Tools and Tips: Operational Savings

If you're in the HME business these days you can be sure of two things--making a reasonable profit will remain a challenge, and meeting that challenge will require diligence and attention.

Obviously, profits are determined by the difference between total revenue and costs. Successful marketing efforts that result in increased revenue afford a company a greater opportunity for profit, but every dollar saved in costs goes straight to the bottom line. Logically then, operations savings should play a prime role in any organization's strategy to improve its profit margin.

Let's take a look at 10 strategies that will give your operations the most bang for your buck.

1. Reduce Your Costs of Goods

The first thing you can do to reduce costs of goods is to maximize your purchasing power by joining a buying group. There are several available for both medical equipment and pharmacy products. Compare their pricing and service to prices you've been able to negotiate on your own.

In those instances when you negotiate your own pricing with vendors, be sure to get creative. Everything should be up for discussion, including shipping prices, and short-term low interest lease-to-own options for large purchases.

Also, be armed with data regarding your organization's average yearly utilization of high tickets items so that you can bring all your purchasing power to the table when discussing pricing with a vendor.

2. Manage Inventory Well

Keeping too much inventory on hand can fall into a bad habit that drags down profits. Take a proactive stance to inventory management by determining what par levels should be and maintaining them at that level.

To determine par levels, track utilization over the time it takes to receive an order, then add in a 5 percent to10 percent safety level. If your HME software system has the capability, automate the process by entering par and reorder level data into the system. Then print reports on a weekly or biweekly basis that notifies you of the products that need to be ordered to maintain par levels.

3. Eliminate Capital Losses

Medical equipment purchased for recurring rental is the largest continuing investment an HME dealer will make. Automating the tracking process with the use of bar codes and scanners is an outlay that can pay for itself quickly, and go on to result in long-term savings.

If you provide consignment inventory at alternate locations, attach a delivery ticket that includes bar code or serial number information and your fax number so that your organization can be easily notified when a patient receives the equipment.

4. Automate Documentation Processes

Tracking large numbers of oxygen retest dates, certificates of medical necessity and prior authorization renewals manually is challenging at best. Lack of timely documentation can be the cause of many unpaid claims and interruptions in cash flow for HME providers. Minimize the problem by automating tracking of documentation either through your HME systems software, if possible, or through a separate database if necessary.

Once your organization is set up to track documentation through a database, instruct staff to run reports that look ahead for documentation that will expire so that they can request renewals before claims stop being paid. In addition, put an escalating process in place for pending requests that result in staff completing some sort of follow-up every seven to 10 days until the documentation is received. Sort pending CMN request reports by referral source, and pending prior authorization reports by payer, so that follow-up can be done in batch fashion.

5. Monitor Adjustments and Write-offs

Every dollar that is adjusted off in error is a dollar that could have gone straight to the bottom line. If you haven't already done so, put a process in place that provides for management review of all adjustments so that they are seen by at least two sets of knowledgeable eyes before receivables are written off.

Develop "reason coding" for all categories of adjustments, aggregate and review the reasons codes data quarterly, then put processes in place that will reduce the most frequent causes of write-offs.

On the other hand, if an adjustment is called for, don't avoid it. Writing off dollars that you have determined are uncollectible will make the collections process more streamlined for your billing staff.

6. Audit Intake and Billing Practices

Routine and consistent intake and billing process audits can identify areas ripe for improvement. In the area of intake, review patient intake forms to make sure all required information is being obtained, and that insurance verification is taking place on a routine basis. Assess whether qualifying guidelines for equipment and supplies are being met before the product is released for delivery.

In the area of billing, review aging reports and assess whether denials are being worked in a priority manner, such as high dollar down and in accordance with timely filing limits. Make sure you are billing for everything you can in accordance with your contracts. All payers are not the same, and while costly equipment supplies may be included in the global rental fee allowable for some payers, they may not be with others.

7. Control Non-reimbursed Supply Utilization

Limits on supply utilization vary greatly by payer and by product. When all is said and done over utilization often comes out of the HME provider's pocket. To avoid that situation, make sure your staff members and your patients are educated regarding various utilization limits. Use the new advanced beneficiary notice upgrade provision to provide Medicare patients who request supplies above utilization limits the opportunity to purchase additional supplies out-of-pocket. In the case of private insurance payers, formulate a monthly supply list that the patient /caregiver and the insurance payer agree to honor before accepting complex patients with long-term supply and equipment needs.

8. Educate Patient Care Staff on Reimbursement Guidelines

Like all your organization's employees, your patient care staff members want the company to do well. A basic knowledge of reimbursement and medical necessity guidelines can help patient care staff partner with the intake and billing team to insure that equipment and supplies are provided under coverage guidelines. Naturally, you want your intake and billing staff to focus on reimbursement criteria, and your patient care staff to focus on patient care, but a good basic understanding of claim payment guidelines can help prevent costly mistakes made with the best of intentions.

Consider putting together a quick "cheat" sheet for patient care staff that lists the qualifying guidelines and type of documentation needed for frequently provided equipment, and a list of your contracting payers that require prior authorization.

9. Review Processes for Efficiency and Cost effectiveness

Because the HME business is highly service oriented, labor costs comprise a large part of any provider's expenditures. Organizing processes for maximum efficiency can help save on human resources or allow you to put them to use in other areas of your operation. For instance, check to see if delivery personnel are being routed efficiently and that upcoming routine preventative maintenance calls for existing patients are coordinated with their supply deliveries whenever possible. If you're consistently spending money to pay for overtime because of orders that often come late in the day, consider staggering delivery personnel starting times so that you have non-overtime employees available for the evening hours.

You also should assess what processes your organization currently performs manually that could be automated. For example, if you aren't currently billing electronically, spend the time to get that process in place. Also, sign up for electronic remittance notice downloads that will allow you to automate cash posting if your billing software system has that feature.

10. Utilize System Software Features

If you're like most HME providers, you haven't begun to tap the wealth of features that are available in most HME systems software programs. For instance, with a properly set-up system you track things like the utilization of your rental equipment, gross margins by product and by payer, and cost of goods as a percentage of net revenue--all of which can help you make good purchasing decisions. If you enter the data necessary to make calculations for depreciation and sales tax, not only will you and your accountant save time, but you also may lessen your tax burden.

These are just a few common systems software features that are typically under used by many HME providers. Take the time to get to know the features of your organization's software system and make the most of its capabilities.

No one ever promised that the HME business would be easy. Making a meaningful profit becomes more of a challenge every day. But the good news is that if you're willing to take a proactive stance to increase margins you can almost always find ways to add dollars to the bottom line.

This article originally appeared in the November 2001 issue of HME Business.

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