Southern Home cooks up new business strategy

Friday, February 29, 2008

SPARTANBURG, S.C. - Southern Home Medical Equipment set out in early 2007 to take on a turbulent Medicare landscape by rolling up independent home medical equipment providers. One year later, the company is backpedaling.
Southern Home Medical announced Jan. 15 that it would dedicate "a significant portion of our resources" not to HME but to medical staffing. Its Encore Medical Staffing division provides healthcare professionals like registered nurses to hospitals and other medical facilities on a per diem, temporary and travel contract basis.
"We started out with the intention of rolling up medical equipment companies, but with reimbursement, national competitive bidding and accreditation, we've shifted gears to something more profitable," said President and CEO Greg Tucker. "When you buy an HME company, you're buying Joe Smith's way of doing things, but with medical staffing, we have a system and an infrastructure in place. There's no learning curve."
Originally, Southern Home Medical expected HME to comprise 80% of its base. Now it plans to roll up all of its HME operations into one company in upstate South Carolina and try to convince providers to diversify into nurse staffing, Tucker said.
While HME roll-ups like Rotech have achieved success in the past, the turbulent Medicare landscape that Southern Home Medical tried to take on was probably its demise.
"Roll-ups can work, and usually, there's some kind of exit strategy," said Bob Leonard, an associate with Pittsburgh-based The Braff Group. "You try to make it big enough and then package it so it's attractive to someone else, but there's no one else out there."
Additionally, without deep pockets, Southern Home Medical could have had unrealistic expectations, said Rick Glass, president of Steven Richards & Associates, in Tarpon Springs, Fla.
"Ten guys get together and they decide they'll combine their companies and own 10% each," he said. "For some reason, they say, 'I'd rather own part of a bigger company.' We've seen a number of those, and we've never seen them be successful. There's never enough money, leadership or centralization to get the synergies."