2006 Reimbursement Survey

As reimbursements shrink, home care companies across the size and revenue spectrum told us they are working on business processes to improve efficiency and increase profitability. A general “regrouping” is how one provider put it. But based on the results of HomeCare's 2006 Reimbursement Survey, most have a long way to go.

More than 60 percent of the companies participating in this year's survey said they don't calculate days sales outstanding according to product category or payer. Though claim denials average 12 percent, only 37 percent of respondents appeal all of them. A quarter said they are not using HME-specific software for even the most basic tasks.

Without such practices, how can providers know where their most profitable business lies? How can they improve processes if they don't know there's a problem? How can they become more efficient if they're not using the tools to do so? All questions posed by HME consultants and reimbursement specialists who reviewed the survey results.

What's more, these experts say, drilling down to find those internal stats will be vital not just for companies to remain competitive — but to remain in business.

“Companies that don't focus on maximizing reimbursement will have little chance of making a profit,” says Miriam Lieber of Lieber Consulting, Sherman Oaks, Calif. “In light of the demands and constraints placed on HME companies by the government and other payers, they have to work smarter and harder just to maintain status quo.”

Wallace Weeks agrees. “To keep ahead of the reimbursement cuts that the Medicare Modernization Act mandates, companies are going to have to be more efficient not only in billing and collections but in every aspect of their business,” says Weeks of Melbourne, Fla.-based Weeks Group.

“The environment has been forgiving enough in the past that providers could focus on helping people and not give much attention to managing the business. We no longer have that forgiving environment.”

In fact, according to Lieber, Weeks and others, there is room for improvement in virtually all areas of providers' reimbursement practices, particularly among small home care companies.

Using Technology

With reimbursement at the core of most home care businesses, 80 percent of HME execs indicated they handle these functions internally with their own full-time employees.

Three-quarters of the survey group said they rely on HME-specific software to help, especially with accounts receivable. The results also show larger companies use HME software more often for more tasks. Almost half (49 percent) of those with revenues of $3 million or more said they use industry software to generate financial and management reports that can keep them on top of their businesses and aid in decision-making.

Technology is also one way some providers said they hope to increase the effectiveness of reimbursement functions. Here, too, larger companies' intentions best those of the survey group as a whole. Twenty-five percent of those companies reported they plan to change to different software that will increase productivity, and 13 percent said they plan to invest in a document imaging system. (“Shut those filing rooms,” advises Weeks.)

Smaller companies, on the other hand, indicated they will be more likely to reduce their billing/reimbursement staff and hope the remaining employees can pick up the slack.

The bad news is that more than half (53 percent) of respondents overall either did not answer or said they were “not sure” exactly what they would do to increase the productivity of their reimbursement operations.

“I can only conclude that [these] respondents have their heads buried in the sand waiting for the return of the early 1990s and Medicare fee schedule increases,” says Bently Goodwin, CEO of RemitData, Memphis, Tenn.

“There are huge productivity and efficiency gains that must be made in HME reimbursement departments, but [many] of the survey respondents don't realize it or think they need to put a plan in place to address it.”

Tracking Denials and Appeals

It's “painfully obvious” that there's plenty of room for improvement, Goodwin continues, when considering denial rates. Across all categories and payers, the survey group said denials average 12 percent for the claims they submit. But Goodwin — whose firm examines actual Medicare claims adjudication data — says for that payer, the industry average hovers around 20 percent.

And, according to the survey, only 37 percent of providers appeal all of their denials, even though, on average, they said 62 percent of their appeals are successful.

“The appeals process is sometimes lengthy and arduous. Nonetheless, it is imperative that you submit reconsiderations and appeals to maximize reimbursement,” according to Lieber. “Why would you want to leave money on the table, especially when it is yours and the federal government has it?”

She also stresses the importance of continued training to make sure claims are clean. In past surveys, “question about medical necessity” has been the top reason for claim denials. It still ranks right up there at No. 3. But this year, respondents listed the top two reasons their claims are denied as “inaccurate/missing information” and “inaccurate/missing code or modifier.”

With claims requirements/forms changing, making sure that employees keep up becomes increasingly important. “Employees must be taught how they are going to handle CMN changes since they are an integral part of any HME process,” Lieber notes. Additionally, she says, “encourage your staff to share the changes with referral sources so they will begin to familiarize themselves with what they will do differently beginning in October” when a raft of changes is set to kick in.

“If you have a denial problem, you can't just throw it at your staff and say, ‘Fix it.’ You have to stay on top of this yourself and make sure you are tracking the performance of your employees,” adds Sarah Hanna of ECS Billing & Consulting, Tiffin, Ohio.

“How many reviews are they doing a week? How many resubmits are they sending? How many CMNs are they developing, and how long is it taking to get CMNs and physician orders back? Does your staff have a process in place to follow up with the doctors?”

Maintaining strong reimbursement protocols is key, Hanna says. Setting up processes that work and then tracking them is a “management start,” she explains, “and then management has to have the buy-in from their employees” to make sure those processes stay intact and performance doesn't falter.

Calculating DSO

Hanna also believes that while many providers might think they know what their company's individual numbers are for any performance measures, in reality, most haven't done the math to find out for sure.

“People are so caught up in the day-to-day running of the company that they haven't taken the time to analyze their business because it requires extra time,” she says. “In the short term, doing this is a real pain, but in the long term, the gain you get from knowing your business more intimately can help you make processes more efficient and get you out of your rut and moving forward.”

Take DSO, for example. The overall average for companies participating in the survey is 54 days. But Hanna points out she doesn't think most HMEs calculate DSO correctly and may be looking only at the date the claim is submitted. “They should be looking at the date of service to the date of payment,” she says.

“Are they counting all those ‘holding’ days they're waiting for medical documentation or prior authorization?” Hanna asks? If not, then that can bring DSO down to what providers might consider an acceptable level but that, in actuality, is artificially low.

“You have to get a handle on that money just sitting there waiting for something to be done,” she says.

Another red flag: Among the survey group, only 14 percent of companies said they calculate separate DSO averages by product or service, and only 21 percent said they calculate DSO by payer. If denials also are not tracked by product/service or payer, say the experts, providers truly may not realize where their problems — or profits — lie.

Building Profitability

“Companies should know these things, but they don't,” says Weeks. He adds that among small providers and “even among big companies with fairly sophisticated management teams, most could not tell you with any real definition who their top 10 payers are and which HCPCS codes are giving them the greatest revenue.”

That means, he says, “they don't know which are the product-payer combinations that are really driving their profitability.”

Such knowledge will be essential for companies in the next few years, Weeks contends, and he worries that “many companies are so afraid of what's coming they're like deer in the headlights, and they're not being as active as they need to be in making changes and becoming more efficient.

“If companies have shrinking profit margins and don't find ways to improve their efficiencies, two things will happen: One is they will struggle with cash flow if they can't accelerate their turnover in A/R. The second thing is that profitability will decline by amounts equal to reimbursement cuts if they don't find more efficient ways to do things, and that will make it even more challenging for them to be competitive.”

If competitive bidding and other provisions of the MMA remain intact, Weeks predicts a loss of 4,000 providers by 2010.

“That doesn't necessarily mean they will close their doors,” he notes. “They might wind up getting into exercise equipment sales or home modification … but they won't be billing Medicare for it — or anybody.”

Respondent Profile

What is your company's annual revenue?

Less than $1 million	35.6%
$1.0 to $2.99 million	28.0%
$3.0 to $9.9 million	15.3%
$10.0 to $24.9 million	3.8%
$25 million or more	10.3%
No Answer	7.0%

How many employees does your company have?

10 or fewer	46.0%
11 - 19	19.2%
20 - 49	14.9%
50 - 99	6.5%
100 or more	13.4%

What the Experts Say

Reimbursement Practices

How many accounts does your company handle?

Under 25	11.1%
25 to 99	6.5%
100 to 299	13.0%
300 to 999	14.6%
1,000 to 2,499	5.7%
2,500 or more	10.0%
No Answer	39.1%

What information do employees gather during the initial call or visit?

Patient name, address, phone	96.2%
Physician name	92.3%
Type of equipment needed	91.6%
Insurance information	90.8%
Diagnosis	84.7%
Whether patient has medical documentation (prescription)	81.6%
Patient weight and height	72.0%
Additional contact person	70.5%
Whether patient already has same or similar equipment	68.2%
Length of need	55.2%
Interest in other products	24.1%
Physical/occupational therapist	21.1%

How much time do employees spend on order intake?

Less than 10 minutes	23.0%
10 to 19 minutes	40.6%
20 to 29 minutes	13.4%
30 minutes or more	14.2%
No Answer	8.8%

About This Survey: Data were collected Feb. 14 through Mar. 27, 2006. Methodology conforms to all accepted research methods, practices and procedures. Percentages are based on responses from 261 companies. Not all respondents answered every question, and some totals may add to more than 100 percent due to multiple responses.

Survey Fast Stats

• Medicare accounts for the largest portion of respondents' revenue at an average 41 percent overall, and increases as company size decreases.

• Eighty (80) percent of the companies surveyed report that all reimbursement-related tasks are handled by internal staff.

• The number of accounts HME companies typically handle varies greatly, from fewer than 25 accounts (11 percent) to more than 2,500 accounts (10 percent). The midpoint for this year's survey group is 280, and the average number of accounts handled is 1,588.

• On average, 39 percent of billing departments break out claims by payer, while 26 percent break out claims alphabetically. Twenty-four (24) percent said they don't separate claims.

• Providers were split on whether they designate internal staff claims “specialists” for specific product categories (46 percent do vs. 50 percent don't) or different types of payers (45 percent do vs. 50 percent don't).

• Sixty-four (64) percent indicated their employees spend less than 20 minutes for order intake. On average, the process takes 16 minutes for survey respondents.

• Forty-nine (49) percent of respondents collect co-pay/private pay from customers up front; 36 percent do not.

• An average 12 percent of responding providers' claims are denied.

• HME companies appeal an average 72 percent of denials and, on average, 62 percent of their appeals are successful. Thirty-seven (37) percent of companies appeal all denials.

• The largest percentage of providers (51 percent) said claims are denied because of inaccurate/missing information, an inaccurate/missing code or modifier (48 percent) or questions about medical necessity (47 percent).

• The average days sales outstanding (DSO) for this year's survey group is 54 days, with a majority (54 percent) reporting under 60 days. Only one in five providers calculates DSO by product/service or payer. The practice of calculating detailed averages increases with company size.

• Respondents said they use HME-specific software most frequently for accounts receivable (58 percent) and order intake (39 percent). A quarter said they do not use HME software.

Denials and Appeals

What percentage of the claims you submit are denied?

2% or less	10.0%
3% to 5%	19.5%
6% to 10%	25.3%
11% to 20%	18.8%
More than 20%	8.4%
No Answer	18.0%
Mean: 12% of claims are denied

What percentage of your denials do you appeal?

10% or less	18.0%
11% to 49%	3.8%
50% to 99%	19.9%
100%	37.2%
No Answer	21.1%
Mean: 72% of denials are appealed

For what reasons are your claims denied?

Inaccurate/missing information	51.0%
Inaccurate/missing code or modifier	47.5%
Question about medical necessity	47.1%
Same or similar equipment	41.0%
Duplicate claim	37.2%
Product or service not covered	34.1%
Inadequate documentation	31.4%
Wrong payer	24.5%
Third-party payer error	15.7%
Service or equipment not prescribed/Rx not current	11.5%

What percentage of your appeals is successful?

10% or less	13.4%
11% to 49%	17.2%
50% to 99%	37.5%
100%	5.7%
No Answer	26.2%
Mean: 62% of appeals are successful

How often are your claims in the following categories denied?*
(According to a five-point scale where 1=never, 2=rarely, 3=occasionally, 4=frequently and 5=always)

Product/Service	Mean Rating
Aids to daily living	2.6
Beds & support surfaces	2.4
Diabetes supplies	2.4
Incontinence products	2.5
Infusion therapy	2.3
Mobility/seating & positioning	2.8
Prosthetics/orthotics	2.4
Rehabilitation products/services	2.7
Respiratory products/services	2.6
*Reflects data only from respondents who offer these products/services.

How often are your claims to the following payers denied?*
(According to a five-point scale where 1=never, 2=rarely, 3=occasionally, 4=frequently and 5=always)

Payer	Mean Rating
Medicare	2.8
Managed Care	2.7
Medicaid	2.7
Private Insurers	2.7
*Reflects data only from respondents who bill to these payers.

Reimbursement amounts are shrinking. What action(s) is your company taking in response?

“Drastic reimbursement cuts are hurting a lot. Soon there will be fewer and fewer providers … and a less healthy group of providers to serve even more beneficiaries,” penned one provider. “We understand that the government wants to force small business out. [Fewer] claims equals less work for them,” wrote another. So how are their companies handling the government's reimbursement cuts? More than 140 individual providers shared their thoughts on this question. Following is a representative sample of responses in their own words.

“Advertising”
“Becoming more efficient”
“Better buying practices, less staff, increased product mix”
“Better tracking and resubmission of old claims”
“Cash sales only”
“Change/add product line”
“Checking claims more thoroughly before submission, increasing retail cash sales”
“Cheaper equipment”
“Considering selling business”
“Eliminating ‘bad’ business or accounts — if they don't pay or make it a hassle to collect, I don't do business with them”
“Increase sales, productivity, track denials”
“Increase volume“
“Lay off employees, cut back on free follow-up calls, cancel health insurance”
“Looking for other sources of revenue”
“Lower charity cases, staff and services that have been provided free in past”
“More cash sales”
“Not accepting assignment”
“Reduce operating costs”
“Reduce staff, see patients less frequently … hope we can make it”
“Reducing inventory costs, streamlining operations with technology, increasing retail”
“Reduction of staff, new software, refocus on more profitable referral sources, reduce/switch product offerings”
“Seeking emphasis on the highest margin areas”
“Selling mostly to non-Medicare, non-Medicaid and non-insured”
“Staff education to improve productivity”
“Stay small”
“Streamlining, new software, cutting delivery times”
“Training staff to handle things more efficiently”
“Up market share, up quantity”
“We just are dealing with other parts of our business more and not encouraging more DME”

Efficiency

What is your company doing to increase the productivity and effectiveness of your reimbursement functions?

Change to different software that will increase productivity	16.1%
Implement document imaging solution	10.7%
Reduce staff and hope remainder can pick up the slack	8.4%
Implement additional software that works in conjunction with existing software to increase productivity	8.0%
Hire a consultant to review reimbursement functions and make recommendations for increased productivity	7.3%
Outsource reimbursement functions to a billing service	6.1%
Not Sure	16.5%
No Answer	36.8%

PWC Denials Remain ‘At Normal Levels’

In one of the most worrisome claims categories for providers — power mobility — more than a third (36 percent) of the survey respondents said they understand what is required for reimbursement of power wheelchairs. But 19 percent said they are “not sure,” 15 percent said “no” they don't get it, and 9 percent said they are still “totally confused” by recent changes.

Twenty-eight percent said they are having to educate physicians about the current documentation process. (The survey was fielded before the final rule was published April 5.)

“Something else we do not get paid for, education of docs,” one frustrated provider wrote. “They are pretty clueless on what's required,” confirmed another. And according to a third, “Some docs are confused and afraid to order power mobility equipment.”

To make sure they're covered, respondents gave a long list of specific documents they're asking referral sources to provide to substantiate medical necessity for power devices. Even so, said one, “Everything under the sun is never enough.”

In spite of their worry, the majority of respondents (40 percent) said their power wheelchair denials had “remained at normal levels” since CMS' new mobility coverage policy was issued in May 2005.

Layoffs May Not Be The Answer You Need

As for staff, a number of respondents wrote in that they are considering layoffs — of reimbursement and other employees — to make ends meet.

But according to Weeks Group's Wallace Weeks, “my recommendation is not to focus only on the right size staff but on making continuous improvement in the productivity of the company, including in billing and collecting.”

As a gauge, he says, if billing employees also are responsible for collections and third-party documentation, annual collections per employee should average about $700,000. If the employee is only responsible for past due accounts (collections), that figure should be approaching $1 million, “and these numbers are improving,” he points out.

For specific reimbursement-related activities, Weeks gives these industry cost medians:

▪ Process and collect a CMN	$26.49
▪ Prepare and submit a claim	$12.89
▪ Enter an order	$17.18

Days Sales Oustanding (DSO)

What is your company's overall DSO?

Less than 30 days	9.6%
30 - 44 days	21.8%
45 - 59 days	23.0%
60 - 74 days	11.5%
75 - 89 days	8.0%
90 - 120 days	5.0%
More than 120 days	2.3%
Unsure	5.4%
No Answer	13.4%
Mean: 54 days

What is your average DSO by payer type?*

Payer	Mean DSO
Managed Care	51.9
Medicaid	51.4
Medicare	46.3
Private insurers	49.6
* Means for each catagory based on data from respondents who calculate DSO averages by payer type.