HME NewsPoll: Most providers don't know the cost of services they provide

Sunday, October 18, 2009

YARMOUTH, Maine - The vast majority of HME providers run their companies without knowing what it costs to supply services to Medicare beneficiaries, according to a new HME NewsPoll.

Of the 208 respondents to the October poll, 71% answered "No" to the question: "Do you know the dollar value of the services you provide to Medicare beneficiaries."

While that percentage seems very high, it doesn't surprise industry consultant Wallace Weeks. His informal surveys over the past few years confirm that only about 25% of HME providers know the cost of the individual services they perform for patients.

That makes it tough, he said, to know if you can discount something 5% or 50%--critical knowledge when preparing for competitive bidding.

"Many providers have this gut feel," Weeks said. "They have run their business for a long time, but the world has gotten tight enough now that I don't think we can survive well with anecdotal evidence. They need to have empirical evidence."

Here's how four of the 29% of providers who responded to the poll and said they do know their costs calculate those costs:

Provider A: Equipment purchases represent about 30% of the cost of doing business; 16% to 18% of reimbursement goes to overhead. The remaining 52% is the cost of providing the patient services, including education and re-education, 24-hour response, equipment related supplies, and accreditation/quality standards.

Provider B: For DME, 65% goes to customer service/intake, delivery prep, vehicle costs and overhead; that percentage jumps to 71% for respiratory services. Acquisition costs range from 21% to 27%.

Provider C: For a CPAP set-up, it takes 20 hours of service time to receive the referral, schedule the patient, qualify the insurance, perform the set-up, deal with mask exchange issues, bill, obtain the necessary medical documentation, demonstrate compliance and process returns. Those services cost 54% of the total revenue from the set up.

Provider D: Seventy percent of reimbursement goes to employee salaries/benefits, vehicles, 24/7 availability, employee training, billing, and product acquisition and service.

In part, Weeks said, providers not knowing their true costs helped drive down pricing, on average, 26% during competitive bidding's aborted Round 1, and it could happen again during this fall's re-bid.

"Everybody is afraid of that guy down the street who has no clue what his costs are," Weeks said. "So despite the fact that some providers know their costs, they are not going to let the guy down the street who doesn't get the business. They are going to ignore their costs, and that is a dangerous position to take."