HME Handbook: Software
How to Employ Software to Study Key Performance Indicators
There are several key performance indicators providers should track, and today's HME software systems offer various tools to help them do it.
Running an HME business with no information in today’s funding and business environment is akin to running through a dense forest with your eyes closed — it’s only a matter of time before you get bonked on the head. What providers need is information. More importantly, they need to know the right information and be able to track that information on a reliable basis.
This is especially true given that providers are branching out in so many different directions as they seek to find new revenue sources and try new business models. Retail, private payer, and facilities-based care all represent new opportunities, but they also represent new challenges.
Moreover, providers still need to ensure that the Medicare-funded business is functioning in the most efficient business so that they can continue to turn a meaningful profit despite CMS’s constant funding cuts. Fortunately, HME software systems can help providers track the key performance indicators that will help them ensure success.
Know the Metrics
First off, you need to know what KPIs you should track. While the days of “mainly Medicare” offered some very simple benchmarking numbers, the addition of retail sales has added new metrics. Here are some key data points to track (it’s not a comprehensive list, but it will get you started):
Days Sales Outstanding (DSO) — DSO has served as a cornerstone metric for the funded side of HME businesses because it shows how long it is taking to collect revenue. The longer the DSO, the more constrained a provider’s cashflow situation becomes.
Outstanding Accounts Receivable Over Time— Providers much track outstanding over time to ensure A/R doesn’t take too long. Reason being is that the longer an outstanding co-pay sits, the less likely it will paid.
Gross Profit — This KPI sets a baseline for your business’s overall health. If a provider’s gross profit suddenly shifts, something needs to get addressed — fast. Consider it an easy to monitor early warning system for your business, as well as a good argument for monitoring everything else.
Cash Flow — This very simple metric that simply describes the difference between a business’s incoming inflows from sources such as sales or loans, and its outflows for items such as bills or inventory purchase. The goal is to show positive cash flow, because then the business can reinvest and grow.
Sales Per Square Foot — Also called sales by unit area, this is a traditional retail metric. It is used as a general rule of thumb to assess a store’s performance based on how productive it’s actual floorspace is.
Inventory turn times — Because many items that HME businesses keep in stock that are very expensive, inventory turn times are a “must monitor” KPI. The longer pricey DME sits on the shelf, the longer the capital spent to acquire that inventory is tied up in a kind of limbo that literally works against cash flow. It is critical that the inventory get sold in a cash flow-intensive business such as retail. The faster expensive items move, the more profitability will increase.
Unit sales – This tracks sales for each inventory item, so that a provider can analyze what items it can sell more of; whether or not it needs to highlight top selling items over more traditional items; and whether or not there are some non-performing items that it might need to re-stock as often. By knowing average unit sales, as well as how long each of those items takes to sell, the provider can start to get an accurate picture of whether or not it is providing the right items to its clients, and what items it might need to replace or add to its lineup in order to better attract and keep its patients.
Master Your Reporting Tools
Today’s HME management software packages and services offer a variety of robust reporting tools. If you’re not already using them, start running the canned reports available to track at least some KPIs. But don’t stop there; most HME software systems also provide tools for generating custom reports that can help you drill down on the metrics that mean the most to your business.
Use a Dashboard
In addition to reports, one tool that gives providers at-a-glance feedback on how their businesses are performing across all departments is a real-time dashboard. Just like the dashboard in a car, dashboards pull key metrics and assemble them into one or two simple screens, presenting them via basic graphic and numerical feedback. And, like many reporting tools, most of them are customizable.
Use the Data Strategically
While all of these KPIs and the reports and dashboards used to track them are solid tools for monitoring business performance, the overarching motive for using them should not solely be to react to problems. Sure, if DSOs are down, a provider wants to know and fix the problem, but these KPIs offer much more: they provide the tools necessary to grow the business. Start by using the data points as benchmarks so that you can get an idea of how your business currently performs. Then start setting company and department objectives for improving output, fine-tuning efficiency, and increasing overall performance. Set goals, track performance on a weekly, monthly, quarterly and annually basis, and adjust accordingly.
Points to Remember:
- Monitor the KPIs that mean the most to your business. Some might be traditional. Some might come from other types of businesses. Some might be of your own making. The key is to track meaningful data.
- Use the tools your software offers, such as reports and dashboards. Many of these are customizable so that you can tailor them to your needs.
- Use the data strategically, not just reactively. Set goals and track your progress toward them on regular intervals so that you can adjust and improve as need be.
To learn more about what kinds of tools are available from the various software systems and how to use them, check out our HME software solutions center.
This article originally appeared in the June 2017 issue of HME Business.