Beaumont Health has sold its home medical equipment business company, its third post-acute care business divestiture this year, to Medical Service Co. in Cleveland for an unspecified price.
Most of Beaumont's 100 home medical equipment employees were hired by Medical Service Co. after the transaction was completed in July, officials for Beaumont and Medical Service said. Some HME employees remained with Beaumont in other jobs.
"I don't know why Beaumont sold. ... Beaumont used a broker to solicit interest in the business. This is a process and after conversations and presentations they chose to work with us and negotiate a fair contract," said Joel Marx, chairman of Medical Service Co. "We acquired the assets of the business and took over in the middle of July."
Beaumont officials said the sale of the assets of Beaumont Home Medical Equipment includes four freestanding offices in Madison Heights, Berkley, Macomb and Riverview and two offices at Beaumont hospitals in Royal Oak and Troy.
In a statement about the home medical equipment company sale, Beaumont said Medical Service Co. has "extensive experience and is committed to delivering high-quality care. (The company) will be able to provide quality and timely durable medical equipment services for more patients and their families."
The sale of Beaumont's home medical equipment company represents the third divestiture of a post-acute care company this year by the Southfield-based health system.
In January, Beaumont sold 90 percent of its home health and hospice business to Alternate Solutions and Health Network, a Kettering, Ohio-based company, for an unspecified price. Beaumont formed a joint venture with Alternate that allows the company to use the Beaumont name.
In September, Beaumont sold the 50 percent financial interest in four nursing homes and an assisted living facilities it had in a joint venture with Premier Health Care Management in Bloomfield Hills to Optalis Healthcare of Novi, according to Michigan certificate-of-need documents. Financial terms of the deals were unavailable.
For more than 25 years, Premier's joint venture arrangement with Beaumont Nursing Home Services Inc. included using the "Beaumont-affiliated" name in marketing and advertising. Beaumont owned at least 50 percent of the assets of the nursing homes and assisted living facilities, but leased them to Premier.
The four nursing homes — Evergreen, Shelby, Shorepoint and Woodward Hills — and the Shorepoint Village assisted living facility were managed by Premier.
Raj Patel, CEO of Optalis, confirmed that Optalis now owns the five health care buildings. He said the company plans to hire additional employees, make building and technology improvements. References to Beaumont have been removed from the homes' websites.
Crain's requested interviews with Beaumont several times on their post-acute care strategy but only received three statements.
"Health care is always evolving and changing," the second Beaumont statement said. "The post-acute care businesses we have sold were a small fraction of our overall system. Beaumont continues to grow and expand. Patients want more access to outpatient care."
Two sources who asked for anonymity told Crain's that Beaumont is withdrawing from direct ownership of some post-acute care business lines because they are under-performing and the system believes it can better use financial resources and staff in other areas.
Beaumont's statement to Crain's says the health system is spending millions of dollars on other outpatient areas, including creating a network of 30 urgent care centers in a partnership with Atlanta-based WellStreet Urgent Care.
"As we focus on these outpatient growth areas, we are determining that some specific business units are done better by others who have more expertise, size and scale than Beaumont," the statement said.
Marx said Medical Service sees positive growth potential in Southeast Michigan beyond continuing to serve Beaumont's eight hospitals.
"Detroit is an outstanding health care market," Marx said. "You have multiple systems in the market. I think we can expand significantly beyond the Beaumont footprint."
In October, Marx said Medical Service plans to open a seventh location in Southeast Michigan in Riverview. Another 10 to 30 employees will be hired over the next year, he said. They include respiratory therapists, customer service representatives, billing and documentation specialists.
Over the past several years, reimbursements for home health, hospice and equipment have been flat or declining and costs have been rising, said several experts who are familiar with the post-acute care business. They said specialized expertise in post-acute care business lines also is necessary as regulations become more complex and competition heats up.
Barry Cargill, president of Michigan Home Care and Hospice Association, said payment cuts has forced HME providers to become more efficient and seek larger size through consolidation for economies of scale.
"Hospitals are re-examining post-acute care services. In some cases they have divested interests. In others, they have established collaborations. Beaumont chose to sell," Cargill said.
Cargill said home health, hospice and HME have experienced significant reimbursement cuts since 2013 when Medicare instituted competitive bidding for home medical equipment services.
"When that happened, payers followed suit and we have seen a lot of doors shut (companies gone out of business, sold assets or merged with larger players)," said Cargill, who estimated there are 38 percent fewer DME providers in Michigan the past six years.
While Marx said he doesn't know the background on why Beaumont sold its HME business, "I have seen other hospitals sell. Hospitals do hospitals really well. This is different, a different billing structure, different service delivery model. It is less clinicians and more logistical," Marx said.
Marx said many hospitals are selling their home medical equipment business because they don't have the expertise to run the operations. He said the company has grown most recently by acquiring hospitals' home medical equipment businesses.
"Hospitals have found when they work with companies that only do this, it is done more effectively and efficiently," he said.
Founded in 1950 by Merle and Jean Marx as a pharmacy and durable home medical equipment supplier, Medical Service Co. now operates in six states and specializes in chronic-respiratory disease management. Besides Ohio and Michigan, the company also operates in New York, Pennsylvania, Indiana and Kentucky.
The company provides oxygen therapy, sleep therapy, ventilation therapy, pharmacy, hospice care and a whole range of home medical equipment.
Marx said Medical Service Co. has acquired other hospitals' HME business lines or partnered with them because of declining reimbursements and regulatory concerns.
"Competitive bidding (under Medicare) makes it impossible to be in this part of the industry without some size," he said. "Hospitals have a lot more headaches" running HME business lines than positive revenue.
Despite reimbursement cuts, Cargill predicted tremendous growth potential for the home health, hospice and HME market as baby boomers age and care moves more to outpatient, post-acute care settings. More than 10,000 baby boomers turn 65 every day.
"The market growth is tremendous. One day we hope to resolve the reimbursement issues," he said.
But Cargill also is concerned that hospitals that divest from HME business also could lose a key tool in their arsenal to reduce inpatient readmissions.
"HME continues to be a key strategy for reducing hospital readmissions," Cargill said. "We have a higher population of elderly in Michigan and the demand and need for home medical equipment is growing. Post-acute services are essential for reducing hospital readmissions. If you don't have ownership you need other collaborations in place."
Cargill said he expects hospitals that divest HMO will develop other arrangements with providers to continue to work toward reducing readmissions.
Marx said Medical Service Co. can help Beaumont and other hospitals reduce readmissions and improve overall quality and patient experience.
"Our work is transitioning people form hospital to home. We have liaisons in all Beaumont hospitals to help patients with discharges to home," Marx said.
Medical Service has experience in rapidly providing equipment to patients before they leave the hospital and having it ready when they arrive home, he said.
"Besides having our employees located in (Beaumont) facilities, the whole idea is to improve the quality and speed of discharge," he said. "(We don't want patients to) sit on the edge of a bed for six hours waiting for a walker or oxygen. We get it done in an hour."
Marx said Medical Service will work with Beaumont to improve the speed of communication for a discharge or when a patient needs respiratory equipment. "We use electronic communication to eliminate errors and avoid getting things mixed up," he said.