Consultant Weeks helps HMEs find 'sweet spot'

Sunday, December 31, 2006

For the past year, industry consultant Wallace Weeks has traveled the country helping providers prepare for national competitive bidding, which is slated to kick off some time this year. Weeks spends a lot of time focusing on a company's "sweet spot." That is: Using technology to increase operational efficiencies; and zeroing in on the most profitable product-payer combinations and helping to shift sales and marketing strategies to maximize those profit centers.HME News talked to Weeks in late October about what providers are doing to get ready for NCB. Here's what he had to say.
HME News: First, talk a little about product-payer combinations and why they are important.
Wallace Weeks: For example, a provider sells a bedside commode. He sells the same commode to different payers. And with each of these payers, there may be a different set of activities that we have to perform, and activities are what cost us money. Those activities have a price tag. We can sell the same bedside commode to three payers for the same price and put three different amounts to the bottom line because our activity requirements are different. Or, we can sell a bedside commode to one of those payers for a lesser amount than to the other two payers and still put more to the bottom line. So it is the product-payer combination that drives revenue and profits in any enterprise.
HME: So what do you do? Provide different products to different payers--a better, pricier product, for example, to a payer that reimburses at a higher rate?
Weeks: That may be one possibility. Or you may not want to provide them the same set of activities. It may be that you require a company to remove some activities in order to have a lower price.
HME: You minimize paperwork and other interactions with the payer to achieve your profit objectives.
Weeks: Yes. It is basic but the management information systems that (HMEs) have, basic as they are, are not designed to give us the information we need to make those decisions. It requires activity-based costing to be able to apply the cost to that product-payer combination. And until a company does activity-based costing, it can't answer that question. Companies have done gross margin analysis for years--which product-payer combination has the highest gross margins--but that is not where our business stops. That gross margin only represents the cost of goods. As an industry, that only represents about 41% of our total cost. The lion's share of our costs is related to activities, not product. Billing, delivery, all those things.
HME: On another front, many providers seem reluctant to invest in technology that has a high upfront cost but promises to produce overall operational savings. Have you seen that attitude with providers you've talked to?
Weeks: I think there is a reluctance to invest in it, but I don't know if the reluctance is all based upon providers not understanding the savings. I think some of the reluctance is because they have the question: Will we be in business long enough to realize the payback on our investment?
HME: But if you don't do anything, you're sort of like a deer in headlights waiting for the impact.
Weeks: Yes. You've got to make a real commitment to making the enterprise successful.