The same clamps pinching the U.S. economy – a flat stock market, capital drought and tentative spending – are choking the HME industry as well. On top of that are the inherent pressures of national competitive bidding for Medicare, eroding fee schedules and increasingly convoluted payment policies.
Also contributing to the general economy’s lethargy are major corporate scandals, which have inevitably trickled down to HME, said Jim Phillips, president of VGM Leasing, Waterloo, Iowa. “When there is a downturn in the economy, it flows downhill,” he said. “Enron [fallout] flows right at us.”
Small wonder then that cash flow is a huge concern for HME providers. Financial services firms report handling a flood of inquiries about accounts receivable assistance, credit extension, loan availability and funding prospects.
Expert opinions may be at a premium right now, but advisors say there are no magic solutions. Instead, financial specialists recommend that providers look inward and focus on business basics. Running a tight ship alleviates the need for a bail-out, they say. Likewise, they suggest that providers have their ledgers practically memorized when seeking insurance, securing loans or leasing equipment.
“In these days of [scarce] credit, it is imperative that you have your data organized,” Phillips said. “You have to be as on top of things as possible. By paying close attention to monthly financial statements, you will send a message to your banker that you take things seriously.”
Exercise prudence when it comes to equipment leasing, he said. Don’t use long-term financing to shore up short-term cash flow.
“Match the term on your contract to cash flow and the useful life of the product,” Phillips said. “I probably wouldn’t finance a power chair for more than 24 months or a standard chair for more than 18 months.”
Financial services companies have challenges of their own to handle. The insurance sector, for instance, is dealing with a dehydrated dollar reservoir brought on by a sagging stock market.
“Insurance companies were getting 20% returns on their investments for years, so they didn’t worry as much about profit margins,” said John Liberty, vice president of Cushman Insurance, Herndon, Va. “But lately insurance companies have gotten a lot more conservative in their investments. Those costs are being passed on through higher premiums.”
Indeed, insurance agencies have gotten much more restrictive, which in turn ripples to providers, added Bill Thompson, partner with Burlington, Vt.-based Smith, Bell & Thompson. Not only are insurance policies more expensive, he said, they are harder to get.
“Because [HMEs] are in a [higher risk] class, their costs are 40% to 60% higher,” he said. “It’s classic supply and demand. Supply is down while demand is constant.”
However, there are things providers can do to maximize the value of insurance coverage, Thompson said.
“Review all your limits to ensure they are adequate for the risk you have, including property and assets,” he said. “Look at whether the type of savings you can get from raising your deductibles.”
Thompson also tells providers to look for stability in the market.
“Choose a carrier with a track record,” he said. “Many have learned the hard way by shopping strictly by price and jumping at the first one who’s a penny cheaper. If they’re not there to pay the claim, what do you save?”
Despite the pervasiveness of outside economic factors, at least one financial expert believes that the more things change, the more they stay the same.
“Cash flow issues aren’t news – they have been an industry problem as long as I can remember and I’ve been here since 1985,” said Arnold McMann, associate with the Corridor Group, Kansas City, Mo.
Still, if providers felt squeezed 18 years ago, they must feel strangled now, McCann added.
“The regulatory environment is onerous,” he said. “For all the lip service the feds give to it, they haven’t improved it one bit. What’s more, managed care is as bad as it’s ever been. The payers leverage off the HME providers’ backs. Put those two together with shrinking provider margins and you can see why they have no capacity to handle it.”
Financiers maintain, however, that providers aren’t doing enough to help themselves. A common criticism is that HME companies aren’t meticulous enough about claims filing details, managing their accounts receivables or pursuing delinquent collections, which cause days outstanding levels to escalate.
“Too many companies have DSOs higher than they should be – they aren’t running clean,” said Mike Barish, president of AnCor Health Consulting, Coral Springs, Fla. “I’ve seen some companies have DSOs as high as 200 days.”
The cause of high DSO rates is almost always improper claims management, Barish said. Mistakes such as failure to get suitable insurance verifications and coverage criteria are all too common. Operationally, he said, claims processing methods are typically inefficient.
“It’s too fragmented – too many people are handling the claims, which increases the likelihood of mistakes,” Barish said. “They need to reduce the number of employees in the claims handling process.”
The proliferation of provider mergers and acquisitions are partly responsible for the convoluted claims processing systems, Barish said. Often when two organizations integrate, it doubles the number of claims handlers, creating redundancies and even procedural conflicts. Streamlining that process is essential, he said.
Experts were unanimous on the starting point for implementing internal quality control measures – intake.
“The right questions need to be asked when the phone rings,” aid Don Clayback, vice president of networks for Lubbock, Texas-based MED Group. “Questions such as â€˜Is it a product we want to sell, is the price reasonable and what type of documentation do we need?’” HME
Optimizing HME cash flow means having measures in place to ensure clean claims processing and diligent follow-up procedures. Arnold McMann, associate with Corridor Group, Kansas City, Mo., offers this checklist of actions for providers to follow:
- Train intake people to ask the right qualifying questions regarding an order. Accounts receivable employees should provide all intake staff training and at regular intervals.
- Configure the flow chart so that A/R reviews every order that comes through the intake process. Orders not approved by A/R should not be processed. “Money is either earned or lost at this critical juncture,” McCann said.
- Be selective in which orders to accept. Too often an HME company will accept a questionable order in the quest for revenue, McCann says. “Focus on your strengths. Don’t try to be everything to everyone – even Wal-Mart has limits,” he advises.
- Know your software. Even older applications can serve the purpose with correct usage.
- Monitor the processes diligently and investigate anomalies. Don’t just rely on staff to report a problem.