Since some companies only sell supplies, Mike Perry, vice president and general manager for Invacare Supply Group (ISG), Holliston, Mass, suggests providers discard the idea that supplies are a necessary evil and instead view them as a profit opportunity. Dealer/Provider spoke with Perry about ways providers can accomplish this.

What are the biggest challenges of making money in the supplies business?
There are three. The first is operational inefficiency. Just to deliver a supplies order somewhere costs in the range of $10 to $15. This doesn’t include the cost of receiving, inventory carrying costs, or shrinkage. The solution is to not carry inventory and outsource fulfillment at a fixed rate. ISG offers this for less than $6 per order.

The second challenge is selling the “whole” patient. Many times providers stop their selling efforts at the original referral for a third-party reimbursed item. If this occurs, the provider never has a chance to provide higher margin, cash type, add-on items. The solution to this is to market to these patients.

Third, reimbursement does not get leveraged. Needless to say, reimbursement hasn’t improved considerably in the past few years. With disposables generally being a small percentage of providers’ total revenues, most providers do not aggressively pursue the opportunities to leverage certain codes or to offer cost-effective products.

The solution to this is twofold. First, know your customers, their needs, and the reimbursement available to them. As an example, there is a sizeable market made up of the needs of high-level rehabilitation patients. One product used is an intermittent catheter and, according to the manufacturer, based on reimbursement and annual consumption, that patient’s demand is worth approximately $4,000 per year. Offering this product is a great way to keep in close contact with customers between wheelchair purchases and gain revenue at the same time. The second solution is to develop formularies that meet clinical requirements as well as the provider's financial goals.

What risks do you see in the supplies market?
Supply chain consolidation. The classic model of manufacturer to distributor to provider to patient is changing. Manufacturers generally do not do distribution well, so I see less consolidation here. However, there are a number of distributors that have entered the provider’s world. They have the ability to leverage their operational efficiencies and they recognize the lifetime value of chronic patients. This puts HME providers at risk of losing those patients altogether.

Currently, these integrated distributors/providers have limited their offerings to disposables. However, some are entering the respiratory field. ISG, as part of the Invacare philosophy, has chosen and has continued to be a distributor only. We believe in the role of the provider and know that the health of the provider is dependent on consumer contact, customer growth, and retention.

What advice would you give HME providers regarding their supplies business?
First, retain and leverage the lifetime value of your customers. Second, leverage other people’s core competencies to gain operational efficiency. Third, look at growth strategies for the cash side of the supplies business. Finally, if you can’t figure it out, ask for help.

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