Downsize Those DSOs

How often have you complained about the length of time it takes to get reimbursed for an equipment claim? Home medical equipment providers’ DSOs (days sales outstanding) seem to stretch into lengthy timeframes, but according to Bently Goodwin, CEO of Memphis-based RemitDATA, “Medicare by law [can] pay a clean claim after 14 days, and from all of the data we get, 99 percent of the time they do that.

“If you subtract 14 days from the DSO number, what you get is the number of days it’s taking providers to submit a clean claim,” Goodwin points out.

So what’s the problem? To see what explanations — and solutions — there might be, HomeCare asked the reimbursement management firm to search its database and pull out DSOs for Medicare claims in three basic categories including DME, respiratory and rehab. If your company’s DSOs are better than the averages shown, pat yourself on the back! If they’re higher, now you have a target to aim for.

Start with how you calculate DSO, Goodwin advises. “There are literally a dozen ways that companies can compute a DSO,” he says. “As a result, there are no meaningful comparisons that you can make because you don’t know how the other companies calculated their DSO or what their product mix is.”

Goodwin explains the most common methods of calculation are: the “average” method, which yields a DSO estimate of how many days are in receivables by dividing accounts receivable (A/R) by average daily credit sales (credit sales over the past two to four months divided by the number of days in those months); and the “exhaustion” method, which is calculated by subtracting previous month sales from end-of-month accounts receivable until the resulting A/R equals zero, then adding up the days in each month and partial month to obtain the DSO.

Even with these two widely used methods, Goodwin says, “there is tremendous variation in the ways companies compute them that makes comparisons suspect,” involving how different companies address held revenue and how they record gross charges versus net versus net collectible.

Finally, he continues, “the biggest impediment to comparison with these calculations is that everyone submitting numbers to the numbers cruncher has a different mix of products … so how do you compare your results given your unique product mix?”

To arrive at its DSO figures, RemitDATA examines every adjudicated claim from its clients (this month some 775,000 Medicare claim lines adjudicated in February) to compute the actual difference between date of service and date of payment. They then compute an average, not an estimate, that shows exactly how long it takes claims to get paid in these three general categories.

In coming months, we’ll look at specific HCPCS codes within these sectors so you can see whether your company’s DSOs meet or beat the industry benchmarks.