Mallaro – A Three Pillar Strategy to Address the Medicare Rate Cut

Posted on in Growth Strategies

Mallaro “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” Darwin Most HME providers will face a significant reimbursement cut from Medicare beginning January 1, 2016. Wise HMEs must respond to this “change” now, not wait until the cuts go into effect. The challenges brought on by another round of cuts can be overcome. Learning from others, through networking with peers and thought leaders is a way to jump start your response to change. VGM’s Heartland Conference is an accelerant to creating a successful business strategy to address your changing environment. In 2016, Medicare will implement new pricing in non-competitive bid areas, mirroring the reductions the bid areas have already incurred. Medicare reimbursement on most core DME items will be cut between 30% and 45% in non-bid areas. Areas which are more rural will get partial relief. Further, the cuts will phase in during 2016, with half the reduction going into effect January 1 and the rest of the reduction in place July 1, 2016. Rate adjustments will be based on competitive bid rates from adjacent bid areas. I believe a three pillar strategy is the best way to address this latest Medicare rate cut: improving your core business, rationalizing expenses and developing new revenue sources. But don’t wait until 2016 to develop your response. Different HMEs have different core businesses. Some are clinical respiratory, other see their core as PAP. Some are mobility dealers, others complex rehab technology providers. Whatever your core, it is there you need to be great. Being great starts with perfecting your operations within that core. The health care industry is too often simply bad at operations. You can be bad at operations with high rates of reimbursement – you can’t afford to be bad at operations in the new reimbursement climate. Bid area providers have already learned this, now the rest of the country must also learn and improve. Standardizing processes, knowing your numbers, speed, eliminating re-work and finding best in class solutions are all components of optimizing your operations. Growing your core aggressively is also part of this strengthening of your core. Make a candid assessment and build a plan to optimize your core. No one likes to deal with the expense side of the equation. I know this from my years of experience as a CPA. But costs need to be rationalized in this lower reimbursement world. Develop a 3 year financial plan that gives you a clear pathway to financial success. You’ll need to really know where your costs are, assess those activities in your business which are driving more costs than value they create and narrow those costs. Personnel costs are key in this process. Don’t be afraid to recognize what you are good at and what you’re not good at – look to outsource activities which can be done more cost effectively outside – while you do key value areas where you are especially good. The third leg of the strategy is developing new, incremental, revenue sources. This business has always been about newness. Locking onto current products, codes, referral sources and payors is easier and it works ok today. But you absolutely must have a flow of new revenues in order to have a viable long term business model. New revenue sources are everywhere, but you have to be intentional about it. Technology and product development are creating many opportunities for aggressive DMEs. Rapidly changing payer and health system dynamics are creating opportunities. Elevate patient expectations and demands are creating opportunities. If 5-10% of your revenues in each of the next few years could be new revenue sources, by 2018, you’ll have a very meaningful book of “new” business. If you want to flush out these ideas more and get energized about your plans and opportunities, venture to Waterloo for the Heartland Conference – you’ll be glad you did. Would you like to read another article by Mike Mallaro? Does the Glass Slipper Fit? Cinderella and Narrowing Insurer Panels Mike Mallaro Explains – What do HMEs and Auto Dealers Have in Common?