Things look pretty good to lawrence higby these days. He heads Apria Healthcare Group, which employs more than 9,700 health care professionals in 480-plus branch offices across the United States. The company, headquartered in Lake Forest, Calif, serves in excess of 1 million patients annually and claims leadership in the US alternate-site respiratory, HME, and infusion markets.

Apria looks at ways to improve every facet of its operations. For example, in the hands of transportation leads like Daniel Robinson at the Apria Healthcare branch in Tustin, Calif, new software will increase the predictability of deliveries to patients’ homes.

But the picture was not always so rosy. Apria has weathered a storm of litigation and bad press. In 1998, former shareholders in companies that merged in 1995 to form the company joined in a class-action suit alleging that management had deliberately overstated the combined companies’ profitability. Also in 1998, the company began receiving subpoenas and document requests related to allegations that the company’s billings to the government lacked adequate support. In 2001, Apria released information it had received from the government regarding its liability in the matter, and its stock price dropped 16% in 1 day. A class-action suit followed, alleging that the company had made misleading statements regarding the matter in previous public disclosure filings. The suit was dismissed in 2002, and a circuit court upheld that decision last year.

Changing Directions
Putting such serious issues behind a company is no small feat. Management first made getting the company’s contracts and billing shipshape a priority.

“When we got here, we found that we had about $300 million worth of contracts that were neither priced correctly nor were they collectable,” says Lawrence Higby, who joined the company as president and COO in 1997 and became CEO in 2002. “We resigned nearly $300 million worth of business, which was a very painful thing to do.”

At the same time, the company took a close look at operating practices in its branch offices. “We found that we were doing things differently in literally every branch,” Higby says. “We changed that around in about a 2-year process, so we have standardized practices for everything we do across the United States. You can go to the warehouse in Maine or the warehouse in San Diego, and they’re laid out the same, the coding is the same, the numbering is the same, we take inventory the same way, etc.”

Developing a billing system that better served Apria’s needs also helped turn the company around, Higby says.

“We have contracts not only with Medicare, obviously, but over 3,200 managed care organizations and physicians’ groups across the United States,” he says. “So we have the capability of billing anybody from a small physicians’ group in Ohio to major national carriers like United Health Care, all the Blues, Aetna, and Cigna. There really wasn’t any system that was capable of handling that. Now our system allows us to bill more than 70% of our claims electronically. We think we have the best ability to intake, collect, and bill of any organization in the United States. I think our bad debt was about 8% or 9% when we got here, and it’s now down around 3.5%. I think we lead the industry in days sales outstanding (DSO) figures at around 51 days.”

Accountability can be a problem in a large organization. Consequently, Apria puts a priority on safety and adhering to all regulatory and accreditation requirements. If an employee, like transfill technician Eduardo Lua at Apria Healthcare in Tustin, Calif, detects a problem, he can report it anonymously.

To increase efficiency, the company centralized purchasing. “That allowed us to purchase and distribute our products in a fashion that was far more economical than when each one of the branches was purchasing on their own,” Higby says. “The combination of those basic activities really changed the nature of Apria, and you can see the financial results that followed as we continued to not only improve our returns to our investors, but, more important, improve our overall service to our patients on a consistent basis. We survey more than 25,000 patients a quarter and consistently have ratings in the very high 90s in terms of overall satisfaction with our service, which is pretty phenomenal in this business.”

First-Class Service
Apria’s commitment to customer care shows in a variety of ways, according to Lisa Getson, executive vice president of business development and clinical services.

“Our enteral care program includes a nutrition screening to screen out high-risk patients who may have allergies or other health conditions for which enteral might be a problem if they were to continue,” Getson says. “In addition, we have developed a model where CPAP (continuous positive airway pressure device) patients can come to an Apria location for group educational sessions and to be fitted with their masks and receive some really personalized education. Our patient education booklets are written at the sixth-grade level, and almost all are available in both English and Spanish. We’re obviously available 24 hours, 7 days a week. We open most of our branches on Saturdays and have on-call availability on Sunday to take home hospital discharges. A number of our programs include outbound compliance telephone calls to make sure patients are adhering to their treatment. Finally, we’re making some enhancements to our delivery services as well by installing software that will increase the predictability of deliveries to individual patients’ homes so they know the exact time their deliveries will be made.”

Apria also tries to satisfy physicians by making its systems and procedures efficient.

“We recognize that a physician’s time is very valuable,” says Larry Mastrovich, COO. “We’ve made a lot of investments in phone systems to be able to upgrade our capabilities. We really try to get people into a live customer-service setting and work them through any issues to make sure that their patients are taken home safely. We can provide the 24-hour service that they need if they have any after-hours issues. Our goal is to take that patient into our service, get them set up, get access to care, and have the physician feel completely comfortable that he or she does not have to worry about that patient moving forward. We have 1,000 respiratory therapists out in the field every day, seeing patients to make sure that they’re appropriately cared for.”

Code of Conduct
Apria takes great pains to do things the right way, according to Mastrovich. Members of the board sit on a committee that monitors compliance throughout the company.

“We look at every facet and functional area within the organization,” he says. “That would include Joint Commission on Accreditation of Healthcare Organizations requirements, licensure, Food and Drug Administration (FDA) requirements, and all of the Medicare and Medicaid providers. We have our own hotline so anybody in the entire organization can report issues anonymously. Each complaint that comes into that compliance hotline is investigated and dealt with. We have a full staff of people that audit FDA and Department of Transportation regulations, and we also have a full staff of people looking for compliance on Medicare and Medicaid issues. We believe we are extremely compliant with any program that we are involved in, and it’s one of the areas that we feel very proud to stand behind and say we wear the white hats in the industry.”

Charting the Course
Higby expresses confidence that Apria can handle changes to come as well as it has dealt with the troubles of the past.

“There’s going to be continual reimbursement pressure throughout health care,” Higby says. “It’s going to require businesses that are much more efficient, much more productive in meeting the challenges associated with balancing the issues of costs, quality care, and efficiency. The winners in this industry will be those people who understand and excel in all three of those areas. You must be efficient, you must keep your cost structure under control, and you must provide quality care.”

Of course, no one in home health care can ignore the dark clouds looming on the horizon in the form of Medicare reform. Higby does not seem overly troubled by the competitive bidding requirements.

“We’re more than prepared to deal with that issue, in that probably 70% of our business is already competitively bid,” Higby says. “We’re also comfortable with the movement of the rates of reimbursement for several Medicare items and categories to Federal Employees Health Benefits Program (FEHBP) levels. They’ll cause a minor reduction in revenue, but we feel we’ll be able to overcome that fairly easily. The real issue is movement in 2005 for the reimbursement of respiratory therapy drugs from the current standard of Average Wholesale Price (AWP) minus 20% to Average Selling Price (ASP) plus 6%.”

Apria’s preliminary review indicates that the company would not be able to serve Medicare patients at those rates, according to Higby.

“We’d, of course, take care of the existing patients that we have, but at those rates it’s highly unlikely that we would be able to service Medicare patients for respiratory therapy drugs and make any kind of profit,” he says. “Fortunately, we’ve never been in that business to the extent that some of our competitors and colleagues have. It represents about 5% of our top line. While certainly that is not insignificant, we think that we’ll be able to grow our way through that over the next 3 years. We hope it doesn’t happen, because we think it’s not sound reimbursement policy that the government is attempting to undertake here.”

Despite the challenges, Higby predicts continued growth and opportunity for the home health care industry in general and Apria in particular.

“It costs around $2,000 a day to keep somebody in the hospital, and you can provide basically the same services for about $700 a day in the home,” Higby says. “Long-term, we think that home care is part of the solution for rational health care costs. Second, we think the market will continue to grow at 5% to 7% [annually], and there will be plenty of opportunity to serve patients. Third, we believe Medicare is moving into a managed care environment. Since we’re in the managed care environment to a large extent, we understand the cost, billing, and contracting structures associated with serving managed care, and we think that gives us a real leg up in the industry. Fourth, most managed care companies want somebody who can serve their business in all 50 states, and Apria is uniquely positioned to do that.”

With Apria’s troubled years behind it, the company is going full steam ahead into the future.

Keith Bush is a contributing writer for Dealer/Provider.