Strategy

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Tuesday, September 30, 2003

YARMOUTH, Maine - There appears to be no holding back the HME industry. Despite the threat of competitive bidding (for DME and respiratory drugs), a possible seven-year CPI freeze, mandatory accreditation, onerous audits and what have you, the industry’s still a magnet for entrepreneurs. It’s an old story that’s still gathering steam: The demographics just can’t be ignored.

“Even when there is all this talk about potential changes to reimbursement, the obvious need for the products and services gets people thinking: ‘Gee, I should be doing this,” said Dexter Braff, president of The Braff Group, an M&A firm.

Consider the following barometers:

- Although Invacare expects significant consolidation in the HME dealer base, the company has also witnessed a robust entrepreneurial spirit at large in the marketplace. “In the last year, Invacare had more new dealer applications than ever before,” said Invacare CEO Mal Mixon.

- Gladson & Associates, which designs home health stores, is swamped with new business, said Ed Lemar, vice president of design. “When anyone asks about our workload, I usually say we are working on 35 to 45 stores,” Lemar said. “I decided to count them up the other day: We are working on over 90 projects. We’ve always been buried, but it is getting insane.”

For the most part, the start-ups appear headed by people with industry experience: Either they were laid off by a national or left another company to go into business for themselves. Pharmacists also appear gung-ho to jump into HME. Gladson does about 90% of its design work with pharmacists, with half of the remodels going to independent pharmacies expanding their HME offering, Lemar said.

“Independent pharmacies need to be where the chains aren’t, and chains aren’t getting into (HME) because they don’t want to provide the service,” Lemar said. “We tell independents that it is a natural thing to get into.”

But while industry stalwarts may make up the bulk of the HME start-ups, there are others with little or no connection to the market who want in.

Consultant Wallace Weeks has followed unemployment figures for the past seven or eight years and says increased joblessness, like that now plaguing the United States, leads to start-up HMEs and other businesses. Weeks once received a call from a commercial airline pilot who was feeling uncomfortable about his future in the airlines. The pilot was researching DME because he knew someone in the industry, Weeks said.

“There are MCI guys who are no longer getting unemployment benefits and their severance may have run out,” Weeks said. “Some are probably becoming consultants, but some are probably starting DMEs.”

Working with HME start ups has been a big part of consultant Roberta Domos’ business for the past year or so.

“People are trying to get into a recession-resistant business,” Domos said. “I had one guy who was an executive in the textile industry, and all that business has gone over seas. He said there was a story in the Wall Street Journal that said DME was going to be a good business investment.”

Like that textile exec, people from outside the industry keep reading about how home care is becoming bigger and bigger and they want in,” said consultant Jack Evans.

“I’ve had quite a few people ask me if is a business worth going into with competitive bidding looming on the horizon,” Evans said. “What I say, and what other people say, is that no one knows what the future will be, but this is still a good industry. Look what happened with the oxygen cuts and it is still a good industry.”

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