Making Your Company Work Better

During my now 30-plus years of experience in the home medical equipment industry, I have had the pleasure of visiting many HME companies either as a manufacturer’s rep (early in my career), billing service/consultant (most of my career) or accreditation surveyor (concurrently for the last five years). During these visits, I have witnessed many different ways to approach the business in which all HME companies compete. I have seen any number of things that work and nearly as many that make me ask, “Who on the green earth came up with that?” Following are some of the more useful concepts and ideas I’ve seen that can help your company work better.

Industry Advocacy

Anyone who has ever heard me speak either at Medtrade or state associations has heard me profess the importance of getting involved in the industry. Most providers join the ranks of the apathetic and then whine and complain when CMS makes changes that negatively affect our industry and profitability. I have one simple saying that sums up this type of behavior: “If you’re not part of the solution, you’re part of the problem.”

All HME company owners need to get involved. Advocacy starts at the state level by joining your state or regional association. There are many powerful state associations across the country as well as several national associations. Yes, there are fees involved with joining these organizations, but compared to letting CMS and Medicaid run roughshod over the industry by cutting allowables and implementing gross profit-eating programs like competitive bidding, these fees are minimal.

Get involved!

Take Advantage of Technology

While the number of providers still using a typewriter to complete HCFA-1500s is approaching zero (believe it or not there are still a few), there are also many providers who are not taking advantage of the technology available to them. Some providers continue to do things the old-fashioned way because “that’s the way we have always done it.” This kind of old-school thinking not only leads to operational inefficiency but often translates into higher costs of doing business.

In these times of reduced allowables and lower margins, operational inefficiency can mean the difference between keeping the doors open and bankruptcy court. Never has the phrase “you have to spend money to make money” had more meaning than right here, right now in the HME industry.

Here are several technology options available to HME providers that will go a long way toward increasing efficiency:

• HME Software — At the core of a provider’s technology is the enterprise software system used to run the day-to-day operations. Choosing a software package can be a daunting, confusing and expensive process, and definitely should not be entered into lightly just because one software vendor has a smokin’ deal at the time or presents a fancy advertising campaign on the Web or in the trade publications. You should choose a software package just like you choose a spouse — with care. Your whole company lives and breathes on how well your software performs. Do your homework, see a fully functional demo, make sure you’re getting all the features you want (don’t compromise or accept “work-arounds”) and talk to the vendor’s clients. Ask for one or two references of providers who no longer use the software, and find out why. (No salesperson is going to give you a reference who will say anything bad about the product.) If possible, visit one of the vendor’s long-term customers to see the program in action. If a software maker tells you the company has never lost a customer, hang up the phone. There are many fine software packages out there that specifically address the HME industry, but there are some real dogs out there as well. Caveat Emptor — Let the buyer beware!
• Document Imaging — As an adjunct to your enterprise software, and sometimes included inside your enterprise software, is your document imaging software. These programs can greatly increase efficiency by storing digital images of your documentation, eliminating the need for rows of file cabinets containing paper files and eating up valuable and expensive office square footage. With the release of Transmittal 30 (Sept. 27, 2002), which states that orders, CMNs and documentation “may take the form of a photocopy, facsimile image, electronically maintained, or original ‘pen-and-ink’ document,” the opportunity for document imaging was born. It is universally agreed that working with digital images of your documents rather than paper charts will lead to cost-savings and greater productivity. Just two best-practice suggestions: Even though, by the Book of Hoyle, you could shred your documents once you image them, don’t. Scan them and put them in storage according to HIPAA regulations. And, always put two sets of eyes on the scanning process. No matter how good your scanner is, it will eventually pull two pages through at a time. If there is not another set of eyes to verify that all pages were imaged, that second page will never appear in your digital files. An ounce of prevention is worth a pound of cure!

• Electronic Claim Submission — A second adjunct to your enterprise software is your ability to submit as many claims as possible electronically. Even though Medicare ultimately only accepts claims electronically through CEDI, at the moment through a dial-up modem connection, most other major (and most minor) insurance companies are capable of receiving electronic claims (many through the Web), and you should be taking advantage of this process. You do not have to be a Harvard MBA to figure out that a claim submitted directly into a payer’s computer system costs less to process than a paper 1500 that has to run through the mailroom, either manually transposed or read in for processing through Optical Character Recognition (OCR). Payers know that, too, and will reward your electronic submission with smoother claim processing and faster reimbursement. In turn, that will do nothing but better your cash flow and decrease your Days Sales Outstanding (DSO). The easiest way to become electronically compliant with payers is to use one of the many clearinghouses available. They will take your electronic file of multiple payer claims, parse the file into individual payer claims and submit them electronically for much less than the cost of a 44-cent stamp. No brainer, huh? Do not fear technology but the lack of technology!

Think about Retail

Unless you do not have Internet access, are not signed up for industry list-servs or do not read your trade publications (hey wait, you’re reading this one right now), you are aware there are forces working against our industry that will definitely translate into lower margins and decreased profits. If you are 100 percent insurance-based in today’s HME market, to make the same amount of gross profit as providers in the ’80s you will need two things: more patients and patience.

This is great if you have access to both. And while the population is aging, you cannot turn a blind eye to retail sales. Some of your customers are not the actual patient. There are many adult caregivers (a number of whom are baby boomers, your humble author included) with discretionary income, not terribly interested in the bare-bones entitlement products. To quote my good friend and colleague consultant Jack Evans, they are looking for the “Eddie Bauer-edition” products.

Here are some best practices for stocking and selling retail:

• Retail Pricing — It has always been pondered by HME providers exactly how much can they come off their usual and customary (U&C) charge to conduct a cash (cash, check or credit card) sale. While there is no bright-line rule listing an exact permissible discount, the Office of Inspector General, says that charging Medicare 21 to 32 percent more than cash-and-carry customers would violate 42 U.S.C. § 1320a-7(b)(6)(A) and 42 CFR § 1001.701(a)(1), and could potentially subject the provider to exclusion from federal health care programs. That being said, the general consensus is that the recommended deepest discount from U&C should not exceed 17 percent. This can cause some providers to dance an unusual dance with their pricing structure. You want U&C prices high enough not to leave money on the table when you bill insurance while not pricing yourself out of the cash sale market. Having a reasonably priced middle-of-the-road product offering — where you can be more aggressive with pricing while simultaneously stocking higher-quality and higher-cost retail items and using an ABN to upgrade the patient — can help solve this pricing dilemma. A penny saved is a penny earned!
• Salespeople and Selling — While it is a fairly easy task to teach someone the features and benefits of literally any product, finding someone who can take that knowledge, demonstrate it to a potential customer and close the sale remains a mystery to many HME providers. I have witnessed many HME providers employing “order-takers” versus “salespeople,” and the difference between them is dramatic. Order-takers simply greet the patient, see what the physician prescribed, ask the patient which insurance(s) they have and process the paperwork. On the other hand, salespeople greet the customer, see what the physician prescribed and eventually get around to getting insurance information. A good HME salesperson will then assess who the end-user is, what his or her medical condition is and offer good-better-best alternatives of the product that meets the patient’s needs. But a good HME salesperson doesn’t stop there. Many items of HME are perfect candidates for cross-selling, such as manual wheelchairs. Often this is not the only item the patient needs to perform activities of daily living. Add-on products such as seat cushions, pouches and backpacks, trays, cup-holders and ramps can add significant revenue and gross profit through cash sales. Remember, there is no DSO in cash. Sell the sizzle, not the steak!

Financial and Operational Issues

Let’s face facts: The underlying reason for anyone to go into business on their own is to make money. No matter how altruistic a person is or how great their aversion is to working for the man in corporate America, if a company cannot keep a tight leash on its finances, the company closes and the corporation is bankrupted. There is a good chance that the owner will be right behind the corporation in bankruptcy court, as owners often have to guarantee leases, loans and lines of credit personally.

What’s in your wallet?

Here are some financial and operational best practices:

• Days Sales Outstanding (DSO) — Every HME owner needs to calculate and monitor DSO constantly. Loosely translated, your DSO is the average amount of time it takes from when $1 of revenue walks through your front door until you actually collect that dollar. Many enterprise HME software packages calculate this number for you, but if yours doesn’t, here’s how: Choose a period of time (one, three, six or 12 months) and calculate your total net revenue for the period and your total accounts receivable (A/R) balance on the last day of the period. Divide the total net revenue for the period by the exact number of days in the period to get your daily net revenue. Divide your ending A/R balance by your daily net revenue to get your DSO. The industry average is in the high 80s, with a best-practice target of 45 to 55 days.
• A/R Aging Averages — Another financial best practice is to monitor — diligently — the amounts in each of the aging brackets, or “buckets,” on your aged A/R report. Clearly you want as much of your A/R as close to the “current” column as possible, and as little as possible in that nasty “over 120 days” column. If you’re doing a good job in billing and collecting, the guide below shows what I believe to be an effective distribution of your receivables. These rounded numbers are based on information compiled over time from exemplary clients, American Association for Homecare data and various other sources. There are many factors that contribute to dollar amounts creeping from left (current) to right (120 days) on these reports. They include the types of products you dispense (complex versus simple), intake accuracy, insurance verification/eligibility checks, documentation turnaround/completeness, billing frequency, electronic versus paper claim submission and primary/secondary collection aggression.
• Billing Frequency/Collection Aggression — The frequency with which you submit claims has a direct affect on your cash flow and DSO. Best practice dictates that you bill daily versus once a week or even every Monday, Wednesday and Friday. This is doubly important if you have a reasonable number of rental patients who will recur every day of the month. If you are not billing every day, those rental patients (billable on their monthly anniversary date) can be delayed from two to seven days in the billing cycle. That will drag down your cash flow as fast as you can say, “I don’t have time to bill every day!” With regard to how frequently and aggressively to go after your money, best practice is to start working receivables a certain number of days following claim submission. Note that most enterprise software packages want to offer up your aged A/R report aged on date-of-service. You will need to change that setting to whatever nomenclature your systems calls the date you actually submitted the claim (i.e., submitted date, posted date, billed date, invoice date) and use this chart for the number of days after submission to work the claim.

Billing Staff/Department Structure

One question I am frequently asked is, “How many people should be in charge of the reimbursement process?” While there is not an exact best practice or industry standard, the efficient number seems to fluctuate between one full-time employee (FTE) for every $500,000 to $750,000. This can vary up or down based on product mix and individual claim dollar amount (lower per-claim amounts closer to $500,000, and closer to $750,000 for higher average claim amounts). Here are three examples based on annual billable sales revenue:

• Small company (less than $1.5 million annual billable revenue) — Staff of one to three in charge of the entire process with limited opportunity to delegate specific tasks; the billing staff handles most reimbursement functions.
• Mid-size company ($1.5 million to $5 million annual billable revenue) — Staff of four to eight with some possibility to delegate tasks (intake, documentation, billing, etc.) and some billing tasks individually assigned.
• Large company (more than $5 million annual billable revenue) — Staff of eight or more with definite specialization for intake, insurance verification, documentation, imaging/filing, billing (separated by payer rather than alphabetical by patient) and collections.

Remember, it’s not the size of the dog in the fight, it’s the size of the fight in the dog.

Bruce Brothis is president of Allegient Billing & Consulting, an HME billing and consulting company founded in 1993. Brothis and his wife Debbie run the company from their offices in Elizabeth, Colo., with satellite offices in North Dakota, Washington, Texas and Nevada. You can reach him at [email protected] or 303/646-9903.