Managed Care: Avoid seller's remorse

Q. Am I pricing services too low?
Wednesday, November 25, 2015

A. As an HME provider you know that revenue is critical to your business. You also know that every activity that you or your staff engages in has a cost. Yet while HME providers typically know their product costs down to the penny, activity costs can be quite another matter. So when a new revenue opportunity comes along there is a huge temptation to price to win the business without taking all of one’s cost into account. Of course, new business is exciting but that excitement can wear off quickly when you discover that your newest contract cannot pay its own way in your company’s financial ecosystem.

We have all heard of buyer’s remorse so here are a few tips to avoid seller’s remorse.

• Know the truth regarding allowables: In most cases, the existing allowables are a cosmic accident. They are the result of historical pricing or bidding. But unless that pricing and bidding was done in each case using actual cost data and reasonable markups, it is at best science fiction and likely has no relationship to your actual total costs whatsoever.

• Know all of your costs: This means going well beyond product costs to accounting for every cost in your business. Every cost you have is real and someone has to pay for it. It will either be paid by your customer or by you.

• Don’t assume your costs are the same as your competitor: Enough said.

• Know your margin requirements: If you do not know what markup percentage above your costs gets you to break even and beyond, your pricing will be wrong and in most cases that means too low. hme

Lynn Everard is managing director of Valumatrix, LLC. Reach him at