Reimbursement worries spur resurgence in ABC

Monday, March 31, 2003

YARMOUTH, Maine - For some very obvious reasons, activity based costing has surged in popularity among home medical equipment providers.

“I think it’s driven by the anticipated contraction in reimbursement,” said consultant Wallace Weeks of The Weeks Group, who’s experience his “heaviest” speaking schedule on this topic in a long time.

Name your poison: national competitive bidding; inherent reasonableness; proposed changes to the average wholesale pricing methodology; increased privatization of Medicare. There’s no shortage of proposals confronting HMEs, and no better time for providers to get a true picture of their costs and how they want to allocate their resources going forward, say industry watchers. In a nutshell, ABC allows a company to better allocate its resources by examining all the costs (overhead, billing, customer service, etc.) associated with providing a given product or servicing specific customers and payer sources.

National Home Health Care in Amarillo, Texas, kicked around the idea of doing ABC a long time before finally getting around to it last fall.

“(ABC) helps you eliminate excess process from the system and that’s important because we don’t see revenues going up for our industry,” said David Gadry, sr. vp and CFO.

The results confirmed what the company already suspected: that to be more profitable, it needed to de-emphasize - but not eliminate -  its one-stop-shop model and allocate more resources to its oxygen business, Gadry said.

ABC also forced the company to measure the effectiveness of its business activities. For example, since conducting the analysis, National Home Health Care has created a dedicated group of intake specialists, removing that task from the hands of its salespeople. By improving intake, National hopes to see fewer denials, better cash flow and less debt, Gadry said.

Of course, there are many things a company can do to save money that could cost it in the long run, Weeks cautioned.

“The first rule of redesigning a process is making the process a delight for the customer,” Weeks said. “You can put an automated phone system in, but if it doesn’t delight your customer, and it if causes your customer to hang up before he talks to anyone, did you really do anything effective.” HME