Understanding HME Provider Mergers And Acquisitions

Tuesday, December 12th, 2017
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Mergers and acquisitions (or “M&As”) are legal and business processes that join two companies under one operation. M&As may reduce or remove competition, increase profits, reduce administrative overhead, and can combine the best aspects of former marketplace competitors. M&As are particularly prevalent in the home medical equipment industry (“HME”). Since 2010, there has been a 17 percent decline in stand-alone HME businesses. In fact, M&As have been responsible for over half of the decline of individual HME companies. However, there are many benefits to mergers and acquisitions that you should be aware of if you are thinking about buying or selling an HME company.

Benefits of Mergers and Acquisitions

M&As offer valuable to businesses that may be suffering from low valuation compared to historical levels and the competitors. If you are looking to improve your medium to long-term prospects, a M&A may be right for you. M&As allow your business to acquire new employees, new clients, new technologies, and let you remove potential marketplace competitors.

For example, when your business joins with one or more businesses (including competitors), you have a larger revenue base. This allows you to take advantage of economies of scale and reduce costs. Scale is a powerful tool that allows larger businesses to generate greater profits simply by expanding their revenue base. They do this while simultaneously lowering costs, which also expands the revenue base and provides stronger competition for market competitors. Additionally, the consolidation of companies allows them to reduce the burden of “cost categories” like billing and reimbursement systems, dispatch, purchasing, and compliance. All of these benefits can actually make your HME company stronger.

Industry transformation

Mergers and acquisitions are a natural response to rapid change in an industry, but they do not always benefit everyone. The HME industry has been around since the 1970s, but it has largely been unregulated. Moreover, while the majority of companies did their best to serve their customers honestly, some unscrupulous companies garnered negative headlines. Because of this, public opinion of HME suppliers suffered. The result was an implementation of a series of regulations that continue to place substantial stresses on the industry.

HME suppliers, serve a large population of the elderly, a particularly vulnerable group. The government’s response to these abusive companies was to pass aggressive regulations regarding documentation and mandatory aggressive audits. The government’s good intentions to properly regulate the industry were not properly funded, which has resulted in more confusion, increased audits, recovery of funds. In the past, HME companies were permitted to seek reimbursement for almost any product. However, the Medicare and Medicaid Trust Funds are reduced and the beneficiaries have increased. This has limited the products available and reduced reimbursement. This impacts HME companies as well as patients, with limited products.

These stringent payments and programs have created a two-tiered system. Lower socioeconomic patients must accept whatever is covered, while wealthier patients can afford to pay out of pocket for items they want, but may not be covered by Medicare or Medicaid. Therefore, in the future, HME suppliers should include retail sales beyond what government insurance can cover.

Buying and selling an HME Company

Prior to acquiring another business, you need to conduct a growth strategy review, due diligence review, and risk and mitigation review. The number one advice any lawyer will give you is proceed with caution and “know what you’re dealing with.

There are two primary ways to purchase an HME supplier: an asset purchase or stock purchase. In an asset purchase, your company would buy all of the assets of the target company, including patient lists. Your company would acquire the new orders and provide the supplies to the target company’s patient.

In a stock purchase, your HME company would acquire the stock of the target company, thereby making it a subsidiary of your company. Since the patients are not switching suppliers, there is no need to do a paperwork swap with hospitals and patients. However, you also must maintain redundant administrative operations to permit both companies to operate.

Each of these methods has pros and cons, and the goals of your company will dictate which one to use.

M&As are the future of the HME industry as it reacts to new marketplace realities. If you need assistance with your HME company, contact the experienced attorneys at Brown & Fortunato today. Our expert Finance and Corporate attorneys can help you navigate the complexities of mergers and acquisitions. You can call us at (806) 345-6300 or Contact Us be email to learn more about our Practice Areas. You can also visit our offices located at 905 S. Fillmore Street, Suite 400, Amarillo, Texas to see how we can help your business.