In an industry fraught with layers of Medicare rules and regulations, reimbursement cuts and market saturation, how does the average home medical equipment provider plan for the future? More important, how does the provider of HME services maintain profitability so that there is a future?
In truth, there is only one sensible answer to this question: It is time to come up with ways to reengineer your business. Walking away from this industry in desperation is not necessary. Rather, you can continue to pursue referrals for orders that will earn a profit and accept orders for which documentation is available.
Alternate Ways to Drive Revenue
First, determine whether there are ways to provide additional equipment to your patients by searching the top diagnoses in your current census. What other products might these patients need? One prime example is with respiratory and diabetic patients, some of whom might also need enteral nutrition. If you added these or other products, how much additional revenue would you garner?
Additionally, if you explore a new product category like enteral nutrition, you may be able to enter an entirely new referral environment and earn even more business. For example, certain enteral nutrition patients are now supplied by their nursing home.
However, under competitive bidding, these nursing home providers would be forced to become accredited and submit a bid like every other supplier. Many of these facilities are not interested in doing so, leaving the patient without a supplier. That supplier could be you.
Operational Efficiencies
Regardless of which opportunities you choose to expand your business, now is the time to enhance your operational efficiencies. Start by surveying your staff to determine your areas of weakness.
Visit with each department and observe your employees as they perform their job functions. Do they maximize use of the computer system/automation or do they use manual tracking systems like files, hand-written logs or excel spreadsheets? Some do all three.
The question should not be if the software can handle this function; rather, it should be how the data can come out of the software if it was entered. How long should it take to get each job done?
Another example of a common area requiring improved efficiency is with recurring sales such as CPAP supplies, enteral nutrients or supply kits. Is anyone responsible for ensuring that your patients get their supplies in a timely manner, or is this done only when the patient/caregiver calls with an order? Are patients contacted to be certain they are about to exhaust their current supply?
Medicare rules state that you may contact the patient no more than seven days prior to the expiration of the current supply, and you may not send the supplies more than five days prior to the same. Moreover, not only are you responsible for compliance but you must also ensure that patients are getting what they need. Of course this translates into additional revenue, but timing is critical.
Another way to increase operational efficiency is to measure your inventory needs more carefully. Stay as lean as possible but purchase wisely; constantly work on your vendor relationships to be certain that you are getting the best deals possible. For example, consolidating vendors often creates better pricing and potential for marketing opportunities and extended dating possibility.
Further, for those that use formularies, vendor dedication results. The staff can more easily accept referrals, fill orders, order product, satisfy customers and reduce inventory costs. A win-win for everyone, this is a significant way to create operational improvement.
Whatever your strategic plans are for the near and distant future, include measurable goals that hold your staff accountable. Allow them to participate in establishing these goals, and analyze the results of their efforts consistently. Tweak and change the goals as necessary. If you set short-term goals, employees tend to help improve productivity as they relate better to achievable short-term measurable objectives than long-term, hard-to-attain goals.
Diversification
Not only should you set goals for staff to ensure their success but you should be doing the same for the entire organization. Specifically, many HME companies are seriously contemplating their place in the market. Knowing that you may be relying too heavily on a particular payer or product category — especially in light of competitive bidding — you should look at diversifying by payer, product or both. The two go hand-in-hand.
If you expand into complex rehab, for example, much of your revenue will be driven by Medicaid. On the other hand, if you provide oxygen, your revenue will come primarily from Medicare. With CPAPs, you should experience a nice balance of Medicare and other payers. In fact, you may find that Medicare is the minority payer in your mix of CPAP business. Once you get to know the payer and you become expert in a product category, you should be able to hone in on the detailed requirements.
Don't forget that the private-pay market will continue to grow as the population ages and insurance pays for less and less. The increased expectation that patients will participate more in the financial responsibility for their medical equipment needs will help generate additional private-pay revenue. This also means that the patient will want to become more knowledgeable and will, therefore, be more apt to buy goods that will make them more comfortable.
When the money comes out of their own pocket, people have a vested interest in their own health care. This means you could be selling more comfort items such as equipment accessories. Visit with your vendors to learn more about the myriad of possibilities and keep yourself updated on any innovative ways to meet the demands of the current marketplace.
If you decide to continue working with Medicare, take a close look at your current product lines to determine when you can — and cannot — afford to continue providing this equipment. Obviously, you will need to evaluate not only the cost of the product but the activities required to market, house, dispense, deliver, bill and get paid for the product. You may be surprised by what you find.
Some companies are abandoning Medicare assignment (when possible) for items under a certain dollar amount. That dollar amount is climbing. For some providers, they will no longer accept assignment for items under $250 when they used to say “no assignment” under $100. One caveat is that some items require that you accept Medicare assignment and, of course, if you are a winning bidder, you will have to accept assignment for the contracted product categories.
While you examine assignment in general, you must also explore competitive bidding. It promises to shrink the provider pool and cut costs to the Medicare program. For some, this will mean diversification or Medicare expansion (if they win a bid). For others, it will mean closing or selling their businesses.
Recognize that this will be skewed by your location and product/payer mix. If you are not in one of the 80 competitive bidding areas, for the next couple of years, you will not be subject to competitive bidding. Similarly, if your product mix doesn't include one of the product categories included on CMS' list, you will not be affected by a competitive bidding environment at least for the time being.
It is prudent to role-play possible scenarios to determine the impact of competitive bidding on your business. Consider these five possibilities: 1) if you win all the product categories for which you bid; 2) if you lose all of the product categories for which you bid; 3) if you win some or one of the product categories; 4) if you lose some or one of the product categories; 5) if you don't (or didn't) bid at all.
There are a myriad of ways to address the tumultuous HME environment proactively. Start today by measuring revenue per patient, and look for ways to tap into the additional needs of existing patients. Alternatively, you may decide to expand your referral base by focusing on enteral or private-pay patients, for example.
At the same time, explore ways to improve efficiencies in your operational flow. Finally, you may decide to diversify your product and payer mix to ensure your eggs are not all in the same basket.
Whether you choose one or all of these initiatives, you will be busy over the next several months. Embrace the industry's new challenges as an opportunity to refocus your attention on profitable and desirable business. The result will be that you will not fall prey to Medicare's intent to reduce the number of HME suppliers. Instead, you will succeed with or without Medicare.
Miriam Lieber is president of Lieber Consulting, Sherman Oaks, Calif., specializing in operations management and reimbursement for the HME industry. She can be reached at 818/789-0670 or by e-mail at miriam@lieberconsulting.com.
When you are thinking about revenues from additional products or payers, do your homework. Make sure you understand the market sector completely with all its pros and cons. As an example, let's look at enteral nutrition, a solid category that might round out your current offerings. Here's what you need to consider:
- A positive or negative? Medicare Part B covers
enteral nutrition under the prosthetic device benefit in the
patient's home, a custodial care or intermediate care facility, or
a skilled nursing facility after 100 Part A days have been
exhausted.
Enteral nutrition is one of the categories included in competitive bidding. However, under this program, SNFs must bid just like other suppliers — and win — in order to continue billing for their own Part B residents. That means they must be accredited and meet the required quality standards. Many SNFs are not interested in doing this. There is also no grandfathering allowed for enteral nutrition. Beneficiaries in the first 10 MSAs under competitive bidding must switch to contract suppliers beginning in July 2008. Considering these general market conditions, is there an opportunity to explore in your area?
- Research referral sources. Tap into referral
sources and conduct an informal survey to see what your exposure
would be if you decide to embark on this product addition. Break it
down not just by product but also by diagnoses to see whether
enteral nutrition is a possibility in adding referral sources to
your base. For example, patients who have Parkinson's disease or
those with paralysis and the inability to swallow resulting from a
stroke might be seeing a neurologist. Those with a diagnosis of
cancer involving the head, neck, esophagus or stomach will be
seeing an oncologist and perhaps a gastroenterologist.
The types of doctors who refer patients requiring enteral nutrition will depend on the particulars of your area, so don't skimp on your research. In some parts of the country this could mean investigating a range of specialists; in others it could be general practitioners who see these patients. While all of their patients certainly won't require these products, a certain percentage will.
- Understand the products that are available and couple them with various disease states. Within the enteral category, there are special formulas available for people with diabetes, those with renal disease and for respiratory patients. If the product exists, then there is a need for it. Visit with the referral sources you have identified that would likely refer patients with a need for enteral products. Remember that patients often need multiple therapies and, if so, your company could be a one-stop shop to serve their needs for additional equipment.
- Look into various payer sources. Remember that
Medicare is not the only payer that covers enteral nutrition.
Houston-based Medco, for instance, has been successful in building
business with enteral patients covered by Medicaid. According to
President and CEO John Calhoun, the approach includes
“developing relationships with key referral sources servicing
Medicaid clients and with state officials to understand program
nuances from a regulatory and compliance perspective.”
It's a big job to explore the possibilities of building revenues with enteral nutrition, or, for that matter, any product. But if approached wisely, an addition like this can help build revenue per patient in a robust way while serving a need that may be unmet.
