To remain profitable in the new Medicare era — with closer scrutiny of K0011 claims, slowed payment of non-HIPAA-compliant claims (which CMS says soon it won't accept at all) and coming cuts across a string of bread-and-butter products in 2005 — it's more important than ever that claims are clean and that reimbursement practices are efficient.
To find out where home medical equipment providers stand in denials and appeals, days sales outstanding (DSO), staffing and more, HomeCare fielded the magazine's annual reimbursement survey — our fifth — to a randomly selected group of domestic subscribers asking about their reimbursement procedures. Providers of all types and sizes responded, and the results of this year's survey are based on answers from 281 of your peers throughout the country.
The largest group of respondents (30 percent) told us their organization is a “full-service HME,” while 22 percent said their companies offer respiratory therapy and another 21 percent said they provide DME only. The majority of respondents (54 percent) reported annual revenue of $1 million or more, while nearly 42 percent reported revenues under $1 million. The average revenue of participating companies falls just under $2.7 million.
While some of the answers to our 32-question survey follow general historical trends, others reveal areas where providers can improve — and improve they must, according to Miriam Lieber, president of Lieber Consulting and a specialist in HME operations management and reimbursement. To help understand how fine-tuning reimbursement practices can increase profitability, we asked Lieber to review the survey findings.
“Reimbursement has always been a priority in every HME provider's operation,” Lieber says. “The difference today is that every move you make in this area is critical. You need to have strict policies that adhere to Medicare regulations, and you must tightly control and monitor them. You have to make sure that what you do today will not cause CMS to come back and recoup later.”
However, she continues, “you also have to run a business, and you can't lose sleep over every little detail. You need to follow the rules, but you shouldn't have to check them five times because then you lose profitability.
“In this industry, we are wrapped up in reimbursement, so if you are going to do business in HME you must embrace reimbursement and you must understand it. Providers have to be skilled in reimbursement, and it is no longer acceptable to use ignorance of documentation or procedures as an excuse — that simply is not tolerated anymore by any payer.”
For that reason, Lieber stresses the growing importance of training. “Providers can't just put an able body in a seat and let them go,” she says. “Providers have to learn reimbursement, and they have to teach reimbursement. There is plenty of opportunity available to get training today, and there is no excuse not to take advantage of it.” Lieber points out, for example, that Medicare offers interactive, online training. “It's free, and the training is good. The programs may not be comprehensive enough to answer all of your questions, but even if you come away with one piece of knowledge, it's worth it. It's an hour of invaluable time.”
Regarding K0011 claims and payments, which are top-of-mind for mobility providers these days, Lieber feels HMEs should be “extremely cautious” with these Medicare customers. “You should have a strong set of protocols and abide by them, and even if only one element is missing, you should not accept this business. CMS' strict enforcement of policy translates operationally into limiting the number of K0011 chairs you dispense. It's a disappointment and a crime for patients who are in desperate need. By the same token, when you think there's compelling medical evidence you should persist, because that's what we're in this business to do — help patients.”
When submitting K0011 claims, Lieber says, “every bit of documentation is needed, and documentation must corroborate the doctor's record. Everything the doctor states has to be word-for-word what providers have in their documentation.”
The survey results in several other categories — revenue, denials, DSO and the implications of coming reimbursement cuts — are also of particular importance to HME businesses, notes Lieber. Her analysis in these areas follows, and additional comments from Lieber can be seen with selected tables throughout the survey.
On Revenue
According to the survey, Medicare accounts for 43 percent of the average HME company's revenue, while Medicaid makes up another 17 percent, cash sales come in for 13 percent, managed care generates 13 percent and other third-party insurers account for 12 percent of sales.
However, a trend away from government payers is growing in two areas. “Based on this year's survey results,” Lieber notes, “large companies now generate more than 20 percent of their revenue from managed care, and small companies generate nearly 18 percent of their revenues from cash sales. Conversely, small companies generate only 8 percent of their revenue from managed care, and large companies generate only 7 percent of revenues from cash sales.
“It can be time-consuming and costly to help paying customers on the showroom floor. But once these consumers pay, the entire transaction is complete: no more personnel time, no more reporting, no more paperwork. It is much harder to collect money from managed care companies, especially once receivables age. Therefore, if you can build a cash business with larger revenue sales, you should benefit.”
On Denials
Although almost 80 percent of survey respondents say they are paid the first time around for most of their claims, 25 percent report that this happens only 81 to 90 percent of the time, and another 24 percent say their first-time claims are paid only 71 to 80 percent of the time. “What's staggering is that almost 8 percent of respondents admit that less than half their claims are paid on the first submission,” Lieber says.
“Most often, poor results in this area point to the intake process. If your company is not achieving first-time payment on more than 70 percent of its claims, you have a real problem.
“Count your company exemplary if you are able to obtain payment on 90 percent or more of your claims the first time around. First-time payment of 80 percent or more of claims is good. If you are below the 80-percent mark, try to hit it, and make getting above 90 percent your ultimate goal. Don't be disappointed if this doesn't happen every month. Better efficiency and increased profitability will eventually ensue, and watching this figure monthly will help you better manage your company's progress.”
As well, Lieber says, it is notable that among all sizes of companies participating in the survey, “the No. 1 reason why claims are reviewed or denied comes from questions about medical necessity (69 percent). Among large companies, in fact, 86 percent say this is the reason why most of their claims are denied. Although this is not news, with Medicare reform creating more cuts over time, it will become increasingly important to obtain timely and accurate medical necessity documentation.
“Another reason claims are denied is because of ‘inaccurate or missing information’ (57 percent). This is one thing that can be easily avoided by putting quality-control personnel in place and providing staff with tools to use in finding errors before claims submission. One example would be to review ICD-9 codes and modifiers closely before sending them to Medicare.”
On Days Sales Outstanding
“Measuring DSO is another way to monitor company progress,” Lieber explains. HomeCare's survey found that, across all companies, the average DSO is 57 days. DSO for Medicare averages 50 days; Medicaid, 55 days; managed care, 57 days; and private third-party insurers, 62 days. However, Lieber points out, “while 49 percent of large companies calculate DSO by payer, only 17 percent and 14 percent of small and mid-sized companies, respectively, track payments this way.
“In preparation for MMA cuts in 2005 as well as competitive bidding in 2007 and 2009, it is incumbent upon all HME providers to segregate accounts receivable by payer. If you also sort your sales (billing) figures by payer, you can calculate DSO accordingly and more closely examine your business to determine how you may want to diversify.
“Small companies do, however, report the greatest percentage of low DSO — 30 to 44 days for 35 percent of small providers — while 21 percent of large companies report DSO of 90 to 120 days.
“These results are to be expected, because the smaller the company, the easier it is to manage receivables. As a business grows, receivables more easily mount. As more contracts are signed, more payment delays are inevitable, making it more difficult to maintain a low DSO figure. Once again, however, if companies segregate DSO by payer, they can pinpoint specific payer problems and may decide not to take business that will not be paid in a timely manner.
“Finally, not all providers calculate DSO in the same way. It is imperative to establish an industry standard so that this information is germane. After all, the value of an HME company is often tied to its DSO.”
On Coming Cuts
“Overwhelmingly, the majority of providers (51 percent) believe that oxygen cuts will have the greatest impact on their business. This is no surprise since oxygen has been the most lucrative product category for years. As a result, now is the time to begin retooling staff to do more with less,” Lieber says. “Some providers may choose to exit unprofitable product areas, and some will likely discontinue taking assignment for certain items. For others, the amount of time spent with each patient will shift. Still others might focus on different payer types and non-covered services.
“In the history of the HME industry, providers, both small and large, have learned to cope with change. The provisions of MMA, including the coming reimbursement cuts, create a situation that is no different. Some attrition will result, but providers with the gumption will forge ahead and prosper.”
For the Record: Survey methodology conforms to all accepted research methods and practices, and the guidelines set forth by American Business Media. Percentages are based on responses from 281 companies. Not all respondents answered every question, and some totals may add to more than 100 percent due to multiple responses. Results in HomeCare's full research report are tabulated by business mix and revenue, revealing the ways small and large companies approach reimbursement. To purchase the report, visit www.homecaremag.com and click on the button “Purchase Exclusive HomeCare Research.”
Training Grows in Importance
Providers are paying more attention to employee training as a means of achieving better reimbursement results, according to this year's reimbursement survey. “There is a direct correlation between-well-trained employees and accurate and complete orders,” says Miriam Lieber of Lieber Consulting. “Haphazard training accomplishes little, and, if the training is done in desperation, it undoubtedly will cost more to undo mistakes.”
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More providers say they are giving their staff training in reimbursement in 2004 (84 percent) versus 2003 (78 percent).
“More money spent to train staff better should result in more qualified personnel and increased staff longevity,” Lieber says. “More knowledgeable decisions by more discerning employees should benefit the company all-around. The outcome should ultimately be increased productivity and efficiency.”
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In 2004, 91 percent of employees received training in customer service versus 79 percent in 2003.
“As the industry braces for significant change in reimbursement as a result of MMA, more training in customer service will be necessary,” according to Lieber. “Providers who train customer service staff, both when they are first hired and continually, will see better customer service skills that result in fewer denials. This will become increasingly critical in the new era of cost containment.”
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Providers are more likely to train employees in documentation requirements, at 92 percent in 2004, up from 86 percent in 2003.
“This type of training is essential for any HME company. Documentation requirements are becoming more stringent as CMS attempts to clamp down on fraud and abuse. And, since documentation requirements change constantly, continuing training is vital.
“Additionally, outcomes can be measured by monitoring the number of days it takes to receive a signed and accurately completed CMN,” Lieber points out.
Survey Fast Stats
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The largest percentage of respondents' revenue (35 percent) is generated from respiratory products/services. Mobility/seating and positioning products generate an average 17 percent of respondents' revenues, and beds and support surfaces account for an average 11 percent of respondents' revenue.
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The number of accounts responding organizations typically handle varies greatly, from fewer than 25 accounts (10 percent) to more than 2,000 accounts (8 percent). The median (midpoint) number of accounts is 300, and the mean (average) is 704.
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More than four in five respondents (84 percent) give their in-house staff training in reimbursement-related tasks.
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Ninety-two (92) percent of HME companies give their order-takers training in documentation requirements, while 91 percent give training in customer service and 89 percent give training in specific product knowledge.
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Forty-two (42) percent of respondents collect co-pay/private pay from the customer up front; 54 percent do not.
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Forty-seven (47) percent of respondents' billing departments break down claims by payer, while 41 percent break down claims alphabetically.
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An average 12 percent of all claims are denied.
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Respondents appeal an average 77 percent of denied claims.
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On average, 69 percent of appeals are successful.
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The largest percentages of respondents say claims are reviewed or denied over medical necessity (69 percent), inaccurate/missing information (57 percent) and inaccurate/missing code or modifier (50 percent).
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Forty-five (45) percent of respondents assign individual employees to submit reimbursement claims with different types of third-party payers, while 51 percent do not.
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The mean (average) days sales outstanding (DSO) for survey respondents is 57 days.
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Only 15 percent of respondents separate DSO by product or service, and only 21 percent of respondents calculate DSO by type of third-party payer.
RESPONDENT PROFILE
| Full-service HME provider | 29.5% |
| HME with rehabilitation focus | 10.3% |
| HME with respiratory therapy | 22.4% |
| HME with infusion therapy | 1.4% |
| HME with pharmacy | 5.0% |
| DME only | 21.0% |
| Other/No answer | 10.4% |
| Less than $500,000 | 21.7% |
| $500,000 to $999,999 | 19.9% |
| $1.0 to $2.99 million | 28.8% |
| $3.0 to $4.99 million | 10.0% |
| $5.0 to $9.99 million | 5.3% |
| $10 million or more | 10.0% |
| No answer | 4.3% |
2005 REIMBURSEMENT CUTS
| Oxygen | 50.9% |
| Power wheelchair | 42.3% |
| Standard wheelchair | 39.5% |
| Bed | 33.8% |
| Nebulizer | 31.0% |
| Lancets/test strips | 16.0% |
| Mattress | 11.4% |
REIMBURSEMENT-RELATED TASKS
| Patient name, address, phone | 98.6% |
| Type of equipment needed | 94.7% |
| Physician name | 92.9% |
| Patient insurance | 92.5% |
| Diagnosis | 90.4% |
| Whether patient has prescription | 87.2% |
| Additional contact person | 77.2% |
| Whether patient already has same or similar equipment | 76.5% |
| Length of need | 63.0% |
| Interest in other products | 36.7% |
| “Denials because patients have the same or similar equipment have been plaguing the industry for several years. By asking a few questions, you will know whether or not to issue an ABN (advance beneficiary notice). This should protect you in the event of a denial for same/similar equipment.” | |
THIRD-PARTY PAYERS
| Medicare | 42.8% |
| Medicaid | 17.1% |
| Cash sales | 12.9% |
| Managed care | 12.5% |
| Private third-party insurer | 11.5% |
| Payer Type | Mean |
|---|---|
| Managed care | 2.7 |
| Medicaid | 2.7 |
| Medicare | 2.6 |
| Private third-party insurer | 2.6 |
| *Reflects data only from respondents who bill to these payers. | |
DENIALS AND APPEALS
| None | 2.5% |
| 1% to 2% | 12.5% |
| 3% to 5% | 21.7% |
| 6% to 10% | 21.7% |
| 11% to 19% | 8.9% |
| 20% to 29% | 13.9% |
| 30% or more | 8.5% |
| No answer | 10.3% |
| Mean: 12% of claims are reviewed or denied | |
| Question about medical necessity | 68.7% |
| Inaccurate/missing information | 57.3% |
| Innacurate/missing code or modifier | 49.5% |
| Duplicate claim | 40.2% |
| Product or service not covered | 39.9% |
| Third-party payer error | 31.7% |
| Other | 8.5% |
| “With Medicare reform creating more cuts over time, it will become increasingly important to obtain timely and accurate medical necessity documentation. [Denials] because of missing or inaccurate information can be easily avoided by putting quality-control personnel in place.” | |
| Appeal all denials (100%) | 42.7% |
| 90% to 99% | 19.2% |
| 50% to 89% | 9.3% |
| 10% to 49% | 7.5% |
| 1% to 9% | 6.4% |
| None are appealed | 3.2% |
| No answer | 11.7% |
| Mean: 77% of denials are appealed | |
| Product/service | Mean rating |
|---|---|
| Aids to daily living | 2.5 |
| Beds and support surfaces | 2.3 |
| Diabetes supplies | 2.2 |
| Incontinence products | 2.3 |
| Infusion therapy | 2.2 |
| Mobility/seating and positioning | 2.7 |
| Prosthetics/orthotics | 2.3 |
| Rehabilitation products/services | 2.7 |
| Respiratory products/services | 2.4 |
| Women's health | 2.2 |
| *Reflects data only from respondents who offer these products/services. | |
| All appeals are successful (100%) | 6.0% |
| 90% to 99% | 28.1% |
| 75% to 89% | 18.5% |
| 50% to 74% | 18.9% |
| 10% to 49% | 5.0% |
| 1% to 9% | 7.1% |
| None are successful | 2.5% |
| No answer | 13.9% |
| Mean: 69% of appeals are successful | |
| “Here, the largest percentage of answers — 28 percent — falls into the 90 to 99 percent category, meaning that most of the time, appeals are successful. This proves the theory that persistence is worthwhile, as long as it is cost-effective. If you challenge yourself to prove a patient is medically warranted for a specific item, you will usually receive a favorable outcome. Perseverance is the key!” | |
DURABLE MEDICAL EQUIPMENT REGIONAL CARRIERS (DMERCS)
| DMERC Region A | ||
|---|---|---|
| Category | No. Responding | Rating |
| Accurate payment | 52 | 3.3 |
| Education | 53 | 2.8 |
| Timely information | 53 | 2.9 |
| Timely payment | 54 | 3.1 |
| Timely response | 54 | 2.9 |
| Timely reviews | 54 | 2.6 |
| Web site | 43 | 3.3 |
| DMERC Region B | ||
| Category | No. Responding | Rating |
| Accurate payment | 79 | 3.4 |
| Education | 77 | 2.8 |
| Timely information | 78 | 3.0 |
| Timely payment | 78 | 3.2 |
| Timely response | 78 | 2.9 |
| Timely reviews | 78 | 2.6 |
| Web site | 63 | 3.3 |
| DMERC Region C | ||
| Category | No. Responding | Rating |
| Accurate payment | 123 | 3.6 |
| Education | 121 | 3.1 |
| Timely information | 119 | 3.1 |
| Timely payment | 122 | 3.2 |
| Timely response | 119 | 3.0 |
| Timely reviews | 117 | 2.7 |
| Web site | 106 | 3.4 |
| DMERC Region D | ||
| Category | No. Responding | Rating |
| Accurate payment | 65 | 3.5 |
| Education | 66 | 3.0 |
| Timely information | 65 | 3.1 |
| Timely payment | 65 | 3.3 |
| Timely response | 65 | 3.1 |
| Timely reviews | 65 | 2.8 |
| Web site | 56 | 3.5 |
DAYS SALES OUTSTANDING (DSO)
| Less than 30 days | 10.0% |
| 30-44 days | 21.0% |
| 45-59 days | 19.6% |
| 60-74 days | 18.9% |
| 75-89 days | 6.0% |
| 90-120 days | 11.0% |
| More than 120 days | 1.4% |
| Unsure | 4.6% |
| No answer | 7.5% |
| Mean: 57 days | |
| Third-party payer | Mean DSO |
|---|---|
| Managed care | 57.1 |
| Medicaid | 55.0 |
| Medicare | 49.6 |
| Private third-party insurer | 61.9 |
| *Means for each category based on data from respondents who calculate DSO averages by payer type. | |
