Do you need an improved business model to leverage your cash flow?
With the Medical Equipment industry changing quickly, and national reimbursement rates declining, many Medical Equipment Providers are looking for solutions to Improve Cash Flow.
Many Medical Equipment Providers have a great base of business and with more than 10000 baby boomers entering the market daily their is no shortage of demand for great quality products and services in the regards to medical equipment. However with the changing marketplace the reimbursement rates for medical equipment have been reduced by as much as 50%. With these new rates their is still a 30-50% profit margin of opportunity in these product categories to be successful.
Medical Equipment Business Model Factor X,Y,Z
Lets take a journey into the next generation of HME/DME suppliers, which business model will provide the best revenue for the reimbursement model
that we currently have in place. Let explore the X, Y and Z Factor and reevaluate how to proceed together.
The X Factor becomes the problem for most suppliers in the medical equipment marketplace. The X Factor is the initial cost of equipment, which in some case is more than 10X the monthly reimbursement rate. Many Medical Equipment Suppliers try to shop for the lowest cost of goods and generally acquire the lowest quality of product which generally has the highest rate of return.
The Y Factor becomes the second problem for many suppliers and in the past this was an opportunity. The Y Factor is the amount of new Patients that are setup monthly and referred to the provider. If a company can accommodate 100 new patients a month their is a moderate to high cost of goods required to supply these patients the products requested by their physicians. Company growth becomes a bottle neck due to cash flow problems that start to occur during this state of the business model.
The Z Factor is the last problem with this basic business model design, if the reimbursement rate is 10X less than the product cost, we have a negative cash flow for many months until the product is paid for based on the cap rental terms for the item being covered. The Y Factor is the major negative cash flow component. With accepting many new patients in many cases it takes months to become cash positive on high end capital equipment which offers the best returns.
The X,Y,Z Factor can be modified to improve cash flow and generate cash flow day 1 and month 1 of every new patient serviced. If we are to sign a contract to supply equipment on purchased or rental items our business model should adapt to that simple payment structure.
If a company would purchase new equipment based on the terms of the rental agreement it would improve current cash flow situations, as an example if we had to supply equipment to a new oxygen patient we would have an initial equipment cost from $1500-$2000. If the monthly reimbursement schedule was only for a $100 a month for 36 months it would take nearly 15-20 months to pay off the equipment. If we financed the equipment for the duration of the capped rental equipment then we could leverage our cash flow and finance the $1500-$2000 of equipment and have a $40-$60 monthly payment on the device for 36 months creating a $40-$60 monthly profit center at a fixed rate.
If you would like to learn more about cash flow improvement programs we are available for a free consultation. Our goal is to address your needs and improve your business condition imediately. We are available for company assessments and speaking engagements if requested.