Reality HME

Feel like you have been placed on a deserted island? In order to win the game, you must face the challenge of the Medicare reform law — reimbursement freezes and cuts, competitive bidding, mandatory accreditation AND your not-so-friendly competition. No, you are not on a TV show. This is Reality HME.

Once again, crisis is upon the home medical equipment industry. HME owners and managers everywhere are either gearing up for the new realities of the game, or hoping they get “purchased” off the island.

There are some basic issues that all HME companies can address in order to better face reality. Problems often develop over time because owners and managers get so busy running the day-to-day operations they tend to lose sight of what is going on around them.

The challenge is to evolve to the next business life cycle. Three keys to fitness and survival are giving proper attention to the company’s mission, profit and focus. Solve these issues, and staying on the island can be easier.

Your Mission

Business owners and managers periodically need to reexamine the company mission — and that doesn’t necessarily mean some fancy statement that is posted on the wall. It’s a given that all HME mission statements should say, “We want to be the best and provide the best patient care.”

But what I mean by mission is, “Why are we here as a business? What is our true purpose?” A hospital-based HME company will probably (and should) answer this question differently than a publicly traded company. And a small independent company will have a different answer yet.

Each HME business should have a clear understanding of its primary purpose. Is it to serve a community need by providing products and services that otherwise would not be available? Or, is it to expedite hospital discharges and reduce length of stays? Or, is it to provide a good return for stockholders?

While none of these purposes is necessarily wrong, an honest understanding of mission will facilitate better management decisions. It will also help to establish a business culture that employees can buy into and in which they will be more productive. An unclear or confusing mission can turn a well-run company upside down simply by having the employees change the business into something they think it is supposed to be. The all-too-familiar example of this is the company whose customer service representatives spend hours being very fulfilled in their work renting crutches and seat lift chairs, all the while oxygen CMNs go unprocessed. Is a retail business model really the best fit?

Whether fighting for survival or considering selling your way off that island, enhance your chances by reexamining your company’s true mission.

Your Profit

You don’t have to be an apprentice for Donald Trump to know that whether you are a for-profit or not-for-profit organization, you must provide services that ultimately make money.

Too often in health care, profit becomes a dirty word. Managers, sales representatives and billing staff get the heat when the company doesn’t do well financially, but profit (financial viability) isn’t even mentioned in their organization’s mission statement.

Many HME companies make the mistake of thinking that bigger is always better, or of trying to be all things to all people. The old adage “grow or die” is true, but always at the proper rate, and with the proper product and payer mix. Wouldn’t you rather make an 18 percent return on $1 million rather than 6 percent on $1.5 million? Is it really necessary to have the deeply discounted managed care contract when the insurance company doesn’t even pay its invoices for 120 days? Why take assignment on a $30 item that costs you $18 plus $15 to bill? If you gave the item away, you’d be $18 ahead!

While the answers to these questions are common sense to most, some HMEs may lose sight of the obvious. The issue of profitability relates directly to both management and staff’s understanding of the company’s mission: Why are we here?

Your Focus

The next survival task is keeping the right things in focus.

HME owners and managers sometimes are so involved in keeping their heads above water that they don’t focus on key business indicators. Imagine these key indicators as the dashboard of your car. You need to know more than just how fast you are going (growth) and how much gas you have in the tank (money in the checkbook). Hopefully, you’ll never need the “check engine” light, but you do need to know when it comes on. HME businesses need to be looking at their dashboards to know when a key indicator (such as held and unbilled revenue) could cause a breakdown.

Unfortunately, often company owner-ship/management either doesn’t look at the right indicators, or is not disciplined enough to trend the indicators on a systematic basis. In addition, during good business times many of the indicators become mundane, so they get ignored. Insidiously, a lack of proper focus leads the mission and the profit of the business to become something that the owner does not intend.

The sample report on the next page identifies a list of key business indicators that a typical HME business should track and trend on a regular (monthly) basis. Equally important is establishing realistic internal or external benchmark comparisons. For example, a good benchmark for many HME companies would be to maintain revenue by product class of 65 percent respiratory and 35 percent DME. One problem indicator may not mean that things are totally breaking down; maybe you just need to take a closer look.

It does take a little energy to gather all the data. However, once reporting systems and thresholds are in place, you will wonder how you managed without them. Also, focusing on key business indicators will not only help you survive to operate a well-run and profitable business, but when it comes time to sell, you will already be tracking many of the things that a buyer will want to see.

It would be nice if you could just flip a switch and make the Medicare reform law go away. Its influence on the HME industry has just begun, and its total effect won’t be realized for several years.

Taking steps now to make sure management and staff understand the true mission of the business, recognizing the role of profit and maintaining proper focus on a dashboard of key indicators could help your business compete successfully in today’s new HME reality.

Tim Hogan is the owner of Hogan Consulting Associates, LLC, in Columbia, Mo. He may be reached via e-mail at [email protected].

Dashboarding for Success

Sample HME Monthly Reporting

• Gross and Net Revenue
  Oxygen/respiratory
  DME
  Rehab
  Percent of sales vs. rental
• Gross Margin as a Percent
  Rental respiratory and DME
  Sales DME
• Personnel Expense
  Total expense
  Percent of net revenue
• Bad Debt
  Provision
  Actual
• Operating Expense
  Total expense
  Percent of net revenue
• Pre-Tax Profit
  Total profit
  Percent of net revenue
• Accounts Receivable (A/R)
  Aging (days)
  0-30
  91-120
  31-60
  121-180
  61-90
  360+
• Amount of Unbilled and Held Revenue
• DSO (days sales outstanding)
• Service Technician Productivity
  Total miles
  Average stops per day
  Average miles per stop
• Deposits
  Daily average
  Monthly total
• Purchases
  Weekly
  Monthly
• CMN Tracking
  Number outstanding
  Aging by days
• New Set-Ups/Referrals
  By referral source
  By equipment category
  Rental by category
• Rental Census
  By major equipment category
• Payer Mix (semiannually)
  Medicare
  Medicaid
  Private pay and other