Mergers and acquisitions have become a reality in today’s increasingly competitive home medical equipment marketplace. This means smart providers need to understand How M&As work, and how they might ultimately fit into their business strategies?
Times are tough for smaller DME suppliers, but the changing healthcare landscape is also impacting larger entities. Rising costs and shrinking reimbursements are part of the problem, but suppliers are also subjected to the vagaries of changing and even conflicting policies between Medicaid and MCOs (Managed Care Organizations).
The post is about why mergers and acquisitions provide solutions for durable medical equipment suppliers, taking some of the heat off in a challenging market.
Bigger Is Better
It’s unfortunate to note that the laws of the jungle apply in a market like the one we’re operating in, with big fish eating little fish in a system which has emphasized cost-cutting through competitive bidding.
In the case of DMEPOS (durable medical equipment, prosthetics, and orthotics supplies), a competitive bidding process is now in place but not everywhere. The intention of the legislation behind CBAs (competitive bid areas) was to improve access and affordability for end users, but the impact on suppliers has been substantial.
Winners in CBA bids offer not only the lowest price but meet certain criteria for quality. Larger companies are better equipped to do this, with the ability to absorb pricing which proves less sustainable for smaller companies.
This is where bigger is better, as the offer to merge with a larger entity allows the smaller fish to survive, albeit in a new configuration. Smaller suppliers augment their market presence and are enabled to offer a higher quality of care for the patients they serve, both old and new.
Mergers of this nature benefit both parties, allowing the larger company to benefit from the network of the smaller acquisition and the smaller company to benefit from the streamlined processes and market viability of its new mothership.
The Wave of the Future
Healthcare reform is ongoing and that’s unlikely to change for the foreseeable future. As new challenges arise, this reality will further impact smaller suppliers, sending them into the arms of the DME industry’s big fish.
When going out of business isn’t an option, merging with a larger entity is an attractive option. While it may seem as though something has been lost, it must be remembered that something has also been gained.
Joining the ranks of a larger company serves to maintain existing legacy while benefiting the people who’ve worked to create it and adding value to the DME market with improved quality and patient service.
The sector has enjoyed steady growth in recent years, as well as an uptick in mergers and acquisitions, with names like Johnson & Johnson acquiring smaller suppliers, expanding their market share and creating new synergies which benefit patients.
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