2016 hme business playbookplaybook.vgm.com/documents/rural.pdf · 2016-02-23 · 3 2016 hme...

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2016 HME Playbook | Market Trends and Drivers – Understanding the Landscape

2016HME BUSINESSPLAYBOOK

Brought to you by VGM Group, Inc.

Version 1.0 - Original Metropolitan Bidding Areas

Market Trends and Drivers – Understanding the LandscapeAn Aging and Ailing Population Needs HME ................................................................4

Customer Experience & Paying Out-of-Pocket ..............................................................5

Lack of Cybersecurity is a Liability .................................................................................6

Data: Be Transparent and Use It to Your Advantage .....................................................6

Partner to Win – Collaborating Efforts .........................................................................7

Additional Trends and Drivers to Know ........................................................................7

New Business OpportunityShift Your Business to the Non-reimbursable Space .....................................................9

New Reimbursable Products and Categories ................................................................9

Additional “New” Opportunities ..................................................................................9

The Market is Ripe – Ways to Build New Customers ...................................................10

Product Life Cycles – New Innovation is Necessary .....................................................11

In Focus: Using Data for New Business Growth Case Study ........................................11

In Focus: Retail Science ..............................................................................................12

In Focus: Outcomes Measurement .............................................................................13

15 Products You Should Try in 2016 ...........................................................................14

Strengthening Core BusinessBuilding Differentiation ..............................................................................................16

Analyze Your Business Operations ..............................................................................16

P.S. Don’t Forget to Measure Results ..........................................................................17

Plug into Technology ..................................................................................................18

Swap Best Practices with Industry Peers .....................................................................18

Rationalize CostsKnow & Track Your Numbers ......................................................................................20

Look for Cost Reduction Opportunities ......................................................................21

Competitive Bidding in 2016 and Beyond: Information for Original Metropolitan Bidding Areas

Competitive Bidding Timeline ....................................................................................22

Getting Back Into Contracting - Q&A from CMS ........................................................23

Meeting Financial Standards ......................................................................................25

Definitions You Need to Know ...................................................................................26

Other Ratios Not Included in the CBIC Evaluation ......................................................27

Improving Your Chances ............................................................................................28

Important Information about Medicare Part C Plan ...................................................29

Table of Contents

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Market Trends and Drivers - Understanding the Landscape

The HME industry is experiencing reimbursement challenges, but market trends show a promising future for businesses that are willing to change their models to accommodate the wants and needs of the modern health care consumer. Successful businesses will find the way to be the solution consumers seek.

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An Aging and Ailing Population Needs HMEThe demographics of aging are changing dramatically, most notably the rapid growth of the baby boomer generation. The “boomer” population, born between 1946 and 1964, is projected to rise significantly and steadily until the year 2030, creating excellent opportunity for HME businesses.

1990 2000 2010 2020 2030 2040

20

40

60

80

100 Projected

Millions

Population age 65 and over

U.S. Census Bureau

Paired with the growing aging population is an increased incidence of chronic illness.

The most frequently occurring conditions are hypertension (71%), arthritis (49%), heart disease (31%), cancer (25%) and diabetes (21%). Additionally, 38 percent of people aged 65 and over are obese, an increase of 16% since the late eighties. Eleven million Americans have COPD, but an estimated 24 million may have the disease without knowing it.

of individuals ages 50-64 suffer from at least one

chronic health condition.

According to the Center for Disease Control

Hypertension Arthritis Heart Disease Cancer Diabetes

Clearly, the next 25 years are a golden age for HME businesses to thrive.

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Customer Experience & Paying Out-of-Pocket

KEY INSIGHTS

The baby boom generation will be spending money out-of-pocket to get the health care services they need.

They are savvy internet users.

The 50+ population accounts for 42 percent of all after-tax income and account for half of all consumer spending.

According to the Pew Internet and American Life Project, 89 percent of boomers seek health information online and 69 percent purchase products online. They want to “do it themselves” and will seek all of the resources available to do so, including apps and devices that help them to track their health. In a study survey of physicians conducted by PricewaterhouseCoopers’ Health Research Institute, half of physicians said they would be comfortable using data from a mobile device to determine if a patient should be seen in person or prescribed education. Ninety percent of respondents predicted that apps and mobile devices would be more important to their practices in the next five years.

As a customer base, boomers will be more sophisticated than ever before, looking for quality products, good prices and a variety of options to choose from.

Keys to capture this market will be:

• Product selection• Expertise• Staff abilities to provide solutions for needs• Customer experience

Focus on complete product packages to increase ticket sales. Work to build a trusting relationship.

In 2016, you must position your HME to offer the “shopping” experience customers seek. Remember the baby boomer mentality in all your marketing efforts; they feel they will never grow old, and they will not be sick!

Jim GreatorexVGM Retail

A first simple step is to arm your showroom or e-commerce site with caretailing products that address the multiple needs of a patient or caregiver. The product categories that are presenting the best retail opportunities are the non-pharmaceutical pain relief products and all options in the ever-more mainstream compression wear lines. With the right people in place, many caretailers should be profitable in six to nine months.

Caretailing: the act of providing customer service and expertise to consumers willing to pay cash for health-related products that improve their lives and are beyond the usual scope of Medicare and other third party payers.

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Perhaps the products you provide allow for personalization of color, patterns and style. Focusing on the details can improve customer experience, which will add up to more sales and traffic flow through your store or website. And when it comes to marketing your website, website marketing and analysis should be a major focus and investment. Optimize your online marketing to target females between the ages of 35 to 60.

Lack of Cybersecurity is a Liability

The online and convenient shopping experience is what savvy customers expect today. This will only increase as boomers have more health needs as they age. As your company dives into the new world of HME e-commerce, make sure you’re investing in the security and protections needed to protect your business and remain compliant. Data from the FCC shows the average cost of a cyber attack on a small to medium-sized business is $188,242. However, 67 percent of small to medium-sized businesses do not use web-based security, 61 percent do not use antivirus on all computers and 47 percent do not use security on mail services. All of these attacks compromise privacy and add up to liability for business, which can be protected by online security measures and cyber liability insurance.

Breaches such as the malware attack on Target’s 40 million customers resulted in a 46 percent drop in profit and a $10 million lawsuit by shoppers.

The average cyberattack on a small to medium-sized business costs $188,242.

Protect yourself.

Data: Be Transparent and Use It to Your AdvantageSavvy health care consumers are also learning to expect reviews and results of how your business cares for customers. They expect transparency in processes and outcomes. As other health care institutions will be forced to collect and make this information public, it may become more regular for patients or caregivers to expect it from their HME providers as well. Can you start to survey patients to determine how your services increased their quality of life? Are there ways you can gauge customer satisfaction from beginning to end? Not only can you use the results to market your business, you can also use what you learn to improve processes and customer service.

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Partner to Win – Collaborating EffortsHealth care reform at the state and national levels is changing the way Medicare and Medicaid are administered. To accommodate the change, health care businesses are seeking out partnerships to operate more efficiently, lower risks and provide more innovative products and services. Forty percent of Fortune 50 health care companies pursued new partnerships in 2015, and the number is expected to grow.

In addition, more people will be covered by insurance, providing opportunity for many health care providers. But, the government is picking winning and losing insurers, locking out insurers and the preferred providers connected to them. The panel of providers allowed by insurers is narrowing as well, fueled by consolidation and a push to lower reimbursements.

A relatively few insurers now control 68 percent of health care patients and dollars, shifting by 22 percent in just 10 years. The Aetna/Humana and Anthem/Cigna mergers will take on United Health Group’s $130.5 billion hold on the market. Humana is now the most widely available Medicare Advantage option nationally, and the combined Aetna/Humana company would have 4.34 million Advantage members. The Anthem/Cigna company has 1.1 million Advantage members.

In 2016, finding ways to stay in network will be crucial for health care providers of all types.

Dave KazynskiPresident of HOMELINK

Additional Trends and Drivers to KnowCollecting patient pay up front, millennial expectations (born between 1982 to 2004), patient centricity, increased use of convenient care, decreased inpatient care, increased deductibles and competition for physicians.

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2016 HME Playbook | New Business Opportunity

New Business Opportunity

HME businesses must be adding elements of “new revenue” at all times. New growth is not accidental but an intentional effort that is always at the forefront of strategy, planning and day-to-day operations. A rule of thumb is to target 5 percent of revenues annually from new business opportunity.

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Shift Your Business to the Non-reimbursable SpaceMake “new” and “growth” intentional by shifting your business to the non-reimbursable space. Lift chairs, active and sports compression, non-pharmaceutical pain relief products, healthy and comfortable footwear, mobility and home safety are all non-reimbursable items that add value to your showroom and drive new revenue for your business. With cash becoming a prominent payer for health care, your business must focus on marketing direct to the consumer. HME providers are hiring or assigning dedicated retail marketing managers more than ever before. This should be one employee who manages all things related to retail products and operations within the store. Not only should this person have the people skills to earn trust of co-workers and customers, he should also have knowledge of visual merchandising, product adjacencies, inventory control and sales reporting.

New Reimbursable Products and CategoriesNew products and categories in the reimbursable product space are another significant opportunity. Grow cash sales from consumers or families by offering a better, more effective or more attractive reimbursed item. Think of better wheelchairs, features that break down barriers, items to be used in second residences, portability, convenience, accessories or items that relieve pain. Inspiring creative ideas that help caregivers and patients solve problems is by nature the definition of caretailing and should be added to your yearly strategy to grow business. To have the most success in this strategy, as an industry we must negotiate upgrade clauses into our payer contracts. The payers, who in most cases pay at the hamburger level for product quality, must allow their members to upgrade to filet mignon.

AdditionaL new opportunities

Branches – With solid core processes in place, look for ways to get bigger and expand your geographical footprint. Repeat what you do best in neighboring regions.

Referral Sources – Grow your referral source contacts efficiently by forming a strategic sales plan that utilizes data to target the right providers. Build sales call routes that will produce better contacts with more volume potential.

Networks – Research local and regional networks for access to narrowing insurance panels. Address the trend in your strategic planning by building personal relationships with key payers in your region.

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Home InfusionThe health care market is full of possibilities to build new customer bases, requiring a more significant change to business and long-term planning. Would your business benefit from joining the home infusion market? Cost containment and clinical administration trends will continue to expand infusion to the home or alternative site setting. Currently no individual provider holds more than 10 percent of market share, fostering a competitive environment for growth. Independent providers comprise 74 percent of the market.

OtherIndependents

CVS, Coram

Walgreens,Option Care

Express Scripts, Critical Care Systems

Bioscrip

Harris Williams and Company – Home Infusion Industry Overview

Home Modifications

What about the possibilities of getting into home modifications? Ninety percent of those 50 and older want to stay in their homes as long as possible, and 80 percent say their current home is where they want to live. Aging in place remodeling is a $30 billion market; accessibility equipment is a projected $5-7 billion market.

O&PResearch also shows growth for the prescription-based O&P market, despite reimbursement challenges similar to our own. The report, U.S. Markets for Orthotic and Prosthetic Devices 2014, from Decision Resources Group, shows growth until 2022 due to conditions such as arthritis, orthopedic soft tissue damage, diabetes and peripheral artery disease.

New HME CustomersOr, build new customers without leaving the HME market.

Nursing homes

Senior living facilities

Schools for children with disabilities

The Market is Ripe – Ways to Build New Customers

of the revenue growth is predicted to be in orthotic devices such as prescription braces.

More opportunities

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Product Life Cycles – New Innovation is NecessaryNew growth is necessary at the juncture where the modern health care system and consumer demands meet with HME. Many core HME products are in a mature portion of lifecycle or beyond, at a point where profit margins will fall drastically. How can you introduce new, innovative products to your customers? They have always been a key part of the successful HME story and will continue to be a major revenue driver for the industry. Noninvasive ventilation and chest compression technology are two examples where we’ve seen innovative products and growth in the recent years.

Product Margins

Profit Contribution

In Focus: Using Data for New Business Growth Case StudyCLICK TO VIEW

Product Life Cycle Economics

Rev

enu

e

Time

http://marketing.vgm.com/acton/attachment/10445/10445:f-0367/0/p-003e/-/l-01ac/l-01ac:0/?sid=ipsfw97Zd

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In Focus: Retail ScienceToday’s HME market is flooded with competition. We’re being squeezed into a changing industry with some very big players. Being the underdogs in this evolving market, how do we stand out in the crowd and provide our customers with something the big players can’t match?

Retail is about constantly responding to trends, inventory turns and sales demands. It’s about changing your offerings to satisfy continually evolving customer wants and needs. In order to be successful, retailers must know how to track and analyze data and implement changes based on the trends.

Retail science does not have to be complicated. In our case, it is as easy as combining the six fundamental elements of retail so that they work together holistically to help you build and maintain a successful retail business.

Business analysis – Analysis of overall business operations, identifying strengths and weaknesses and identifying solutions to grow profit.

Financial projection – Create a financial dashboard to track performance, project patient purchases and average ticket, and project transactions and average ticket for organic growth.

Marketing – Analyze current marketing and room for growth, create an 18-month plan, set expected outcomes and track results.

Store Experience and Design – Assess the current showroom, reconfigure existing space, update materials, paint, signage, fixtures and more.

Products – Analyze current product mix and opportunities for expansion, manage inventory, and determine product placement and merchandising needs.

Operations – Hire or reassign a retail manager, create a companywide incentive program, track sales, manage inventory and conduct caretailing training.

6 Fundamentals of Retail Science

Achieving these retail core competencies create the showroom experience that customers seek in today’s health care environment. Customers are ready to spend money on a number of caretailing items that will increase your revenue, including high-quality products, holistic and all natural products, comfort items, accessories, athletic performance products, safety products and more. Have you positioned your company to provide for these demands?

Many HME have showrooms that have underperformed due to lack of a true retail program being implemented. Resources are now in place that can assist all providers in building diversified cash flow in this underserved, entrepreneurial caretailing opportunity.

For more information, contact VGM Retail Scientist Rob Baumhover at [email protected].

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In Focus: Outcomes Measurement

Outcomes measurement is the collection of reliable, clinically meaningful, evidence-based data that can be used as a sales or marketing tool to partner with hospitals, health systems or payers that are seeking to reduce costs and avoid readmissions.

The health metrics they seek include compliance rates and programs for patients, timely delivery for discharges, length of stay by disease state and readmission rates as they relate to transitional care. In addition to this clinical data, there may also be value to collecting quality-of-life data from the patients under your care. The data, which is collected by means of consumer-centered surveys over a period of several months, helps business owners better understand the costs and benefits of providing quality care with high levels of consumer satisfaction.

Outcomes Measurement MattersThe health care system as a whole is shifting business models to reflect outcomes-driven decision making, but as of now, no government entities are requiring medical equipment providers to participate. Measuring outcomes is a valuable proposition for your business, and here’s why.

Health care regulations are shifting to evidence-based outcomes. Throughout the health care system, the government is requiring evidence-based outcomes data to participate in accountable care organizations. The government and other health care entities are speaking a new language. By implementing outcomes measurement, HME providers maintain clinical relevancy and have evidence to prove value to policymakers when funding or access to HME are on the chopping block.

Today’s health care market expects measurable outcomes. HME providers that demonstrate consumer outcomes will gain a competitive advantage over those who choose to work under the status quo. Presenting outcomes data to physical therapists, hospital discharge planners and health system decision-makers will aid your communications and marketing, making your business a more attractive partner. Information related to rehabilitation, recovery, aging, disability and ongoing quality-of-life issues are all included in the measurements.

Consumer-driven outcomes build relationships and show value to customers. Providers can position their businesses as patient-care experts by clearly defining the clinical delivery process and strategy to reducing readmissions and co-morbidities for better customer satisfaction. Outcomes measurements are consumer-driven. Providers demonstrate superior care with an emphasis on proven results using a systematic approach. In addition, by monitoring consumer outcomes, providers can suggest future products and services to avoid adverse conditions.

Outcomes knowledge allows for implementation of improvement plans starting from any level. Collecting outcomes data allows managers to analyze and compare datasets to identify problem areas and propose solutions. With guidance from experts, providers can implement a variety of solutions and, over time, form best practices that are evidence-based.

Now is the time to persuade decision makers to include HME in the larger health dataset.

John Gallagher Vice President of VGM Government Relations

Using outcomes measurement, providers can improve efficiency and enter marketing and policy discussions from a position of strength. We all know that healthy consumers are happy consumers. When measuring outcomes, all parties, including patients, providers and the health care system, benefit. Being able to identify and quantify outcomes can not only improve the quality of care delivered, but will provide evidence-based data for the new value-based world of health care.

For more information, contact Dave Lyman, vice president of VGM Outcomes at [email protected].

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15 Products You Should Try in 2016 Rifton Tram - A transfer and mobility device designed to deliver three powerful functions in one compact unit: gait training, sit-to-stand transfers and seated transfers.

Deroyal Continuum - An intelligent inventory management system used to dispense high quality orthopedic softgoods and bracing to patients in outpatient settings.

Philips Dreamwear Under the Nose Nasal Mask - A unique design that offers many of the benefits of nasal and pillow masks to allow patients to have the best of both mask types, allowing more freedom of movement and more comfort than their prescribed mask.

International Biophysics Corporation Afflovest – A portable high-frequency chest wall oscillation vest that promotes airway clearance and improvement of bronchial drainage.

Vionic Shoes – Stylish shoes with innovative orthotic technology that helps align the feet from the ground up.

Incrediwear Knee Sleeve – A therapeutic fabric knee brace infused with circulation-enhancing natural elements that can help accelerate recovery and alleviate pain.

Topricin Pain Relief Cream – Pain relief cream formulated without parabens, petroleum or other harmful ingredients.

Comfort Tek Royal EZ Swivel Chair – A discreet swivel chair that enables a caregiver to gently move a seated person to and away from a table.

DVTlite, Medline, Medtronic - Wireless pumps that mimic the body’s venous system, preventing blood from remaining still and clotting.

S3 Sleep Solutions Services - Manage CPAP compliance and reporting using multiple levels of technologies to engage patients with PAP therapy consisting of text message, email, life call and smartphone applications.

DeRoyal or Medela NPWT – Therapeutic negative pressure wound therapy units.

Better Rest SoClean – Automated CPAP cleaner and sanitizer that kills germs and bacteria in a mask, hose and reservoir.

Frozenpeaz – Hot pack and ice pack therapy products developed for serious injuries, post-surgery recovery, sports related injuries and chronic pain.

ING- Orthosleeve Compression Foot Sleeves – Compression foot sleeves for plantar fasciitis and other foot pain using medical grade compression.

Live at Home Pro Mobile App – An app to complete home assessments, make recommendations and securely communicate and integrate results to customers and the office from one location.

http://www.rifton.com/products/lift-and-transfer-devices/rifton-tram

www.vgm.com/files/vendor/DeRoyalvideo.mov

http://www.usa.philips.com/healthcare/product/HCNOCTN452/dreamwear

https://www.afflovest.com/

http://www.vionicshoes.com/

http://incrediwear.com/products/incrediwear-braces/knee-brace-w-germanium.html

http://www.topricin.com/

http://comfortek.com/seating/assisted-living/titan/royal-ez?st-t=adwords&vt-k=%2Broyal%20%2Bez%20%2Bchair&vt-mt=b&vt-ap=1t1&gclid=Cj0KEQiA5dK0BRCr49qDzILe74UBEiQA_6gA-kNBKn7CFqr8qEWhFWinJjP14vP_-QtzH84b0_4I894aAubK8P8HAQ

http://www.dvtlite.com/

http://www.medline.com/product/Home-DVT-Pump/Pumps-Accessories/Z05-PF103809?question=MDSDVT51000&index=P1&indexCount=1

http://www.covidien.com/vascularcompression/pages.aspx

http://www.s3sleepcoach.com/

http://www.deroyal.com/medicalproducts/woundcare/product.aspx?id=wc-npwt-units

http://www.medela.com/US/en/healthcare/products/negative-pressure-wound-therapy.html

https://www.betterrestsolutions.com/soclean/

http://frozenpeaz.com/

http://www.orthosleeve.com/shop/fs6-compression-foot-sleeve/

https://www.liveathomepro.com/

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2016 HME Playbook | Strengthening Core Business

Strengthening Core BusinessHME business growth requires a firm foundation rooted in business fundamentals. Dedicating time for reflection, goal setting and operations analysis will plug the leaks and propel your business forward to achieving success.

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Building DifferentiationDevelop a clear value proposition within your core business that helps you to differentiate from the competition. A value proposition is defined by Forbes contributor Michael Skok as “a positioning statement that explains what benefit you provide for who and how you do it uniquely well. It describes your target buyer, the problem you solve, and why you’re distinctly better than the alternatives.”

What business sets your business apart from the rest? If you haven’t taken the time to develop your value proposition, do so soon.

We have They have

Better equipment

Convenience

Data for payers

Better outcomes

Managing a condition or disease state

Flexible hours of operation

Greater speed

A hold on important referral sources

Analyze Your Business OperationsIn general, health care businesses struggle with operations due to the complexities of serving unique patients and differentiating between clinical and business processes. This makes an operations analysis of your company even more vital to curb inefficiencies and plug revenue leakage. A complete business analysis of all functions is a cumbersome project. So focus on the layers and functions that are most directly related to your value proposition or original business plan. Start by identifying what your analysis will include and then develop a timeline. Your long-term timeline may include your intentions to conduct several analyses, while a short-term timeline will more specifically address the steps you want to complete for full analysis.

Start with an analysis that is easier to accomplish so that you and your staff are motivated to continue the improvements. Then move on to the ones you predict will show the greatest improvement in revenue or employee or customer satisfaction.

Clint GeffertPresident of VGM & Associates

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Consider beginning the process by issuing a questionnaire to employees or customers. You may need to interview employees individually to understand the processes you’re not tasked with on a daily basis. Or, you may find that information to examine your processes isn’t currently available because you’re not tracking enough information. The initial steps of developing a timeline to collect information for analysis will help you to identify potential problems and their source and then find practical solutions.

The solutions may be to change the way staff members do daily tasks, find a way that technology can help or to outsource the work to a business with expertise to work more efficiently.

Key Areas Worth Your Evaluation:

• Quality of care assessment – health metrics of patients

• Staff competency evaluation

• Cost per unit per patient

• Billing and reimbursement audit compliance program

• Business planning and development

• Customer service, speed and responsiveness

• Human resources and internal grievance resolution

• Business intelligence and technology

What processes can you work to improve in the coming year? Develop a plan to analyze your operations and make room for improvements throughout the year. When doing so, differentiate between clinical protocol and optimizing operations.

P.S. Don’t Forget to Measure ResultsAn important component of your operations analysis is measuring results, both in the short-term as you work your way through analyses and in a long-term sustainable way. Internal process metrics should align closely with strategic goals in order to best support the goals. While it’s common to include end-result measures such as financial metrics or inventory turns, it’s important to consider a current-metrics review of processes that may be more difficult to quantify. This could include customer profile accuracy, staff competencies or work flow as examples. Input from the management team or top-level staff will be key to identifying what these metrics may be.

What’s most important is that the metrics are trackable. As you develop your operations analysis, keep in mind that the tracking devices you create will be used into the future to monitor progress and aid in future improvement.

Scott OwenVice President of Sales, VGM & Associates

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Plug into TechnologyYou’ll find in your operations analysis that optimizing technology might be the solution to improving the way you do things and increasing revenue. From the way we use big data to targeting physicians to automatic inventory management, high-tech solutions for HME business challenges are on the rise. Your operation analysis can help you determine if the leap to a technical solution adds up.

Does your customer relationship management (CRM) system integrate with your electronic health records? Does your CRM identify top referring physicians and facilities? Today’s integrated systems allow HME providers to do both of these in the click of a mouse.

Here are more ways to use technology:

• Customer relationship management

• Billing and operations systems

• Online payment management

• Cybersecurity

• Fleet management

• Paperless office

• Automatic inventory management

Swap Best Practices with Industry PeersAt VGM we believe that one of the best ways to discover best practices is by fostering open discussions with your peers in the industry. Are you taking the time to attend industry events and meetings such as Heartland, Medtrade or state association events? Yes, the events are created to offer you and your staff great educational opportunities. However, the social events and open discussions are meant to allow you the time to meet with HMEs of many sizes from around the country. It’s your opportunity to discuss how to overcome business challenges and grow your business in new ways.

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2016 HME Playbook | Rationalize Costs

Rationalize CostsSimply put, your cost structure must be aligned with the gross margin dollars generated in your business model. Broadly speaking, HME businesses historically operated with the benefit of relatively high gross margins. Naturally, relatively high cost structures evolved as providers competed mainly on service. Declining reimbursements have changed this dynamic. Accordingly, providers must re-evaluate their operations and in most cases reduce certain elements of their cost structures in order to optimize profitability.

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Know and Track Your Numbers

The owner and the senior managers must know the numbers. You must understand the financial performance metrics of your business. We call these “Key Performance Indicators” (KPIs).

Mike MallaroVGM CFO

You should:

Identify KPIs for your business.

Understand the KPI results for your business - past, current, trend and other comparable entities.

Base decisions on quantitative data, not just gut feel.

Seek out data when assessing and solving a problem, not just anecdotes.

Set targets for KPIs and track progress over time.

KPIs to Consider

Personnel costs as a percentage of revenue

Branch operations costs as a percentage of revenue

Cost of goods/products as a percentage of revenue

Days to: bill, collect, deliver

Per unit cost on key activities: intake, billing a claim, delivery, sales/business generation

Key volume metrics, such as masks per patient per year, percentage of orders filled, accessories as a percentage of base

Revenue per patient

Lifetime value of a patient equipment type

TIP: Generally think percentage or per unit measure in your KPIs

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Look for Cost Reduction Opportunities• Understand what is high value to your cash flow and your customer. Stuff that’s not in that bucket is where to

focus.

• Say “no” to some things.

• Look at cost reduction as a journey over the next 18 months. Some cost decisions become less daunting if looked at over a longer time horizon.

• But, once you make tough decisions, act on them quickly.

• Keep emotions out.

• With some items, it makes sense to start from a “zero” base.

• Don’t use “peanut butter” – you shouldn’t be cutting everything, nor should you be cutting evenly.

• If an activity is not central to your core, you should consider outsourcing opportunities. Often someone with greater scale can perform the function at a significantly lower cost.

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2016 HME Playbook | Original Metropolitan Bidding Areas

Competitive Bidding in 2016 and Beyond: Information for Original Metropolitan Bidding Areas

Competitive Bidding Timeline December 31, 2016: Round 1 recompete contracts expire.

March 15, 2016 (estimated): CMS announces single payment amounts, begins contracting process.

April 15, 2016 (estimated): CMS announces contract suppliers, begins contract supplier education campaign.

April 15, 2016 (estimated): CMS begins supplier, referral agent and beneficiary education campaign.

July 1, 2016: Implementation of Round 2 recompete and the national mail-order recompete contracts and prices.

December 31, 2018: Contracts expire (program ends).

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Getting Back into Contracting - Q&A from CMSSubcontracting

VGM offers a Microsoft Word Subcontract Template that has been created specifically to address CMS’ particular rules and requirements for HME competitive bidding. This template is for use by medical equipment suppliers who wish to get involved in the competitive bidding process but who will need assistance in order to supply fully the entire Competitive Bidding Area (“CBA”).

Many contract suppliers will need subcontractors to help them fulfill their responsibilities under the competitive bidding contracts. For example, a contract supplier that expects a growth in business due to being awarded a competitive bidding contract may want subcontracts in place to ensure prompt delivery of items to Medicare beneficiaries. At the same time, the Competitive Bidding Implementation Contractor (CBIC) has issued guidelines on subcontracting that contract suppliers need to follow to ensure compliance with the competitive bidding contract. This presentation is set out in a “Q&A” format.

Q1 Is a contract supplier required to disclose its subcontractor arrangements?

Yes. There is an initial and subsequent disclosure requirement. Not later than 10 days after the date a supplier enters into a competitive bidding contract, the supplier must disclose information on (i) each subcontracting arrangement that the supplier has in furnishing items and services under the competitive bidding contract; and (ii) whether the subcontractor is accredited or exempt from accreditation. Once a supplier is in a competitive bid contract and the supplier enters into a subcontract arrangement, then, not later than 10 days after entering into such arrangement, the supplier must disclose information on (i) the subcontract arrangement that the supplier has in furnishing items and services under the competitive bidding contract; and (ii) whether the subcontractor is accredited or exempt from accreditation.

Q2 What services may a subcontractor perform?

Under current guidance, a subcontractor may perform the following services: (i) purchase of inventory; (ii) delivery and instruction; and (iii) maintenance and repair of rented equipment. The CBIC has stated that a supplier may not subcontract for the following services: (i) intake and assessment; (ii) coordination of care with physicians; (iii) submission of claims on behalf of beneficiaries; (iv) ownership and responsibility for equipment furnished to beneficiaries; and (v) ensuring product safety. A supplier may not subcontract with an entity or person that is excluded from Medicare, a state health care program or any federal government executive branch procurement program or activity.

Q3 What does “purchase of inventory” mean?

Subcontracting for the purchase of inventory means that a contract supplier may have a contract to purchase inventory from a third party. The supplier must have title to the equipment when it is furnished to the beneficiary. According to the National Supplier Clearinghouse (NSC), the contract must contain at least the following elements: (i) the signature of both parties; (ii) a credit limit (“cash on delivery” is not acceptable); (iii) credit terms (net due); (iv) both parties are identified; and (v) effective date for the contract (if the contract is to last indefinitely, then it should so state). There is no minimum credit limit, but the NSC will be looking for a reasonable credit limit. The NSC includes the following example as an unreasonable credit limit:

If a supplier provides electric wheelchairs and the supplier only has one wheelchair in stock and submits a contract for $500 in credit, this would not show compliance with this standard. Due to the cost of electric wheelchairs, this supplier does not have sufficient inventory in stock nor does the supplier have a contract to show enough inventory can be purchased to fill beneficiary orders.

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Q4 May a supplier use a billing contractor to submit claims?

Yes. A supplier may use a billing contractor to submit claims on behalf of the supplier. Also, when a beneficiary requests that the supplier submit a claim on behalf of the beneficiary, the supplier may use its billing contractor to submit the claim. The CBIC has stated that a billing contractor is not considered a subcontractor under its subcontracting guidelines.

Q5 Do subcontractors need to be accredited?

It depends. A subcontractor that only performs the “purchase of inventory” service need not be accredited. A subcontractor that only delivers the item (such as UPS or FedEx) need not be accredited. Similarly, a subcontractor that only repairs equipment that a supplier is renting to a beneficiary need not be accredited. A manufacturer that performs warranty repairs need not be accredited. However, a subcontractor that performs equipment set-up or patient instruction must be accredited unless the subcontractor is exempt from accreditation under Medicare rules or guidelines. Also, a supplier that is enrolled in Medicare as a DMEPOS supplier and performs subcontracted services must be accredited, unless the supplier is exempt from accreditation. All suppliers enrolled in Medicare as a DMEPOS supplier are required to be accredited. The NSC takes the position that the exemption only extends to the normal scope of services for the supplier, and any products or services provided outside the normal range of services will require accreditation.

Q6 Do subcontractors need to have surety bonds?

It depends. A subcontractor need not have a DMEPOS surety bond, unless it is enrolled in Medicare as a DMEPOS supplier. All DMEPOS suppliers are required to submit a valid surety bond to the NSC.

Q7 Is a supplier responsible for services performed by a subcontractor?

Yes. The CBIC has stated, “The primary suppliers are accountable for ensuring that all of the services associated with furnishing the item, including subcontracted services, are performed in compliance with the physician’s order and Medicare rules and guidelines.” The “primary supplier” is the supplier that is enrolled in Medicare as a DMEPOS supplier and bills Medicare for reimbursement of the item or service furnished to the beneficiary.

Q8 Can a contract supplier simply refer a beneficiary to a subcontractor if the contract supplier chooses not to carry certain items within a product category?

A subcontractor may perform only certain services on behalf of the supplier, and the subcontractor may not simply “take over” the patient. The CBIC’s response is somewhat confusing:

Contract suppliers are required to provide all items within a product category. However, as with any Medicare enrolled supplier, a supplier may subcontract for the purchase of inventory, delivery and instruction on the use of an item, or the maintenance and repair of rented equipment. Therefore, a contract supplier may subcontract for the purchase of inventory from a subcontractor and for the delivery and instructions on the use of the equipment. In accordance with the quality standards and the supplier standards, it is expected that beneficiaries and referral agents will communicate with the contract supplier when arranging for DMEPOS items and services. Also, remember that contract suppliers are 100% responsible for services furnished to beneficiaries and that subcontractors can’t do everything. In its response, the CBIC enumerates the services that a subcontractor may perform but then vaguely limits the subcontractor by stating that “subcontractors can’t do everything.” To some, such a statement might suggest that a subcontractor could do “close to” everything, but that would not be consistent with other subcontracting guidance.

Access the Subcontracting Packet by clicking here.

http://marketing.vgm.com/acton/attachment/10445/f-09a4/1/-/-/-/-/SubcontractPacket.pdf

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Meeting Financial StandardsFinancial Measures

The competitive bidding law and regulations specify that CMS may not award a competitive bidding program contract to a supplier unless that supplier meets applicable financial standards. Applying financial standards to suppliers is needed to assess the expected quality of suppliers, estimate the total potential capacity of selected suppliers and ensure that selected suppliers are able to continue to serve market demand for the duration of their contracts.

The Request for Bids (RFB) Instructions specifies the financial information used to evaluate suppliers’ financial health. CMS uses the required tax and financial documents to calculate standard accounting ratios for each bidder.

The following financial ratios will be used for the DMEPOS Competitive Bidding Program competition:

•Return on Sales = Net Income (Loss)/Annual Net Sales

•Current Ratio = Current Assets/Current Liabilities

•Sales to Inventory = Annual Net Sales/Inventory

•Quick Ratio = (Cash + Accounts Receivable)/Current Liabilities

•Average Collection Period = (Accounts Receivable/Annual Net Sales) x 360

•Working Capital = Current Assets – Current Liabilities

•Accounts Payable to Sales = Accounts Payable/Annual Net Sales

•Debt to Equity = Total Liabilities/Net Worth

•Current Liabilities to Net Worth = Current Liabilities/Net Worth

•Quality of Earnings = Cash Flow from Operations/(Net Income + Depreciation + Amortization)

• Operating Cash Flow to Sales = Cash Flow from Operations/(Revenue – Adjustment to Revenue)

These ratios and the credit report and score are used to determine bidder compliance with financial standards.

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Definitions You Will Need to Know

Return on sales is a percentage measure of profits after taxes on the year’s sales (profits earned per dollar of sales). The higher this ratio, the better prepared the HME business is to handle downtrends brought on by adverse conditions.

The current ratio (current assets divided by current debts) is a measure of the cash or near cash position (liquidity) of the company. It indicates if your company has enough cash to pay current creditors. The higher the ratio, the more liquid the firm’s position is and, hence, the higher the credibility of the firm. Cash, receivables, marketable securities and inventory are current assets. HMEs should be realistic in valuing receivables and inventory for a true picture of their liquidity because some debts may be uncollectible and some of the equipment inventory obsolete. Current liabilities are those which must be paid in one year.

In HME, a current ratio of 1.5 to 2.5 or more generally indicates sufficient liquidity.

Sales to inventory or “inventory turnover ratio” is obtained by dividing annual net sales of the company by its total inventory. The ratio is regarded as a test of efficiency and indicates the rapidity with which the HME is able to move its equipment and how fast inventory is moving the cash flow into the business. When this ratio is high, it may indicate a situation where sales are being lost because equipment is under stocked and/or customers are buying elsewhere. If the ratio is too low, this may show that equipment inventories are obsolete or stagnant.

The quick ratio (or acid-test ratio) is found by dividing “quick assets” (cash and accounts receivable) by current liabilities. The purpose is to test the company’s ability to meet its current obligations. This test doesn’t include inventory to make it a stiffer test of the company’s liquidity. It tells you if the HME could meet its current obligations with quickly convertible assets should sales revenues suddenly cease.

In HME, a quick ratio of 1.0 or more generally indicates sufficient liquidity.

Average collection period. You find this ratio by dividing accounts receivable by daily sales other than cash. (Daily billed/credit sales = annual billed/credit sales divided by 360.) This ratio tells you the length of time it takes your HME to get its cash after billing or making a sale on credit. The shorter this period the quicker the cash inflow is. A longer than normal period may mean over due and uncollectible bills. If it is greatly outside a common range (see below), you need to alter your collection policies. HMEs should develop an aging schedule to gauge the trend of collections and identify the slow payers. Slow collections hinder cash flow and also hurt your profit (e.g., you could be doing something with the money, such as taking advantage of discounts on your own payables).

In recent years a survey of the average collection period for independently owned HMEs was as follows: DME (E0260, K0001, E0143, etc.) 66 days, respiratory (E1390, J7619, E7619, Etc.) 48 days, and rehab (K0800, K0856, E1010, etc.) 88 days.

Working capital represents the amount of day-by-day operating liquidity available to a business. Also known as operating capital, it is calculated as current assets minus current liabilities. An HME can be endowed with assets and profitability but short of liquidity if these assets cannot readily be converted into cash. A positive change in working capital indicates that the business has either increased current assets (that is received cash, or other current assets) or has decreased current liabilities, for example, has paid off some short-term creditors.

Accounts payable to sales. This ratio is obtained by dividing the accounts payable of the company by its annual net sales. This ratio gives you an indication as to how much of the HME supplier’s (e.g., equipment vendors) money the company is using in order to fund its sales. A low percentage would indicate a healthy ratio. A high percentage indicates the firm may be using suppliers to help finance operations. The formula: accounts payables to sales ratio = [accounts payables/net sales] x 100.

Common ratios in HME are from 20 to 30%.

Current liabilities to net worth is a measure of the extent to which the HME is using creditor funds versus their own investment to finance the business (current liabilities/liabilities + equity). A ratio of .5 or higher may indicate inadequate owner investment or an extended accounts payable period. (Note: Care should be taken not to offend your equipment vendors to the extent it affects your ability to conduct day-to-day business.)

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Quality of earnings is a confusing financial metric to many. It is calculated by dividing cash flow from operations into the company’s net annual income plus depreciation. The official definition is “the amount of earnings attributable to higher sales or lower costs rather than artificial profits created by accounting anomalies such as inflation of inventory.” An example may help: An HME can show positive earnings on its income statement while also bearing a negative cash flow. This is not a good situation to be in for a long time, because it means that the HME has to borrow money to keep operating. And at some point, the bank will stop lending and want to be repaid. A negative cash flow also indicates that there is a fundamental operating problem: either the equipment inventory is not selling or billing/receivables are not being collected.

Operating cash flow to sales is a percent measuring capability of an HME company’s ability to convert sales into cash. It is an important indicator of an HME’s creditworthiness and productivity. If the ratio is low, then growth may not be financially possible because the company will not have enough cash flow to increase operations to meet higher demands and sales targets. If the ratio is high, then the company will be able to grow and expand because it has enough cash flow to finance additional production. The formula is cash provided by operating activities/net sales.

A financial ratio is, somewhat simply, a relationship – often a percentage – between two of the items selected from the documents noted above. Ratio analysis is one method in which CMS will evaluate weak and strong points in an HME’s financial (and perhaps managerial) performance.

Other Ratios Not Considered in the CBIC EvaluationTotal debt to net worth: This ratio (the result of total debt divided by net worth then multiplied by 100) is a measure of how the company can meet its total obligations from equity. The lower the ratio, the higher the proportion of equity relative to debt and the better the HME’s credit rating will be. The HME industry average for independent companies is about 1.2 to 1.

Net sales to total assets: This ratio (net sales divided by total assets) measures the efficiency with which you are using your assets. A higher than normal ratio indicates that the firm is able to generate sales from its assets faster (and better) than the average company.

Operating profit to net sales: This ratio (the result of dividing operating profit by net sales and multiplying by 100) is most often used to determine the profit position relative to sales. A higher than normal ratio indicates that your sales are good, that your expenses are low or both. Interest income and interest expense should not be included in calculating this ratio.

Net profit to total assets: This ratio (found by multiplying by 100 the result of dividing net profit by total assets) is often called return on investment or ROI. It focuses on the profitability of the overall operation of the firm. Thus, it allows management to measure the effects of its policies on the firm’s profitability. The ROI is the single most important measure of a firm’s financial position. Common HME industry ranges: 5% - 10%

Net profit to net worth: This ratio is found by dividing net profit by net worth and multiplying the result by 100. It provides information on the productivity of the resources the owners have committed to the firm’s operations.

IMPORTANT NOTES...All ratios measuring profitability can be computed either before or after taxes, depending on the purpose of the computations. Acknowledging the CMS/CBIC requirement, HMEs should recognize that the ratios have limitations. Because the information used to derive ratios is itself based on accounting rules and personal judgments as well as facts, the ratios cannot be considered absolute indicators of your HME’s financial position. Ratios are only one means of assessing the performance of the company and must be considered in perspective with many other measures.

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Improving Your ChancesUnderstanding why bids are disqualified will help you to avoid the same pitfalls when getting back into the game.

Reason for bid disqualification

Bids disqualified during initial bid

reviewPercentage of

bids disqualified

Number of suppliers with a bid that was disqualified,

for each reason

Unacceptable (incomplete or inaccurate) financial documentation 7,768 51.3% 524

Did not meet all state licensure requirements 1,804 11.9 254

Did not meet supplier financial standards 3,149 20.8 167

Missing required hardcopy documentation 1,217 8.0 138

Bid price for one or more product category items was deemed not bona fide 915 6.0 165

Did not meet Medicare accreditation requirements 166 1.1 67

National Supplier Clearinghouse (NSC) number was revoked or inactive 766 5.1 30

Did not meet common ownership rules 30 0.2 8

Did not meet network criteria 0 0.0 0

Did not meet eligibility requirements to bid as a specialty supplier 0 0.0 0

Withdrew bid 100 0.7 1

Number of Suppliers with Round 2 Disqualified Bids, by Reason for Disqualification

Covered document reviewRound 1

recompete Round 2 Percent

Total number of bidding suppliers notified that financial documentation was missing from their submission 72 407 15.4%

Number of notified bidding suppliers that subsequently submitted correct documentation 66 370 90.9%

Number of notified bidding suppliers that did not provide the missing documentation 6 37 9.1%

Number of notified bidding suppliers that resubmitted their documentation but were ultimately disqualified for unacceptable (such as incomplete or inaccurate) documents 23 117 31.6%

Number of bidding suppliers initially notified that they had missing financial documentation that were ultimately awarded a contract 22 106 26.0%

Financial Document Covered review Date Results for Round 1 Recompete and round 2

CMS provides feedback about missing financial documentation as long as bidding suppliers submit documentation by the “covered document review date” (CDRD). Review the results of Round 1 Recompete and Round 2 to understand the trends.

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Important Information about Medicare Part C PlanThe DMEPOS Competitive Bidding Program only applies to Medicare beneficiaries who are enrolled in Original Medicare. This program does not apply to beneficiaries enrolled in Medicare Advantage plans.

View total enrollment by state.

In 2015, the majority of the 55 million people on Medicare are covered by traditional Medicare, with 31% enrolled in a Medicare Advantage plan (Figure 1). Since 2004, the number of beneficiaries enrolled in private plans has more than tripled from 5.3 million to 16.8 million in 2015.

For more information, contact Mark Higley, vice president of VGM Regulatory at [email protected].

http://kff.org/medicare/state-indicator/total-enrollment-2/

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2016 hme business playbookplaybook.vgm.com/documents/rural.pdf · 2016-02-23 · 3 2016 hme...

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