Going for the Cash
- By Lunzeta Brackens
- Feb 12, 2008
An HME Provider’s Guide to Increasing Revenue
With declining reimbursements, competitive bidding and growing activity costs, HME providers have been given an implied ultimatum: change with the times or get left behind.
Today’s market is quite different than it was in the yester years when providers relied solely on reimbursements from
Medicare and other third-party payors. In an effort to offset some of the Medicare cuts, enlightened providers are looking to cash sales as the key to survival in the changing face of the durable medical equipment industry.
Things are going to be different now
“Insurance reimbursements are smaller and smaller and the typical business model 10 years ago doesn’t work in today’s landscape especially with competitive bidding being in the national front now,” says Tom Musone marketing director of Juzo, a company that manufactures high quality compression and support stockings in Cuyahoga Falls, Ohio.
Because of competitive bidding, many providers have opted to change their focus, says Karen Bunch, marketing director of EZ In and Out in Winston Salem, N.C. They’re now concentrating only 20 percent on Medicare reimbursements and 80 percent on cash sales as opposed to the other way around. The beauty of selling cash sale products, she says, is that the provider gets to determine the price of the item.
Cash sale items increase the financial stability of the company with minimal effort, compared with selling billable products, says Jan Miller president of Standers, a bath safety and ADL manufacturer in Logan, Utah.
“The cash sales model helps providers create more timely cash flow to run their business,” echoed Brandon Birch, COO of Standers. “It involves little or no paperwork, less manpower and quickly increases product selection.”
In the long run as accreditation and changed reimbursement policies continue to affect the market, the HME dealer that has the best structured diverse cash flow plan will be the one able to maintain and even grow in the market place, says Deanne Sandvold, vice president of EZ Access in Auburn, Wash., a division of Homecare Products Inc.
“It creates additional income streams not affected by billing cycles and regulation.”
Kyle Smith, owner of Auto and Home Mobility in College Station, Texas, whose business provides bath lifts, bedroom lifts and car lifts, says he focuses solely on cash sale items because he doesn’t want to deal with the hassle of Medicare and
Medicaid.
“Medicare was set up for the old farmer’s wife,” he says. “So she could continue to do the chores around the house: washing and cooking… things like that. They didn’t set it up for people who want to leave the house.”
Smith views selling cash sell items as a way to fill a void for consumers who are on the go. Although the items he sells may not be deemed as a necessity to Medicare, it is to the clients that he serves. In his business, Smith says he tries to provide a mix of quality products that will sell themselves.
“If you show the product correctly, (customers are) going to see the need and value because they know what they’re looking for,” Smith says, “ and if they can find it, they’re going to buy it.”
Ray Norton, vice president of sales at Mangar in New Britain, Pa., who primarily sells bath safety products to dealers, agreed with Smith that some items such as bath lifts are seen as lifestyle products and not medical equipment, which causes some dealers to opt not to carry the products because they are not reimbursable.
But this doesn’t stop customers from going to dealers in search of what they want. Customers that aren’t able to find the items they’re looking for from a dealer, often turn to the likes of the Internet or catalogs to meet those needs.
When looking for cash sale only items, think about items that are viewed as convenience products that will make life easier for the end-user or even the care giver.A few of those items tend to be: Canes, walkers, wheel chairs, bathroom aids, aids to daily living, compression hosiery, wheel chair lifts, lift chairs, stair lifts, urology, and other home and auto accessibility products.
“Many cash sale items are need-impulse items that end-users will purchase by impulse if the items are presented at the appropriate time,” Sandvold says.
In trying to pick up an additional cash sale, it is important that providers look for opportunities to present customers with need-impulse or items that serve as add on sales. It works pretty similar to a supermarket that loads the check out stand with candy, gum and drinks. Dealers have to also evaluate their inventory and see how they can implement other items that complement what they already sell.
Knowledge is Power
But before jumping on the cash sales bandwagon, you’re going to have to be willing to make some changes. Here are some that industry insiders deem as most important:
• Get a retail location.
• Have an adequate showroom.
• Use tools developed by the manufacturers to help sell the product.
• Develop a marketing awareness strategy through advertising.
• Select the right products.
• Place products in the right location.
• Develop a retail Web site.
• Work with the manufacturer to customize brochures, catalogs and product displays.
• Cater to existing customers while developing new ones.
• Ensure that there is adequate parking.
• Keep a clean, well-organized showroom.
• Know your demographic.
If done correctly, there are no pitfalls. But that’s a big qualifier.
“Done correctly is a huge qualifier,” says Wallace Weeks of Weeks Group, a consulting firm in Melbourne, Fla., that helps home health care companies in the areas of strategy development, operations, information technology, marketing, finance and MMA preparation. “First of all the provider has to become a retailer. Becoming a retailer means number one having a retail location.”
But of course, that’s only half the battle. You’re going to have to mimic your friends in the retail industry to garner success. Check out the list of pros and cons gathered from those in the industry:
Pros
• Less paperwork.
• Increased cash flow.
• Increased product selection.
• Insulates the company from having to hire someone to process claims.
• Disconnects the company from reimbursement cuts.
Cons
• Low margin.
• Poor customer service.
• No fitting room.
• Slow shipping time.
• Limited satisfaction guarantee.
• Little or no liability issues.
• Slow store traffic.
• Selecting the wrong products (i.e. floor space hogs, retail-unfriendly packaging, hard to assemble, unsafe and poor quality).
Getting your Ducks in a Row
Many of the providers in the industry are in an office or warehouse location that is out of sight and generally not set up like a retail trade, Weeks says. To achieve success in cash sales, not only must providers have retail locations, but they must also think like a retailer in terms of advertising, merchandising and customer service. Unfortunately, these are skill sets they have not yet been trained in.
“Over the years, providers have become better logisticians, more efficient with customer service and accounts receivable payment, and even more proficient in purchasing,” Weeks says. “But they haven’t by and large tried to become better merchandisers.”
To become better merchandisers, Weeks believes dealers should seek training from the retail industry, or; as Sandvold suggests, look to the manufacturer of the product for training — they are the experts.
“In this industry the focus could be placed more on aggressive need fulfillment rather than sales,” she says. “In that arena, the employee looks for the need and seeks to fulfill the need with a specific product. This eliminates the “order-taker” mentality and develops a “sales team.”
Cross training is essential because whether you want to be or not — any employee that has contact with the end user is a sales man— Sandvold insisted — from the receptionist to the delivery driver. “Having a base concept of sales will benefit the overall goal of the company.”
One way that dealers can become more like salesmen is by hiring people that know how to influence customers’ buying decisions through listening and asking the right questions. “A well-trained sales staff will be able to identify the customer’s need and recommend a high-quality product that meets that need,” Miller explained. The way the dealer chooses its product will also determine the effectiveness of the business.
“Choose products in demand because of their unique, functional qualities,” she said. “This allows them to sell the products quickly and use the cash from the sale to pay the manufacturer and grow their business.”
Tips and Tools for Success
A huge factor in running a more efficient business is number one knowing that paper is inefficient. Rely on programs such as QuickBooks and Time Billing Software to lead the way. There’s tons of software out there available to help you run your business proficiently. One particular piece of software that covers just about every area that a company could possibly need is DIABCO’s POS-Success. The software is perfect for the HME provider who’s in retail or for the HME provider who is in the process of transforming their business into retail, said Sabine Kutt, marketing director of DIABCO in Delray Beach, Fla. The POS-Success offers touch screen technology, limitless transaction volume and data storage; real-time transactions; tracks customers buying trends, purchase history and tracks demographics; features a credit and debit payment processor, provides secure transactions that are logged with date, time and name of employee; allows providers to control levels of security for all applications including POS access, back-office access and password expiration dates.
Having the right equipment means you’ll need fewer employees which translate to more money in your pocket.
“There are a lot of ways to take advantage of not having to pay people to interface which is where the big cost is,” Weeks says. “In our industry, 53 percent of the money we spend on average is to have people to do things; 47 percent is spent on buying products.”
Engineering both cash and insurance sales into their DME model has proven successful for Ginger and Dean Davis’ business, Sheridan Surgical Inc. of Amherst, New York. The 10-year owners of the medical supply store offers wheel-chairs, seating and positioning equipment, scooters, stair lifts and ramps, orthopedic goods, compression stockings and more.
“We want to send the message out that we’re a one-stop shop,” Ginger Davis says. “We want it to be perceived that we have everything.”
In addition to lift chairs, aids to daily living and bathroom and safety equipment, disposable items such as diapers and bed pans work well as cash sell items. Comfort products, such as mattresses, medical gowns and rehab exercise equipment, are huge cash sale items for the Davises as well.
And just because a customer doesn’t need an item, doesn’t mean they won’t buy it.
The Davises sell power equipment to customers who don’t qualify for it, but it’s what they want. They also sell a lot of stair lifts, which aren’t covered by insurance, and retails for $3,000 to $5,000.
Davis has found that the larger the showroom is the more providers sell. After remodeling and moving from a 1,000 to 2,000 square foot show room, sales doubled. Then when the company moved to a 6,000 square foot showroom, again there was an enormous increase in sales.
“The bottom line is the bigger your showroom, the more you will sell period.”
For providers searching for success in DME cash sales, it’s going to take well-trained, staff that is knowledgeable about the products. The Davises’ motto is not every one knows all the answers, but there has to be someone on staff that knows the answer to everything.
It is also important to listen to the needs of the customers, Ginger Davis says.
“Not everyone has been in a medical supply store so don’t expect them to know exactly what they want,” she says. “It’s up to you to help solve their problems.”
Every customer deserves face time.
“We use a number machine similar to one you would find in a deli,” Davis says. “This gives the customer the opportunity to impulse shop without loosing place in line. But the number system doesn’t mean that customers are ignored until it is their turn.
“People have to be greeted as soon as they walk in the door,” she says, “and they have to be greeted with a smile.”
Quality customer service translates to doing all that you can to save the customer money. Davis says before a customerpurchases an item, her employees ensure that it isn’t covered by the customer’s insurance first and then will go out of their way to achieve reimbursement for the clients whether it’s requesting a prescription from a doctor on their behalf or simply doing whatever they can to accommodate their needs.
“Realize that much of your clientele is either a stressed out caregiver or someone that is not feeling well,” Davis says. “If your staff cannot address their problems with a kind word or smile, they may be better suited in shipping and receiving.”
A cash sales model may be one that is new to some providers, but with the right product mix, quality customer service, reliable software and the right location, the sky is the limit.
This article originally appeared in the February 2008 issue of HME Business.