Funding Fundamentals

A Focus on Finding Efficiencies

Driving cost out of the bed business.

• By Phil Cunningham
• Apr 01, 2011

Now that national competitive bidding (NCB) has reached implementation, providers across the nation are in a period of uncertaintyregarding the homecare bed business.

Those that won bids are looking to see how they can best deliver product, many of them in completely new geographic markets. Since a majority of bid winners are outside of the MSAs, there are a number of providers located in the nine areas left wondering how to handle their inventory of beds, their referral sources, and the sub-contracting possibilities. Those not in competitive bidding are asking themselves, “How can I deliver a bed, a mattress, and rails for the current average amount of $75 a month?”

While the verdict is still out on how the current NCB rates will affect business in the long run, there are numerous efficiencies that can and must be implemented today. Some of those keys to success revolve around eliminating non-revenue generating activities, while others revolve around managing cash flow and maximizing the return on investment. Along with the basic costsaving initiatives, it is imperative, due to the nature of the patients using the equipment, to minimize risks that lead to litigation and injuries.

Understanding the basic gross margin of a bed has been simple. By figuring out your average total reimbursement for a bed over a period of time and using the invoice cost of the bed, providers can easily see the gross margin. But what about other expenses, such as the cost of doing business? Focusing on efficiencies within your business itself is key.

Delivery, Pick-up and Cleaning

Providers should utilize their manufacturers to help train their delivery technicians on how to properly set-up a bed in the home. This can save up to five minutes or more per delivery, potentially allowing for one more billable delivery in the day. This will also minimize quality issues that result in another expensive house call. Providers should speak with their delivery technicians about the nuances of delivering certain models. Often, some beds that look easy to set-up in the shop prove difficult to get into and put together in the patient’s home.

Investing the money to pick-up a bed, clean it, and restock it can save a provider 50 percent over buying a new bed. In order to accomplish that, the bed, rails and mattress has to be easily cleaned and disinfected with minimal repairs. Beds that can be sprayed with disinfectant and hosed off completely simplify the process, while still meeting accreditation guidelines.

Service Calls

Calls for loose drive shafts and broken pendants should be eliminated almost completely. Every time another service call has to be made because a patient dropped the pendant, there is another $75 hidden fee to the provider. Because pendants are used so frequently, they are most susceptible to damage. Rubberized, water resistant pendants may be more expensive, but should last through multiple rental cycles. It is important to invest in quality products that will last, as this will keep your total lifetime costs low.

Inventory and Availability

Standardizing inventory should be a top concern for providers. Stocking select models and components, such as universal bed-ends, streamlines the ordering and receiving processes, and minimizes the possibility of delivering the wrong components to the patient. This approach also eases over-the-phone troubleshooting and service parts distribution. Using components from multiple manufacturers that have not been designed to work together can lead to injury, property damage and/or additional confusion during service calls.

Cash Flow

Access to working capital is going to be the No. 1 challenge for providers in competitive bidding. In the past, it was possible to get enough revenue in 60 to 90 days to pay the manufacturer. Today, however, even the most inexpensive bed can take five to seven months’ rental revenue to cover the cost. HMEs should use manufacturer and member service organizations’ financing options.

While working out the costs, providers have a number of options to maximize revenue growth. It is estimated that 70 percent of patients who qualify for a homecare bed, also qualify for a Group 1 mattress. While it requires a little more diligence and paperwork, supplying Group 1 support surfaces has significant benefits to the patient, the provider, and the referral source. Many patients who spend a significant time in bed are susceptible to pressure ulcers or bed sores. Those sores can be deadly, and are extremely expensive and difficult to treat. While a great alternative source of income for a provider, it is, more importantly, putting the patient’s needs and comfort first. That type of support goes a long way to proving value with key referral sources.

Since the HME market is niche, there is little knowledge of what products are available to make a patient’s or caregiver’s daily living easier or more comfortable. During the initial stages of supplying DME, providers should do in-home assessment and offer other solutions. There are a number of natural sale opportunities for bath safety, stair lifts, or other aids to daily living.

Finally, it is important that providers train employees, consumers, and caregivers during all phases of the process. In 2008, the Department of Justice released a study that showed the average cost of litigation in healthcare was $748,000. Providers can mitigate that risk by working with manufacturers that can show independent test results proving compliance with FDA Entrapment guidelines and other consumer safety criteria. Some manufacturers add providers as additional insureds to their product liability insurance, which might help the provider during litigation.

It will take some time to see the long-term effects the competitive bidding rates will have on the homecare bed market. Now is the time to build a business that is not controlled by outside forces, but is instead in the provider’s hands and focused on the total cost of ownership and risk management.

This article originally appeared in the April 2011 issue of HME Business.