Survival of the fittest in the DME industry

Overview
As we all know, in an effort to reduce DME reimbursements, Medicare introduced the concept of the competitive bid. It forces all suppliers to submit their lowest bid for the category/price that Medicare would reimburse them. In 2011, CMS announced the start of the competitive bid for nine areas and specific medical equipment. In 2013, competitive bidding expanded into 91 different areas. Almost everyone in the industry assumes competitive bidding will expand to more areas and categories in the coming years. The competitive bid seems to be here to stay. The outlook for our industry, which used to be profitable, now seems pretty gloomy.

Effects
While the above may be all well with Medicare, DME suppliers are suffering. Medicare accounts for 65% of their reimbursements. Many are losing bids and literally going out of business. The suppliers who win have other issues. From talking to our DME provider clients and prospects, I realize that here are some of the challenges the industry faces.

– Companies who lost the bids are losing most of their referral sources and payer reimbursements.
– Companies that win don’t have the infrastructure to handle the workload and are backlogged and running inefficiently.
– Winners have narrower margins and find it difficult to be profitable.
– Winners are not delivering proper service to patients outside of their original territory.
– Audits are more frequent, requiring proper documentation, and causing more overhead.

Solutions
Upheaval calls for creativity and innovation. There are a few ways of dealing with this predicament. Either generate more revenue, cut costs, or both. Here are some methods I’ve observed that DME companies are adopting to cope with the crisis.

– Merging together to combine resources and referral sources.
– Stopping the acceptance of insurance and switching to e-commerce.
– More automated and paperless processes.
– Pursuing smaller claims instead of writing them off.
– Expanding into new bid categories with the hope of winning.
– Outsourcing billing/ordering functions to cut cost dramatically and increase efficiency.

Any company not implementing some or all of the above changes faces extinction. Any one of these changes can fundamentally alter the economics of a business.

In my obviously biased opinion, the method that seems to make the most impact is outsourcing specific functions in the ordering/billing processes. In the NY metropolitan area, DME companies who outsource tasks such as charge entry, eligibility checking, denial processing, or other functions, save at least $20,000 annually per employee. This allows them to cut overhead costs, go after claims that might not have been worth it previously, and shift more resources into sales and customer service.

I hope this perspective has been thought provoking. I welcome all your comments.

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Abe Weinberger