Durable Medical Equipment (DME) is often targeted for expense reduction with the goal of maximizing the value on each dollar spent while ensuring high-quality patient care. To achieve this goal, most hospices approach DME management with the short-term priority of lowering expenses, but are not equipped to take the second step to ensure the intermediate and long-term goals of achieving value going-forward. This is where the right DME management company can save you more money than you could have ever imagined. This collaboration between client, DME management company, and DME provider(s) works very well and here is how it can be accomplished.
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 but DME pricing still varied tremendously across the country. CMS’ competitive bidding initiative reduced the rate of inflation and the variability somewhat in regional DME pricing.
As hospice care in the U.S. has grown, successful not-for-profit and for-profit hospices have focused on the strategic aspect of DME and therefore on costs 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 is impacting DME providers, with an estimate from Medtrade that 40% of DME providers will close/be acquired within the next six years. Because of this, it is imperative for hospices to develop and maintain relationships with strategically-selected DME providers. While it may be tempting to have only one vendor, we advise to have a primary vendor plus viable secondary vendors.
Successful DME providers achieve ultra-high service standards (e.g., <2-hour stat deliveries; 4-hour routine deliveries; 24/7/365). Equally important, as the selected DME provider(s) interacts directly with the patient, family, and hospice staff, the selected DME provider(s) is thereby often viewed by the patients/family as an extension of the hospice care team. As hospice nurses can attest, hospice staff and DME provider staff develop professional relationships which can result in cohesion that translates into better patient care and quality of job experience for hospice staff. This is the standard successful hospices hold their DME providers to.
To achieve the balance between ultra-high professional standards and pleasant/collaborative interaction between hospice staff and DME provider(s), a “team” approach with the DME provider(s) is a critical. 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:
Hospices can achieve savings on DME by focusing on three areas:
1. Contracted pricing (fee-for-service, per diem, combination, Capped Caps, etc.)
2. Patient Acuity - Unique patient utilization (faster patient turn-over increases cost)
3. Ordering habits
Knowing alternatives is important when it comes to contracted pricing. Successful hospices want their selected DME providers to thrive so new inventory is purchased, great staff retained, etc., while paying fair value for each item. Knowing the fair value for each item rented is also unique to each geographic market since delivery and labor costs incurred by the DME providers are different in each part of the country. In addition, 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 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, the right DME Management Company will help 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. The 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.
Your "To Do" List:
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 1-7, 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. Ensure you are ready for emerging DME-related data reporting requirements.
10. Decide on the DME ordering platform. The platform is very important as it allows successful hospices to capture data, then manage DME professionally.
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 desired operational framework, utilizing those DME providers and DME management companies 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. An effective DME management company can most likely assist you with items 1-10 at no cost to you as part of their service.