Efficient Volume is the Solution

Sam Walton embraced hardware and software solutions to give him a competitive advantage in every aspect of his business, the world’s largest retailer, Walmart. Walton was also a wise and shrewd businessman. He insisted that any management proposing new technology, or anything else, also convince him of its return on investment (ROI). Walmart has been and continues to be a pioneer in new technologies, business 
intelligence and software to maximize sales and profits while controlling expenses and creating greater efficiencies. Walmart was one of the first to install GPS/satellite tracking and communications in their trucking fleet. Walmart trucks rarely roll empty or unproductive. For example, they deliver goods to a store and then are tasked with picking up a load of dog food at the local Purina plant to take back to the warehouse. I ran the first price removal test store in Tulsa, Okla., in 1990, saving thousands in labor and supplies per store as it was rolled out. It’s now an industry standard. By the late 80s, if you didn’t have UPC codes (bar codes) on your products, you couldn’t sell to Walmart. We constantly received the latest, best software and hardware, such as cash registers, self-checkouts, handheld scanners and communication platforms to perform all functions while mobile, RFID to track/bill/route individual shipments. Walmart, through its commitments in information technology (IT), knows everything about its business, customers, employees, vendors, inventory, distribution, transportation and financials. They not only know what has happened and what’s happening now, but also—
and most importantly—they can very accurately predict and plan for what is going to happen next, short- and long-term. When any part of the business failed to meet expectations, management often blamed the weather, which was about all they could not control, but they could predict it as well as the National Weather Service. Knowledge is power. In today’s health care marketplace, regardless of what sector you are in or what size you are, you must have good IT systems and partners in place to compete and survive. It is a difficult market now, and it is only going to get worse before it gets better. In 2009, an HME business owner came to me to consult on a business problem—
his company’s CPAP patient resupply. Like most, his business was starving for profitable new and recurring revenue. Also, like most, he knew the market was virtually untapped. He knew he was not upholding his fiduciary responsibility to his CPAP patients’ respiratory health given his reactive-only resupply. I spent a couple of days in his office analyzing payer HCPCS reimbursements, cost of goods and expenses that would be associated with solving the business/patient issue. From a business standpoint, was it worth it financially? You bet. (See graph below.) Was it possible? With technology, it was. It was obviously the right move to make for the patient. If you only have to track and stay on top of less than 100 CPAP patients, you could do that with something as simple as Microsoft Excel. To track numbers larger than 100 patients, or multiple categories of your business, you must turn to IT and a 
database. This HME business owner had more than 500 CPAP patients.

Based on this need, we designed replenishment software from the ground up, so that we could know who needed what on a monthly basis. The bottom line is that every CPAP patient who you are resupplying monthly to the full Medicare replacement allowable is worth more than $1,100 annually in accounts receivable after cost of goods. There is a cost in people, hardware, software, etc. to obtain any revenue. My analysis was that it would cost 20 percent of the AR to get it. Taking that cost and cost of goods, you end up in the neighborhood of a 40 to 50 percent gross net on your active CPAP patient base. In the business world, that is an amazing profit picture. In 2013, Walmart reported a consolidated net income of 3.65 percent. Why would any business professional not seek this? The answer I hear most often is that companies don’t have the people, time or technology, and they think they can’t afford it. My answer to that is, yes you can—in fact, you can’t afford not to. Furthermore, you must jump through all that paperwork, LCDs, regulations, time and effort to get the PAP and mask initial billing, which is good revenue. But why, with little to no more effort, and with the right IT and infrastructure and/or partner, would you not pursue the $1,100 per year for the life of that PAP patient? That’s where the true revenue is, and it surprises me how little both HME companies and vendors focus on it. Let’s not forget it’s the right move to make for your patient and the responsibility you have to at least proactively offer that capability. Jim Hollingshead, ResMed president, Americas, wrote an excellent article in the April issue concerning CPAP resupply. I would say it’s required reading for any person involved in the sleep business, especially HME business owners. I can certainly support all of the study findings laid out in the article about sleep patients and resupply. Hollingshead called HME business owners “partners” and said, “we’re in this business together.” This is so true. Vendors and HME business operators are in the same boat. With the government takeover of our health care marketplace via the Affordable Care Act, combined with competitive bidding, it can easily be viewed as a sinking ship. HME business owners have only general estimates of their active sleep patient base. The average failure rate of their last two years of sleep patients serviced or set up is more than 50 percent, which is 
astounding and tragic from a patient care and financial standpoint. This is almost entirely due to a little or non-existent resupply program. Without a resupply program, you are not communicating with your sleep patient. If you are not communicating with your sleep patient you will lose them one way or another. You do not know they are struggling with the mask, that they are moving or have a new phone number, considering changing providers, unhappy with your staff, been hospitalized or moving to a nursing home, now in a competitive 
bidding market, passed away, etc. We have found that more than 60 percent of failures are simply because the contact address and phone numbers the HME provider has on record no longer reach that patient. Because we resupply a patient as desired, and stay in live contact regularly, our HME partner’s patient failures are reduced to those who simply cannot adjust to sleeping with a CPAP. The Affordable Care Act and competitive bidding are here to stay. If you are betting your future on reimbursements going back up and CMS and the government coming to their collective senses, I beg to differ. If you have not been impacted yet by competitive bidding, you will be. CMS touts the savings that competitive bidding has brought to the taxpayer. They claim the decrease in usage in those markets is due to overutilization. If you change the number of available HME providers in a market from 30 to 3, usage drops 
dramatically because the patient simply can’t get serviced. Through the smart use of and investment in technology, you must increase your volume and lower all expenses. You must become efficient in every aspect of your business. Admit that you need that expertise, and find partners that can help you. Competitive bidding reduced reimbursement approximately 40 percent across the board on sleep HCPCS codes. Efficient volume is the solution. Sam Walton’s philosophy was that it is more profitable to generate 1,000 sales that produce $10 in profit than 100 of the same sales that produce $60. Survival and success in this new health care system, regardless of what sector you are in, can and will be accomplished by those who adapt and change by the use of technologies.