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M&A heats up, but at what cost?

M&A heats up, but at what cost? �There is little choice for �hometown� DMEs but to sell�

 

YARMOUTH, Maine - The majority of respondents to a recent HME Newspoll (67%) agree that 2018 will be a “hot” year for mergers and acquisitions in the HME industry.

But the drivers of that activity are representative of an industry in distress, especially for smaller providers, respondents say.

“With the huge vendor pricing difference for mom-and-pop providers vs. nationals and the low reimbursement rates, there will be little choice for 'hometown' DMEs but to sell,” wrote one respondent. “I have seen three providers in my area close or sell last year alone. The only competition we have left is the nationals.”

An even percentage of respondents (30%) say they are either in the buyer's or seller's seat.

The nationals may be doing the bulk of the buying, but there are other providers that are throwing their hats in the ring, saying they have no choice in the current climate.

“Based on survival in this crazy industry, it's either you expand and buy companies that make sense, or you will become extinct,” wrote Michael McCartney, the CEO and owner of an HME company in the Buffalo, Rochester, N.Y., area.

While a consolidated industry is widely seen as a negative, it improves the odds of the providers who are left, including the non-nationals.

“I purchased a DME and may expand,” wrote one respondent. “People ask me, 'Why would you get in that business if 40%-plus of providers have gone out of business?' I say, 'Because there is 40% less competition.'”

Indeed, despite the staggering consolidation that has already occurred since 2011, when Medicare kicked off its competitive bidding program in nine cities, the industry may not have hit rock bottom yet, respondents say.

“Medicare rate cuts have made it nearly impossible for the smaller and even some of the mid-sized DME providers to stay in business,” wrote one respondent. “I fully expect the number of providers to continue to shrink dramatically in 2018.”

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