Problems evolve over time, but it is how your business adapts to them that determines your success
by Wayne Bailey
January 13, 2017

The new year is upon the HME industry, and I wanted to take a moment to consider the events of 2016 and the effects they will have on the industry. I called several of Bonafide’s customers to find out what they believe is going on; below are four main points of reflection upon 2016.

Reimbursement is Tight

Changes in competitive bidding that went into effect on July 1, 2016, reduced HME reimbursement rates by up to 50 percent. This means that while HME businesses are working just as hard as before, end-of-year profitability (if the company had any to begin with) will be 50 percent lower. (See In Brief — HR 6 here.)

Reimbursement is harder to obtain every day. In spite of pulling together the correct documentation, meeting the extensive demands of payers is exhausting for most business owners. Most HME owners report that reimbursement rates are at “starvation levels." Cutting overhead expenses is imperative, while also improving efficiency. These are the only ways to increase profitability for any business that relies on reimbursement.

The latest technology can assist HME businesses in increasing revenue and reimbursements. For example, inventory control software can help improve margins by tracking what products cost compared to the price they were sold for. With reimbursements reduced, the only way to stay in business is to know your profit margins at the time of intake.

Consider mobile applications, which can speed up your rate of reimbursement by allowing drivers to validate a successful order at curbside. This can dramatically cut down on validation errors. It may normally take two or three days to validate an order, including an additional home visit, further decreasing your margins.

Cash Is the Opportunity, but—

The greatest opportunity for growth in HME is in cash sales. What business owner doesn’t want to move to cash and avoid the headaches of reimbursement? But the problem is you are competing with online retailers, which sell many HME items at cost.

Starting a cash sales line requires careful planning and competitive positioning. You must invest in powerful inventory control systems to keep cash products in stock in order to compete with online retailers. There will always be customers who need retail stores, but a current trend across all brick-and-mortar retail is to scale back on stocked goods because they just don’t move as quickly. With excellent inventory control, you can stock precisely for your needs, and always have an excellent selection without weighing down your overhead.

HME businesses also have the opportunity to assist those patients with less funding by offering various payment options that many corporations do not. Devote the most resources to items or services that are at the high end of your profit margin. Promoting products that patients need right away and can afford is another way to stimulate cash sales.

Government Bureaucracy

HME reimbursement is tied to government rules, and although HME businesses cannot avoid audits, they can be prepared to respond in a timely manner to prevent additional audits. Available technology makes it easy to find the necessary documents for a claim. Implementing an internal audit process that occasionally reviews files for accuracy and completeness may also help.

One of the best ways to do well on a government audit is to keep denials and missed claims to a minimum. The majority of denied claims are due to disregard for minor errors. To avoid missed or expired claims in the first place, train your staff to make sure outstanding A/R, DSO, bad debt reserve and denials are being paid properly and on time. Software systems can also help by reminding employees of critical deadlines with built-in reminders and alerts.

Margins Are Shrinking

Rents are rising, salaries are increasing, competition is escalating—all while reimbursement rates are decreasing. Add to that the ability for the consumer to price shop and often fulfill their needs using online retailers, and many HME businesses are deciding that being in business just isn’t worth the cost.

Keep sitting inventory at a minimum. Use the latest automated inventory technology to track the products you have on hand at all times. Work with distributors, manufacturers and vendors to replenish your stock in a timely manner.

Technology also allows HME businesses to track their patients' therapy compliance while using your products. This information is useful for making future recommendations to patients as well as determining what products to stock.

Staff salaries, benefits and training resources are other large expenses HME businesses must manage. Streamline employee training with efficient training software. The latest software can also generate productivity reports for each staff member, allowing managers to determine future changes and places for improvement.

Running a profitable HME business comes with a multitude of challenges. These problems evolve over time, but it is how your business adapts to them that determines your success.