Q&A: There's room for mom and pop

LIVINGSTON, N.J. - Despite the upheaval of the past few years, the HME industry remains an attractive space for investors, says William Douglass, group head of CIT Corporate Finance, Healthcare. CIT recently provided $50 million in financing to QMES. Douglass spoke with HME News about “the stroke of the pen risk” and what makes a company worth investing in.

HME News: What makes the HME industry a good bet for investors?

William Douglass: There's a lot of consolidation taking place, which creates financing opportunities, and there are a lot of good companies with good management teams that know how to block and tackle and grow successfully through reimbursement challenges.

HME: What do you like to see in a company you're investing in?

Douglass: It comes down to operations and profitability. Having investment in good IT systems, having purchasing power and negotiating power with payers, and being able to logistically manage your operations is key. And it's important to have scale.

HME: Is competitive bidding still having a huge impact on profitability?

Douglass: I think what you see with HME is heightened with Round 2. What everybody hears and sees is competitive bidding, but behind the scenes you have all the ramp-up of compliance and the audits. Rarely have I seen a company where they've gone under just because of reimbursement changes—in health care we call that the stroke of the pen risk.

HME: With all this talk about consolidation, are we going to see the mom-and-pop providers disappear?

Douglass: That's a crystal ball question but, in my view, I don't think so. While I think consolidation is going to happen along the way, there will always be room for smaller providers, especially in a market like HME.