Turnaround

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Monday, May 31, 2004

MORRIS PLAINS, N.J. - Within a year of Alliance Medical’s acquisition of AtHome Medical in May 1999, the company’s business skyrocketed, and soon too did its problems. At one point, for example, failure to bill the increased business in a timely fashion pushed the company’s DSO to almost 300 days. The industry average is about 85.

“The pain of bringing two cultures together and deciding what way is going to be the new way and creating this hybrid takes time,” said General Manager Tom Voorhees. “I can only imagine taking dozens of locations and playing this game.”

This month, AtHome Medical, the name the company settled on, moves into two new larger locations to accommodate its growth - one in Hackensack, the other in Morris Plains. The company’s now on solid footing, but it wasn’t easy getting there.

Before the 1999 acquisition, the two HMEs generated revenues of about $8 million apiece. The combined companies quickly pushed the revenue number to $20 million.

“The sales folks drove it hard, and the market responded well,” Voorhees said.

But while revenue jumped after the acquisition, the company’s rapid growth took its toll. AtHome’s DSO ballooned. Firing an outside billing company and bringing that work in-house didn’t solve the problem. Consolidating payroll, contracting and other business functions drove away some veteran employees who didn’t like the change. The company replaced them with new and relatively inexperienced staff. Tension mounted.

“You’d be heading out the door after work wondering if you’d have to put yourself on the market or down size - decisions that impact peoples lives,” Voorhees said. “We all got a little gray for a few months.”

Fortunately, AtHome Medical’s parent company - AHS Investment Corporation, an affiliate of Atlantic Health System - stuck by the struggling HME and provided financing to make the necessary changes. That made all the difference, said HME consultant Mike Barish, president of Ancor Healthcare Consulting.

“We’ve worked on several projects like AtHome Medical, and the thing that made this project one of the smoothest was management’s dedication to get it done,” Barish said.

As part of the turnaround, AtHome moved its business software to a bigger server. Processes that had taken five hours are now completed in five minutes. The company improved customer service by training employees in how coverage criteria differs among payers. To reduce its billing errors and denials, the company improved order intake by increasing its audit team from two to five people. The audit team confirms orders and makes sure they are appropriately documented

It took about nine months to implement all the changes, and most were in place by last September. The results: DSO has dropped to between 90 and 100 days; instead of closing out the month on the 8th to 10th day, they’re doing it on the 2nd or 3rd day; cash collected in the fourth quarter of 2003 was $1 million more than in the first quarter of 2003 when the project began.

With Medicare reimbursement cuts on the horizon, the turnaround couldn’t have come at a better time, Voorhees said.

“People who are going to make it and survive in this business going forward have to realize that there needs to be a painstaking attention to detail,” Voorhees said. “If you are at a bad point now, where will you be in eight to 10 months. I would advise immediate action.”

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