Funding Focus

Whose Business Is It?

• By Kelly Riley
• Nov 01, 2006

Sweeping changes: the one true constant those who work in the DME industry can count on. These changes have the potential to affect company owners, shareholders, employees and the patients they serve. The passing of the Deficit Reduction Act included a bill that limits rental payment to providers to 36 months for oxygen services. At the end of that period, ownership and responsibility for service and maintenance is transferred to the patient. Statistics show that for most companies, this transfer equates to a significant reduction in reimbursement for 35% of the oxygen patients they serve, as that is the number of patients that require long-term oxygen therapy (LTOT) beyond 36 months.

The effect took change February 1, 2006 — it's time to start asking some tough questions. Has your company completed a financial analysis to estimate the impact on your business? Have you developed an action plan to either enhance revenues or trim expenses? Have you engaged all of those affected by these changes to gain insight from their perspective? Whether you own the entire company, part of it, or count on a paycheck from the company, it is your business, and you have a vested interest in contributing to its continued success.

Simplistically stated, our business revolves around three metrics: people, products and processes. While they may often overlap, taking the time to look closely at each metric as it relates to this specific business line may yield valuable data that transcends into dollars on the bottom line.

People:
•    Your team can be your greatest asset. Make sure you invest in them accordingly. Train them, and then develop a mechanism to ensure they stay sharp. Are they able to troubleshoot equipment problems over the phone? There should be an oxygen equipment troubleshooting algorithm at the desk of every person who answers the phone. Prompt answers will also help instill customer confidence.
•    Productivity — the industry standard that can make or break your company. Often expressed as revenue/FTE, the benchmark is set at approximately $120K/FTE. Small things left unchecked can become significant. For example, consider the employee who every morning has to spend 15 minutes getting everyone caught up on the activities of the previous evening. Over the course of a year, this practice adds up to a full 40-hour work week, plus! Now, multiply that times the number of employees who share that particular problem and you have an opportunity for improvement.
•    Partner with your people. Encourage creativity, reward it with recognition and, where warranted, responsibility and some type of incentive. The people who every day talk and meet with the customers and follow company processes have ideas, so tap into them.  Empower staff and support them when they falter. Remember, there are three types of employees: those who make it happen, those who watch what happened, and those who wonder in awe, “What just happened?”

Products:
•    Take the time to evaluate your inventory. Under the proposed payment rule, there will be a third payment class for new technologies, such as portable concentrators and home transfilling systems. The proposed add-on fee for this type of system is $51.63. It makes sense to utilize these technologies minimally for patients who reside further away from your location.
•    “Tank Hoarders” — we all have them. We all know who they are. We have been hesitant to broach the subject as we fear the loss of business. Many of our clients are the experts at “belt tightening”, so simply engaging them in our plight may result in a more realistic expectation of what quantities they need to keep on hand.
•    Evaluate your contract with your oxygen supplier. Let your current supplier know that, at the earliest possible date, you will be releasing a request for proposal (RFP). Be informative, let them know what the future holds for you, and that you are seeking to partner with vendors that are in it for the long haul.
•    Monitor your Inventory Days on Hand (IDOH). Determine how many dollars in inventory your company has in the oxygen category at the end of the month. Divide that number by the total cost of goods (COG) expense for the oxygen category for that month.  The result is the number of days you have inventory on hand. The industry average is 44 days, so strive to be at least average. The next step is to trend the data every month and report it to staff.
•    Utilize a formulary. Hospitals and pharmacies started this practice years ago in response to declining reimbursement. We have been hearing for years by industry experts that we can no longer be all things to all people and remain viable. Gather your team, look at your market, determine what products best meet the needs for the majority of your patients, and stick to it.

Processes:
•    After-hours call-outs for equipment problems result in an increased cost of fuel, vehicle wear and tear, and employee overtime. If this is a problematic area for your company, it's time to drill down into your data and identify if any trends exist. Are the calls related to a certain product line? Is there a trend related to recent service and maintenance completed, or set-up by a new technician? Once you identify these trends, you can educate your staff to ensure the best processes for your business are utilized to achieve optimum results.
•    During routinely scheduled preventive checks, are your equipment technicians truly assessing the patients' needs and tubing change practices? If opening closet doors results in an avalanche of small proportions, the answer is probably no. As long as the technician documents that remedial education of the patient was completed, there is no need to leave even more tubing. The resultant company savings can be substantial.
•    Vehicle operations, routes, and deliveries — are your routes being run efficiently? It may be time to consider a fleet tracking system, which is purported to design the most efficient route patterns. Gently encourage patients who are not on a regular delivery schedule to call 24 hours in advance to allow better planning and optimize operational efficiency.  
•    Many people insist on having their oxygen delivered due to difficulty getting in and out of your location. Consider a drive-up window, or some other mechanism where you go to them (in the parking lot), as opposed to driving to their home.
•    Give delivery customers something to come in for. One company experimented with rewarding previous delivery customers with coupons from local fast food establishments for a free meal. The less-than-three-dollar cost was well worth it, and often they picked up a cash sale item while in the store!
•    Remember, keep up with your inspections. Verify that vehicle maintenance is completed, including tire pressure checks and regular oil and air filter changes. Also, ensure that load levels are not excessive. Combined, these areas can increase fuel efficiency by over 10%.

The plan by Centers for Medicare & Medicaid Services to overhaul its oxygen payment system is just one of many proposed changes facing DME providers. However, with the current industry average profit margin of a mere 7% (pre-tax) and the looming threats of further reimbursement erosion, there is no more time to sit back and see what time will bring. Gather your data, benchmark, then stretch towards best practices level of performance. The welfare of your business, your team of employees, and your patients are dependent upon it.

This article originally appeared in the Respiratory Management Nov/Dec 2006 issue of HME Business.