Business Solutions

Zen and the Art of Working with Distributors

How are providers outsourcing some elements to increase margins and free staff to focus on care and service?

• By Holly J. Wagner
• Mar 25, 2019

You work hard all day. You have to stay on top of patient service, your staff, regulations, billing, inventory, delivery, quality control. It can all seem like a game of whack-a-mole just to stay in business. And then there’s competition from local and online retailers. If you can, you take an annual vacation to a Zen spa or retreat where gurus tell you to relax and give up control. You laugh, sip margaritas and go back to the same overload in two weeks’ time.

What the guru didn’t tell you is that working with a distributor is how you incorporate that Zen advice into your business: you have to give up control to get control.

It may be reflex to think of a distributor as just a supplier or drop-shipper, but distributors can do many things that you’ve been used to doing and managing yourself. So relax, breathe deeply and look at some of the ways distributors can bring order and prosperity to your business.

Much of what distributors do can save retailers time and money. They offer the purchasing power of huge volume that brings prices down for their customers. Working with a distributor can also help stabilize costs and free up working capital and staff time. The retailer doesn’t have to spend time negotiating pricing with the manufacturer, meet purchasing goals or buy in bulk quantities and still gets generally lower pricing than an individual account could provide. It might also extend the retailer’s geographic reach and give access to manufacturers that might not work with small accounts.

“We take the burden off of them. We negotiate with vendors on their behalf. We also buy it as well as you can buy it,” says Colton Mason, senior vice president of Supreme Medical. “Our biggest DME line is Drive Medical, the top brand in that industry for bent metals. Supreme buys that by the tractor-trailer load several times a week. We negotiate our contract and extend costs out to DMEs based on our buying power.”

Supreme also handles returns and repair issues for its clients, Mason says. “All of your returns, warranty and repairs flows through your Supreme Medical rep. They take care of all that paperwork for you.”

In years past, providers hesitated to work with distributors for fear of losing control of service and patient lists. “There was no emphasis put on how a distributor could make a provider more efficient,” says Jeff Bowman, vice president of HME sales for McKesson. “The relationship has changed dramatically. Providers are looking at a distributor for more than a supplier and a price.”

LOSING CONTROL, OR LOSING MASSIVE OVERHEAD?

The easiest thing to let go of when you start working with a distributor is inventory. Distributors aren’t free — they typically have shipping
charges — but retailers can get huge savings from not having to pay for warehouse or storage space, stockpiled supplies, delivery vehicles and staff to manage and deliver a large inventory.

“We are a smaller company getting off the ground. It is very cost-effective because we don’t have to have a warehouse, a staff, or an inventory management program on the computer. There’s a lot of cost savings to it. It’s very easy to place an order and it drop-ships right to the patient,” says Trish Mattimoe, president of Innovative Wound Care. “It just really simplifies and allows you to focus. Especially in the DME world with accreditation and all the bureaucracy that comes along with it … It frees you up to make sure you are on top of everything you need to be.”

Distributors typically have multiple warehouses around the country, so the retailer doesn’t have to worry about stocking, storing and managing so many items on site. A distributor handles tens of thousands of SKUs, giving the retailer Amazon-style selection without tying up space or capital. That frees up store floorspace for patient consultations, products that need a higher touch and non-insured accessories and conveniences that sell at retail. The provider can be more selective about which items to keep on hand and still be assured the patients are getting what they need via patient home direct (PHD) — yes, drop-shipping.

There’s no denying that drop-shipping still plays a major role for distributors, but many have gone well beyond simple shipping services to offer easy-touch ordering, tracking and private label paperwork that carries your logo and provider information. Distributors let providers centralize patient orders so that multiple products from different manufacturers can ship to the patient’s home in the same box. They offer discreet packaging for personal items.

Distributors can offer custom paperwork with your store’s logo and information, so the patient never even knows the distributor is involved. McKesson’s connected system lets the distributor do the same thing via email, keeping the patient as well as the DME apprised of shipment status.

“Something we have initiated is to send emails directly to the patient on behalf of the provider. It’s not going to say McKesson on it. It has the provider’s name. It’s like the experience when you order from an online retailer,” Bowman says. “It’s just a little bit of extra touch to the customer. We saw a 40 percent reduction in Where’s my stuff’ calls that DMEs get.”

GETTING YOUR FEET WET

If you don’t want to jump in all at once, start with disposables like incontinence and urology products or resupply items for oxygen patients. Once you and the health provider have helped the patient identify the right product, size and features, it’s just a matter of making sure the patient has a continuous supply that stays within insurance billing limits. Meanwhile, you can keep control of delivering large and high-touch items like oxygen tanks and hospital beds, and train your drivers to upsell retail accessories like sheets. Most retailers will probably find a balance of staff and drop-shipped deliveries.

“Some DMEs are not drop-shipping everything; they are having it delivered to the DME and would rather have their own delivery drivers,” Mason says. “That is their distinction in the market. A lot of DMEs feel like that. The owner of the DME or the pharmacy makes a big point that they are delivering everywhere; they want to do it because they want that patient contact; they want that extra touch.”

Sometimes patients do, too: DMEs may see a “Meals on Wheels” effect, where the delivery person is a familiar face and a link to the outside world, especially with elderly customers, says Richard Maluyo, vice president and general manager of Caremax. That contact also gives the driver an upselling opportunity: When a bed is sent out for delivery, the van has sheets to fit. When a commode goes out, the driver is ready with commode liners. “All of our drivers are capable of selling those things and have them to show the customer. To have the actual product there, instead of having it drop shipped, it makes their decision easier,” he said.

Distributors aren’t all about drop-shipping. Many offer consulting or advice on running your physical business and optimizing your retail floorspace. They can help identify manufacturers that offer the most retail support like displays, plan-o-grams and national advertising for their products. They can advise on everything from product mix to retail lighting and product placement.

“Sourcing from distributors allows the DME provider to get their needed products at competitive costs, but also gives them a partner in their local market. What has succeeded in the past? How can I create efficiencies in my business? How can I appeal to my target demographic?” explains Patrick Griffin, national field sales for Medline Post-Acute Care Sales. “All of these questions can be answered by your local distribution partner. If both the distributor and DME provider can help grow their businesses together, it’s a win-win.”

Medline straddles the line: the company offers distribution and private labeling for DMEs, but also has a Part B business line. Orders may be drop-shipped, but the company also has 40-plus warehouses and 700 MedTrans vans to deliver its products.

Finally, distributors offer DMEs access to their wide network of industry contacts. “We’re not talking just to the sales rep, we are talking to the VP of the company,” Mason says. “The distributor can help link you up with those people.” Sometimes they can even help a good idea grow into a thriving new business.

INNOVATIVE WOUND SOLUTIONS: BREAKING THE CODE

After working for HME distributors for more than two decades, Trish Mattimoe, RN/CT, was ready to launch her own business specializing in wound care. It’s an area that requires a lot of custom patient care and interaction with medical providers, and a category with a lot of products.

She’d worked as a consultant for 10 years, then two years ago she struck out on her own and opened Innovative Wound Solutions. It was a big move, and her distributor, Supreme Medical, played a part in it.

“We had a product from a company called Dukal. It doesn’t have a billing code if you look on the Medicare C schedule, but I remembered from years ago that it was reimbursed and I remember what it was reimbursed. Supreme Medical sold it to us at a discounted rate and we were able to trial-bill it,” Mattimoe explains. ”It paid exactly as it had in the past, and we were the exclusive provider on that product for quite some time. It was thanks to them allowing us not to have to take the risk and take the hit, but allowing us to crack the code on how to get it billed.”

The support didn’t stop there. “When we opened, in helping us learn how to bill that product … it opened up a whole new marketplace for that company. The manufacturer was so appreciative that they actually made our logo, made our website. There’s a lot of networking among all of us. None of that would have happened without Supreme Medical going the extra mile and allowing us to learn how to crack the code to bill that product.”

Innovative Wound Solutions operates in seven states, has 10 employees and is getting ready to hire more reps to expand. The company can offer such good service, it just landed an important new client. “We have been trying to get the biggest insurer in Toledo,” Mattimoe says. “Just this week I got an email that we are getting the contract. That insurance owns this city. Before, we would have to pass-through bill with another provider.”

CAREMAX: DON’T SWEAT THE DISPOSABLE STUFF

Caremax is a DME pharmacy that sells direct to consumers but also stocks a number of care facilities. The company has a physical store in Buena Park, Calif., and serves facilities in Orange County and the Central Valley as well as the Las Vegas, Nev. area. The company is also one of a few that are authorized providers for CalOptima, which manages Medicaid and Medicare programs.

Working with a distributor — McKesson — lets the company supply disposables with drop-shipping, so Caremax needs fewer vans and drivers and the ones they have can focus on service and upselling.

“It helps going with a drop-ship service, like with McKesson. If we did it all ourselves — with 4,000 customers monthly right now, we have about 10 vehicles of our own — we would need 20 or 25 vehicles to service them all ourselves,” says Richard Maluyo, Caremax vice president and general manager.

Maluyo estimates about 40 percent of Caremax’s sales are drop-shipped, making it a big growth area for the business. The balance of deliveries let the company set itself apart from competitors with personal service.

“We have our own vans and deliveries. We like that white-glove care,” Maluyo says. “We’re able to focus our drivers and the service that we have out to our Medicare customers. A lot of our facility customers need to have specific delivery to their warehouse or storage space. If you are not able to offer that, they will go to the next provider.”

H&J MEDICAL SUPPLIES: SQUEEZING OUT WASTE

H&J Medical Supplies is turning the DME model upside down. CEO Joe McGovern has developed software that helps detect and eliminate systemic waste in the insurance system. He’s building a network that trades cost containment for insurer exclusivity.

“It is technology that is proprietary to us, that is installed into the provider system,” McGovern explains. “If we control the payer, we control the referral. Our way of controlling the payer is eliminating costs from the system in exchange for reimbursement stabilization and contract exclusivity.”

One way that H&J accomplishes that is to handle credentialing for insurers, something he identified as time- and labor-intensive for them. “When we credential our network of providers, we follow all that either CMS or the state puts on them. They have to be accredited by one of the recognized accrediting organizations. We provide that data back, we just do the granular work for them. If licensure is required we have that on file.”

H&J has three exclusive contracts with regional insurers, earned by reducing the insurers’ DME costs. The system has been able to realize 8 to 12 percent savings for insurers H&J works with, McGovern says.

The H&J software provides a data feedback loop that allows for continuous refinement. It helps rate neighborhood DMEs based on service and sends referrals to the best neighborhood providers. So far the network includes 1,000 DMEs.

On the DME provider end, “Not only is the software pushing an order to them. They accept it simultaneously connects with billing,” McGovern explains. “If you are an O2 provider and an order comes through my software, the technology has already insurance-verified the consumer because it comes from the insurance company. The provider is filling the order, delivering that order and uploading the delivery verification.”

“Best-in-class is all based upon levels of service. The technology pushes an order to the best-in-class provider. They accept or reject that order, we monitor how long each provider takes to get the product to the end user,” McGovern says. McKesson is also helping to provide data to improve the system.

While H&J is based in New York and operates mainly there, McGovern is preparing to expand regionally in the Northeast and looking ahead to going national.

Without a national distributor, H&J was limited to serving a local market. “With McKesson, their distribution capabilities and ability to help us find best-in-class providers in different geographic areas for networks outside our comfort zone, it’s allowed us to go from local to regional and ultimately nationally. It’s been integral in our growth,” McGovern says. “We anticipate having our first regional contract in place by the end of the first quarter this year. From a distribution and integration-of-technology perspective and helping us identify best-in-class providers in an area, McKesson will play a huge role.”

This article originally appeared in the April 2019 issue of HME Business.