The Great Cultural Divide

By Dexter W. Braff

Much has been written about the power of corporate culture--the intangible, unseen undercurrent that guides organizational thinking about product and services, marketing, operations, investment, public relations, and the like. Just like individual businesses have their own unique corporate cultures, so do industries themselves. This is particularly true for the broad home health care and hospice industry which has a persona far different than its sector colleagues--most notably home medical equipment. An examination of these cultures reveals why these sectors approach the market so differently, the implications of these differences, and what they can learn from each other to prosper in an increasingly challenging market.

In the beginning
The origins of home health care and hospice predestined the sector to evolve along a different path than that of home medical equipment. A product of "The Great Society" that spawned many humanitarian initiatives, the Medicare home health benefit was conceived in the desire to provide compassionate health care to our nation's elderly. It was cost-based reimbursed. As such, home health was not a business in the classical sense in which the primary goals are to generate profits. Rather, it was truly, and fundamentally, a calling. Hospice evolved along a similar path--perhaps even more so with its substantial emphasis on volunteerism.

Home medical equipment on the other hand grew up along the periphery of home health and hospice. Although the sector offers substantial "hands-on" clinical services, it evolved primarily as a product provider. It even fell into an entirely different benefit category - part B - and was reimbursed in a manner that allowed for profits.

From a cultural evolution, therein lies the proverbial fork in the road. The underpinning of home health and hospice became clinical excellence for the sake of clinical excellence. For home medical equipment, clinical excellence became a means to generating a profit.

The Great Cultural Divide and its Implications
Where home health and hospice appealed primarily to caregivers, home medical equipment drew classic entrepreneurs. Where home health's cost based reimbursement appealed to the cautious, HME 's prospective payment system drew risk takers. Where home health and hospice perceived marketing as a distraction, HME embraced it as a means to drive revenues.

The implications of these differences are extraordinary. With an entrepreneurial risk embracing, business first orientation, the home medical equipment sector has been predisposed to adapt to, and capitalize upon a litany of reimbursement challenges that have dogged the industry since the mid 80s. Compare that to the home health sector, which, lacking such an orientation, saw more than 30% of its players close their doors during the post BBA 97 transition from cost-based reimbursement to PPS.

Whereas the home medical equipment sector has been more open to spend money on technology to improve service and drive down costs, with a culture that evolved from a system in which spending was limited to that which was reimbursable, home health has been slow to make investments in technology necessary to persevere and thrive in a market in which cuts in reimbursement loom.

Whereas the home medical equipment industry has long embraced the deployment of professional sales and marketing professionals, even after being freed from constraints that limited marketing to what was permitted by "community liaisons", home health agencies have been reluctant to invest in professional sales forces. Moreover, many remain "uncomfortable" with the very notion of sales and marketing, feeling that it somehow detracts from the culture of care giving.

Consider mergers and acquisitions--a dominant growth strategy in home medical equipment. Whereas the reimbursement climate for home health and hospice is by far the least risky of all the home care sectors (which should portend well for M&A activity), with a culture that remains generally risk averse, the largest home health and hospice providers have largely stayed on the M&A sidelines or continue to undervalue potential targets. As such, the sector has left itself vulnerable to private equity groups to gain share through aggressive acquisition efforts.

Adapting Without Abandoning
Clearly, in a post prospective payment system world in which the economic underpinnings of home health have changed dramatically, the culture must evolve to embrace some of what we see in the home medical equipment sector. But in so doing, the industry must not compromise its clinical center. And herein lies the lesson for the HME industry. Over the past 40 years, the home health and hospice industry has carefully and deliberately captured the care giving high ground and has focused much of its outreach efforts on nurturing this position. This may explain, in part, that while HME sector has been the victim of repeated cuts in reimbursement and faces extraordinary challenges courtesy of the Medicare Modernization Act, home health and hospice continues to enjoy substantial Congressional and regulatory goodwill, likely contributing to relatively long periods of reimbursement stability.

The industry also is extraordinarily well positioned to turn its mantra of clinical excellence into economic gains as "pay for performance" initiatives continue to be developed and deployed. With the establishment of a financial link between quality and reimbursement, those companies (and industries) that make care giving a central element of their culture will not only reap the satisfaction of doing good, but the satisfaction of doing well.

And that's where the cultural fork in the road comes back together.