Monday, July 26, 2010

Business Operations Part III: Medicare and Beyond

I have received messages from a number of friends about reimbursements from Medicare. They seem to feel that it would be better for them if they opted out of the Medicare program.

The amount of work involved, the low reimbursements, bids, and so forth. I could write pages about how HME providers feel about the Medicare program, but why? Everyone who reads this knows the answer. However, I feel that the loss of confidence in the program is not a very good reason to make a dramatic step, which could prove to be wrong.

After much discussion at the last few Medtrade events with providers, speakers, and politicians (yes, politicians), one thing became very clear. Medicare is something that we all must learn to live with!

One cannot turn away neighbors and clients who today depend on Medicare! By the same token, Medicare should never be one’s largest source of income. One speaker made a very sage comment last year; he said to look at Medicare as a “loss leader.” Notice the large ads the big marketers use offering products at very low prices. These are “loss leaders” aimed to bring you into their shop.

If you take this attitude, accept Medicare (and Medicaid), but only as a minor segment of your business you can live with them. Look at Medicare as your “loss leader.” The better marketeers all have brightly lit showrooms and adept salespeople. They send out mailings and place ads. They visit all the local associations and churches and work very hard to develop their OTC cash sales.

Indeed, you can live with Medicare but work to develop more OTC cash sales! Your “loss leader,” Medicare, will keep people coming into your location.

Business Operations Part II: Considering Commissions

Have you thought about paying a commission to your salespeople?
Will that become an incentive for them to work more efficiently or can that create other problems?

At the last Medtrade event in Atlanta two HME providers discussed this topic with me. There were completely different points of view expressed by each. The first one said that by paying a small commission to his showroom floor salespeople, they all became better professionals. The second stated rather emphatically that he had a bad result with each salesperson on the floor tripping over one-another to service the customer.

Interesting problems! I tried to determine how to make a “commission” also create a “payoff” for the principal. A few years ago, at the Medtrade meeting in Las Vegas, I heard a speaker include this situation in their talk. The answer made a great deal of sense and I want to share it.

When your company has outside salespeople, then a commission should become part of their salary. A certain percentage of the profit should be awarded on all sales, which have a gross profit of more than 20%. The company that paid a commission to these people told us that they gave 10% of the profit above the 20%. This worked out and he found that these people almost doubled their sales.

The other set goals for the profits from all floor sales in the showroom. All the salespeople involved shared a percentage of the profit each month. Since he had a very active showroom he divided 2% of the floor sales and shared it evenly with all his floor sales people. For his location, this proved to be very beneficial. Often, a customer who came in for a specific item and the salesperson showed related items that added to an additional sale.

So, I strongly suggest that you work out a program with your accountant to see how best to award your sales team.

Business Operations Part I: Recommend, Don't Demand

I want to post a series of articles designed to help you improve your business operations. A smooth running ship is always able to reach its goals.

A soft approach to your employees is by “recommending” that they do things a certain way. Be careful that you are not telling your staff NOT to do things the way they have been normally operating, but rather to be looked upon as a guide.

After discussions with providers from many parts of the country at Medtrade, one thing has become very clear. The principal runs the more successful operations and he or she allows the staff to modify things (within bounds) to attain goals.

An old friend from St. Louis told me he meets with each employee at least once a month to speak about his or her role in the company. Since his employees are involved with every phase of the operation he gets great feedback.

When things are going smoothly they are congratulated for their good work. If any changes are necessary the “boss” recommends them.

Wednesday, July 7, 2010

Running Your Company Sometimes Means Saving Your Business

In my last few blogs I have been trying to direct more providers to join hands with the industry associations. I realize that no one can stand alone, especially during these trying times. The United States of America is still working its way out of the recession, unemployment has been hovering at a high rate (10 percent) and the government does not know where or how to find the dollars to cover all the necessary programs. Certainly, these funds should not come from the paltry reimbursements you receive for your services.

Providers call me and tell me they are aware of the situation they face, but they do not have the time to participate in anything other than running their business. So I have to ask: “Do you run your company or does the company run you?”

Look at your staff, your team members. They all should have specific spheres of interest and still know all the other phases of the operation. Each one will help take some of the load off your shoulders. They have to follow your instructions. You are the captain, they are the troops. You sign their paychecks and you have to be sure that they are earning them!

A well-run business will allow you to find the required time to attend state meetings, go to the Medtrade exhibitions, to lobby and contact your legislators and still have the ability to supervise all the details to allow your company to remain successful.

To help fight the many wars our industry faces the necessity for the national and the state associations should be readily recognized. Without the support of the industry and the necessary funds, providers face a dire future. But, with your backing, they will fight for you, provide the tools that you and your customers can use, and help find a solution to many of the difficulties we face. So please, make your voice heard, join. Join now!

It Doesn't Add Up

Just how much profit does CMS think the average provider makes on any transaction? You purchase an item for 75 cents and sell it for $1.25, which shows a 40 percent gross profit. But does that mean there is 50 cents left to run the operation? Heck, no!

This is not the way to determine how much the provider earns on each business deal. I had a meeting with a major accounting firm that specializes in home care and pharmacy locations. They told me that normal business expenses for similar operations average between 31 and 36 percent of the sales. Every time a provider opens the door to the operation, his costs do not change! The figures above leave behind about 5 percent, only a nickel remains from each dollar of a sale. So if they take 32 percent from the $1.25, how much is left to run the business, draw a salary and stay in business? This leaves only about 18 percent gross profit. It does not provide any funds for the services that HME providers are used to providing pro-bono.

I realize the reductions are for specific DME items. I saw their spreadsheet for oxygen concentrators, hospital beds and diabetic supplies. I tried to gather some figures for orthotic and prosthetic devices. How many dealers can run their operations without sufficient profits to maintain the company?

The CMS bid evaluation “ensures” that there will be enough suppliers to meet the needs of the beneficiaries. Just how many well-run companies, supporting their families and those of their employees, giving superb service, will be forced to close? How many senior citizens and their family caregivers will be required to go elsewhere? These patients will lose the level of care they have been receiving and the “winners” will not be in a position to provide the best service to their patients.

It is never too late to fight back! It may be more difficult but when your future is at stake, you have no choice but to make yourself heard. As I have stated many times, you cannot stand alone. But AAHomecare, NAIMES, the state associations, the buying groups (VGM, MED, etc.) all have to work together. You have to become a member and provide the funds they need to fight your battle. If not, your tomorrow will be very dismal.