During the late 1990’s, with relatively few legal or educational requirements to open a DME business coupled with excellent profit margins, the United States supported over 70,000 DME companies. The great majority of these DME vendors were “Mom and Pop” small companies. The Medicaid and Hospice markets were growing with excellent demographics providing promising future growth. Most DME was paid for by the Centers for Medicare and Medicaid Services (CMS) based on fee-for-service “reasonable cost”. Between 2000 and 2010, this substantially changed as CMS competitive bidding became widespread. Hospices benefited from the pricing fall out as lower reimbursements became the norm. Lower margins forced DME vendors to either cut costs or grow business volume. To remain competitive many vendors would delay replacing older equipment for new and they would work with less staff. The lower margins and search for efficiencies resulted in an environment ripe for mergers and acquisitions. Thirty percent of all DME vendors were expected to change ownership within the decade. Customers often saw a dramatic rise in service performance failures following a DME acquisition, in that the same level of small business owner passion for their service dissipated.
The Hospice Industry saw venture capital companies invest in National HME as they began a strategy of purchasing independently owned DME businesses. Both Hospicelink and Stateserv, with their individual investment capital ownership, determined a merger would be the best way for them to grow within the market.
In the race to get big, the larger DME management companies are attempting to control select geographic markets (by purchasing the local DME vendors in strategic markets). They see this as their edge in controlling large national contracts. They also expect their larger combined market share will result in making independent DME companies reliant on their tightening financial reimbursements. Industry expectations and these further price reductions will only magnify the number of patient service failures. This will cause a backlash as patients and hospices cry out for excellent service at a fair price. The market will seek to find the proper balance of price and quality patient care.
Successful hospices have no other choice than to mandate excellent patient service. Nothing is more important to the hospice patient and family. The DME vendor is seen as a direct reflection of the hospice. Thus far, the market is showing that newly acquired DME vendors do not have the same incentive for quality patient care as do the former Mom and Pop small DME businesses.
Hospicelink, Stateserv and National HME have strong financial incentives to promote their corporately owned offices building market-share for their acquisitions. Solving the quality patient care issue is proving more elusive. The venture capital mandate on growth and acquisition is having repercussions on the quality of their patient care. The national hospice chains may find a venture capital based DME management company to be their easiest solution for building a national network of DME vendors. However, this approach is not without its limitations.
There is a definite advantage in aligning with a network of small DME "Mom and Pop" vendors. Empowered small companies providing high quality patient care on a local basis with a focus on evidence based education is a strategy many smaller DME companies are taking. While the venture capital money buys up market-share, the real test will be serving the hospices and patients with the highest level of service. The primary company focus, priorities and the incentives of small business ownership to drive quality patient care will come to the forefront. Stay tuned, as the story of David and Goliath has all the elements to repeat itself once more.