How to Lower Your Hospice's DME Costs

Successful hospices are looking to save money wherever possible while ensuring high quality of patient care.  Due to reduced revenues coupled with rising operating costs, the industry is facing margin compression.  One area of significant expenses for hospices is Durable Medical Equipment (DME); as such, it is often targeted for expense reduction with the goal maximizing the value on each dollar spent.  To achieve this goal, successful hospices approach DME management with the short-term priority of lowering expenses, coupled with the intermediate and long-term goal of utilizing DME in a manner that provides increased value going-forward – all while maintaining high-quality patient care.  This tandem approach works.  Here is how to accomplish it.

The Background and Issues Facing DME Providers

Before the advent of Medicare, Medicaid, and the HMO Act of 1973, the private sector funded over three quarters of the country's health care expenditures, and health care inflation trended in-line with the Consumer Price Index (GDP).  Individuals paid nearly one-half of total costs with insurers paying one-fourth.  Since the mid-1970’s, health care costs have out-paced GDP, and DME providers experienced an ever-increasing institutional payer mix.  In other words, government and insurance companies increasingly began paying the bills.  DME pricing varied tremendously across the country; then CMS’ recent competitive bidding initiative reduced the rate of inflation and the variability somewhat in regional pricing. 

As hospice care in the U.S. has grown, successful not-for-profit and for-profit hospices focused on the strategic aspect of DME and therefore on costs and equipment utilization.  In contrast, other hospices simply viewed DME as an inevitable yet critical expense, but failed to approach it as a strategic component of their service to patients.  “We view DME like airlines view baggage,” is an actual quote and example of this approach.  “It’s something we have to handle but don’t like doing it, and never have the time to really focus on it.”  As a result, as the growth rate of hospice care has increased in the U.S., so has the variability in prices and equipment utilization.   Some hospices have managed DME expenses well while others will need to begin doing so to remain competitive in the industry.

Margin compression also faces the DME industry, with estimates as high as 40% of DME providers expected to close/consolidate within the next six years.  It is therefore imperative for hospices to develop and maintain relationships with strategically-selected, viable, and thriving DME providers. 

Variables facing DME providers include: 

  • CMS’ Competitive Bidding Program
  • Increasing transportation costs and variable fuel prices
  • Rising DME inventory replacement costs
  • Greater internal DME costs to maintain accreditation + employee credentialing
  • Greater technology costs – both interfacing with clients and running internal business
  • Accounts Receivable – slow institutional payors in particular

Successful hospices require DME vendors to achieve ultra-high service standards (<2 hour stat deliveries; 4 hour ro utine deliveries 24/7/365).  The selected DME provider(s) provides direct interaction with the patient, family, and hospice staff and is thereby often viewed by the patients/family as part of the hospice care team.  In addition, hospice staff and DME provider staff develop professional relationships which should result in better patient care and quality of job experience for hospice staff. 

Successful hospice providers are able to achieve the balance between ultra-high professional standards and pleasant/collaborative interaction between hospice staff and DME provider.  This “team” approach or win-win partnership with the DME provider(s) is a critical aspect to hospice success.  This cannot be over-stated.  There are great DME providers in the market, just as there are great hospices.  When great organizations are empowered by each other, great things happen for patients and their families.

How to Begin:

Our experience shows costs and therefore savings can be achieved by focusing on three areas:

  1. Contracted pricing (fee-for-service, per diem, combination, etc…)
  2. Patient Acuity - Unique patient utilization (faster patient turn-over increases cost)
  3. Ordering habits

Knowing your alternatives is important when it comes to contracted pricing.  Successful hospices want their selected DME providers to thrive, while paying fair value for each item.  Knowing the fair value for each item rented is also unique to each geographic market, as delivery and labor costs incurred by the DME providers are different in each part of the country.  Within this aspect, determining the optimal ordering protocol (i.e., smart phone app, tablet/pc, calling the DME vendor, etc….) within the desired operational framework of the hospice is important.

Successful hospice providers also monitor unique patient utilization.  This is the number of all hospice patients getting any DME divided by the Average Daily Census (ADC). The unique patient utilization rate typically ranges from 80% to 130% and is reflective of patient acuity (or how early or late the hospice patient is admitted into hospice). Higher utilization reflects higher overall DME costs.  Since unique patient utilization impacts revenues and expenses for each patient, Qualis helps monitor this rate in detail.

The final aspect of ordering habits has tremendous variability throughout the hospice industry.  How does your staff know when to order the right product at the right time?  Who trained them (often the DME provider), and how is proper equipment utilization selected and managed?  It is human nature to stick with what you “know,” resulting in huge variations in DME usage across hospices, and even within hospice providers themselves. Such variations in equipment utilization are usually directly related to who trained the nurses.  They key to effective utilization is a focus on quality of care.  Many hospices achieve stellar results using a fraction of the DME other hospices use.  More DME doesn’t equate to better care. Successful hospices know clinical criteria behind each item rented/purchased, have controls in-place for variants, and often have decision trees to assist.  New technology and clinical evidence surrounding DME can greatly reduce costs.  While the hospice clinical staff chooses standards of care, the “low hanging fruit” for most hospices is having someone educate and monitor utilization.

To Do:

  1. Review your DME cost per patient.  Understand your expenses on a granular, per-patient/disease-state basis, if possible.
  2. Know which DME vendor(s) your staff prefers and why.  Survey staff to determine attributes and perceived deficiencies of incumbent and prospective DME providers.
  3. Know which DME items you are paying fair value for, and where you need to focus.
  4. Ensure your DME providers have needed credentials, and are economically and operationally viable for the foreseeable future.
  5. Review your unique patient utilization for effective management.
  6. Focus on clinical criteria for equipment utilization. 
  7. Once you have gained clarity on items 1-6, you can confidently meet with vendors and achieve short and long-term savings.
  8. Develop viable “secondary” back-up vendors in each market served.
  9. Know you are ready for current and anticipated DME-related data reporting requirements
  10. Smile, all the way to the bank.

In conclusion, a desire to optimize the value of every dollar spent on DME is a senior leader’s fiduciary obligation to professional hospice management.  This value optimization is only meaningful when it augments outstanding patient care within the hospice’s existing/desired operational framework, and with those DME providers whom have earned your trust.  Successful for-profit and not-for-profit hospices are achieving this daily, as it is imperative to a hospice’s future.  A good DME management company, such as Qualis, can assist you with items 1-9 at no cost to you as part of our service.  #10 will be completely up to you.

      - HALL C. THORP, DSL, MBA

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