During my now 30-plus years of experience in the home medical
equipment industry, I have had the pleasure of visiting many HME
companies either as a manufacturer's rep (early in my career),
billing service/consultant (most of my career) or accreditation
surveyor (concurrently for the last five years). During these
visits, I have witnessed many different ways to approach the
business in which all HME companies compete. I have seen any number
of things that work and nearly as many that make me ask, "Who on
the green earth came up with that?" Following are some of the more
useful concepts and ideas I've seen that can help your company work
better.
Industry Advocacy
Anyone who has ever heard me speak either at Medtrade or state
associations has heard me profess the importance of getting
involved in the industry. Most providers join the ranks of the
apathetic and then whine and complain when CMS makes changes that
negatively affect our industry and profitability. I have one simple
saying that sums up this type of behavior: "If you're not part of
the solution, you're part of the problem."
All HME company owners need to get involved. Advocacy starts at
the state level by joining your state or regional association.
There are many powerful state associations across the country as
well as several national associations. Yes, there are fees involved
with joining these organizations, but compared to letting CMS and
Medicaid run roughshod over the industry by cutting allowables and
implementing gross profit-eating programs like competitive bidding,
these fees are minimal.
Get involved!
Take Advantage of Technology
While the number of providers still using a typewriter to
complete HCFA-1500s is approaching zero (believe it or not there
are still a few), there are also many providers who are not taking
advantage of the technology available to them. Some providers
continue to do things the old-fashioned way because "that's the way
we have always done it." This kind of old-school thinking not only
leads to operational inefficiency but often translates into higher
costs of doing business.
In these times of reduced allowables and lower margins,
operational inefficiency can mean the difference between keeping
the doors open and bankruptcy court. Never has the phrase "you have
to spend money to make money" had more meaning than right here,
right now in the HME industry.
Here are several technology options available to HME providers
that will go a long way toward increasing efficiency:
HME Software — At the core of a
provider's technology is the enterprise software system used to run
the day-to-day operations. Choosing a software package can be a
daunting, confusing and expensive process, and definitely should
not be entered into lightly just because one software vendor has a
smokin' deal at the time or presents a fancy advertising campaign
on the Web or in the trade publications.
You should choose a software package just like you choose a
spouse — with care. Your whole company lives and breathes on
how well your software performs. Do your homework, see a fully
functional demo, make sure you're getting all the features you want
(don't compromise or accept "work-arounds") and talk to the
vendor's clients.
Ask for one or two references of providers who no longer use the
software, and find out why. (No salesperson is going to give you a
reference who will say anything bad about the product.)
If possible, visit one of the vendor's long-term customers to
see the program in action. If a software maker tells you the
company has never lost a customer, hang up the phone. There are
many fine software packages out there that specifically address the
HME industry, but there are some real dogs out there as well.
Caveat Emptor — Let the buyer beware!
Document Imaging — As an adjunct to your
enterprise software, and sometimes included inside your enterprise
software, is your document imaging software. These programs can
greatly increase efficiency by storing digital images of your
documentation, eliminating the need for rows of file cabinets
containing paper files and eating up valuable and expensive office
square footage.
With the release of Transmittal 30 (Sept. 27, 2002), which
states that orders, CMNs and documentation "may take the form of a
photocopy, facsimile image, electronically maintained, or original
'pen-and-ink' document," the opportunity for document imaging was
born. It is universally agreed that working with digital images of
your documents rather than paper charts will lead to cost-savings
and greater productivity.
Just two best-practice suggestions: Even though, by the Book of
Hoyle, you could shred your documents once you image them,
don't. Scan them and put them in storage according to
HIPAA regulations. And, always put two sets of eyes on the scanning
process. No matter how good your scanner is, it will eventually
pull two pages through at a time. If there is not another set of
eyes to verify that all pages were imaged, that second page will
never appear in your digital files.
An ounce of prevention is worth a pound of cure!
Electronic Claim Submission — A second
adjunct to your enterprise software is your ability to submit as
many claims as possible electronically. Even though Medicare
ultimately only accepts claims electronically through CEDI, at the
moment through a dial-up modem connection, most other major (and
most minor) insurance companies are capable of receiving electronic
claims (many through the Web), and you should be taking advantage
of this process.
You do not have to be a Harvard MBA to figure out that a claim
submitted directly into a payer's computer system costs less to
process than a paper 1500 that has to run through the mailroom,
either manually transposed or read in for processing through
Optical Character Recognition (OCR). Payers know that, too, and
will reward your electronic submission with smoother claim
processing and faster reimbursement. In turn, that will do nothing
but better your cash flow and decrease your Days Sales Outstanding
(DSO).
The easiest way to become electronically compliant with payers
is to use one of the many clearinghouses available. They will take
your electronic file of multiple payer claims, parse the file into
individual payer claims and submit them electronically for much
less than the cost of a 44-cent stamp. No brainer, huh?
Do not fear technology but the lack of technology!
Think about Retail
Unless you do not have Internet access, are not signed up for
industry list-servs or do not read your trade publications (hey
wait, you're reading this one right now), you are aware there are
forces working against our industry that will definitely translate
into lower margins and decreased profits. If you are 100 percent
insurance-based in today's HME market, to make the same amount of
gross profit as providers in the '80s you will need two things:
more patients and patience.
This is great if you have access to both. And while the
population is aging, you cannot turn a blind eye to retail sales.
Some of your customers are not the actual patient. There are many
adult caregivers (a number of whom are baby boomers, your humble
author included) with discretionary income, not terribly interested
in the bare-bones entitlement products. To quote my good friend and
colleague consultant Jack Evans, they are looking for the "Eddie
Bauer-edition" products.
Here are some best practices for stocking and selling
retail:
Retail Pricing — It has always been
pondered by HME providers exactly how much can they come off their
usual and customary (U&C) charge to conduct a cash (cash, check
or credit card) sale. While there is no bright-line rule listing an
exact permissible discount, the Office of Inspector General, says
that charging Medicare 21 to 32 percent more than cash-and-carry
customers would violate 42 U.S.C. § 1320a-7(b)(6)(A) and 42 CFR §
1001.701(a)(1), and could potentially subject the provider to
exclusion from federal health care programs.
That being said, the general consensus is that the recommended
deepest discount from U&C should not exceed 17 percent. This
can cause some providers to dance an unusual dance with their
pricing structure. You want U&C prices high enough not to leave
money on the table when you bill insurance while not pricing
yourself out of the cash sale market. Having a reasonably priced
middle-of-the-road product offering — where you can be more
aggressive with pricing while simultaneously stocking
higher-quality and higher-cost retail items and using an ABN to
upgrade the patient — can help solve this pricing
dilemma.
A penny saved is a penny earned!
Salespeople and Selling — While it is a
fairly easy task to teach someone the features and benefits of
literally any product, finding someone who can take that knowledge,
demonstrate it to a potential customer and close the sale remains a
mystery to many HME providers.
I have witnessed many HME providers employing "order-takers"
versus "salespeople," and the difference between them is dramatic.
Order-takers simply greet the patient, see what the physician
prescribed, ask the patient which insurance(s) they have and
process the paperwork. On the other hand, salespeople greet the
customer, see what the physician prescribed and eventually get
around to getting insurance information. A good HME salesperson
will then assess who the end-user is, what his or her medical
condition is and offer good-better-best alternatives of the product
that meets the patient's needs.
But a good HME salesperson doesn't stop there. Many items of HME
are perfect candidates for cross-selling, such as manual
wheelchairs. Often this is not the only item the patient needs to
perform activities of daily living. Add-on products such as seat
cushions, pouches and backpacks, trays, cup-holders and ramps can
add significant revenue and gross profit through cash sales.
Remember, there is no DSO in cash.
Sell the sizzle, not the steak!
Financial and Operational Issues
Let's face facts: The underlying reason for anyone to go into
business on their own is to make money. No matter how altruistic a
person is or how great their aversion is to working for the man in
corporate America, if a company cannot keep a tight leash on its
finances, the company closes and the corporation is bankrupted.
There is a good chance that the owner will be right behind the
corporation in bankruptcy court, as owners often have to guarantee
leases, loans and lines of credit personally.
What's in your wallet?
Here are some financial and operational best practices:
Days Sales Outstanding (DSO) — Every HME
owner needs to calculate and monitor DSO constantly. Loosely
translated, your DSO is the average amount of time it takes from
when $1 of revenue walks through your front door until you actually
collect that dollar.
Many enterprise HME software packages calculate this number for
you, but if yours doesn't, here's how:
Choose a period of time (one, three, six or 12 months) and
calculate your total net revenue for the period and your total
accounts receivable (A/R) balance on the last day of the period.
Divide the total net revenue for the period by the exact number of
days in the period to get your daily net revenue. Divide your
ending A/R balance by your daily net revenue to get your DSO. The
industry average is in the high 80s, with a best-practice target of
45 to 55 days.
A/R Aging Averages — Another financial
best practice is to monitor — diligently — the amounts
in each of the aging brackets, or "buckets," on your aged A/R
report. Clearly you want as much of your A/R as close to the
"current" column as possible, and as little as possible in that
nasty "over 120 days" column. If you're doing a good job in billing
and collecting, the guide below shows what I believe to be an
effective distribution of your receivables. These rounded numbers
are based on information compiled over time from exemplary clients,
American Association for Homecare data and various other
sources.
There are many factors that contribute to dollar amounts
creeping from left (current) to right (120 days) on these reports.
They include the types of products you dispense (complex versus
simple), intake accuracy, insurance verification/eligibility
checks, documentation turnaround/completeness, billing frequency,
electronic versus paper claim submission and primary/secondary
collection aggression.
Billing Frequency/Collection Aggression —
The frequency with which you submit claims has a direct affect on
your cash flow and DSO. Best practice dictates that you bill daily
versus once a week or even every Monday, Wednesday and Friday. This
is doubly important if you have a reasonable number of rental
patients who will recur every day of the month. If you are not
billing every day, those rental patients (billable on their monthly
anniversary date) can be delayed from two to seven days in the
billing cycle. That will drag down your cash flow as fast as you
can say, "I don't have time to bill every day!"
With regard to how frequently and aggressively to go after your
money, best practice is to start working receivables a certain
number of days following claim submission. Note that most
enterprise software packages want to offer up your aged A/R report
aged on date-of-service. You will need to change that setting to
whatever nomenclature your systems calls the date you actually
submitted the claim (i.e., submitted date, posted date, billed
date, invoice date) and use this chart for the number of days after
submission to work the claim.
Billing Staff/Department Structure
One question I am frequently asked is, "How many people should
be in charge of the reimbursement process?" While there is not an
exact best practice or industry standard, the efficient number
seems to fluctuate between one full-time employee (FTE) for every
$500,000 to $750,000. This can vary up or down based on product mix
and individual claim dollar amount (lower per-claim amounts closer
to $500,000, and closer to $750,000 for higher average claim
amounts). Here are three examples based on annual billable sales
revenue:
Small company (less than $1.5 million annual billable
revenue) — Staff of one to three in charge of the
entire process with limited opportunity to delegate specific tasks;
the billing staff handles most reimbursement functions.
Mid-size company ($1.5 million to $5 million annual
billable revenue) — Staff of four to eight with some
possibility to delegate tasks (intake, documentation, billing,
etc.) and some billing tasks individually assigned.
Large company (more than $5 million annual billable
revenue) — Staff of eight or more with definite
specialization for intake, insurance verification, documentation,
imaging/filing, billing (separated by payer rather than
alphabetical by patient) and collections.
Remember, it's not the size of the dog in the fight, it's
the size of the fight in the dog.
Bruce Brothis is president of Allegient Billing &
Consulting, an HME billing and consulting company founded in 1993.
Brothis and his wife Debbie run the company from their offices in
Elizabeth, Colo., with satellite offices in North Dakota,
Washington, Texas and Nevada. You can reach him at bbrothis@allegientbilling.com
or 303/646-9903.
| Current | 35-40% |
| 30-60 days | 25-30% |
| 60-90 days | 15-20% |
| 90-120 days | 10-15% |
| Over 120 days | 5-10% |
| Medicare sent through CEDI | 21 days |
| Commercial payers billed electronically | 30 days |
| Commercial payers billed on paper | 45 days |
| Private pay balances | 30 days |
