7 New Opportunities For Today’s DME Entrepreneur
By Bradley Smith, ATP, CMAA
Volume 2 Issue 22, October 27, 2015
With the multitude of changes and challenges in today’s Durable Medical Equipment (DME) marketplace, successful entrepreneurs are seeking new opportunities where they can employ their skill and experience. Typical questions include: What opportunities and markets are right for our company and our customers? How do I successfully enter new, parallel markets without jeopardizing our current DME operation?
What Is A Parallel Market?
Parallel markets are environments where DME owners can utilize their expertise – understanding of various patient populations, reimbursement dynamics, employee/contractor requirements, and general healthcare knowledge – despite some differences of language and even philosophy. Parallel markets allow a DME to vertically diversify risk and opportunity, with the possibility of expanding offerings within existing populations served.
Why? One of the silver linings in the aftermath of the initial competitive bidding phase is the emergence of a new diversification approach to the DME and related markets. For example, there are similar reimbursement sources to Medicare (e.g. Medicaid) that have been more stable with continuing growth as part of the Affordable Care Act expansion (e.g. behavioral health). While a very successful DME owner may have a very strong market niche today, they know that considering other options within their skill set increases their prospects for the future.
The Path Of Least Resistance
While some DME owners will consider organic (“from the ground up”) growth in parallel markets, most choose some form of acquisition. There are several good reasons why this is the case. First, acquisition will bring a DME to a new market much faster than organic growth, including the positive cash flow of an ongoing concern. Second, the human cost of acquisition to existing DME operations is generally less than a start up, resulting in decreased stress for the current management – boot strapping often depletes current resources and can damage the foundation of the DME operation. Third, while some debt may be required, the financial returns of a well-chosen acquisition will often outweigh the anticipated savings of an organic start up.
DME entrepreneurs are well positioned to consider the following seven healthcare verticals as they seek a synergistic opportunity.
1. In-Home Care/Home Healthcare
Because of a number of demographic factors, the continuing Medicare/Medicaid emphasis on in-home care, and managed care preferences for the cost effectiveness of those models, this marketplace has been rapidly growing. The home healthcare (HHA) market specifically has seen tremendous growth and consolidation to increase their profitability. DME companies are often operating in this area already, with significant opportunities to move into related markets with Medicaid and private pay reimbursement.
While there continues to be changes in reimbursements, especially Medicare, most DME executive are quite familiar with this market because of service/product overlap. Medicare reimbursement, in particular, favors well-managed hospices and other pressures remain strong, including the aging Baby Boomer population, which will inevitably and significantly increase demand.
3. Retail Pharmacy
There are still approximately 23,000 independent retail pharmacies that often interact positively with the DME marketplace. While margins have shrunk in many traditional pharmacies, there are strong niches (i.e. sterile/non-sterile compounding, unique medications, disease management, etc.) that offer a strong compliment to a DME company, including a strong cash reimbursement and online marketing component.
4. Specialty Pharmacy
Specialty pharmacies are in high demand due to increasing expansion, especially in the long-term care populations. They have attracted strong private equity interest and investment and, if located in multiple states, they command a high valuation. Depending on their chronic disease focus, they may command prices approaching one times revenue.
5. Behavioral Health
Many behavioral health organizations, including those with a substance abuse treatment program, have existing relationships with DME companies. This has been historically a fragmented marketplace, but the positive impact of Medicaid expansion has led to great opportunities for acquisition ranging from the clinical/foster care area to private population facilities that utilize DME services and products. Of all the markets identified, this may be the one with the greatest growth opportunities in healthcare.
6. Intellectual Developmental Disabilities (I/DD)
The I/DD marketplace, with strong Medicaid/State funding, is a stable, growing market that totals nearly $100 billion of reimbursement in the US. As services have become less facility-based and more integrated in our communities, the possibilities for engaging with a DME have also increased (some I/DD programs actually have a DME-type component). With the rapid expansion of Autism Spectrum Disorder services and related products, the prospects are strong. The medically fragile pediatric population continues to grow with DME opportunities, as well.
7. Urgent Care Centers (UCC)
With the new consumerism that pervades healthcare today, there is ample opportunity for DME entrepreneurs to use their business models in this vertical. UCCs are unique because they can be quickly established, the startup costs are often very modest, and they can become profitable with good cash flow quickly. Our culture is increasingly favoring this time-efficient model of healthcare and the long-term future looks positive.
There are likely other areas of parallel opportunity for acquisition by DME entrepreneurs, though these appear to be some of the strongest. Even if you only explore a single company you will inevitably expand your horizon with more creative, strategic possibilities for the future of your existing DME operations.
Note: An earlier version of this article was published in the October 2015 version of HomeCare magazine.