A Cost Reduction Strategy

A recent article in HME News highlighted the need for cost reductions from manufacturers of home medical equipment. It pointed out that in the "good" old days, a viable provider strategy to cut costs was to pressure manufacturers. However, in these economic times, that is not likely to be successful since manufacturers are already under intense financial pressure and often working on thin margins. The current era of "competitive bidding" further intensifies that overall cost pressures for HME and DME providers.


A tool that providers can use to cut their costs is to use a Medical Accounts Receivable [MAR] funding program that allows them to take advantage of cash discounts many manufacturers offer in return for fast payment. Reimbursement delays affect the cash flow of providers and consequently providers want to delay payment to manufacturers, all of which combine to put cost and price pressures throughout the system. However, a MAR funding program accelerates the provider's cash flow without adding debt. And by doing so, it can minimize the pressures for cost reductions on the part of the manufacturers. Furthermore, the manufacturer can use an accounts receivable funding program to accelerate their own cash flow from their customers. In either case, given the increasing cost pressures on medical equipment, both customer and supplier could benefit by adding an accounts receivable funding program to their financial strateies.

Three Rx's

For the living organism, the lack of sufficient oxygen prevents growth and absence of it threatens survival. Metaphorically this is important because capital is business oxygen. Insufficient capital prevents growth and development and capital absence dooms business to failure. The metaphor ends there, because oxygen is readily available and accessible to the living organism. Capital, on the other hand, must be acquired.

Obviously, a business requires working capital to fund manufacturing, supplies, overhead and general day to day functioning. "Growth" capital is required to finance development of the business whether the plan is to increase the number of accounts, add additional products or purchase new equipment. Regardless of the reason or need, there are only three prescriptions (Rx) to satisfy your capital requirements: raise equity, acquire debt or sell assets.

Equity financing involves the sale of ownership to outsiders willing to invest in the business. Debt financing is the second Rx. To obtain debt, you are selling your businesses and/or your personal creditworthiness. The lender calculates both business and your creditworthiness which determines whether the loan is made, and the cost (interest rate) of the loan. Rx three is selling assets to raise capital. This is a less traditional, but equally effective method of raising capital. Some conclude, incorrectly, that this method requires selling hard assets such as equipment or furniture. Fortunately, that is not required. The only asset that a company can sell and still remain in business is accounts receivable.

Medical Accounts Receivable (MAR) funding uses the laziest asset owned by a medical practitioner. Becoming aware of such utility can bolster a medical practice or medical services business to new growth and profitability.