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Power chair market hits speed bump

Power chair market hits speed bump

The elimination of the first-month purchase option for power wheelchairs represents a significant obstacle for mobility providers, manufacturers say. The new policy will test the industry's financial acumen as it restricts cash flow.

"Of course there will be significant changes," said Ken Easlick, general manager of North Ridgeville, Ohio-based Roadrunner Mobility. "Regardless of size, the issue will be primarily related to cash management. Can the provider carry the cost of doing business for the 13-month duration with the higher risk that a chair may be returned and have to be recycled into the market? That will be the deciding factor."

Don Hwang, national sales manager for Rancho Cucamonga, Calif.-based FreeRider Healthcare, said he senses "fear in the air" when it comes to the first-month purchase option's removal.

"Providers do not want their ROIs to be tied up for five months," he said. "If they sold 10 power chairs per month at $2,000 each, that's $20,000 of capital they need to first off have and invest in without any returns for five months. How many providers can say they have enough of that capital to invest with all the overhead they have?"

Though he acknowledges that the situation "is going to have a negative impact on providers in terms of cash flow," Rich Golden, president of Old Forge, Pa.-based Golden Technologies, says his company is working to help ease providers' financial burdens.

"We are providing our dealers with some very aggressive finance programs whereby they can overcome their cash flow problems," he said. "An example of this is deferring the first month payment for three months, followed by an additional 12 equal monthly payments. This program pretty much mirrors Medicare's new rental payment policy."

Brad Smiedt, co-CEO of Ontario, Calif.-based Revolution Mobility, expects to feel "reverberation across the supply chain," and calls for providers to search for better ways to finance their businesses.

"In a macro environment where business financing is tight, this will not be an easy task," he said. "Financially strong manufacturers will offer financing solutions either off our own balance sheet or in partnership with third-party finance sources. While that sounds enticing, only creditworthy dealers will have access to this financing."

Another consequence of removing the purchase option, says Dietrich Mackel, vice president of sales for Bridgeport, Mich.-based Amigo Mobility, is that "it will lead to low cost and low quality wheelchairs as well as more used and old equipment in the market."

Yet the hidden advantage, says John Koster, business manager for consumer power and scooters at Elyria, Ohio-based Invacare, is the weeding out of unscrupulous providers while demand for power products remains steady.

"The need for consumer power wheelchairs isn't decreasing and the reimbursement isn't decreasing either--it's just being spread out over 13 months, so there shouldn't be a big change in how providers approach this market," Koster said. "The biggest unknown is what percentage of chairs won't reach the 13-month cap and how frequently power chairs will need to be refurbished and then reissued to different users. I've heard estimates of anywhere from 10% to 30%. We believe that it will be more like 10% to 15%. The rest will be business as usual."

Dale Nash, business development manager for wheelchairs at Port Washington, N.Y.-based Drive Medical, says providers must find a way to fill that gap with revenue from other business lines.

"They have to find other opportunities to fill that short-term cutoff in their cash flow," he said. "Many providers have been working over the years to become less reliant on Medicare business. Becoming more retail-oriented is one way many providers are going, opening up new product categories and sales channels they had not pursued in the past."

To be sure, the mandate "changes a traditionally cash flow positive business to a cash flow negative one as providers wait 13 months to receive full payment for products they must pay for up front," said Ted Raquet, senior vice president of domestic sales for Exeter, Pa.-based Pride Mobility.

"Providers remain significantly challenged to secure financing through traditional methods as banks, and other lending institutions cannot lend money with unsecured Medicare payments as collateral. Even with collateral to secure a loan, many lending institutions refuse to offer manageable or financially viable terms due to the significant risk associated with monthly billing, the high audit activity for power wheelchairs and the potential for the Medicare program to recoup payments made. Acquisition cost is only one component of the cash flow issue."


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