Diversifying Your Company’s Product Mix

With reimbursement cuts mandated by the Medicare Modernization Act on the horizon, varying your company’s payer sources should help to enhance revenue, but it should not be your only mode of change. At the same time, consider altering your product mix. In concert, making payer and product changes can create a renewed direction and focus for your HME business.

Evaluate Your Image

When thinking of your company today, what product and payer specialties come to mind? Is the answer what you want it to be, or do you need to modify your image?

Evaluate your company’s position in the marketplace to determine if you are maximizing revenue opportunities. Some providers may find that it is best to remain focused on the core products for which they are well known rather than to reinvent their company’s image. The time it takes to rebuild your corporate image may be too lengthy and costly, and you may already be typecast in your niche.

A pharmacist who has focused on diabetic supplies, for example, would not naturally add home-ventilator services and high-end respiratory products such as bi-levels. However, providing asthma equipment to a customer who already fills asthma prescriptions and over-the-counter needs at the pharmacy might be a more comfortable fit — and a first step to diversification.

Analyze your market position, and weigh the costs of change before completely overhauling your product selection.

Use Management Reports

A simple way to determine your new strategic direction is to study your company’s trends via management reports. Begin the process by using reports that measure outcomes with such variables as revenue versus cash receipts, revenue versus costs and revenue by disease state. You may be surprised to find that you garner more revenue than you thought in certain areas.

There is no better way to detect latent revenue streams than to analyze data from these reports. To know how much respiratory business you currently have, for example, filter your revenue over the last six months by respiratory product codes (HCPCS codes). Further, look at your patients by diagnosis code to determine which diagnoses resonate most frequently.

If your top three HCPCS codes and top three diagnoses point to a respiratory focus, challenge yourself to increase revenue from your existing patients. If you currently provide oxygen and nebulizers, adding a sleep apnea component might be an obvious new product line. Alternatively, you could focus on non-Medicare customers who are candidates for ultrasonic nebulizers and medication options. And, you could begin to pursue private-pay items for respiratory patients.

Consider Payment Trends

As you evaluate the report data to determine your company’s best possible options, don’t forget to analyze payment trends, another big consideration in choosing any new product category to enter. For example, which payers pay for the higher-end/more expensive products? To find out, sort payers by product and payment — but don’t stop there. Ensure that they are actually paying for these items in a reasonable time period.

Some payers defer payments for additional documentation, especially for expensive items. Others simply take too long to pay your bills, despite the decent revenue you generate from them. Still others may pay for only small-dollar claims, but they make timely payments. Regardless of the outcome, if you analyze your payment trends, you will be better equipped to choose new products and/or to reposition your company.

Some HME companies already focus on product niche areas, such as rehab or specialty mattresses. This strategy is insular, but risky. If Medicare and Medicaid do not reduce payments for these niches, you are safe. But if they do (as Medicare is slated to do next year with nebulizer medications and certain other DME), you may need to diversify payers or rethink your strategy.

Similarly, if you are a rural provider and presume you are insulated because competitive bidding is slated for larger metropolitan statistical areas (MSAs), beware of the upcoming changes. The government could very well expand competitive bidding to all areas once it has finished working through the top 80 MSAs in 2009. These changes could spell disaster if you neglect to plan just because you think competitive bidding couldn’t possibly reach your small town.

Check the census reports to see if your coverage territory is included in a larger MSA — you might be surprised by what you find. If competitive bidding results in reasonable payment reductions, Medicare might choose to reduce prices for all.

For now, there is no definitive way to predict what the next five to 10 years will bring. The only thing we know is that reductions are certain — and changes in your business should be considered now.

Search for New Products

How should you begin your quest for new products? The best way to find new products is to work with your current vendors and comb publications directly and indirectly related to the HME industry. Check sources on the Internet. You might even “Google” your way to new ideas and product availability.

Another excellent resource is attending industry events like Medtrade. Additionally, there are state association and other meetings scheduled throughout the year that bring vendors and exhibitors to a location that may be easier to get to than the large national shows.

If you’re reading this article at Medtrade, spend some time in the exhibit hall inquiring about new and more efficient products with better price points. Specifically, look for advancements in power and manual mobility as manufacturers address the efficiency needs for Medicare patients and adapt to a shift toward private-pay sales.

Also, look for manufacturers to respond to the government’s price cuts as many have done during major Medicare allowable reductions in the past. Not only were they able to lower their prices but they simultaneously reengineered products to make them more durable, ultimately creating enhanced patient compliance. Fewer service and maintenance calls became necessary.

Beyond the show floor, keep your eyes and ears open to products you see on the street, in trade journals and elsewhere. And, of course, check your competition to see what innovative ideas you might have missed.

Explore the Possibilities

As the HME industry braces for some tumultuous times ahead, stay focused on your own new strategic path. What works for another company may not work for you. Some will seek out new products — both covered and non-covered by insurers — to enhance their revenue per patient. Others will find new payers in unconventional places, such as state-funded programs that might pay for mobility for seniors or children. Even charitable foundations have funds available for medical needs and can be an excellent resource.

Create a database of new payer sources that might mix with your new product categories. As you contemplate product-mix shifts, you must consider that your payer and product mix will shift as a couple. This is not a bad thing.

As you change with the changing times, you will render yourself wiser, and your company better-positioned, for future challenge and growth.

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 [email protected].