'We will see a turnaround in our industry'

Thursday, August 31, 2006

The HME industry has been faced with relentless challenges over the past several years. Each year it seems that no matter how hard we try, Congress reduces reimbursement. However, while it is important to be aware of the challenges our industry continues to face, we also should be cognizant of the positive changes that we have accomplished. There are many happenings that our industry should feel good about:
- The government cannot reduce the demand for our products. The 65-plus population is growing at 2% to 3% annually. The government's projections are that there will be 72 million people over 65 by 2030. As this population grows, so does the need for our products. The aging population is more active than they've ever been. With the technology and surgeries (i.e. hip and knee replacement) that are now available, there are even 80-year-old softball leagues in Florida. The active lifestyles and wealth of the baby boomer population are all good indicators for our industry.
- Between competitive bidding, the Deficit Reduction Act and the continued delay of power wheelchair coding guidelines, the industry is up in arms. And for the first time, the HME industry is coming together to join in the fight and we are making traction. At the AAHomecare Legislative Fly-in, there were real patients voicing their concerns over proposed changes. We are making sure that the voices of homecare consumers are being heard, and it is working. Congressman Bill Thomas from California, who led the attack on our industry, is retiring. This is a huge victory for us, and it means that we can now have some real legislative efforts to deal with these issues.
- There are several important pro-homecare bills that are gaining momentum in Washington. For instance, Invacare led the charge to get the Hobson-Tanner bill introduced in the House of Representatives, and we are actively working on a companion bill in the Senate. This bill would allow all providers not chosen in the competitive bidding process to come back at the winning price. There is also the Home Oxygen Patient Protection Act, which would repeal the oxygen provisions contained in the Deficit Reduction Act. In rehab, senators recently introduced the Medicare Independent Living Act of 2006 to repeal Medicare's in-the-home restriction on mobility devices.
- There is more awareness of the benefits of home care than ever before. An article in the May 8, 2006 issue of The Wall Street Journal said that home care is a major part of the solution to the rising costs of Medicare and Medicaid. The article cited key information and facts, such as a study of 530,000 elderly people on Medicaid by the University of California that found that Medicaid saved an average of $15,000 a year for each person that received care in the home. The benefits of home care are undeniable.
While we see these positive changes in our industry, there is no mistaking that the provider and manufacturer have to change their business model in order to continue to thrive in this business. Invacare has experienced this firsthand. In order to remain cost competitive with foreign products, Invacare opened two manufacturing facilities in China. We also opened a sourcing office in Hong Kong. We are getting cost out of our business model. By making these changes to our business, in addition to engineering cost out of our products, Invacare is now competitive across all product lines.
Providers need to adjust their business model, as well. How can providers operate more efficiently? It goes beyond product acquisition costs. Most of the costs that providers deal with are held in labor and delivery. Providers that move to a non-delivery business model will prosper. By reducing deliveries, providers can focus on optimizing in-store service to their customers.
Providers also should consider consolidating and developing closer partnerships with their key vendors. By consolidating suppliers, providers reduce product acquisition costs, as well as overall inventory costs by eliminating spare parts and overlapping SKUs. In addition, they streamline after-sale costs, such as training and service. We've already seen this consolidation in other industries. After all, there are no longer 25 automotive or television manufacturers.
In addition, providers need to explore new markets and niches where they can be profitable. Bariatrics and cash products are two good examples.
Providers who invest in the future will survive and thrive in the new world of reimbursement. We will see a turnaround in our industry, because the need for homecare products is undeniable. But the industry cannot just sit around and wait for this to happen. Join the battle in Washington, re-evaluate and streamline your HME business, and the best is yet to come.

Mal Mixon is chairman and CEO of Invacare.