Is your service department profitable?

Thursday, January 7, 2010

CHESTERFIELD, Mo. - In the heyday of home medical equipment, providers rarely worried about the profitability of their service departments. Not anymore, especially when it comes to power wheelchairs, says Dick Fuller.

Fuller, who has 27 years of industry experience, mostly with power wheelchairs, started a consulting company recently to help providers restructure their service departments to make it easier to determine their profitability.

"I don't mean to imply that the way we used to run service departments was wrong," he said. "It's just that the business model has shifted. We used to make a pretty decent margin (selling equipment) and off of that margin, we made sure the customer was well cared for. We're dancing to a different tune now."

The power wheelchair market has been hit by reimbursement cuts totaling about 37% since 2006. As a result, providers are now worried about a lot, including their service departments.

Service departments should be separate departments with separate income statements, Fuller says. Right now, many service departments are not, making determining their profitability a hit-or-miss activity, he says.

"There are some shops that are closely modeled after other industries, like the car industry, where everything is in place, from benchmarking to financial accounting," Fuller said. "Then there are others where the repair techs just fix things and get paid. And then there's everything in between."

Once a service department has the right structure in place, all eyes turn to repair technician productivity, Fuller says.

"As I say that, it makes it almost sound like a witch hunt, like we're going to sort out repair techs on the basis of who slams out work as quickly as possible," he said. "There are many nuances to determining productivity, but it's still the No. 1 issue. Providers need to know the percentage of a repair tech's time that's being billed to one source or another."

When it comes to running profitable service departments, of all providers, power wheelchair providers have their work cut out for them, Fuller says.

"With power wheelchairs, two things stand out," he said. "First, it's the technical complexity of the product--often it's a blend of various components from various manufacturers; second, because the equipment is so specifically designed for an individual, making a loaner not readily available, it's getting a quick turnaround, but in a cost effective and quality manner."