Why mergers and acquisitions provide solutions for durable medical equipment suppliers

As the healthcare market evolves with new health reforms and policies being regularly implemented, durable medical equipment (DME) providers must work to understand the changes and adequately adapt.

For some, strategies may include considering mergers and acquisitions as a means for smaller companies to successfully exit, and for larger companies to grow.

DME providers also may acquire individual lines of business of a smaller company, rather than the entire organization, which creates solutions for both organizations that provide long-term value.

There are also impacts made as a result of partnerships and marketing agreements, rather than solely mergers and acquisitions. In fact, many DME organizations are built and succeed in part due to the relationships and partnerships established between themselves and other medical equipment companies. Now more than ever, the types of changes the healthcare industry faces greatly affects how these relationships develop.

As such, there are many reasons that consolidation and increased partnerships have become a prominent trend in the healthcare sector, and why larger DMEs represent profitable solutions for smaller groups struggling to cope with evolving practices.

Changing Policies Result in Increased Cost to Small Healthcare Companies

As healthcare costs rise and reimbursements are cut, many smaller healthcare companies struggle to maintain their position in the marketplace. It can be quite difficult to have enough capital in place, especially when insurance companies do not guarantee reimbursements, and the process of collecting them is extremely time-consuming and expensive.

Medicaid plans and Managed Care Organizations (MCO) have implemented complicated and conflicting policies that we are all aware of, many of which provide coverage under a covered individual’s plan but do not ensure reimbursement. In addition, these policies may be superseded by Centers for Medicare and Medicaid Services, Federal, or State requirements.

However, when larger DMEs have the resources in place as insurance payers with the ability to take on new lines of business, they can both expand their own market share by aligning with smaller organizations. This expansion simultaneously helps these smaller companies maintain and grow their business as well, especially when the DME is the winner of multiple competitive bid areas.

For example, the Durable Medical Equipment, Prosthetics, Orthotics Supplies (DMEPOS) competitive bid process was put in place to ensure beneficiary access to quality products and services to improve their quality of life. As a result, competition among suppliers who operate in a certain competitive bid area (CBA) ensues. Suppliers electronically submit bids, and contracts are awarded to those who offer the best price, while meeting particular financial and quality standards.

Those who lose in CBAs often face unsustainable prices whereas the winners are able to operate at a lower cost, allowing them to pick up more of the market share. In turn they are more equipped to assist smaller companies looking to merge and build upon their market share even further.

By coming together to collaborate their market share and resources, larger DMEs are able to help smaller companies sustain operations when costs become unmanageable. In turn they gain a new source of lucrative business with the ability to maintain and grow the current staff, and most importantly ensure the high quality care for existing and future patients.

Seamless Integration

When it comes to mergers and acquisitions, integration can often be a challenge. Generally, the larger durable medical equipment company has streamlined processes put in place to assure a smooth transition for all parties involved.

The goal is to keep the smaller company, likely established in a certain region or to sell a specific genre of products, strong and growing to ensure that is a valuable source of new profit for the medical supplier acquiring it. Therefore, it is necessary to have a quick and easy understanding and interpretation of patients and supplies, which often means data integration.

Existing employees and technology also play a vital role during integration. An efficient training process must occur for the smaller company’s employees as well as those of the buyer, to make sure order fulfillment and the continued sync of the targeted demographic remain uninhibited during change in ownership and often times, leadership.

More Mergers and Acquisitions Are Expected

Competitive bid areas and constant healthcare reform will continue to take place and spur change within the healthcare market, which in turn will result in some smaller medical suppliers struggling to adjust. However, by evaluating all their options, this does not necessarily mean that smaller companies will be forced out of business. By merging with or being acquired by larger durable medical equipment providers, they will enable their business to remain and even grow as the larger DME expands, leaving their legacy intact and continuing their tradition of providing strong healthcare solutions to patients.

Andrew Amoth Strategic Partnership Coordinator, at Aeroflow Healthcare, a national provider of durable medical equipment (DME) products and construction company programs.

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