HME Today Magazine
May 2008 — by Rich Smith
Retail sales and political advocacy are keys to surviving competitive bidding at Petersen Medical.
In 2001, when Tom Bradley acquired Utah-based HME provider Petersen Medical, the venerable company employed a staff of 20. Today, just 7 years later, it has a payroll bearing the names of 80.
This fourfold swelling of the ranks was in part a response to the rapid expansion of Petersen Medical's retail presence: in that short time, the organization went from one retail location to six. Significantly, at every store, emphasis was placed on the merchandising of not just big-ticket items, but also the mundane sundries, such as bandages and compression hosiery. "Many HME retail suppliers shy away from carrying the everyday smaller items because of the inventory issues involved," says Bradley, the company's president. "But often what brings customers into the store is those smaller items."
And, once they step foot inside, the opportunity exists to draw their attention to other items—in particular, the expensive stuff.
REFLECTION OF LOCAL DEMAND
Petersen Medical's list of retail best-sellers includes both small and large merchandise. Stores stock everything from respiratory, mobility, and lifts to compression therapy, knee braces, and bath safety items. Included in that mix are diagnostic instruments and aids for daily living.
Each Petersen Medical store is located in a rural area (one of the six is in neighboring Colorado). As such, products carried are matched to reflect the needs, desires, and expectations of local consumers.
That's not to suggest standardization is out the window. "A basic level of standardization of inventory and merchandising schemes is vital for us to achieve the economies of scale we require, along with the operational efficiencies that profitability demands," says Bradley.
Viewed from the outside, no two Petersen Medical stores look exactly alike. But common threads in most cases are high visibility and accessibility. "Success in retailing depends at least in part on having a store that's easy to find and easy to get to," says Bradley.
Another reason the stores vary in appearance is that all are different in size. The smallest, for instance, is about 1,500 square feet, while the largest is 5,000 square feet.
PERFECT TIMING
Now celebrating 40 years in business, Petersen Medical began life as a pharmacy. Less than a decade later, it stuck a toe in the waters of DME. The pharmacy registered enough success with the initial few home care items it carried that, in 1983, it decided to wade deeper, starting with respiratory. The move quickly resulted in Petersen Medical winning a contract to serve as the sole supplier of Medicaid oxygen throughout Utah—a contract it continues to hold thanks to always managing to submit the winning bid each time the contract was relet.
Bradley entered the picture around 1999, shortly after starting a medical supply company out of his home. Bradley's nascent business quickly developed a supporting-role relationship with Petersen Medical. About a year later, the opportunity for Bradley to purchase Petersen Medical presented itself, and he leaped on it. In retrospect, Bradley feels the acquisition couldn't have been timed better. "The market for home care really took off," he recalls.
Bradley decided to leverage the boom times by moving his retail operations into a bigger store at a more prominent location in Orem. He also used the move to peel away the administrative departments and resettle those in a corporate headquarters at a different location in town. Moreover, Bradley opened a second and third retail site elsewhere in the state—namely in the cities of St George and Vernal, respectively. Two more Utah stores, and the one in Colorado, were added in rapid succession. These are joined now by seven satellite offices from which respiratory and mobility products are delivered to homes.
COMPETITIVE EDGES
In most of the areas it serves, Petersen Medical is not the only game in town. That means the company must strive to differentiate itself from the competition. Some of that differentiation comes naturally. Among the biggest things Petersen Medical has going for it is name recognition. "We've been around for so long now that we're close to being a household name," says Bradley. "I'd have to say we're among the HMEs of longest standing in the entire state."
Competitive Bidding Conundrum
What can a bidder do to ensure that the competitive bidding implementation contractor (CBIC) will receive submitted financial data? Not a whole lot, according to Tom Bradley, president of Petersen Medical in Orem, Utah. "You can submit your data by certified mail, and that's about all," he says.
And, of course, the trouble with sending by certified mail is the only thing certified is the outer envelope—a slippery CBIC official could always claim the bidder's package was received with no financial data inside, and no one would be able to prove otherwise.
Bradley says he intends to participate in the process when Medicare competitive bidding extends to his market area, but would beforehand welcome assurances from the government that there will be no repeat of the CBIC snafu that has plagued round one. "The starting point would be for CMS and CBIC to simply acknowledge that things have not gone as well as they could," he says. "Up to this point, CMS has been very reluctant to admit that there have been problems with competitive bidding. If only they would publicly face up to the fact that there have been problems, then there won't be any reason not to work on offering solutions."
With experience as his guide, Bradley thinks it unlikely CMS or CBIC will issue a mea culpa, let alone roll up its proverbial shirt sleeves and set to work on fixing things so that bidder financial data will not again vanish. "They're probably not going to own up to anything and will instead just keep pushing ahead," he says.
Bradley remains convinced that the best possible remedy would be the scraping of Medicare competitive bidding. Legislatively, his hopes have been pinned on the passage of HR 1845, but the latest word to reach him with regard to that bill is it is slated to undergo a revamp, which could mean anything from streamlining and strengthening to defanging and gutting. "The only thing that I can say with certainty is that sensitive data submitted with bids need to be safeguarded," he allows. "Right now, the safeguards don't exist. It's hard to have confidence in a system where the most basic protections are lacking."
Longevity is usually associated with expertise, and Petersen Medical possesses that in abundance. The message to consumers, then, is that for help choosing home care products, the best bet will be to head to Petersen Medical.
However, Petersen Medical knows better than to rest on its laurels. That is why the company has assembled a team of sales representatives to pay calls on physician's offices and other referrers. "The team's job is to promote our products and services, especially in the respiratory and mobility categories," says Bradley. "During their visits, they also educate referrers about our retail establishments. The goal is to make sure referrers understand the products we carry."
Another key distinctive is the company's statewide reach. Says Bradley, "We're one of the few companies in Utah that can take care of patients anywhere in the state. Our mission statement declares that we're here to help people breathe easier. We mean that both in the figurative and literal sense."
SAFETY IN RETAIL
Speaking of breathing easier, that's exactly what many HME companies around the nation are not doing these days, thanks to news this past March revealing that the CBIC, in a spectacular bungle, had reportedly misplaced financial information submitted by providers in accompaniment of their national competitive bidding price tenders. Bradley finds this incident most unsettling, but hardly surprising. "Anybody who has dealt with CMS on a long-term basis has already encountered this sort of thing to one degree or another," he says. "It's not like CMS and its agents have never lost or misplaced important documents before. But, more than anything else, this is frustrating. I have friends in the industry who have been impacted by this and who will be hurt unless CMS makes things right."
At some point before long, Medicare competitive bidding will extend into Petersen Medical country. Bradley says he intends to join the bidding. His attitude, however, is one of if he wins some contracts, great, but if not, no worry. The reason for his nonchalance is contained within the Petersen Medical retail success story. Currently, his income from store sales dwarfs that generated by Medicare business, which stands at around 25% of total revenues.
And, if Bradley has anything to say about it, his stores' cash registers will ring all the more loudly and frequently from here on out, even if Medicare volume stays right where it is or retreats. "We recognized early on the safety that retail represents," he explains.
SAFETY IN NUMBERS
Bradley also recognized that there is safety in numbers, which is why he joined two prominent buying groups plus an industry trade association—and why he enthusiastically involved himself with their legislative-action groups. "I didn't like the direction CMS was heading with competitive bidding and other cost-savings measures," he shares. "It was obvious to me that every one of those initiatives was going to have so much negative impact on our patients and customers."
Bradley appreciated the way that senators and congressmen were willing to listen to him during his visits to the nation's capitol. Those encounters inspired him to organize fellow HME providers in Utah through formation of the group UTMED, an association he started with a little help from his friend Jay Broadbent, of showroom giant Alpine Home Medical (an HME Today cover profile in August 2006). "I'm committed to the fight on behalf of providers and patients; by working to protect our businesses, we're also working to protect Medicare patients," says Bradley, who serves as UTMED's president, and is on the NAIMES (National Association of Independent Medical Equipment Suppliers) board of directors.
Still, Bradley wishes he could do more—a desire born of the sense that not enough other home care providers have taken the time to lend a hand. "A lot of people in this industry continue to stubbornly sit on the sidelines," he says. "It's because of apathy, mainly. But the fact that there is any apathy at all is incomprehensible. My own company is strong enough to weather competitive bidding, and will come out even stronger on the other side of it. But there are a lot of small companies out there that will not survive the storm. And what boggles my mind is that so few of these companies have stepped up to the plate to fight for legislative relief. Either they don't understand or they don't care that by sitting out this fight they are helping ensure that they will be driven out of business."
Stopping the coming carnage, he contends, hinges on whether Medicare beneficiaries speak out and tell their representatives on Capitol Hill to quit the shenanigans. But the beneficiaries first need to be informed about what is transpiring, and that will require the involvement of HME providers large and small. "The companies have to pledge to take the message to the beneficiaries so that the beneficiaries can take it to Washington," Bradley asserts. "It's the beneficiaries who will be listened to, much more so than industry."
Tools and Tactics
• Emphasize the so-called mundane items that can get customers in the door and spur sales of
higher-priced products.
• A basic level of standardization will achieve economies of scale and operational efficiencies.
• Boost retail sales as a way to blunt the negative effects of Medicare over-reliance.
• Take the competitive bidding message to beneficiaries so that beneficiaries can take it to
Washington.
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