It was high-fives and glee all around when the leadership team at Northeast Home Medical Equipment glimpsed their 2007 year-end numbers: the Albany, NY-area home care company had achieved a margin of about 20%, considerably exceeding expectations. Credit for this feat belonged in no small measure to Northeast Home Medical Equipment's reliance on computer software. Several program packages acquired over the years made operations more efficient and, as a result, boosted productivity, and led to a more financially sound enterprise. "In the days before we had converted to electronic charting and inventory management, our average days sales outstanding (DSO) stood at about 99, but then decreased to about 60 soon after we computerized those activities," says Irene Magee, vice president and director. "Now, with improved software—and a better ability to monitor, manage, and improve our accounts receivable data—we have a DSO of under 45."

STEPPED INTO A MESS

Northeast Home Medical Equipment is a unit of Northeast Health, a not-for-profit network of hospitals, supportive housing, and community services covering 22 counties of upstate New York. About 25% of Northeast Home Medical Equipment's revenues derive from Medicare business, with another quarter traced to a hospice capitated contract, and just over one-third to commercial HMO business (the balance is made up of private pay and Medicaid). Like its parent organization, Northeast Home Medical Equipment is not-for-profit. So, what's with the 2007 margins high enough to make an oil company envious? Replies Magee, "We place a great deal of importance on being a well-run shop because, just like businesses trying to make a profit, we still have to meet the payroll and write checks to keep the lights turned on around here, and we would be able to do neither if we operated at a loss."

Besides, excess revenues—the nomenclature for profits in a not-for-profit environment—are simply reinvested into things that further improve the health of the company, she explains. For example, "we last year used some of our excess revenues to convert all our gas-guzzling box vans to fuel-economizing Dodge Sprinters; with the price of gas now, this fleet conversion was a very good move. We also used our excess revenues to acquire an automated wheelchair cleaner, another good move because of the large quantity of equipment that goes in and out of here."

After the company has purchased the operations-enhancing items it needs, left over money is funneled to support other Northeast Health divisions, such as the network's visiting nurse association, according to Magee.

Northeast Health acquired Northeast Home Medical Equipment in 2001. At the time, it was a small, struggling independent DME provider known by a different name. Its woes were attributable in part to a lack of systems and procedures for conducting even the most routine business activities. "There was no financial infrastructure to speak of," Magee recalls. "Inventory control—everything—was chaotic."

Lessons learned

Good advice for software shoppers: make sure your purchase agreement includes a proviso for performance measurements. This permits you to pay the software vendor in stages, and only as predetermined milestones are successfully reached. "The vendor gets his money if he makes good on the delivery of the product, then on the installation of the product, and then on the attainment of its full functionality," says Irene Magee, vice president and director of Northeast Home Medical Equipment near Albany, NY, someone who has been through the purchase of major, mission-critical software systems a number of times. "Software is only as good as its implementation. I'm aware of a hospital that recently bought software without performance measurements in the contract and had to lay off 63 people because the installed system could not do what it was supposed to, which threw the hospital into financial chaos. So, if a hospital can trip and break its nose with a bad software buy, imagine what can happen to a little HME business that makes a similar bad buy without any kind of leverage over the vendor."

Magee recommends shoppers also insist on field demonstrations of the software before buying. "Go take a look at the system in use by companies that have bought it ahead of you," she says. "Talk to as many of those users as possible—but not just those on the short list of poster children supplied by the vendor. Ask for a list of all customers in your market area or state who are using the software the same way you plan to."

If the vendor offers a service contract to go with the software, take it—even if you have an in-house geek squad. "Your information technology department won't be able to anticipate everything that might go wrong with an installation, so the service contract is like an insurance policy," Magee contends.

As to vendor technical support, Magee says it can be all over the map: some vendors provide excellent help, others not so much. The definition of good support is, per Magee, a phone answered promptly without a recorded message regretfully informing you that all representatives are currently busy, and a tech person who helps you resolve the problem so thoroughly that it is never to recur (or, if it does recur, to require no further calls to tech support because you were walked through the steps of how to fix the problem yourself).

Perhaps most damaging from a strategic perspective was the company's misguided business philosophy of trying to be all things to all people. "The company lacked the ability to deliver on its promises, so it ended up being nothing to no one," says Magee, pointing to improper utilization of customer service representatives as a prime example. "One person would spend an hour trying to sell $4 worth of glide caps, when what was needed was for that person to spend the hour taking calls from hospitals that required stat response for big-ticket orders."

GOING ELECTRONIC

After the acquisition, the company—then given the new name of Northeast Home Medical Equipment—quickly jettisoned its all-things-to-all-people approach in favor of a narrow focus. "It became evident almost immediately that we needed to get our hands around something we could be really good at," says Magee, who was not with the acquired company prior to its purchase but was assigned to it after a time in marketing and project management at one of Northeast Health's long-term care divisions. "To get to that place, we eliminated from our product mix things like supplies, including diabetic, ostomy, and mastectomy, and began concentrating on respiratory, which was where we saw the most opportunity and potential. Today, we're known for being the respiratory provider of choice for high-needs, very frail oxygen patients."

The revamping included moving out of the company's obscenely high-priced retail location and into a much less expensive office-warehouse setting. "We didn't need to be in that retail space, because one of the first things we did was shrink our retail operation," says Magee. "Retail for us today is only about 1% of our business."

Northeast Home Medical also outsourced pieces of its operations, chiefly billing, to shed flab and get lean. "It made solid economic sense for us to import the expertise we needed," Magee tells. However, an impediment to achieving true leanness was the absence of financial infrastructure. "We could not readily determine if intake had been completed or if orders had been filled or if deliveries had been made," she says. "What we did to remedy that problem was create systems to track and audit everything so that we could start clean and go forward from there. In fact, we audited 100% of every active patient chart to see if we even had appropriate documentation for billing."

These processes at first were of necessity manual, Magee adds: "The software support wasn't yet there for what we needed." Eventually, though, it was. And as software solutions became available, they were adopted. First to come aboard was an electronic charting package from MedFORCE Technologies, obtained in 2004. "Each time MedFORCE offered an upgrade, we obtained it," she says. Initially, upgrades were supplied on disk; now they are delivered online—a faster, more convenient way to procure package enhancements, Magee reports. Later came an inventory control system from MediTech. Magee likes it, even though as a product meant for hospital applications, it was not really designed to deal with inventory as part of a rental business.

With improved software—and a better ability to manage, monitor, and improve accounts receivable—Magee now enjoys a DSO of under 45.

INTEGRATION NEXT

Each software system in use at Northeast Home Medical Equipment—and there are a few others besides the charting and inventory packages—serves its purpose, but would be of greater value if it interfaced with all the rest. "We installed our software piecemeal over the years, and none of the systems is integrated," says Magee. "Now, years later, what we have is a lot of siloing. That's a problem because I want to make decisions based on data that have been captured and stored in multiple places —silos, if you will. Since data can't flow between the silos, I'm unable to drill down to what my product category costs are without first going through an elaborate manual data-gathering exercise in which I cull this piece of information from Silo A and that piece of information from Silo B and so on."

ON THE WEB To find more articles, visit our free archives section. Our convenient archives require no log-on or fee. Find helpful articles such as: April 2008 Connected Health: The Next Big Thing? By Joseph C. Kvedar, MD. An opportunity exists to build a new industry with home health and HME in successful partnership. September 2007 A Recipe for Profitability by Cindy Ciardo, CO, focuses on customer service, knowledge, and marketing for those who want to tap into the lucrative compression hosiery niche.

Magee says the goal is to integrate all processes, start to finish, so that data can be "sliced and diced in whatever ways we deem necessary to be able to support decision-making." She envisions a nexus among systems at every major workflow point: product historical data, purchase at intake, scheduling, distribution, confirmation, billing, receivables, payables. Five years from now, such may well prove to be the reality, thanks to the advent of new and better software.

Those days are likely to see Northeast Home Medical Equipment as an even leaner organization than it already is. Leaner, but not meaner. "I don't want to be the Wal-Mart of oxygen," says Magee. "But with the improved data-management capabilities made possible by good software, we will be making the kinds of decisions necessary to have a very efficiently operated business without sacrificing any of the compassion and caring that set us apart here in our marketplace."

Rich Smith is a contributing writer for HME Today.