A Bottom Line in Red or Black?

Let’s give a shout-out for smarter, leaner, faster. It’s the new mantra of the home medical equipment business, which is changing at a speed-of-light rate.

Only weeks from now, on Jan. 1, 2009, HME providers servicing Medicare beneficiaries will need to absorb a 9.5 percent cut to 10 product categories. On the same day, the 36-month oxygen rental cap kicks in.

Meanwhile, it appears that CMS is gearing up to take another stab at competitive bidding and, in light of the nation’s escalating financial woes, it is also likely that health care — including HME — could be a target when the new Congress tackles the budget. New Medicare legislation is also a possibility.

With such threats in the offing, the only way an HME provider can stay in business is to do it differently, smarter, leaner, faster, experts say. But after you’ve pared your costs and increased your efficiencies, then what?

Take a look at repairs.

Can beefing up your repair department shore up your bottom line? Or is it more economical to out- source repairs?

Georgetta Blackburn, vice president of government relations for Blackburn’s Pharmacy in Tarantum, Pa., says her company is scrutinizing every aspect of its operations to discern where cost savings might be obtained and revenue built.

“I really see [repairs] as a possible revenue stream,” she says after spending some weeks working in Blackburn’s repair center. “We are analyzing what we can do much better to make it a revenue stream and not simply a write-off against our DME business.”

Blackburn is taking the right approach to making a business decision about repairs, experts say. Whether you outsource your company’s repairs or have a service center, repairs can either become a revenue-generator — or drain your bottom line.

Unless a company digs deep, “you won’t really know if it is a cost center or a profit center,” says Chris Yessayan, vice president and general manager for Invacare‘s Service Business Group in Elyria, Ohio.

“Providers really need to look at their entire business and figure out how to take out costs,” he says. “Service is an area of business that you need to separate out.”

The reason, he explains, is that there are “hidden” costs of service. Providers who know and understand every cost associated with their businesses will be the successful ones in today’s volatile environment, Yessayan says.

“The people who are going to win the battle are the ones who have access to data,” he says. “If you don’t have good data and know how to dissect it, you may not be making the best business decision.”

Certainly there are pros and cons associated with both in-house repairs and outsourcing. Arguments for in-house repairs include:

• Faster turnaround time
• Reduced shipping costs
• Less inventory, which equates to less space and money tied up
• Longer-lived equipment
• Control over quality of repairs and the equipment

Arguments in favor of outsourcing include:

• Repair warranties from repair centers
• Accreditation-compliant tracking
• State-of-the-art repairs
• Elimination of costs for increased staff and technical training

Still, what’s right for each provider is not black and white. Blackburn wrestles with doing in-house repairs versus outsourcing.

“Many of our patients are unable to come in, so you must stock vans and go out to the patient’s house. We are not paid [by Medicare] for travel,” she says. “And in my case, our marketing area is not just a 10-mile radius. It’s a very costly endeavor in light of the gasoline.”

On the other hand, she says, “It is not cost-efficient to send it away.”

There are shipping costs, delivery costs, critical down time while the equipment is being repaired and the need for a large inventory of equipment so the patient can have the use of equivalent equipment — simple for an oxygen concentrator, much more complicated for a complex rehab wheelchair.

Then, too, she adds, “There’s more equipment out there that needs to be maintained through the benefit. And the benefit calls for all DME to have a lifetime use of five years. So, in theory, we have to make things last five years.”

As products age, more and more problems can surface. Rehab equipment especially has numerous parts that can “go wrong,” such as batteries, motors, joysticks, armrests, leg rests and controllers, Blackburn notes. And sending a piece of equipment back and forth numerous times to fix gets expensive and frustrating.

“I’ve always felt that when patients can bring their wheelchairs into your service center and you can do a comprehensive look at the frame and everything else, everybody wins,” Blackburn says.

“We can do it that afternoon or morning. When you have to go back and forth, everyone’s got frayed nerves. And you’re looking at a bottom line in the red.”

So what’s right for you?

Drill down into your business and see, Yessayan advises. “Once you have the information, then you can make the decision.”