HME Finances & Metrics:

Transcription

1 HME Finances & Metrics: Important things to know as you build your 2013/post-competitive bidding business plan VGM Group, Inc.

2 What does the Post-Competitive Bidding world look like? Growing Demand Rapid Change Bright Future

3 Demand Unit demand for DME and related products and services will grow significantly. The drivers include: Significant growth in elderly population Obesity epidemic Economics of health care and home care Technology and new product development Consumerism in healthcare = higher expectations

4 U.S. Population Growth 40% 35% 30% 25% 20% 15% 10% 5% 0% All

5 Aging within Aging

6 Obesity in America 35% 30% 25% 20% 15% 10% 5% 0% % of Americans who are obese

7 Obesity drives healthcare demand 40% 35% 30% 25% 20% 15% 10% 5% 0% Age 30to50 Obese Smoker Heavy Drinker Past Smoker % increase in health spending (over norm)

8 US Healthcare Spending

9 Per Capita Health Spending

10 Comparative Growth

11 O2 Chairs CPAP Beds Wounds Access New

12 U.S. DMEPOS Spending

13 6 Truths for HME 1. Reductions in reimbursement rates per unit 2. Inadequate Business Fundamentals 3. Lack of consumer and health professional awareness of solutions you offer 4. Consolidation of Payers 5. Newness and growth are necessities 6. Your ability to adapt to changing market is key

14 1. Reductions in Per Unit Reimbursement Pressures on reimbursement Healthcare cost increase not sustainable Cuts across Healthcare continuum Federal policies mimicked by states and carriers Natural order of maturing industry Prepare for another 25-50% reduction in per unit reimbursement over the next 5 years on existing product lines

15 2. Inadequate Business Fundamentals Evolution from caregivers in business... to business professionals providing care Those who fail to develop business fundamentals will be left behind

16 3. Lack of awareness Lack of consumer and health professional awareness of solutions involving home. Years of reliance on doctor and referral source to educate the consumer. Learn from direct to consumer advertising?

17 4. Consolidation of Payers Significant consolidation among private health insurance has been underway for nearly a decade. Growing but ignored - threat to providers Changes the dynamics of the industry

18 Another look at it Market Share 2010 Market Share Top 7 All Others Top 7 All Others

19 Dangerous Concentration? In 300 largest MSAs... Among the 50 states... 97% qualify as highly concentrated In 54%, largest carrier has over 50% market share In 92%, largest carrier has over 33% market share In 5 states, largest carrier has less than 33% market share In 15 states, largest carrier has 33%-50% of market In 30 states, largest carrier has greater than 50% of market

20 What it means... Health insurers have growing power over pricing. Private implementation of competitive bidding. The ability to participate will become a key element in the viability of medical providers. Access to contracts and networks increasingly valuable asset.

21 5. Newness & Growth are Necessities You need to know your core, grow your core, and use newness to score! Commoditization and Margin Most categories go through a life cycle. As categories become commodities, prices decline New categories have higher margin, and higher risk Financial Lesson 101 The Power of the Incremental Dollar

22 Financial Lesson: 101 Understand the profit drivers and economics of your business The incremental dollar is the most profitable dollar for your business

23 Power of the Incremental Dollar Existing P&L Revenue 2,000,000 Cost of Goods 800,000 Gross Margin 1,200,000 Operating expenses 1,050,000 Net Profit 150,000 Profit % 7.5%

24 Why is growing more profitable? Existing incremental New Revenue 2,000, ,000 2,200,000 Cost of Goods 800,000 80, ,000 Gross Margin 1,200, ,000 1,320,000 GM % 60% 60% 60% Op expenses 1,050,000 40,000 1,090,000 Net Profit 150,000 80, ,000 Profit % 7.5% 40% 10.5%

25 Less is More??? Existing incremental New Revenue 2,000, ,000 2,160,000 Cost of Goods 800,000 80, ,000 Gross Margin 1,200,000 80,000 1,280,000 GM % 60% 50% 59% Operating expenses 1,050,000 40,000 1,090,000 Net Profit 150,000 40, ,000 Profit % 7.5% 25% 8.8%

26 What is an incremental dollar for HME? Add-on or additional sale to existing customer Additional masks and supplies New Category of business Complimentary product line New referral source New contract or insurance plan New facility Co-pays

27 What this means to HMEs... The incremental sales dollar is virtually always your most profitable sales dollar. Net profit margin is what matters, not gross profit margin. Find the incremental dollars GROWTH. This is not absolute You still have to use good judgment. Growth should be in your culture and it should be intentional

28 Size Matters Scale gives you a better chance to succeed: Leverage specialty positions such as RT, ATP and billing. Afford the opportunity for high caliber people/managers. Allows easier investment in technology. Allows you to take more risks, chase opportunities

29 6. Your Ability to Change Change inevitable You must nimble Your ability and willingness to change is a key to your future success

30 Casualties of refusal to change

31 HME Financials Using Metrics to spot opportunities Top 10 Key Metrics Other comparative data

32 Top 10 metrics P&L Personnel cost as a % of revenue and/or rev per ee Operating expenses as a % of revenue Gross Margin Net Profit Margin Revenue per patient Revenue and growth % by category and payor source Operations and Balance Sheet Masks per patient per year & Mask revenue as % of total sleep biz revenue DSO Days in Inventory & Equipment Liquidity

33 Personnel Costs - % of Rev 39.0% 37.0% 38.0% 37.0% 35.0% 33.0% 31.0% 29.0% 33.0% 29.5% 32.5% 27.0% Apria Lincare Hanger HME News USR

34 Lincare Personnel Cost Trend 34.00% 32.00% 30.00% 28.00% 26.00% 24.00% 22.00%

35 Lincare Personnel Cost Detail 13.0% 11.0% 9.0% 7.0% 5.0% 3.0% Sales, billing, corp Del & Equip clinical Brach ops, CSRs % 6.5% 4.7% 8.6% % 6.7% 5.0% 9.9% % 6.5% 4.7% 8.9% % 6.3% 4.7% 8.8% % 5.8% 4.2% 9.1%

36 Revenue per Employee $200,000 $180,000 $160,000 $140,000 $120,000 $100,000 Lincare AHP Rotech Apria Hanger USR Independents

37 Other People Metrics Lincare Consolidated billing and collection centers operate on $1,370,000 of annual revenue per employee Salespeople generate an average of $1,750,000 annually Apria Average salesperson generates $1,400,000 in volume

38 Operating Expenses - %

39 Vehicle Cost Benchmark (Lincare) 3.2% 3.0% 2.8% 2.6% 2.4% 2.2% 2.0% Vehicle expense - % of revenue

40 Bad Debts - %

41 Gross Margin - %

42 Gross Margin - % other Industry 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 22.29% 45.97% 57.89% 81.88% 28.34% 65.00% 22.07% 0.00%

43 Operating Income - % Apria s numbers are HME segment, excluding infusion segment

44 Operating Income Other Industry 20.00% 15.00% 10.00% 5.00% 0.00% -5.00%

45 Net Income

46 Annual Revenue Per Patient $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 Lincare Apria AHP Independents

47 Are you getting all the HME, medical supplies and assistive medical buys of the customer? Half of 65+ buy assistive technology with their own funds 40% of caregivers buy assistive items for someone else NTK what % of patient base buys more than one category from you? VERY FEW HMEs are maximizing the value of each patient.

48 Revenue Growth Organic

49 Sleep (OSA) Business Significant opportunity for most HMEs: Grow base business as marketplace grows significantly Effective supply replenishment and compliance programs - many are not doing this effectively today. Take control of to margins and profitability of your business Diagnosed 8M Undiagnosed 32M

50 Sleep business Blower vs Mask Industry Apria 38% 48% CPAP Mask + CPAP Blower Mask +

51 AHP Not so sleepy either 45% 40% 35% % of total business 30% 25% 20% 15% 10% 5% 0% O2 Sleep

52 Sleep Things to Consider Make an candid assessment of your patient compliance and follow-up processes. Do a lost margin assessment and go where it leads you Assess how you re doing replenishment Masks per patient per year Target 0

53 DSO - net Lincare Apria AHP Rotech Hanger Independents

54 Unbilled DSO Independents 11 Rotech 16.0 AHP 5.2 Apria

55 Aging Benchmark (Lincare) 70% 60% 50% 40% 30% 20% 10% 0% 0 to to Medicare Medicaid Insurance Patient All

56 Aging Benchmark (Apria) 26% 24% 22% 20% 18% 16% 14% 12% 10% Medicare Medicaid Managed Care Private Pay % over 180 days old

57 Aging Benchmark (AHP) 100% 80% 60% 40% 20% 0% Insurance Medicare Medicaid Private All

58 Aging Benchmark (Rotech) 80% 70% 60% 50% 40% 30% 20% 10% 0% 0 to to to 360 Over 360 Gov Insur Patient All

59 More Rotech Aging

60 Inventory and Equipment Investment Computation is: investment in (a) inventory, and (b) patient service equipment, net of depreciation; divided by average daily cost of goods sold/rented. This is a measure of how effectively the DME utilizes their equipment and inventory investment. 180 days equal to turning equipment/inventory twice in a year Days activity invested in equipment and inventory Lincare Apria AHP Rotech

61 HME Industry Receivables Automation has significantly reduced DSO over past decade. Those that have not upgraded systems and embraced technology are falling further behind day DSO has become a norm. Patient pay is a different animal; requires different mindset and methods.

62 Liquidity Ignore at your peril Liquidity = cash on hand, plus assets convertible to cash today, plus borrowing capacity today. Businesses that die, die because they run out of liquidity

63 Liquidity Days Cash Need Available Available is cash plus available credit lines

64 Liquidity Cash is king, always has been, always will be Availability of credit is now very important, because the market has changed dramatically since 2008

65 5 keys to liquidity Bring down DSO Optimize investment in inventory and equipment Stretch cash with vendor terms and programs Match payment streams to revenue streams Build relationships with lending sources

66 Other Metrics for comparison

67 Mix of business 100% 80% 60% 40% 20% 0% Lincare AHP Rotech Apria Hanger O2 Sleep HME O&P Other

68 Mix of business (DME) 70% 60% 50% 40% 30% 20% 10% 0% Lincare AHP Rotech Apria O2 Sleep HME

69 Medi/Medi Benchmarks 70% 60% 50% 40% 30% 20% 10% 0% Lincare Apria AHP Rotech Hanger Independents USR Medicare Medicaid Combined

70 Lincare Medi/Medi Mix 70% 65% 60% 55% 50% Medicare/Medicaid

71 Post Bid World It s not the end of the world, it s just a different world we are heading into. Opportunities abound! Know your numbers they tell you the real story. The metrics will direct you to problems, opportunities and avenues for success.

72 APPENDIX: VGM GROWTH OPPORTUNITIES 12 business opportunities for DME owners to consider (and where VGM can help!)

73 Growth? Successful DME has always been about newness and innovation. Growing is critical to your future success, and new product lines, new services, new lines of business and revenue sources need to be part of that growth.

74 More on growth It s not a question of ignoring the core you have to drive the core business but you also need other newness. Product line usually commoditize over time. New things come along --- Change. The growth opportunity information we may offer is a thought-starter... Consider these and use it to stir your thinking

75 Growth Sessions Available 1. Maximizing the value of the OSA patient 2. Advanced wound care 3. Accessibility in the home 4. Pain management 5. Serving underserved areas 6. Home monitoring and remote services 7. Retail 8. Supplements 9. O&P 10. Companion care 11. Complex rehab 12. Pedorthics

76 Growth Sessions Available Overview of the opportunity, the market, how and why it mike work for you A pro-forma P&L, representing one set of possibilities Each of these opportunities is a successful business for many, and a drain for others Consider the possibilities and pursue any or all that fit your situation, and think about others that are optimal for your unique situation.

77 Questions and comments? (For growth sessions, me!) Mark Higley office cell