Sharpen Your Pencil

It will be beneficial for your company to begin activity-based costing as a means to determine how much any particular item actually costs you to provide. A lot of effort must go into figuring this calculation, and its accuracy will be directly proportional to the amount of time and importance you give to it.

I recommend that you be as accurate as possible when going through this long and laborious process, because this calculation is vital to your company's bottom line and, perhaps, its survival. Also, make sure you include everyone in your organization in the process, as your managers and employees may be able to identify areas of cost that you may not be aware of.

Now, let's move on to how CMS' previous competitive demonstration projects stack up in today's HME climate.

I have been closely following progression of the competitive bid. Actually, I have been involved since 1999, when, in Polk County, Fla., I helped a provider go through the bid process and, ultimately, win his bid. I went through the same process in San Antonio two years later with a different provider but with the same result.

Since then, I have seen a number of changes that will make the bids to be submitted in the first round later this year similar to — but also different than — the Polk County and San Antonio bids.

You probably know that in the first two rounds of bidding, Medicare showed almost a 20 percent reduction in allowable (bids) overall for the product categories that were selected. Do not be fooled by this information, though. Those bids were based on different criteria than exists today. When those bids were made, oxygen was a monthly rental for as long as the beneficiary needed the equipment, and DME capped rental ran for 15 months and then went into maintenance.

That is no longer the case, and current reimbursement policies will have a huge effect on how you determine your bid today.

With DME capped rental items, for example, the rental period was two months longer in 1999 and 2001 than it is now at 13 months. The maintenance and service fee you used to receive every six months on continually rented items has gone away as well.

When you do a general calculation, taking into account the 25 percent reduction in the fourth month on, you will find that you have already taken about a 12 percent reduction in what you will receive (13 months vs. 15 months) on DME capped rental items.