2011 Big Ten

Financial Services

As CMS funding pressures force providers into new business models, they will require financial help from various sources

• By David Kopf
• Jan 01, 2011

Providers are facing a crushing funding landscape that has greatly impacted their finances. With competitive bidding, pre- and post-payment audits, and some DME — such as oxygen and power mobility — being forced into difficult rental models, providers are seeing their cash fl ow diminish and are often contending with having to completely overhaul their business models. This isn’t an ideal situation to be sure, but fortunately there is help. Providers do have access to various financial services, and will increase their use of those services given the contentious year ahead of them.

The primary financial service that many providers will increasingly rely on during 2011 is inventory financing. Simply put, inventory financing lets the provider finance the purchase of expensive DME prior to funding. This frees up providers’ money for investing back in their business or for use as operating capital.

Inventory financing will be especially important to mobility providers, who, starting Jan. 1, have had to endure the removal of the first-month purchase option for standard power mobility. Now, they will have to rent power mobility devices for 13 months. While they might stand to make slightly more funding over the long haul than they did before, they will have to somehow muster the significant capital required to purchase the rented power mobility device at the outset.

That’s a strong argument for spending someone else’s money, and fortunately there are inventory financing resources available to HMEs. For starters the major manufacturers have been an excellent source of inventory financing. Not only do they provide incredibly advantageous credit terms to providers, but they also understand providers’ businesses, and can craft their credit programs to match the funding aspects of different categories of DME.

Another option is to finance inventory through a third party. In that case there is inventory financing available from other industry sources such as group purchasing and member service organizations. This is useful because those parties still understand HME providers’ business models and can tailor financing programs to them. These credit organizations either work with a single partner, or function as a broker, working with multiple lenders and other sources of capital to find the right solution for a provider’s need.

Also, there are commercial financing companies that specialize in inventory financing. This can be a particularly important resource for providers wishing to finance inventory from a vendor, or other sources that does not offer in-house financing. The difference here is that providers will most likely not find the friendly terms they might be used to from manufacturers. To these lenders, the collateral (i.e., the DME) has virtually no value in cases of repossession, and commercial lenders are used to more lucrative terms than HMEs are used to from industry sources that offer generous terms as a way to retain providers’ business.

The key lesson here is that, as providers increase their reliance on financing, they will need to change their perspective on what are deemed acceptable credit terms if they begin to rely on non-industry commercial lenders.

Other Services

Inventory financing is only one segment of a larger spectrum of financial services that providers will need to tap into to stay competitive during 2011. There are other parts of their business for which they should seek out strategic assistance, as well.

For instance, following on the lines of credit, providers should consider adding consumer financing to their portfolio of business services. Already provided by at least one manufacturer, and available form commercial credit companies, as well, providing financing to patients that might not have the funding for a much-needed or much-desired piece of high-ticket DME, such as auto access equipment or home access upgrades, can help the patient get what he or she needs. Also the provider ensures that increased revenue hits the bottom line.

While there is some sentiment that if patients really need something, they can put it on their credit card, that point of view is missing a couple key points: The credit terms on credit cards are terrible and hardly mesh with patients that might be on limited or fixed incomes. Also, providing them with a solution that has better terms helps the provider differentiate in a substantial way from its competitors. If you haven’t considered consumer financing, it would be worth looking into during 2011.

And let’s not forget financial consulting services. As providers look at 2011, they are likely considering expanding into new markets and tapping new opportunities, but they might not necessarily have a complete business plan outlined. There are resources, including manufacturers, that can consult with providers to help them outline how they might approach these new opportunities.

In fact, some vendors are offering whole suites of expanded business services that include enhanced service plans with networks of field technicians; billing and collections; marketing support and materials; and even partnering up with providers of HME billing and management software.

This article originally appeared in the January 2011 issue of HME Business.