Durable medical equipment offers orthopedists a potentially lucrative revenue stream

Orthopedic practices can earn up to 40% net profit, but must dedicate new staff to make it work.

PHOENIX — Orthopedic practices can generate up to 40% net profit dispensing durable medical equipment, according to a speaker here at the Bones Society 37th annual conference.

Many practices struggling to offset falling reimbursements may welcome the news, but offering such products and services cannot be implemented overnight. Practices will have to add new managers and work processes to carefully track sales and rentals for the new business lines to succeed, said Matthew Federico, program manager at Breg Inc. in Vista, Calif., which sells durable medical equipment (DME), such as braces.

Executing a solid program plan is key to generating the full revenue potential, Federico said, noting new developments are making that easier. For example, many manufacturers now guide practices on how to implement efficient programs. They also may offer help in other areas, such as risk-reducing inventory consignment arrangements and inventory management systems.

But success ultimately depends on hiring enough good managers to track all the processes; otherwise, a lot of equipment can “disappear,” Federico added. For example, one practice found a continuous passive motion machine, which it had rented to a patient, up for sale on ebay, he said.

Even after accounting for the new hires, extra billing efforts and other related expenses, net profits can reach 40%, Federico said. In addition to strong inventory control, the most successful practices focus on high revenue items and cash collections.

“Be careful and start slow,” Federico warned. Do not try to ramp up the main center and several satellite centers at once, and do not attempt adding a full product line right away, either. Instead, build up gradually, he said.

For more information:
Edgar C, Federico M, Hellman H, Bell R. Ancillary services, the next generation. #100. Presented at the Bones Society Inc. 37th Annual Conference. May 21-23, 2006. Phoenix.