Small providers throw in the towel by the thousands

YARMOUTH, Maine - Newly released Medicare data seems to confirm industry claims that providers are dropping like flies thanks to deep reimbursement cuts and the accreditation and surety bond requirements.

"It's the consolidation CMS has said it wants," said one industry watcher. "They are getting a smaller pool of people to keep track of."

Between 2007 and 2008, the number of HME suppliers billing Medicare for $300,000 or less tumbled from 103,227 to 95,584. The number of larger providers grew but not nearly as much, according to Medicare data HME News obtained via a Freedom of Information Act (FOIA) request. (See the upcoming December issue of HME News for more on these numbers.)

Industry watchers note that accreditation and other Medicare changes that took effect this year convinced many providers to call it quits last year. They expect 2009 data to show that even more small providers threw in the towel.

"To me it all makes sense," said Rick Glass, a mergers and acquisition (M&A) broker with Steven Richards & Associates. "The people who are most vulnerable and who have the least to lose are giving up. The regional guys are staying in and doing acquisitions, and doing everything they can to get bigger."

One of the bigger companies, Associated Healthcare, a $30-million provider in upstate New York, recently acquired two small rural providers.

"Both told me the same thing," said CEO Don White. "The 9.5% cut really hit them hard. They were losing money at the beginning of the year and struggling to get it back. Then to have to spend money to get accredited and purchase a bond, it was just too much of a shock."

When it comes to surviving in today's HME market, a lot depends on size, White said. Larger companies have economies of scale and other resources that help them offset reimbursement cuts. Most smaller companies, he said, lack these resources.

"We can still drive efficiencies," White said. "We reduce some services, cut some staff, put more reliance on information technology, step-up our imaging program. Smaller guys can't make investments in their businesses or go out and buy other businesses to bring scale. They are in a pickle."

While White's happy to get the business, he fears that the demise of so many small providers will reduce patient access in rural areas.

Industry consultant Wallace Weeks said consolidation is inevitable. In most mature industries, and HME is in the early stages of maturity, three to four companies control 50% of the market share.

"You are already seeing the smaller guys disappearing and the larger guys growing," he said. "Competitive bidding will accelerate that. In 2005, I forecasted that we would see a decline of 25% in the number of providers by 2010. Now I think we are looking at 2011 or 2012."