The medical supply business is not for those with a weak stomach. Reimbursements for products such as incontinence, enteral nutrition, urological, ostomy, and airway supplies are so low many one-stop shops have exited the supply business because the profit margins are too thin.

However, for companies with a great deal of billing expertise and a large volume of sales, home health care supply sales can still be a lucrative niche.

Shield Healthcare headquarters in Santa Clarita, Calif.

One of those companies is Shield Healthcare. Based in Santa Clarita, Calif, with eight other locations in four states—California, Colorado, Illinois, and Washington—and a healthy Internet sales business, this company counts itself as one of the four largest medical equipment suppliers in the United States.

Founded in 1957 as a local community pharmacy in Van Nuys, Calif, Shield now offers more than 6,000 products to both referral sources and consumers alike. The secret to its success is combining a big sales volume with great customer service, says Cheryl Hornberger, board member and vice president of sales for Shield.

Keeping both sales volume and customer service high is a difficult task, but it is one that Shield has mastered. To keep sales and service in sync, Shield President Jim Snell developed and implemented a quality management program 5 years ago. One of the key components of Shield’s program is its annual report on quality in which an independent company surveys 1,000 of Shield’s customers to get their feedback on its customer service. Areas covered by the survey include shipping time, employee product knowledge, order accuracy, and understanding of customers’ needs. In all areas, Shield happily reports a 98% or better satisfaction rate.

“Our excellent results come from employee longevity,” Hornberger says. “Once you develop a passion for the home care industry, you do not want to leave it.” Offering Shield’s 300 employees good pay and working conditions, training, and a professional office atmosphere adds to their satisfaction.

Putting the Customer First
Having experienced staff is critical to keeping customers happy, and customer satisfaction encourages repeat business. One thing Shield customers can expect is a monthly phone call to see if more supplies are needed. “This is a big expense, but it ensures they get their products and we keep them as loyal customers,” Hornberger says.

The company’s call center is partly automated, featuring software that alerts sales agents to the client’s last order and then auto-dials the number each month. The software also measures the performance of each agent, records the amount of time each call takes, how many calls each agent makes, and the order size. “By knowing the number of calls each agent makes effectively every month, we know when to add more staff,” Hornberger says.

Although Shield uses technology to its fullest (customers can even order products online), the company still sticks to what its business was built on—third-party payors, such as Medicare, Medicaid, and health maintenance organization (HMO) insurers. In fact, being one of the best at insurance billing is what launched Shield into the medical supply business.

As a small pharmacy in the late 1950s, Shield began selling a limited number of home medical supplies. When Congress created Medicare in 1965, the then small pharmacy entered the Medicare and Medicaid arena.

Since medical supply sales were doing well for Shield, the company decided to train its employees and referral sources in the intricate area of reimbursement. “That way, they knew who would pay for what,” Hornberger says. “Business really grew after that.”

Billing Expertise is Key
Shield has continued to build on its foundation and today considers itself an expert in billing third-party insurance carriers. The challenge now is reimbursement cuts, which is the job of Shield’s director of compliance, Laura McIlvaine.

Because third-party reimbursement is the core of Shield’s business, McIlvaine’s work is critical to the company. She monitors health care regulations, makes sure Shield is compliant with any new rules, represents her company to insurance carriers, and advises legislators. “Medicare and Medicaid are always looking to decrease expenditures,” McIlvaine says. “Can you blame them?”

In 2002, several states cut medical equipment reimbursement significantly, McIlvaine says. With profit margins already thin, Shield was challenged to find a way to remain profitable. “Reductions in reimbursement in any area require us to look at business processes and what adjustments can be made,” she says. “How we are handling cuts this year is to see if we can pick up efficiencies in some areas to offset the cuts.”

In reality, this is the type of environment that really fits into Shield’s strengths, Hornberger says. As a large company with top talent, Shield is constantly planning for the future, and when something comes up, it has the ability to meet the problem head on, she adds.

And when smaller businesses exit the supply niche because of shrinking profit margins, it offers Shield an opportunity for expansion. “There is already a lot of consolidation,” Hornberger says. “Companies that are trying to be a one-stop shop find out they cannot be everything to everybody so they approach us and ask us if we want to buy their supply business; or we look for one to buy. We try to acquire one new business a year.”

Shield’s strategy for survival in the current health care climate includes sticking with its niche as a medical supply provider and building on its current competencies, rather than expanding into more product lines. To satisfy customer requests for products Shield does not carry, the company has formed partnerships with other HME companies. “For example, Apria does not carry incontinence products so they refer to us for those products and we refer to them for hospital beds and wheelchairs,” Hornberger says.

Incontinence supplies are Shield’s best sellers and therefore provide the biggest profit, followed by ostomy and urology products. With life expectancy in the United States increasing—78 years for women and 69 years for men—medical supply companies, such as Shield, can expect increased demand for their products.

However, sweeping changes in the way health care is delivered in the future may affect how medical suppliers operate. For example, consumers may become part of the cost-containment formula under new HMO plans, allowing them to purchase their own supplies.

Shield is planning for this possibility, as well as others. It is investing in Customer Relationship Management (CRM) and within a year, it hopes to have new software up and running that will allow it to do direct marketing to its database. In addition, the software will tell Shield who its best customers are, what programs to keep and what programs to eliminate, track reimbursement, and inform customers about product changes.

Another planned growth area is online ordering. Shield would like to increase the use of the Internet for orders and thereby decrease the need to have a customer service agent call clients every month. One possibility is that customers will receive emails reminding them to order rather than calls. The future may also include geographic expansion and the acquisition of national accounts.

However, no matter what the bottom line shows as far as profit, though, the real bottom line is serving the customer. The medical equipment business may not be for those with a weak stomach, but it is definitely for the strong of heart.

“We are providing a unique and necessary service to those in need, the most fragile population,” McIlvaine says. “That is really what it is all about.”

Valerie K. O’Berry is a contributing writer for Dealer/Provider.