Why Product Selection is so Important When Starting a DME Business
Updated: Oct 21, 2020
Selecting the right DME products to start your DME business may be one of, if not, the most important decisions you will make when starting a DME business. Yes, your business name matters. Yes, your office location matters. Yes, the states you choose to do business in matter. A lot of things matter when starting a DME business.
But products, may very well be the most important and let me tell you why.
If you cannot generate leads you are going to have a significant amount of trouble growing a DME business.
The success or failure of your DME business all starts with referrals. How are you generating referrals? From physicians? Rehabs? Hospitals? Word of mouth? Internet? TV? Manufacturers?
Are you buying leads? Are they Medicare compliant? Can you even buy leads online for the products you are looking to provide?
Depending on your referral source goes a long way in determining what products you will receive referrals for.
If you have access to a network of Urologist, or you plan on calling on Urologists, then you will receive urological catheters and incontinence referrals.
If you are calling on, or have Endocrinologists referring to you, then you will receive diabetes testing supplies, Continuous Glucose Monitor (CGM) and Insulin Pump supply referrals.
Is the product you are thinking of providing going into a competitive bid program that restricts who can even supply certain DME products? Meaning you could start a business and the product you want to supply can only be billed to Medicare by winners of competitive bids.
Moving on from referrals to product margin…aka cost of goods sold. Not all DME product are considered equal in terms of Medicare fee schedules (what you can charge for the products) and what the products cost you (COGS).
For example, a lumbar torso back brace may have allowable revenue of $1,250 and a product cost of $250. In this case your gross profit is $1,000.
On a urological catheter patient your allowable revenue may be $270, and your product costs could be $125. At first glance everyone sees this and says I want to be in back braces. I can make $1,000 per brace.
As you learn more about back braces and catheters you would learn the following:
1. Back braces are a one and done product line meaning a patient can receive 1 back brace every 5 years. This means you need to create more referrals each month because you cannot service them for another 5 years.
2. Urological supplies are a consumable product meaning patients need to reorder their supplies every month, or every 90 days. This means you pay for a patient once, become great at customer service and keep a patient for however long they are on therapy.
3. Using the example above, a back brace creates $1,000 in patient profit per year, however, a urological patient who reorders each month can generate $1,740 per year in profit
4. Also, back braces are becoming a competitive bid product in January 2021.
a. Revenue per brace will be drastically reduced
b. Only winners of bids will be able to supply and bill Medicare patients
When we consult our clients on product selection, we advise them to consider the following:
1. Who are your referral sources and what product lines do they write prescriptions for?
2. Will they refer enough volume to you to generate enough revenue for you?
3. Are those product lines one and done products or consumables?
4. What staffing will you need if consumables?
5. Are any of the products in a competitive bid program or pending to be included in a competitive bid program
6. Know how strong, or weak, your product margins are. You can money in both scenarios but the smaller the margin, the larger the volume needs to be to pay the bills.
7. Do these product lines, that you are considering, create the opportunity for manufacturer referrals?
8. What is the Medicare audit rates for the product lines you are considering?
9. Do you know the documentation needs that are required to ship and bill Medicare beneficiaries?
Hopefully, this article has given you more to think about in terms of product selection. The DME business is a great, and can be a highly lucrative business, but product selection and referrals sources are the fuel for the engine.
The great news is that our DME experts at Boost Advisory Group can assist in all aspects of getting your DME business started, as well as, growing your business in a profitable and compliant manner.
About the Author:
Michael Breslin, EVP at Boost Advisory Group, is a proven DME executive who advises clients how to start a DME business, grow DME businesses, in a Medicare compliant manner. Boost Advisory Group possesses over 70 years of DME experience in buying, selling, growing, consulting, and training DME businesses. Michael can be reached at: 888-304-2480, ext. 1011 or via email at Michael.Breslin@boost-llc.com