80/20 rule turns upside down
When I’m on the phone with someone from outside the HME industry—most likely from an investment firm—he or she often wants to know how big of a player Medicare is in the market.
Ten years ago, when I started working for HME News (who am I kidding, it’s probably longer ago than that, actually), I would always cite the 80/20 rule. Traditionally, HME providers relied on Medicare for 80% of their business, and the remaining 20% was a mix of Medicaid, private pay, cash, etc.
Answering that question now, I usually guess about 60/40.
It turns out that’s way too conservative.
Based on the first round of data from AAHomecare’s HME Audit Key, the average percent of Medicare business is 33% for companies in the $0 to $10 million revenue range; 31% for $1.1 million to $3.5 million; 41% for $3.6 million to $10 million; and 29% for $10.1 million and more.
Overall, that’s an average of 33.5% for Medicare.
So it looks like we’re talking more about a 30/70 rule, with Medicare in the minority.
I also found the makeup of the companies that submitted data to the HME Audit Key interesting:
17.4% were in the $3.6 million to $10 million or $10.1 million and over range.
The lion’s share was in the $0 million to $1 million (34.8%), or $1.1 million to $3.5 million (30.4%) range.
Put another way:
34.8% are in the $3.6 million and up range
65.2% are in the $0 million to $3.5 million range
I would not have guessed that there were still so many smaller HME providers out there.
Of course, I don’t know the sample size for the results (Got an answer, Gordon?). Nonetheless, the results are an interesting look at not only audit activity in the market, but also the makeup of the market.