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Drug Store News, Dec 11, 1989

Cutbacks shadow health care expo

ATLANTA -- Record numbers of dealers and manufacturers flooded the Georgia World Congress Center for the 10th annual National Home Health Care Exposition in mid-November, but they conducted their business against a backdrop of continuing cutbacks in third-party reimbursements and growing competition.

Despite the industry's growth to an estimated $12 billion or more in annual sales, home health care dealers and suppliers are faced with evertighter restrictions on Medicare and other third-party reimbursements for homebound patients who depend on their products. Thus, the three-day event at the Georgia World Congress Center was subdued by caution from buyers.

"It's growing, but it's a troubled industry and a tough business to survive in," noted Denise Novoselski, publisher of Homecare, the industry digest. "It's not the kind of product line you can just stick in a chain drug store and forget. There are problems with inconsistent Medicare pay requirements, denials of claims and a proliferation of companies who have flooded into the market in the last few years, including hospitals. And the dealers are problems themselves, because many of them don't generate the proper claims."

"Ten years ago, everyone could get into this business and it was a no-brainer, but that's not the case anymore," added Jim LaPoint, director of corporate pharmacy services for White & White Home Health Care and Pharmacy, a seven-store chain based in Grand Rapids; Mich. "It's a tough business to be in."

Cost-cutting by government and private insurers is squeezing profits and forcing dealers to adopt strict controls over what durable medical equipment they buy and how much of it they keep in stock. Many dealers at the show expressed exasperation about shifting and confusing reimbursement policies, shrinking profit margins and the growing need to manage their home health care business.

"Medicare is changing so fast we can't keep up," said Joe Callahan of White & White. "You have to be flexible. We used to be primarily a rental business, then converted to more of a selling business (in the mid-1980s), and now we're going back to rentals because of the reimbursement situation."

Nevertheless, he said, "there's still a good profit to be made" for dealers who can manage inventories closely, market effectively to doctors and other referral sources and bill correctly for third-party payments.

"The toughest part is monitoring your cash flow," added Van Lee, Jr. of Lee's City Drugs in Bastrop, La.

Lee added that his company "couldn't bill by hand anymore," and has converted to a computerized claims processing system by AMBI, a McKesson Corp. division. Many other dealers, including White & White, now use computer billing systems either developed in-house or by outside firms. A growing number of dealers are also relying on distributors for some DME products to hold down inventory carrying costs.

Despite the home health care industry's cash flow problems, profits can be substantial for well-run sales and rental dealers. Thus, attendance at the annual event continues to grow as new dealers and suppliers jump into the business. This year, some 750 manufacturers exhibited products to some 20,000 buyers, according to show manager Evelyn Merriman of SEMCO Productions.

Among them were scores of independent pharmacists who have added home health care to their lineup. Drug chains who field home health care centers, including Harco Drug and Hook Drug, also attended.

The same budget cutbacks that are squeezing Medicare DME reimbursements are also encouraging early hospital releases and greater reliance on home care, so underlying demand for home health care products continues to grow.