While the obesity/diabetes epidemic is not yet yielding a large influx of new patients, savvy providers can thrive by entering the market with a solid plan that targets Medicare and Medicaid patients.

The hype about obesity and its relationship to diabetes is true. Not only have cases of type 2 diabetes increased in adults, but also in children. At first glance, the increase looks like an opportunity for providers to supply the products this population needs. However, the old warning to look before you leap is sound advice in this case. Indeed, the road to profitability requires careful analysis and an understanding of industry intricacies.

According to estimates from the National Health Interview Survey, in 2005 there were 202,000 new cases of diagnosed diabetes in people aged 20 to 39, 727,000 among people aged 40 to 59, and 575,000 among people 60 years and older. While the biggest increase came from the 40- to 59-year-olds, the problem with catering to this age group, says Susan Genaro, VP and accounts receivable manager, Diabetic Medical Supply, Warren, Ohio, is that a majority of these patients are covered by HMOs. And dealing with HMOs can be difficult for providers of diabetic supplies.

Getting an HMO contract is the first obstacle. Submitting an application is part of the process, but it does not guarantee a contract. John Genaro, president of Diabetic Medical Supply, has experienced the frustration. "We sent in our application and kept checking and checking with them," says Genaro. "The reply was, ‘We have enough providers.' We weren't late on getting it in either."

The difficulty Genaro experienced is not isolated to his business. "We were at a meeting with OAMES [Ohio Association of Medical Equipment Services] and we heard the same thing from all of the other providers," he laments. "It was as if we didn't have a chance to even try to become a provider."

Even if a supplier of diabetic supplies does manage to get keyed into an HMO contract, it does not mean the money will pour in. Shield Healthcare, an HME provider preparing to reenter the diabetic supplies market after leaving it 4 years ago, is not planning on specifically targeting patients covered by HMOs. Why not? According to Todd Smith, senior marketing manager of the company, "The billing is cumbersome, the reimbursement is low, and the payment is slow. You mix all three of those together, and … that isn't good business," he says. "Every managed care organization and HMO has a different way of billing claims. If you do business with 100 different managed care organizations, you have 100 different ways to bill claims."

OPPORTUNITY IN THE DIABETIC MARKET?

The obesity/diabetes epidemic may not be yielding the advantageous market of new prospective customers that providers expected, but that does not mean that now is not a favorable time for established providers to add diabetic supplies to their product line and target Medicare and Medicaid patients. "I would think that this is a very good product line to introduce to your business," Genaro says. "Number one, your patients continue to reorder so you have a base that you can count on and a cash flow that is going to turn. Number two, it is not an enormous amount of products; the product line is fairly narrow."

Smith agrees that now is a good time to add diabetic supplies to the product line. The recently-made-favorable reimbursement climate adds to the opportunity in this market. Reworked calculations in agencies like Medi-Cal have made business more profitable to providers, Smith says. Stabilized Medicare and Medicaid reimbursement rates also were a contributing factor in Shield's decision to reenter the diabetes market. Smith also estimates that the diabetes business has been growing at approximately 9% over the last few years. He further mentions that the undiagnosed population is not declining.

Add restructured pricing of manufacturers to stable reimbursement rates and growing business, and the diabetes market looks more appealing than in previous years. Smith says that manufacturers have come to understand the pricing needed for mail-order companies like Shield to operate. "They [manufacturers] have restructured their terms to make it more beneficial for our class of trade," he said.

PROCEEDING TOWARD SUCCEEDING

For established providers, supplying diabetic products creates a more complete range of services to the patient, forming an environment where patients do not have to go to another source other than your business. To successfully implement a diabetic product line, you must be prepared.

There are six basic products involved in diabetic testing:

1. Meters;
2. Test strips;
3. Lancets;
4. Lancing devices;
5. Control solution; and
6. Replacement batteries.

As with any product you may add to your product line, it is important to know its price and the reimbursement rate. There are diabetic products that are beyond the Medicare reimbursement rate, and providers always should monitor the rates because they can change. Genaro cautions that if providers are not diligent in monitoring the price and reimbursement rate, they are in danger of losing money. Providers also should consider buying in large economies of scale so they can get prices as low as possible.

Properly trained phone staff is critical. When talking to patients, Judy Gearheart, office manager, Diabetic Medical Supply, treats patients like family.

Besides price, you must thoroughly know the product. The least or most expensive monitors are not always the best. "If you are providing a meter, and it is the cheapest possible meter, and that meter gets into a patient's hand for 6 months or a year and it fails, then they are going to lose confidence in our ability," Genaro says. For providers that are in it for the long term, low price must be balanced with high-quality diabetic equipment.

The equipment also needs to be matched to the patient. Recent technology has produced a large selection of meters and strips that give providers the opportunity to increase their margins, but the product can't be judged on margin alone—first it must fit the patient. This is where a well-trained phone staff comes in. If phone staff members are not genuinely interested in patients, it may be time to let them go. "After talking to people over the years, they [phone staff] begin to identify situations and problems, and as they are discussing issues with people, they are able to ask certain questions that help to get the information that they need to choose a meter," Genaro says. The main questions are:

1. Is your physician treating you for diabetes?
2. How is the physician treating you for diabetes?
3. How often are you testing?
4. What type of monitor are you currently using?
5. What type of insurance do you have?
6. What is your demographic information?

These questions help to determine if a patient needs a meter with multisite testing, download capabilities, a certain amount of memory, a large numeric display, a special ergonomic design, and the price range their insurance will cover. Patients have a preconceived notion of what they want, but that is not always the best match. It is up to the representative to match the patient with the right meter.

For information on manufacturers that provide diabetic supplies, access our online buyer's guide.

The key to servicing patients is taking time for one-on-one conversations. "Small companies like mine have no other way to stand out in the crowd but to do one thing—provide the service, talk to the patient, and match them up with the best meter that they can have with their manual dexterity and vision," Genaro says. "Because we are smaller, we have more time to give personal time to patients, and therefore the person is nurtured to be able to test their blood. That is the one thing we try to do—treat people like family."

Franklin A. Holman is news editor for  HME Today.