Business Solutions

A New Approach to Benchmarking

Why benchmarking HME businesses is crucial to ‘surthriving’ the new reimbursement landscape, and how providers can leverage software systems to do it more powerfully.

• By David Kopf
• May 01, 2010

Benchmarking is a standard business practice, but not all businesses do it, especially smaller businesses. That said, in the home medical equipment industry, with declining funding and narrowing margins, benchmarking performance is a practice every provider should make part of its management procedures.

Fortunately, while benchmarking HME businesses might initially seem like a laborious process, HME software systems and services can help.

The term “benchmarking” originally stems from marks that surveyors would create so that they could accurately chart the landscape. Benchmarks are nearly as old as the hills they once helped measure, and originally looked somewhat like a bench. More modern benchmarks were typically set in stone and made of metal so that they couldn’t be shifted. These marks gave surveyors a permanent spot to place a leveling rod so that they could ensure they were taking measurements from the exact same spot every time.

In these days of readily available GPS access, benchmarks are a fading concept, since getting an accurate read on geographic location is a satellite “ping” away. The old metal benchmark discs and other official surveying marks are now only sought by geo-location hobbyists.

However, benchmarking as a concept is still alive and well in the business world. As a business management tool, benchmarking means taking regular readings on how certain aspects of the business are performing, determining how those segments of the business should be performing, and then determining if they need to improve or are already performing well. Like the benchmarks used by surveyors, those metrics serve as rock-solid reference points that can’t be easily shifted.

Benchmarking HMEs

In the home medical equipment industry, with its declining Medicare funding and increasingly higher cost of doing business, benchmarking is an absolute must for any provider. Without knowing how the various aspects of its operation are performing, how can an HME owner or operator ensure that it will survive such a tough marketplace, let alone thrive?

Benchmarking lets providers not only monitor their own performance, but compare it to other like HME businesses, as well as its goals. This lets them ensure they are meeting average industry performance, says Sandra Canally, president of accreditation organization The Compliance Team, which has recently released a new service called Exemplary Provider Electronic Benchmarking that helps providers use data systems to track their performance.

“Typically we have our customers setting their company goals, which tie in with their quality improvement plan,” she says. “Unless you are gathering that [benchmarking] data and looking at it, you might think, say, your delivery team is doing good a job with instructions, but when you get the results, they might be lower than what you really think is the reality.”

Comparing company performance to industry benchmarks lets a provider’s management team target where they need to improve and gives them the opportunity to implement the training and other procedures necessary to effect that improvement, Canally explains.

“The other purpose [of benchmarking] is that [providers] can share these results with referral sources,” she explains. “Maybe a provider does rehab and it wants to show to PTs or doctors or managed care that in the past quarter it had 98 percent patient satisfaction … they can show where their performance exceeds the national averages. It really is a way to help providers to set themselves apart from their competition and show that they take continuous improvement seriously.”

In short, benchmarking HME businesses is essential and should lie at the foundation of its management practices.

“Before we began operating, we developed a benchmarking model for our business, which we adapted from a prior unrelated business,” says Scott Lloyd, co-founder and president of Extrakare LLC, a respiratory-focused HME provider in Norcross, Ga. that serves the greater Metro-Atlanta area. Extrakare was listed on the Inc. 500 last year with 2009 revenues near $6 million, and part of its success can be linked to benchmarking, Lloyd says. “In that model we have benchmarks for a little over three dozen specific things inside the business.”

Extrakare’s chosen benchmarking metrics range from revenue mix by product line; profit margins; staffing levels; productivity levels such as how many orders and intake employee can handle on a monthly basis; how many accounts a sales representative can handle effectively; percent of business from new referral sources; or number of deliveries that can be made by a patient care technician or delivery driver.

Benchmarking for HME’s also creates the opportunity to not only track business performance, but in terms of patient care, as well. In the case of The Compliance Team, Canally says the accrediting organization tracks eight criteria focused on patient care and satisfaction: timeliness of services; did the patient receive adequate instruction; did the patient receive all their forms such as rights and responsibilities; did the patient receive all necessary billing information; is the patient aware of the complaint process; does the patient know who to call with question; and what is the patient’s satisfaction with the provider and with the equipment.

Also, for some provider services, The Compliance Team’s survey covers factors related patient outcomes.

“As we move forward in this, it’s a great opportunity to take benchmarking to another level for specialty services, looking at outcomes connected to services such as complex, and infusion, and respiratory, and so forth,” Canally says.

Also, Extrakare’s Lloyd notes that a provider’s benchmarking criteria shouldn’t remain static. Each year, Extrakare’s benchmarking model is reviewed and updated if necessary to ensure the business meets new demands, Lloyd says.

“Every year we sit down and take the publicly available information we can get, be it from public companies or [industry publications], and we compare that to our actual results, and we continue to evolve those benchmarks,” he says, noting that the annual “evolution” also recognizes factures such as regulatory and funding changes.

Extrakare collects data all year, and then in the first quarter of each year it considers adjusting its benchmarks. This year, it didn’t make any changes to its benchmarks, because it made several changes last year.

“Obviously those benchmarks have to be impacted by reimbursement changes in the industry,” Lloyd explains. “For example, if you look at the benchmark for what the revenue per patient should be, well, we expect that benchmark to go down over time because we fully expect to be paid less in the future than we were in the past. Total revenue we expect to go up, but we’re going to drive that through census.”

That said, arriving at how industry factors might impact the benchmark model can be difficult. For instance, competitive bidding is one of those reimbursement changes that can’t be ignored. However, gauging how great its impact will be might be too inexact a process. So in Extrakare’s case, competitive bidding has yet to make it into the model.

“Whether you’re of the school of thought that says competitive bidding is here to stay or that somehow competitive bidding is going away, I think it’s safe to say that there are going to be big changes to reimbursement,” Lloyd says. “We have not factored any of that into our benchmarks. It’s top of mind when we’re making operational decisions. I feel certain reimbursement is going down, but whether things are going down five percent, or 15, or 50, I don’t really know the answer to that. So we don’t really have enough information to make changes other than to know it’s going down.”

Conversely, as a respiratory provider, Extrakare was very aware of the impact of the 36-month rental cap, and was able to integrate that into its benchmarks.

Setting Benchmarks

In terms of performance objectives, Extrakare takes its benchmark model and tries to establish benchmarks that it feels represent the 80th percentile of the industry, Lloyd explains.

“So for us, a benchmark is not the highest possible achievement,” he says, adding that arriving at those 80th percentile benchmarks is a process that involves “way more art than science.”

Still, Extrakare’s data sources and other factors make sense for setting those benchmarks. They include the company’s own historical performance; known changes in the market, such as future reimbursement rates; publicly available data on traded companies in the industry; as well as data on how Extrakare wants to perform.

“It’s a very imperfect process, and we recognize that,” Lloyd says. “But we feel that if you have a plan, you’re better off than not having a plan.”

But in addition to whatever art or science that goes into trying to determine that 80th percentile, Extrakare still has very accurate data about its own performance. That said, while that data is valuable, Lloyd warns providers to not become over-reliant on only their performance data.

“We think it’s very easy to get caught in a trap where you believe you’re doing things properly or well,” he notes. “So we tend to be pretty critical of our performance.

“If you look across the whole range of performances of companies in this industry … look at the performance of American Home Patient versus Lincare — that data is pretty publicly available — if you are American Home Patient and look only at American Home Patient, then you might think you’re doing the best that can be done, but Lincare would prove otherwise.”

In terms of setting both goals and benchmarks and then tracking its various measurements, Lloyd says the provider tracks metrics in several key ways:

• In the current month compared to the same month of the prior year.
• The current month compared to the plan for the current month.
• Year-to-date versus plan.
• Year-to-date versus prior year for the same period.
• All data compared to benchmarks.

“And very often, our plan is not aligned with our benchmarks,” Lloyd notes. “We might have a plan that exceeds our benchmark.”

Putting Software in the Picture

Keeping accurate track of how your business is performing against its benchmarks, as well as setting those benchmarks requires information, and perhaps the best resource in that regard for benchmarking HMEs are their billing and management software systems.

“At the end of the day, whatever the software that your using, the data has to be captured and reported back to you in a useful way,” Lloyd explains. “The first thing about software is that you have to give it enough information the front side that it can give you useful information on the back side.

If you’ve developed these benchmarks, you need to make sure you are capturing the data that will give you the answers,” Lloyd continues. “You have to decide what you want out of the software so that you know what you need to put in the software.”

For instance, if a company decides that it is interested in closely managing its inventory assets, it can make the management decision not to benchmark that element of its business, or perhaps not use that aspect of its HME software, as well.

Also, sometimes the information can come from other sources. Lloyd notes that while Extrakare uses Brightree for its HME software, not all of its benchmarking data comes from one spot.

“The majority of the data that we look at comes out of Brightree,” he says. “There is data that we use to manage our business that does not come out of Brightree, and that comes from two separate sources. We use Quickbooks to manage the financial side of the business, and we use a product called Sales Net to manage our sales activity. But far more than 90 percent of all our data we get from Brightree.”

Instant Feedback

Another key element in leveraging software to benchmark HMEs is to leverage the reporting tools it offers to instant access performance data.

For instance, in the case of HME billing and management system Brightree LLC, users can access a Brightree Business Scorecard that lets them instantly see how their business is performing (see “Brightree Business Scorecard” for an example of what it looks like).

“In Bill Gates’ book ‘Business at the Speed of Thought,’ he talks about a digital nervous system,” says Brightree president and CEO Dave Cormack. “If I walk on the beach and I accidentally walk on some broken glass, my brain immediate tells me there is a problem. This is what benchmarking is about: giving [providers] a heads-up immediately.”

Providers can select the various metrics that they want to track on the scorecard, and a simple colorcoded process lets the provider’s management team know when something might need attention, Cormack explains. Such is the case outlined in the example of scorecard.

HME providers can use tools such as Brightree’s scorecard to track their
performance in real-time against the benchmarking metrics that they choose.
SOURCE: Brightree LLC

“So with this mythical company the A/R collection department are doing very well,” he notes. “However, in the red, their asset utilization, sales growth, and sales against target are way off. Basically, what happened here is that this company lost a major contract earlier in the year. But how have they recovered from that?

“Basically, if you look at the yellow, the gross profit margin is still in good shape, and another key indicator, year-to-date revenue per employee, is in good shape,” he continues. “So in essence this company took corrective action immediately, maybe shutting down an office, or part of the business, or redeploying people.”

So a scorecard view allows providers to see at a surface level how the business is doing. Now, if the business runs multiple locations, it can even drill deeper on any of the benchmarks displayed on the scorecard to see how each location or business unit is performing, Cormack explains.

“So imagine a multi-branch environment,” he says. “Just because DSO in the example looks like its in great shape with 36 days, you can drill into beneath that and look at DSO by branch and you might see opportunity there if some branches are doing better than others.”

That same granularity can be applied to looking at metrics by payor, product or other qualifications to discover places to improve. Consider it a sort of instant, automated nervous system for HME businesses that would otherwise have to cobble together that sort of feedback through spread sheets and other timeconsuming processes.

“What a feature like that does is essentially in a realtime manner let you go get a lot of the data that we use for benchmarks,” Lloyd says. “Brightree’s scorecard doesn’t contain all the data that we use for benchmarks, but it contains a lot of it. And in some cases, it is able to produce that data in a more detailed manner than we used to track on our own anyway.

“So the way that they are feeding that data back to us has two main advantages,” Lloyd continues. “One is that it is essentially real-time, and two they’re actually feeding back more data than we were already looking at.”

And in the same way the scorecard tracks key performance indicators, Brightree also offers an Executive Dashboard that lets provider management track other key aspects of running HME operations, such as documentation progress, order intake, denial management, and deliveries to see where performance can be optimized for peak efficiency to throw money back to the bottom line, Cormack explains.

Of course, there can be a tendency for data heads to lose sight of the forest for the trees. All that data can get a little distracting, and can prompt knee-jerk responses if staff get too mired in the constant feedback. Data requires discipline, it seems.

“In some cases there is more data then you need,” Lloyd says. “I think you have to have a sense of reality where you say, ‘You know what, there are going to be weeks where you have more referrals than others.’ You don’t need to react to the fact that your oxygen referrals were down 10 percent last week, because that just happens sometimes.

“So there is this sense of balance that I think, from a management perspective, you have to be cautious not to overuse the data that’s available to you,” he adds.

That perspective is essential in ensuring providers don’t mistake blips for actual performance trends.

Perhaps one of the biggest advantages of using electronic data systems to benchmark HME businesses is that most of them are networked.

For instance, Brightree’s HME management system uses a web-based interface to access systems running on Brightree’s computing infrastructure. This would let software systems that offer benchmarking tools to generate performance metrics and averages from their user base. That is the next step in the evolution of Brightree’s benchmarking tools, Cormack says. One of the issues that must be resolved before that can happen is determining how to handle the users that don’t regularly post their payments, as those users would throw off the averages.

“So we have to take out [from the benchmarking averages] those people that have bad habits, for example,” he explains. “The other thing is that if we take an average, what is a fair comparison? Is it fair to compare the DSO of a provider in California that does rehab versus a provider in Alabama that does diabetic supply? So that’s what we’re trying to work through is that level of granularity to ensure we come up with benchmarks that really are appropriate.”

Similarly, The Compliance Team’s electronic benchmarking tool draws upon a deep pool of data the accrediting organization has been collecting as part of its accreditation work in order to track national averages on provider performance, according to Canally.

“The Compliance Team has been doing data collection and aggregation for all of our exemplary providers since the inception of the program in 1998,” she says. “This year the only difference is that we have taken it to the electronic level with the opportunity to benchmark against the national database.”

The electronic benchmarking service is a value-added service to The Compliance Team’s regular accreditation process, Canally says. By the end of the second quarter, the company hopes to have all of its active providers entering their data into the new system.

But it is important to stress that in each of these cases, the poll of data is completely anonymous. Neither the companies offering the services, nor their users can examine and share the specific performance of a single user. The only thing that is available, are the averages.

And that is more than enough. In fact, it is an incredibly powerful tool, because it removes the guesswork, and shifts the benchmarking process more from the “art” side of the spectrum and closer to the “science” side.

This article originally appeared in the May 2010 issue of HME Business.