Funding Fundamentals

Striking the Right Balance

Evaluating provider profit margins while continuing to put patients’ needs first.

• By Megan Kutch
• Nov 01, 2009

As a provider of complex rehab equipment in a challenging market, you are called upon to meet the needs of the people you serve while keeping your business economically viable.

In order to accomplish this, many companies have adopted a strategy of supplying their ATP’s with a list of products and product configurations that are considered “best picks” based on profitability. These “best picks” are determined on quality, performance, capability and profitability.

These are the characteristics that are essential in deciding which manufacturer you feel will be able to work with you to deliver the best possible solutions to your clients while helping you maintain acceptable profit margins.

"A manufacturer should be able to provide you with a profitability analysis that shows your overall profit margin on a specific power base."

Product Quality & Performance

Every manufacturer needs to constantly evaluate the quality of their products. When looking at complex rehab equipment, quality is essential because every component of the system has to be reliable to fully assist a mobility patient with all of their activities of daily living.

Naturally, your goal to supply the most appropriate power mobility solution for your patient will be compromised if you choose a product of lesser quality. Quality issues do not only have a huge impact on the individual, the related service and support has a huge impact on the provider’s bottom line. If you have to constantly send a technician out to trouble-shoot a specific piece of DME, then you are not operating efficiently.

By offering a consistent product selection from a quality manufacturer, your service staff will be able to work more quickly to resolve service concerns. Additionally, the commonality of parts resulting from choosing one quality manufacturer will help keep these costs in line.

Product performance is also another crucial aspect to consider when deciding what will be best for the patient as well as your bottom line. Many manufacturers offer various model options to meet your patients’ needs while minimizing the variance in the associated costs for those options. Discussions should take place with the patient on what they typically do throughout the day and where they need their mobility system to take them. If the patient finds that a power chair doesn’t deliver the level of performance they need to easily and adequately perform these tasks, they will not be satisfied with the solution you’ve worked to provide them with. This can result in frustrating non-repair related calls and, more importantly, in the patient not using the equipment at all.

Accessories & Options

Everybody wants choices. Whether it’s the color selection or a desire for a specific accessory, available options are essential to increasing your profitability. You need to look at what options are reimbursable and how much those additional accessories may impact your overall profit margin. Work with a manufacturer that can prove high quality and affordable accessories.

Single invoicing as many items as possible from one manufacturer can also help reduce cost. By ordering all components of a mobility system from one manufacturer, you will also be able to provide a complete solution in a timelier manner. This will increase the efficiency of your operations and purchasing departments because they will only need to work with one source to track quotes and orders. It makes sense to look at this type of business approach and it can reduce your evaluation to delivery cycle.

Your Overall Cost

As a business owner, it is obviously important to review your profit margins on the equipment you purchase. A manufacturer should be able to provide you with a profitability analysis that shows your overall profit margin on a specific power base.

In addition, a key factor is to also to include your costs of providing the power positioning systems and accessories. We often see a big discrepancy in this area due to the number of options available. We have found that margins here are often difficult to assess.

To determine the accessories your company purchases most often you need to examine the options your highest volume ATP’s usually select for their patients and how much business they’re generating. This will give you an idea of what you are purchasing most frequently on an annual basis. Moreover it will also allow you to work with a manufacturer to determine what your overall cost would be for the most common configurations.

This is the only way to gain an accurate depiction of your overall cost along with your typical profit margin. Too often a business owner will be presented with a package price that does not include all of the accessories needed for a complete solution. This is something that you should seek from a manufacturing partner in order to make the correct business decision for your company.

It is important to review all of the aforementioned items to be sure that your business is positioned for success. Be sure to partner with a manufacturer who can deliver not only the high quality products you need to better serve the patient but who can also supply the services and support you need to remain successful.

This article originally appeared in the November 2009 issue of HME Business.