Product/payer diversification

Thursday, March 25, 2010

HME providers have recently peppered industry consultant Wallace Weeks with questions related to how they can best diversify their product and payer mix.

"They have been looking at cash sales supposedly for years, but they seem to be more earnest about those kinds of transactions now," Weeks said.

The only problem, he added, is that for some, it might be too late to reap the benefits of diversification. Here's why.

Say an HME provider generates $2 million a year in sales. Because Medicare is becoming less and less profitable, he decides to reduce his dependence on Medicare from 40% to 20%. To do that, without giving up any Medicare business, he has to dilute his Medicare business by adding $2 million worth of other business.

"That's a staggering amount and you can't generate that kind of change in 12 or 18 months," Weeks said. "There are a lot of financial issues that can be fixed in a company if you have 18 months, but diversification is not one of them."

For most providers, meaningful diversification requires two to four years, he said.

And just how diversified should most providers be?

"My recommendation is to have a small enough portion from any payer so that no payer can kill you," Weeks said.

And what if a provider decides to focus on a particular product and/or payer?

"When you put all your eggs in one basket, whatever it is, it  could be a threat to that basket. You have to see it as soon as it is on the horizon and act then. You can't wait until it is at the door." hme