The Top 5 Reasons Why Durable Medical Equipment Companies Fail
Updated: Oct 21
At Boost Advisory Group, our prospective clients are constantly asking us why DME companies fail so we decided to write an article discussing the top 5 reason why DME companies fail.
The top 5 reasons why DME companies fail, in our experience is as follows:
Reason #1: Lack of DME Experience and Medicare Training
The amount of money that successful companies and leaders can make in this industry has attracted large amounts of people from all walks of life and various backgrounds. I personally believe that KNOWLEDGE IS KING. Those that have it succeed. Those that do not have it ultimately fail.
It is true that there is a lot of money to be made in this industry but there is a clear distinction between doing this business correctly and doing it, well, as something other than correctly… More distinctly put; compliantly vs. non-compliantly.
As there should be for a healthcare business there are a plethora of regulations and laws that must be followed or you can easily wind up on the wrong side of success, or worse yet, the wrong side of the law. At Boost Advisory Group we provide our new DME business owners with access to training tools to assist them in gaining the knowledge and expertise that is necessary to succeed in the DME business.
Far too many new owners do not know fraud, waste abuse definitions, have no compliance and HIPPA plans, do not know products, medical documentation requirements, lack knowledge of insurance coverages, and struggle to understand medical billing requirements.
Regardless of which DME Consultant that you are working with, it is imperative that you learn the Medicare Program Integrity Manual (PIM), the LCD’s and policy articles that cover your product lines, mandatory Medicare training requirements, and Medicare beneficiary contact laws.
Reason #2: Lack of DME Referrals
As with any business, customers are key. If you are not able to produce and/or retain a lot of them it is literally impossible to generate enough revenue. The DME business is no different. Referrals sources are the LIFELINE to a successful business. Your referral sources and your patients are the oxygen for your Durable Medical Equipment Businesses.
Simply put, it cannot survive without them.
Where are you going to generate referrals from? Healthcare professionals such as physicians? Rehab Centers? Hospitals? Clinics? If so, are you going to be the one knocking on doors? Are you hiring, or have, a proven outside sales team that will generate leads?
Are you going to buy leads? If so, be sure you are aware of the regulations that govern purchasing leads of Medicare beneficiaries or you will get shut down quickly. There is a legal way to achieve this, but there are extremely specific rules that govern this area of the business.
Are you able to generate leads via your website, search engine optimization, google ads? Do you have existing contacts and/or networks of people in the industry that want to refer patients to you?
Regardless of your method of lead generation, referrals are vital to the success of your business. Not knowing how you will generate referrals is probably a good sign that your business idea is not quite ready to be launched yet.
Reason #3: Lack of Product Margin
In another article I discuss the importance of product selection, so I will not go too deeply into it here, but I can tell you that based on my personal experience that product margin management is a key component to optimizing your business and determining if you can achieve financial excellence.
This applies to brand news businesses and existing businesses.
This applies to small DME companies, medium DME companies, and large DME companies.
In fact, I did some work for one of the largest DME companies in the industry and they had significant areas of opportunity to optimize their book of business, and the fact that they did not, caused them significant amount of revenue loss, bad debt, and financial statement stress.
You need to ensure you have the rights product offering based on your referral sources.
You need to ensure you have strong margins that support your financials and business goals.
You need to determine if they are one and done type products or consumables.
You should have processes in place, best practice is quarterly, to review COGS and product margin by referral source, patient, product or HCPCS to ensure that the products are solid, the referrals are solid, and the margins are optimized. Bad business is bad business whether you identify it early in the process or late in the process. The difference is, one allows you to make solid business decisions for your business and the other is a silent assailant to margins, cashflow, and EBITDA.
Reason #4: Lack of Documentation and Medical Necessity
Earlier I stated that referrals and retention rates are the oxygen to a DME business, however, medical documentation is the foundation of a successful DME business, and just like a home, if a business is built on a poor foundation, the chances for collapse are great.
Medical documentation directly impacts unbilled revenue, referral source and patient satisfaction, bad debt, denial management, bill rates, collect rates, and your financials. Simply stated, you CANNOT achieve operational or financial excellence without compliant medical records.
Strong referral source generation provides the DME business with a solid and consistent flow of shipments. Medicare complaint medical records and documentation compliance is the vehicle to GETTING PAID. What good is a shipment if you cannot get paid? All you have accomplished is increased product and labor expenses.
If you are looking to improve your Medicare documentation, documentation collection efforts, and ensure you are avoiding Medicare audits, Boost Advisory Group is a leader in the DME industry in helping clients achieve operational and financial excellence.
Reason #5: Lack of Effective Planning
Benjamin Franklin is quoted as saying, “If you fail to plan, you are planning to fail.”
At Boost Advisory Group, we often say, “In God we trust, everyone else bring data.”
I cannot stress enough the importance of sound planning.
Where will your office be? Does it meet the requirements set forth in the Medicare Supplier Standards?
How much start up funding will you need to get your DME business up and running?
How many referrals will you need to generate the required revenue you need? How much revenue do you need?
What states will you ship or deliver products too? What are their DME licensing requirements? Do they have brick and mortar requirements to do business in their state?
What are your projected expenses? Leads, salary, licensing, rent, utilities, office supplies, payroll tax, bad debt, subscriptions, software, etc.
How long will it take you to get paid from the time of shipping or delivering your product? How much money will you need to cover expenses until the cash starts flowing?
Who are your call points? What salary and compensation plans will attract and retain your employees, while motivating them to produce effectively?
What software will you use to track patients, referral sources, orders, verifications, documentation, claims, payments, denials, inventory, etc.
Where/who will your suppliers be? Will you inventory product or utilize drop ship agreements?
What is the typical bad debt (money you cannot collect) for your product line, processes, and referral types?
How will you grow? When will you grow? Can you grow?
How is the business performing? What areas of opportunity exist in my business to increase revenue and decrease revenue loss?
I could go on and on and on… the point is, planning is vital. Do not overlook it. Do not take it for granted. Do not put it off. If you are not sure what needs to be included in a plan, have never created a plan before, or simply want an experienced DME expert to review your plan, Boost Advisory Group is your trusted resource.
Well there you have it. The TOP 5 reasons why DME companies fail. No one likes discussing failure, however, the take-away here should be that all these reasons why DME businesses fail are all 100% avoidable. With the proper knowledge, support, training, planning, and assistance you can start a DME business that will be as successful as your drive and work ethic permits.
I wish you an abundance of success. If you have any questions, comments, or wish to schedule a FREE 30 minute phone consultation, feel free to contact us at 888-304-2480 or Michael.Breslin@boost-llc.com.
About the Author:
Michael Breslin is a proven DME executive and consultant who Is the Executive Vice President at Boost Advisory Group. Boost possesses over 70 years of combined DME business experience helping DME companies achieve operational and financial excellence through our DME training services, Brightree Consulting, DME marketing, DME Licensing and Accreditation Services, Medicare Audit Response services, and DME business process outsourcing services. 888-304-2480 | firstname.lastname@example.org