DME can get really expensive really quick. Not to mention the nightmare of complexity in attempting to keep costs down. Because this is a challenge that tons of hospices face, we asked the experts on DME Cost Management over at Qualis Management for advice on how to better manage our DME costs. Here’s an action plan for the top 7 complexities associated with DME costs.
1. Fee-for-service vs Formulary + Non-formulary vs Capped Caps Pricing Models
There are multiple pricing paradigms in the DME industry with the most popular ones being some variant of Capped Caps, Fee-For-Service, and Formulary plus Non-formulary categories. It is important to understand the value of each model, and how each one would best fit within the parameters of your hospice.
In general, the greatest value will be in the Capped Caps methodology (complete alignment between hospice, DME vendor, and DME management company – if you use one). The next efficacious one is the Fee-For-Service model, but only if it is properly managed, followed by the conventional Formulary plus Non-Formulary type.
2. From what source does your clinical team receive DME training?
Most hospices receive DME training from established clinical team members, based on their experiences. Local DME vendors supplement this education with their expertise, which they generally receive from the DME manufacturers. Both the local vendors and manufacturers provide important information, but it is also important to recognize they have a financial incentive for you to order certain equipment.
Hospices may determine they will experience even greater levels of high-quality patient care by incorporating evidence-based research in concert with vendor recommendations. The “we have always done it this way” approach typically does not ensure a sound strategy for providing exceptional care in a cost-effective manner.
3. Utilization / Ordering Patterns vs Best Practices
When is it medically necessary to provide supplemental oxygen? When do you use a reclining wheelchair with a cushion vs an HTR chair vs a Broda chair? What is your evidence-based, clinical protocol for when to upgrade to a specialty mattress?
Once you have established your clinical rationale for ordering DME, how does your utilization compare to best practices?
These metrics are critical to understand when assessing quality of care and total DME spend. To make an accurate appraisal of your DME cost factors, a hospice needs to know its utilization averages for all its DME, the best practice averages nationally/regionally, and how your hospice compares.
Utilization patterns with DME that are not medically necessary – or using higher-cost items when more cost-effective alternatives are equally effective – usually lead to higher costs.
If your utilization of key items are one or two standard deviations beyond the norm, it would be important to know it and to evaluate the reasons why. Then your team will have the information needed to craft educated action plans that control costs without sacrificing care quality.
4. Clinical Team Ordering Efficiencies
Another way to control costs is to order appropriate equipment at the initial assessment whenever possible. Sometimes it is unavoidable to order a bed on Monday, a nebulizer on Tuesday, and a wheelchair on Wednesday, but it does ratchet up your costs, as your vendor must make multiple trips when one would have sufficed.
Ordering more DME than is needed on the initial visit (just in case it will be needed later) is not an effective way to resolve this issue – even if you have a “Per Diem” arrangement with your vendor. There is always an associated cost – either now or later – when vendors must make multiple trips to service the same patients.
Here is a sampling of important metrics you should receive regularly from your DME partner: Deliveries per patient, Items per patient, Stat percentage, etc. to help you gauge ordering efficiency.
5. Vendor Fee Schedules and Service Agreements
It all begins with defining the quality of care you expect with a thorough understanding of national, regional, and/or statewide performance averages. Then you will be able to negotiate effective service agreements that help ensure exemplary patient care at fair market rates.
6. Patient Acuity
Obviously, high patient acuity leads to high costs – patients who need expensive equipment like ventilators, cough-stimulating devices, Bi-PAP STs, electric lifts, etc. may skew your average costs significantly.
Another piece of this puzzle is your median length of stay – patient churning, usually the result of brief lengths of stay, often means getting patients late in the hospice cycle, so they need appreciably more DME, further ratcheting up your costs.
Unique patient DME utilization compared to national/regional/statewide averages represents a key acuity metric for tracking and trending purposes.
7. Outside Factors
Referral Sources – Your referral partners may require more costly equipment . . . and if you do not cooperate, then you lose their referrals. At this point, it becomes a business decision on your part, but with the understanding that it increases costs.
Vendor Options – If you are rural hospice, there may be only one vendor who can cover your service area; or perhaps your coverage area has multiple vendors, but only one that meets your service standards. In general, when a hospice has only one vendor option, over time the service quality wanes while costs increase, since the vendor lacks competition.
Competitors – If you are in a competitive market, and other hospices are providing everything along with the kitchen sink, then it becomes a business decision with respect to the level of services you need to provide to remain competitive
It is imperative to understand what you do not control – and at what cost. Candid discussions with your referral partners may produce win-win-win opportunities for patient, referral sources, and your hospice.
You may have excellent pricing, but these factors will impact substantially your total DME spend.
Also, be careful when comparing DME costs with other hospices or with consultants’ recommendations – you need to ensure you are comparing apples to apples.
DME is a complex segment of the hospice industry. As a result, it takes a considerable amount of data-driven analysis and thoughtful management to ensure you provide outstanding patient care cost-effectively.
Leading hospices seek DME partners – not simply DME vendors. The difference is profound, and if interested in the distinctions, feel free to shoot me a message at firstname.lastname@example.org.
President of Qualis Management