Sharpen Your Pencil

It will be beneficial for your company to begin activity-based costing as a means to determine how much any particular item actually costs you to provide. A lot of effort must go into figuring this calculation, and its accuracy will be directly proportional to the amount of time and importance you give to it.

I recommend that you be as accurate as possible when going through this long and laborious process, because this calculation is vital to your company’s bottom line and, perhaps, its survival. Also, make sure you include everyone in your organization in the process, as your managers and employees may be able to identify areas of cost that you may not be aware of.

Now, let’s move on to how CMS’ previous competitive demonstration projects stack up in today’s HME climate.

I have been closely following progression of the competitive bid. Actually, I have been involved since 1999, when, in Polk County, Fla., I helped a provider go through the bid process and, ultimately, win his bid. I went through the same process in San Antonio two years later with a different provider but with the same result.

Since then, I have seen a number of changes that will make the bids to be submitted in the first round later this year similar to — but also different than — the Polk County and San Antonio bids.

You probably know that in the first two rounds of bidding, Medicare showed almost a 20 percent reduction in allowable (bids) overall for the product categories that were selected. Do not be fooled by this information, though. Those bids were based on different criteria than exists today. When those bids were made, oxygen was a monthly rental for as long as the beneficiary needed the equipment, and DME capped rental ran for 15 months and then went into maintenance.

That is no longer the case, and current reimbursement policies will have a huge effect on how you determine your bid today.

With DME capped rental items, for example, the rental period was two months longer in 1999 and 2001 than it is now at 13 months. The maintenance and service fee you used to receive every six months on continually rented items has gone away as well.

When you do a general calculation, taking into account the 25 percent reduction in the fourth month on, you will find that you have already taken about a 12 percent reduction in what you will receive (13 months vs. 15 months) on DME capped rental items.

That number increases again for every maintenance cycle for which you are no longer paid. If your patient keeps the equipment for five years, that means you could potentially miss out on five maintenance payments, which, in effect, would cut your overall reimbursement by about 38 percent. That is almost twice as much as what the bid reduction did in the first two demonstration rounds. That is a significant reduction, and you need to recognize it.

When you look at oxygen payment today, the reduction does not show up until the 36th month, when the equipment is considered purchased and the title must transfer to the beneficiary.

After that, your loss of revenue stacks up at an almost exponential rate. You will still be paid for oxygen contents for refills, but can you afford to continue to do that at the current rate of reimbursement?

So the question is, how do you submit a bid in today’s climate? The answer is, very carefully.

The cost structure and profit goals of each HME company will be different. You will need to perform an activity-based cost accounting to confirm what your actual costs are, then reduce any waste or duplication to get as lean and mean as possible. Then you can make your bid based on the information you calculate.

I think you will find that in a lot of areas, you are not working as efficiently as possible and will be able to eliminate a good amount of waste. You can also work with your suppliers or join buying groups to get the best price possible on equipment.

Most important, however, keep in mind that you are in business to serve the beneficiary, your patient. Do not sacrifice care to those you are servicing, or you may find that they are no longer there to be serviced.

Jane Bunch is vice president, HME consulting, for Atlanta-based CareCentric. A reimbursement specialist, Bunch delivers educational seminars worldwide, helps develop corporate compliance plans and serves as a consultant for fraud and abuse cases. She can be reached at 678/264-4495 or via e-mail at [email protected].