Do you know whether your home medical equipment business is being run efficiently and profitably? Without any national statistics, benchmarking is difficult, if not impossible.

We visit, train and work with the best HME companies on a daily basis, from urban to rural locations and from mom-and-pops to national chains. The following trends and numbers represent our findings and are presented here to help you benchmark your own HME operations.

FINANCIAL BENCHMARKS

Days Sales Outstanding (DSO)

The most efficient way to benchmark your organization financially against the industry is to compare your DSO to the national average. The average DSO for our industry hovers, give or take a day or two, in the mid-to-high 80s.

What DSO represents is the average amount of time it takes from when $1 of revenue walks through your front door until you put that dollar in your pocket. DSO takes into account all aspects of the reimbursement process (intake, documentation, billing and collections), and the higher the number, the lower your organization is performing financially.

If you do not know your DSO or if it is not automatically calculated by your HME software, here is the simple mathematics:

1. Obtain company NET revenue data for a given time period such as a fiscal quarter, six months or one year. Divide this number by the number of days in the period. This will yield your average DAILY revenue figure.

2. Look at your current TOTAL NET accounts receivable total.

3. Divide your total net A/R by your daily average net revenue. This calculation yields your company's DSO.

Example:

A/R Aging Averages

1. Net Revenue Jan. 1 through July 31, 2008 = $7,525,000

   $7,525,000/182 (number of days from Jan. 1 through July 31) = $41,346.15 (daily)

2. Net A/R balance on July 31 = $2,135,000

3. Denial Rates

   $2,135,000 / $41,346.15 = 51.64 DSO

Your target should be in the mid-40 to mid-50 range. If you have triple-digit DSO, it might be time to reevaluate your billing department. You might even have high HME DSO and not realize it if you have other revenue sources within your business, such as prescription revenue in a pharmacy.

HME is a solid, profitable business to be in when run properly but major cash flow can drain when it's not. To quote a popular TV ad, “What's in your wallet?”

Virtually all aged accounts receivable reports are broken into columns that traditionally contain 30 days per column. The leftmost column is typically the “current” column, followed by “30-60 days,” “60-90 days,” “90-120 days” and finally “over 120 days.”

Where a piece of receivable information falls within these columns tells the age of the receivable. The goal, obviously, is to have a lion's share of your receivables closer to the left side of the report rather than the right (closer to the “current” column and farther away from the “over 120 day” column).

Proper management of your receivables will keep your balances on the left side of this report. The following ranges represent the target percentages of claims in an A/R report for a typical HME company (if there is such a thing):

Current	35-40%
30-60 Days	25-30%
60-90 Days	15-20%
90-120 Days	10-15%
Over 120 Days	5-10%

Denials are an everyday part of the HME business. Any company that says it does not receive denials has spent way too much time underwater in that river in Egypt (da Nile).

There are many factors that contribute to denials, including intake accuracy, insurance verification/eligibility and documentation, not to mention errors made by the DME MACs. (Yes, they do make mistakes.)