providers out of messy situations with diabetes, ostomy and urological product lines. Byram in the last year has completed eight patient acquisitions. Three acquisitions announced this fall are projected to generate $1 million in revenue, according to Vice President of Acquisitions Dave Karchner.

“The big benefit to the seller is that [patient base acquisition] enables them to focus on their core business,” said Karchner.

Byram lauds its method for its ability to free the provider from all responsibility over the low margin products, including worrying about the often clumsy reimbursement rules for those items.

“If they go with a drop shipper, they still have to worry about billing the customer or billing the payor,” said Karchner. “By selling the patient base to us, they no longer have worry about any of the billing side. That is probably the biggest difference.”

Although a hassle free-more way out of a troubled product lines, others warn that a patient acquisition is not the only option.

“If someone is willing to pay you for those patients than there must be a some way to handle [the patients] profitably,” said Michael Perry, vice president of distributed products at Invacare Supply Group. “The key to someone like Byram is that they do the logistics effectively.”

Distribution models, like those offered by Invacare Supply Group, allow providers to maintain control of the whole patients while also maximizing on the profit margins. Perry said drop shipping accomplishes this by streamlining a provider’s warehousing and delivery

“What happens with these low margin lines is that dealers hold on to brining in the inventory and delivering it on their own truck and the whole nine yards,” said Perry. “But, it costs them about $15 to $17more per transaction than if they used distributor with home delivery capability.”

Perry said that allowing the provider to keep the patients on the books under all their required care and services is what stands drop shipping apart from other methods. The risk of loosing the whole patient is decrease because they will not be missing convenience of a “one-stop-shop” provider, said Perry.

“[You have to] leverage the lifetime value of that patient,” said Perry. “You have to look at the profitability of the patient as a whole.”