No pain, no gain: Providers cut costs to maintain profits

Sunday, December 9, 2007

YARMOUTH, Maine - In the face of dwindling reimbursement, providers are casting about for any and every way to reduce operating expenses as they grapple with the new hand dealt by Medicare.

Over the past year, some 61% of December's NewsPoll respondents (110) reported that they'd managed to reduce their operating costs as a percentage of revenue, enabling the same percentage to maintain or increase gross profits.

So what are they doing? They're downsizing and cutting out deliveries; cutting patient services; curtailing benefits; and implementing new cost-saving technologies.

"(We) reduced (our) employee health plan by 50%," said Rick Savage, of Preferred Home Medical in Tyler, Texas. "(We also) had employees turn in company vehicles at end ( of the day) instead of letting them take them home."

Employees seemed to bear a big brunt of the efforts to save money. Employers called a halt to the annual Medtrade trip for some. Employees lost hours as employers recast full-time jobs as part-time jobs and cut some jobs altogether.

"We have changed business models," said one provider. "(We) moved completely away from Medicare and most insurance business, went to cash sales (and) reduced staff by almost 80%."

Patients also felt the heat of providers scrambling to keep an even keel.

"(We) are asking patients to come in to our offices for setup in our CPAP treatment rooms," said June Sorensen, vice president of clinical and marketing in Lexington, Ky. "(We also) ask patients to schedule appointments and come to us for interface issues."

Many providers cited out-of-the-box delivery options and the implementation of new oxygen technologies as a cost-saver.

"(We) increased use of courier services... rather than (using) our own trucks and delivery technicians," said Lynn Bryson, president of Roberts Home Medical in Germantown, Md.

One provider eliminated all non-revenue deliveries. Another moved to more efficient delivery vehicles--in this case, the Dodge Sprinter.

All American Medical Equipment in Oklahoma City found that it could impact its margins by increasing its sales team. "If a salesperson is any good, they pay for themselves and two other employees," said company CEO Kevin Jones.

Others decided that now was not the time to whittle down. Monroe Oxygen is spending more on education, software and new lines of business. They've added eight new staff and managers, new technology and made big investments in infrastructure, increasing costs substantially.

"Our rational is to expand our footprint in the business to increase sales and new (lines of business) as a way to position for the future," said company President John Belekkakan.