HomeCare Experts
Loss Leaders
Many HME companies that have applied activity costs at the product level have been surprised to learn that some products are real losers. In other cases, the products were believed to be losers, but the amount of the loss had never been quantified.
Regardless of the amount of the loss, there seem to be three thoughts after the realization that a loss is created with each delivery of a product: (1) Let's think about this; (2) We can't drop the product from our offering; and (3) The product is a loss leader.
A “loss leader” is an item that is priced below cost to attract customers who will then presumably purchase other profitable products. There can be good reason to use loss-leader pricing strategies. Selling 10 items with a net loss of $50 each ($500 total) in order to sell two items with a net profit of $1,000 each ($2,000 total) is 50 percent better than selling no items at a loss while selling one item with a $1,000 net profit.
With HME's declining reimbursement rates, it is just as important for providers to manage loss leaders as it is for Wal-Mart to manage them. This can be done without the powerful computing technology that large companies use, but it cannot be done without mining the data in the billing system. Here is a way.
Consider first that your company is reasonably profitable and that net profit is not declining at an alarming rate. List the products you consider loss leaders and those that are most desirable and profitable, your “target products.”
With this list, query the billing system to get a list of referrals for the last six to 12 months. The data should be sorted first by product and then by referral source. The result should resemble the following:
