Show me the cost savings, please
Q: In your August Smart Talk column, you said you do not consider eCMNs one of the top cost saving opportunities for providers. What do you consider to be the top three cost saving opportunities available to providers?
A: It is said that bank robber Willie Sutton, when asked "Why do you rob banks?" remarked, "Because that is where the money is." HME owners are wise to take a similar view of expense management - spend your time looking where the money is. You'll find it mostly in two areas: people and inventory/equipment.
Personnel costs are the biggest controllable expense in an HME business and often when profitability is out of line, it is the result of having too many people. Getting your personnel headcount right is a big part of the battle; usually if there is an expense issue, headcount is too high relative to the revenues of the business. Making sure the staff is fully utilized, that they are spending most of their time on activities that add value, and that they understand what they are doing are all critical to effective expense management and, of course, to satisfying customers. When any of these elements are missing, the results will invariably show up in the P&L.
The cost of procuring inventory and equipment is normally the next largest opportunity. Concentrating purchases with fewer suppliers, participation in buying groups and eliminating excess and idle inventories are three common opportunities with respect to cost of product.
Finally, when considering opportunities for efficiency, HME owners can't ignore their billing function. Competent, well-trained people using updated technology to execute the billing function are efficiencies that pay big dividends to an HMEs cash flow.
Mike Mallaro is CFO for The VGM Group. He can be reached at email@example.com or (319) 235-7100.