Pharmacies & HMEs: What's the Connection?
Author Harry J. Kaiser once wrote: "Live daringly, boldly, fearlessly. Taste the relish to be found in competition -- in having put forth the best within you." Many of us automatically believe that competition is a negative thing and that the people, teams and businesses that we compete against are considered "the bad guys." But what if you viewed competition as a good thing? What if you embraced competition as evidence that your business is in the game, and use your competition to gauge your own business practices?
Independent pharmacies and HME stores often have an intricate relationship of symmetry vs. competition. Their customer base often overlaps, both entities work with third-party payers, and both have to create a retail sales model to target the demographics of their communities. When asking pharmacies and home medical equipment providers if they view each other as competition, the common view is that they are competitors in a good way, with enough business to go around. But what if both entities decided to join forces?
Like Chocolate & Peanut Butter: Should Pharmacies & HMEs Combine their Businesses?
Brent McNutt, president of Global Pharmacy and Medical Equipment, Haleyville, Ala., works with DME providers who refer their customers to his pharmacy, offering free delivery of all of their prescription medications, most of which fall under Medicare Part D now that Medicare is covering medications. Almost 100 percent of Medicare beneficiaries take at least one maintenance medication, according to McNutt, whose customer average is about five prescriptions per customer. "When the DME has referred enough patients to yield $30,000 per month gross profit, we start taking steps to form a jointly owned pharmacy that Global Pharmacy owns 60 percent of and the DME owns 40 percent of it," McNutt says.
The business model of pharmacies has changed as a result of Medicare Part D and Medicare's Prescription Drug Plan.
"Community pharmacies are being advised to enter the HME business to offset some of their margin losses; before Medicare Part D a large percentage of pharmacy sales were cash which usually yielded around $17 per prescription. The state Medicaid customers yielded around $14 per prescription. We are seeing $10 per prescription, which is less than what the community pharmacies were making and are used to," says McNutt. "What has happened, however, because of coverage by Medicare Part D, is an increase in the average number of prescriptions a Medicare-only customer is taking because the Medicare only customer now doesn?t have to pay 100 percent cash, but rather only deductibles, copays and the monthly insurance premium."
On the flip side, McNutt advises providers to jump into the pharmaceutical business. "HME providers should do everything in their power to get into the retail pharmacy business. Many community pharmacies are already in the HME business. Also, the National Community Pharmacy Association (NCPA) is pushing to get community pharmacies excluded from the accreditation requirement under Medicare Part B. They feel it is simply an unjustified burden to require accreditation to provide diabetic strips and supplies. Whether or not the exclusion happens remains to be seen," McNutt said.
Unlike Medicare Part B, Medicare Part D is not administered by the DMACs, and is not subject to accreditation, quality standards or competitive bidding -- a benefit for HME providers "By offering a unique service of free delivery of a Medicare customer's medications, a pharmacy can differentiate itself," McNutt says.
While HMEs are considering branching out into the pharmacy business, some pharmacies have decided to incorporate DME equipment. Assured Pharmacy Inc., Irvine, Calif., recently entered the DME business, adding a line of wheelchairs, braces and walkers due to an expressed interest by customers in purchasing durable medical equipment. "We quickly went to work to accommodate our customers' needs in this area and we are currently in the process of making these products available," says Robert DelVecchio, CEO of Assured Pharmacy. "Our consumers will receive information concerning the availability of durable medical equipment via direct notification attached to each prescription we fill," he says.
Assured Pharmacy uses a 4,000 product catalog and accept patient orders at all of its store locations as well as through the Internet and phone-in orders.
Independent pharmacies and HMEs coming together as one industry would give us a much stronger voice in Washington, D.C. Independent businesses need, more than ever, a stronger voice for small independent businesses in Washington, D.C. --Brent McNutt, president Global Pharmacy and Medical Equipment. |
"We are delighted to be able to offer our customers the services they need in a convenient one-stop platform by leveraging our existing infrastructure. Once our customer places an order, we process the paperwork, including payment in the form of cash or insurance. The order is drop-shipped directly to the patient," DelVecchio says.
The combined business model of pharmacies and HME providers, is meeting the needs of many frail, elderly customers that have difficulty getting out or cannot leave their home. McNutt says, "Simply put, we are building our prescription and cash sales of both our pharmacy medications and DME products by delivering these home health products to their home, rather than requiring them to come to us."
The Grass is Greener: Take A Look at the Other Side
If you aren't ready to take the leap of joining forces, it's still important to gauge the successful components of HMEs and pharmacies to incorporate these components into your own business model.
Assess Your Community: Pharmacy customers and DME customers are largely the same demographic. "Walk in to both chain and independent pharmacies and look around. See what home health products they are retailing. Observe where the pharmacy is located and how they are displaying the products in their store. Ask yourself if you are going to be able to generate the walk-in traffic and exposure for the new products you are thinking of adding and displaying in order to turn the inventory. If you don't feel the traffic is achievable to adequately turn the inventory, then go to the catalog and go the drop-ship route," McNutt says.
Pharmacies get a lot of walk-in traffic and sell a lot of retail goods because customers must come in to the pharmacy every time they refill a prescription. Sometimes customers must come in several times per month because their refill dates are all staggered on different refill dates.
"With the catalog and drop ship route you don't have to stock product and you don't have to deliver the product. You can simply market the product in the catalog and drop-ship the product as the customer orders it," McNutt said.
Round Up Retail Business
Jack Evans, owner of Global Media Marketing, Malibu, Calif., says, "Most of the retail HMEs I visit and work with have revenue broken into thirds: one-third retail, one-third Medicare and Medicaid, and one-third private insurance; whereas most of the pharmacy-based home health care businesses run on 50 percent cash and 50 percent Medicare/Medicaid, so pharmacies definitely have a history of knowing how to run profitable retail businesses."
It is important to be a retail HME. "The traditional HME model is that they provide medical equipment to a Medicare/Medicaid patient and bill a third party. HMEs do a great job on intake and billing and delivering the product to the patient, but what the retail HMEs do differently is that they use these Medicare/Medicaid patients as leads and sales opportunities," Evans says. "They don't just collect the insurance data needed, they qualify the customer to find out who the end-user is and what their medical issues are and what their home health care needs are. In this way, they not only provide the prescribed item, but also other related products that will enable the end-user to be more independent and maintain or improve their daily quality of life."
Always Cross Sell: Ever wandered into Starbucks after buying a book at Barnes & Noble?
Cross-selling is done virtually everywhere you look. If you go to the movies, they will ask you if you want a Coke with your popcorn. When you go to a restaurant, you are asked if you would like an appetizer before your dinner. And when you go to the department store to purchase that new suit, you will probably be asked if you need new shoes to match.
Cross-selling is one of the top retail tips according to Evans. For example, when an HME store sells a wheelchair to meet the needs of mobility and comfort, they can sell add-on products such as seat cushions, back supports, tray and cup holders, ramps and lifts. When an HME sells or rents a bed, they can suggest add-on sales such as patient lifts and slings, bed tables, trapeze bars, lift chairs, bedpans and aids to daily living (ADLs).
"I think the fundamental difference, not of simply what you sell, but how you approach the customer; i.e. simply processing an insurance claim for an HME prescription or working to improve a patient's daily quality of life," Evans says.
Wrapping It Up: Retail Packaging
Gone are the days of white and blue medical-looking boxes. Now you will find lifestyle photos that show people using the products on the outside of the box.
"Today, most companies utilize lifestyle packaging. Sales increase with retail packaging because customers can easily see which product meets their own home health care need, or the need of the loved one they are shopping for," Evans says. "Also, anytime a product is moved from a shelf to an endcap or point-of-purchase (POP) display, sales automatically double, sometimes triple. When three out of four retail customers make their purchasing decision in the store and not beforehand, all of these merchandising tools -- POP, retail packaging, shelf talkers, product selection guides and customer literature -- help close the sales by helping customers to more easily make their purchasing decision," Evans says.
According to McNutt, retail packaging and proper store setup vary according to your business model and location. "If you have a lot of walk-in customer traffic, proper display and store setup is very important. If you don't have a lot of walk-in traffic and you deliver or ship most of your products, store display is less important," McNutt says.
"When we started our HME and respiratory business five years ago, we went all out and designed a nice showroom with beautiful painted slatwall and slatwall cubes painted the company colors of green and blue. Because our location was not close to a hospital or physician's office, we did not get much walk-in business and we didn't benefit as much from store displaying and packaging. Point-of-purchase displays also tie in better with high traffic walk-in stores. Once we discovered that our showroom wasn't benefiting us, we started cataloging to build retail sales with our customers. This worked really well for us," McNutt says.
Spread the Wealth: Deciding on Diversification
Pharmacies and HMEs have a unique synergy where they can implement the successful tactics of their businesses or join forces to be a one-stop shop for their communities.
"I personally wish the independent DME and independent pharmacy industry would merge. I believe in the future this will happen anyway due to competitive market forces," McNutt says. "Independent pharmacies and HMEs coming together as one industry would give us a much stronger voice in Washington, D.C. Independent businesses need, more than ever, a stronger voice for small independent businesses in Washington, D.C."
This article originally appeared in the September 2006 issue of HME Business.