Will you survive competitive bidding? This information will help provide the answer

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09/21/2010

Yesterday, I called Karen Moore for some information on revenue per full-time employee for HME companies. Karen is a turnaround expert and a partner at AnCor Healthcare Consulting. I called Karen because in our 2010 Financial Benchmarking Survey, the number of providers with revenue per FTE of $150k  or more decreased significantly in 2009. That's not good, but don't take my word for it. Here's what Karen had to say on this very important topic:

As you know, revenue per employee is a key measure of operating efficiency.  The higher the company's revenue per employee, the better their profits typically are. There are, of course, other factors, but if you take two companies with comparable payer and product mixes and collection ratios, the company with the higher revenue per employee will likely generate the higher profit regardless of most other factors.  True, equipment acquisition and other operating costs influences profit but not to the extent that revenue per employee does. For this industry, companies generally want to have a revenue per employee of $165,000 or higher.

The revenue per employee for most companies has been increasing despite and also because of reimbursement reductions.  Most companies that haven't been able to increase their revenue per employee are no longer profitable.  One notable exception would be Lincare, whose 4th QTR 2008 revenue per employee was $167,000 and whose revenue per employee today is $165,000.  It's no coincidence that Lincare's profit dropped from $2.07 a share in 2008 to $1.34 a share in 2009.  Rotech and American HomePatient also have made only marginal improvements in their efficiency and without dramatic changes in payer/product mix and additional operating efficiency these companies are not going to be around for long. Rotech's revenue per employee for 2nd QTR 2010 was $130,000.

From my experience, some of the midsized companies ($10M to $50M) have done the best job improving their revenue per employee and overall operating efficiencies and may be best positioned to deal with competitive bidding and additional reimbursement cuts.

I think that is what they call food for thought.

Mike Moran