HME - Past, Present & Future: State of the Industry/Benchmarking Update

Published in Member Communities on October 12, 2020

By: Mark Higley, Vice President of Regulatory Affairs, VGM Government Relations

I was honored to recently present at the 2020 HME News Business Summit, which was held Sept. 15-17, and, due to COVID-19, in a first-time “virtual” format.

My session, titled The 14th Annual HME News/VGM Group Financial Benchmarking Survey, included a series of data, trends and analysis as to the state of the industry from 2010 to the present, and included financial and operational highlights from supplier submissions applicable to their 2019 results. 

I will attempt to summarize the presentation in this blog, and I encourage readers to contact me with specific questions or requests for additional information/clarification at any time.

So, let’s get started!

125 unique HME suppliers responded to the survey request.  These entities ranged from smaller, single location operations to major regional players.  We compiled the raw data in a (de-identified) Excel spreadsheet, created a summary PDF “visual” file of the responses, and, in many instances, tracked trend lines from 2010 to 2019 via a PowerPoint slide presentation.  (Note:  Go to http://hmesummit.com/ to access this - and all the 2020 sessions - including the recordings.)

State of the Industry Update

Continuing a decade-long trend, consolidation continues, resulting in fewer, but larger players in our industry.  And, competitive bidding and other negative market forces have directly or indirectly resulted in almost 3,500 HME locations closing since 2010.   

Many of you are aware that VGM has obtained from the PDAC (via a FOIA request) an annual report of all active PTANs within the scope of the DMEPOS industry.  There exists more than 100 “supplier types,” whose numbers of locations approaches 100,000 (pharmacy locations, by way of example, encompasses almost half of these).  But “DMEPOS” suppliers are arrayed into certain “primary supplier types” which include medical supplies and equipment, oxygen, and orthotic/prosthetic/pedorthic services.  The ten-year trend of active locations for each, may be found here.  In 2010, 11,677 traditional HME locations maintained active Medicare operations.  At the beginning of 2020, there were 8,289. 

Interestingly, in our September 8, 2020 report, that number increased to 8,730, an addition of 441 locations, and, effectively, the first increase in a decade.  This took us somewhat by surprise; acquisition/consolidation does not necessarily “add” to the number of new locations, and the demand for DMEPOS, while steady (detail to follow) did not suggest numbers to this degree. 

To which there may be what I will dub a potential for “the pandemic effect”.  You are likely aware that, during the public health emergency, CMS relaxed the requirements to enroll as a DME supplier. You could enroll without a background check, fingerprints, application fee and accreditation.  These “waivers” are still in effect (the PHE has been formally extended for an additional 90 days).  However, once CMS lifts the restrictions, these new suppliers will have a certain period of time in which they will be required to meet all the standards.  Accordingly, VGM will then access another report to attempt to analyze the effect, if any.  

In any case, there are additional data sources indicating the size of our industry.  Somewhat simply stated, if you “count” only suppliers (of all types) that are actively being reimbursed, and for common HME products (e.g. CPAP, walkers, oxygen, beds, etc.), the decrease in locations is actually larger.  We created a “state by state” data analysis, which indicates a 5000+ decrease in locations over the past decade, or more than 40% (!)  And lastly, if you monitor unique Tax-IDs (that is multi-location operations are measured as “one” and not by PTAN count) the 2010 data indicated 9,769 entities; the 2020 number was 6,152, or a reduction of 37%. 

Overall Demand for Our Products and Services

While there seems to be a plethora of independent (but pricey) market research services attempting to analyze the DMEPOS market spend and growth trends, I prefer to monitor the regular updates of CMS’ estimates of national health expenditures.  On a macro basis, national health spending is projected to grow at an average annual rate of 5.4% for 2019-2028 and to reach $6.2 trillion by 2028.  Because national health expenditures are projected to grow 1.1 percentage points faster than gross domestic product per year on average over 2019–2028, the health share of the economy is projected to rise from 17.7% in 2018 to 19.7% in 2028.  Among major payers, Medicare is expected to experience the fastest spending growth (7.6% per year over 2019-2028), largely as a result of having the highest projected enrollment growth.

Citing “Table 15” of the NHE link above, DMEPOS spending is projected to total $62 billion this year, representing a 6.35% increase from 2019.  The government’s estimate for the next decade, hovers around high 5% to low 6% per annum.  Medicare increases, are, comparatively – and perhaps not unexpected - less than the growth rate of private health insurances and Medicaid.  The average per capita spend in the U.S. is estimated at $187 this year, increasing to $280 in 2028.  There is much more detail available via the NHE tables, and I urge readers to review. 

I mentioned above the possibility of “a pandemic effect” relative to the number of DMEPOS suppliers.  As the NHE estimates were updated March 8, 2020, there certainly exists the possibility of a decrease in 2020 (and 2021) spending amounts for the same reason.  Overall, market demographics and chronic conditions will remain key leading indicators – and the long-term demand will remain strong – but the industry is (obviously) subject to the COVID-19 effect.

This is a big unknown as to accurate forecasting for industry results in 2020.  Stakeholders report concern for DMEPOS suppliers (albeit less for those with a large percentage of revenue in respiratory products) who are dependent on certain elective procedures requiring DME.  And a recent report/analysis on home health visits from VGM CEO Mike Mallaro suggests many patients – even with referrals – are not following up with their post-acute care…whether it be home health, pharmacy, or acquiring DME…up to 46%!  We will closely monitor the data as it becomes available.

VGM/HME News Benchmarking Survey

This was the 14th annual update for the survey.  While the number of participants (sample size) is not extremely large – at 125 this year – the year over year data allows a respectable trend assessment for analysis.  While the “details” of the survey are beyond the scope/word limit of this blog (and I urge readers to go to http://hmesummit.com for a recording; a “toolkit” with the raw data and a comparator feature will be available), I’d like to share some of the key takeaways.

Almost 60% of the respondents indicated they were “full line HMEs”, with a slight increase in hospital owned or operated facilities.  Rehab technology unique Tax IDs continued to decrease, likely reflecting the continued consolidation/acquisition efforts of two large national entities. 

The proportion of rentals to sales continues to trend downward.  A decade ago, respondents maintained an average “60% rental, 40% sales” mix; those numbers have exactly reversed to a 40/60 basis.

Operating profit before interest & depreciation (EBITDA) rose to an average of 14%.  From a decade low of 9% in 2013, EBITDA has remained relatively steady over the past five years. 

Almost half of the respondents reported operating from a single location.  The industry remains in a mode of “one” (as it has throughout the history of the survey) but the amount of 5+ locations has been steady increasing.  With the advent of continued acquisition and private equity funding, expect this trend to continue.

With a choice of “decline, stay steady, increase 1-10%, 11-20%, or over 20%, the total collectible HME revenues for 2019 had 40% of the respondents decline or stay steady, 60% increased – 14% more than 20%.

Traditional Medicare remains the largest payer, albeit the percentage of overall revenues continues to decline.  When the survey began, Medicare FFS approached 50% of revenue; this year the figure was 29%.  As expected (citing the increase in Medicare Part C Advantage Plans throughout the country), Managed Medicare grew, as did private health insurance. 

Of the 125 respondents, respiratory product sales/rentals make up 50% of overall revenues (oxygen at 17%, sleep at 28%, ventilation at 5%).  Supplies and retail sales continue an upward trend.

Sleep remains “king;” 58% reported the category as the largest increase year over year. 

When asked “did your unit cost of comparable HME equipment (for rental & sales) purchased, by product increase, decrease, or stay the same”, the responses were, for oxygen 34/13/53, sleep 24/28/48, beds/wheelchairs 36/16/48, supplies 40/13/47, power mobility 34/14/52, and complex rehab 32/9/59.  Accordingly, across product lines it suggests manufacturers and distributors have reasonably help prices in line to reflect the 2019 reimbursement levels.  (As noted, we will closely monitor the 2020 acquisition trends due to the pandemic.)

There are literally 50 more survey questions with accompanying data points and trend lines.  Again, I urge readers to access the actual report and the forthcoming comparator toolkit.

Questions?  Please feel to contact me at any time at mark.higley@vgm.com or 319-504-9515.