Tools & Tips

The Medicare Modernization Act of 2003 included some steep cuts in reimbursement for home medical equipment providers, and mandated no increase in reimbursement for durable medical equipment through 2008. So it's not surprising that one of the most frequent questions asked of me by clients and other would-be HME providers is, "Is there still room to make a profit in the home medical equipment business?" My answer is always the same, "Yes, there is room to make a profit, but there's no more room for inefficiency and mistakes."


You should be open to the idea of completely revamping processes.

Use experienced personnel.
There is no DME university that sends you well-trained, experienced reimbursement personnel. You either have to provide the training, or get lucky enough to find experienced personnel who were previously trained. But even well-trained personnel can't get the job done effectively if there isn't an efficient process in place.

Tight, well-designed reimbursement processes are the key to increased profitability in an industry that doesn't control its own pricing structure. But now these processes may make the difference between seeing black ink or red at the bottom of your profit and loss statements.

Unfortunately, the reimbursement process is dynamic, not static. Processes that worked well when your company generated monthly revenues of $75K will probably not continue to work well when revenue expands to $150K or $300K per month. Reimbursement criteria changes as well, which in turn requires an adjustment in processes. However, adding additional steps to the process is seldom the answer. Instead, you should be open to the idea of completely revamping processes.

Assess any Inefficiencies.
Some companies make the mistake of "throwing bodies" at a problem. The theory is that if there is too much work to do, the problem can be solved by hiring more people. Having more employees on board to share the workload may be answer, but you can't know for sure until you have assessed current processes and determined their efficiency.

Let's take a look at several model processes for small, medium and larger independent DME companies and apply them to your own company's business practices.

If you are a small volume company...
If you're like most medical equipment providers you're starting out on a shoestring budget. You've been open for business for a year, have over 100 patients on your oxygen roster, and are happy to get 15 to 20 new orders a week. You have one person in the office and he or she is doing it all; intake, documentation, billing, accounts receivable collections, and cash posting. This is the account representative model, and it works well for small volume providers. However, it won't work well for long if your account representative is doing all of these tasks manually. Even small volume providers need to automate tasks. Make sure your HME software can track outstanding confirmations, track outstanding and expiring documentation, bill electronically, and batch cash post. Automatic confirmation through bar coding is also a plus.

How will you know when one account representative can no longer handle the load? The first clue may be an increase in outstanding revenue on aging reports. Accounts receivable collection is typically the first thing that gets left behind. If you're convinced that processes are at peak efficiency and critical tasks are still not getting done, then it's time to hire another account representative. When you need three people in that role it is time to use a different process model.

If you are a medium volume company...
You've worked hard and your marketing plan has paid off. Your company's monthly revenues are over $150K. Two million in gross revenue a year is just around the corner and you're feeling good about where the company is headed. Then you look at the cash posting journal and notice that you're barely collecting more than you were when monthly revenues were $100K per month.

All your major reimbursement operations tasks have been automated, so what is your next step? It may be time to trade in the account representative model for a departmental model. This will allow individual personnel to specialize in specific tasks instead of jumping from one task to other and doing none of them at 100 percent efficiency.

Move into a departmental model by breaking into two departments -- intake and documentation; and billing, collections, and cash posting. The intake department is responsible for taking orders, reviewing the qualifying criteria, arranging the delivery, confirming the order, and creating, tracking, and receiving required documentation. The billing department completes a quality assurance review on all new accounts before they are billed, bills the account, posts the cash, and works denials and aging reports. When you reach the point where you have more employees than can be effectively managed by the general manager or owner, you can add a reimbursement manager to the mix.

If you are a large volume company...
Your company has been in business for more than three years and has earned a reputation in the community for providing quality products and excellent care. Monthly revenues now top $300K per month. Clearly, you've got a knack for this business, yet your spouse wants to know why you're still driving an economy car and your kids are still sharing bedrooms. It's time to revamp processes yet again.

Consider whether there are any automation tools you haven't yet put in place. At this volume you'll get a quick return on investment from products that scan and track inventory and automate delivery confirmation processes. The same holds true for products that will enable you to print EOBs from electronic remittance notices instead of blacking out and copying hard copies. Perhaps it's time to reduce the paper your employees chase day after day, choosing instead to scan and store patient records on hard drives. Any possible automation tools you didn't put in place when your company was smaller should be implemented now.

By now, you probably have more employees then you ever imagined you would. But more employees mean more opportunities for human error. Reduce this by creating more specialized jobs within your reimbursement process. Consider three departments at this point -- intake and confirmation; documentation and quality assurance review; and billing, collections and cash posting. If necessary add an additional manager -- one to oversee intake and documentation personnel, and one to oversee the billing area.

Review your process.
No matter the size of your company or which model you adopt, upper management involvement in the process is mandatory. It's crucial that top level managers and owners are consistently aware of key metrics that reveal how well the current reimbursement process is working. Keep track of day's sales outstanding (DSO), billing converted to cash, receivables over 90 days, and the amount of billing held for documentation, on a monthly basis.

When the numbers start to go in the wrong direction and the situation doesn't resolve itself over a short period of time, it's time to assess processes again. Commit to reassessing your company's reimbursement processes on an annual basis, and you will catch problems before they have a chance to impact your bottom line.

This article originally appeared in the April 2005 issue of HME Business.

About the Authors

Michael Lehtola has a BS in chemistry and an MBA. He is Western regional sales manager at PerkinElmer LABWORKS and can be reached at (916) 761-5644.

Lynne Brown is director of U.S. Sales for Home Diagnostics Inc., (HDI), Ft. Lauderdale, Fla., a diagnostics company dedicated to developing self-care and point-of-care testing capabilities to consumers. Brown can be reached at (800) 342-7226.

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