Are you a best-in-class provider?
I don’t think I’ll get much of an argument for saying that times are tough right now, with audits, Round 2 of national competitive bidding (NCB) and decreased reimbursement affecting the vast majority of providers. While we continue to fight for alternatives and improvements, these challenges are likely here to stay.
In the Marine Corps, we have a saying—when the going gets tough, the tough get going. There are providers that are succeeding today in spite of the challenges facing our industry. Invacare is the largest creditor in our industry, and we see more than 5,000 income statements and balance sheets. I also frequently have the opportunity to travel the country and meet with providers. When I look at those who are doing well, these providers have a number of shared traits from a financial perspective. You may look at this list and think, “I’m a small provider; this doesn’t apply to me,” but I can tell you there is no correlation between size and profitability. The most profitable providers are not necessarily the largest providers. There are large- and medium-sized businesses in trouble, and some small companies doing well. Here’s what the best in class have in common:
• They maximize overhead absorption and keep overhead low.
• They have a strong focus on cash flow, with particular emphasis on the order-to-cash cycle. These providers utilize their metrics to forecast cash flow and capital needs.
• They actively manage the debt load on their balance sheet and have reduced leverage over the past couple of years.
• They minimize their dependence on Medicare, but also actively diversify their payer mix among Medicare, managed care, hospice and cash alternatives.
• They have a good relationship with their local banks and have built confidence with supplier credit managers.
• They understand capitalism and apply sound business practices.
• They do not use their business as a “piggy bank” to support a lifestyle they cannot afford.
Once we were able to narrow our definition of best-in-class providers from a financial perspective, we looked at what else they have in common:
• They invest in the non-delivery model of oxygen.
• They shorten/manage their evaluation to delivery time on purchased products like custom power and custom manual wheelchairs.
• They are creative in finding new sources of revenue.
• They are very closely aligned with several hospitals and are beginning to promote their ability to minimize readmission, therefore making themselves attractive to ACOs.
• They exit unprofitable lines.
• They invest in modern computer systems and make few errors.
• They have proper paperwork in place and a robust compliance program with solid internal controls to put them in a better position to pass audits.
• They invest in and practice sound fleet management for rental products like oxygen, wheelchairs and beds.
I’d like to spend some time on this last point: fleet management. With lower reimbursement rates and changes to reimbursement models that allow for payments to be spread over many months, successful providers are looking past the initial purchase price to products that offer the lowest total cost of ownership, or lifecycle costs. This is where fleet management comes in. Taking this approach allows you to optimize your operating income without sacrificing patient care. It also makes you more attractive as an acquisition, because a consistent, single brand fleet equals a higher value company. Fleet management helps you to keep and win referrals because a high quality product for their patients is important to referral sources, especially those in ACOs. Under the new NCB rules in section 414.422(c) on non-discrimination, providers must offer the same quality products to both Medicare and private insurance patients, which is done easily when you have a quality fleet of products. Lastly, there’s the five-year patient commitment. Even if a product caps out, providers are responsible for their products with patients for five years. Wouldn’t you rather have quality products out there that require less service?
As we look from a financial perspective, as well as what these best-in-class providers have in common, fleet management ties it all together and can help you survive the challenges facing our industry. The numbers prove it.
As the Chinese proverb teaches, “The best time to have planted a tree was 20 years ago. The second best time is now.”
Mal Mixon is chairman of the board of directors at Invacare.