Inventory management: Get a handle on expenses

Q. What is inventory management and why is it important? 

A. Inventory management is the process of overseeing a company’s stock of goods, including ordering, storing and selling products, with the goal of balancing inventory levels to meet customer demand, while avoiding overstock or stockouts. For HME providers, this also includes managing product states, compliance with accreditation and licensing, recalls and billing system inventory rules. Most HME providers use billing systems to manage inventory, but these systems are often designed for insurance claims and are not flexible enough to handle complex inventory needs, making inventory management challenging.  

Despite its difficulty, inventory management is crucial for HME providers. Procurement and inventory handling are significant expenses, yet the industry has seen little innovation in this area compared to patient intake or claims processing. The lack of effective inventory management leads to wasted labor and unnecessary costs, such as reconciling inventory levels, managing serial numbers, performing cycle counts, and dealing with shrinkage and overstock.  

Many providers respond by continually ordering more inventory, creating phantom stock records to confirm sales orders and tolerating recurring inventory errors. This results in wasted resources, both in terms of excess stock and labor hours, ultimately affecting profitability. Providers may be unintentionally tying up hundreds of thousands of dollars in excess inventory and inefficient processes. 

Improving inventory management can recapture margins that are within a provider’s control, unlike reimbursement rates, thus directly contributing to the bottom line. Effective inventory management is not just about having the right products at the right time, it is also an opportunity to optimize costs and improve operational efficiency. 

John Skoro is CEO and co-founder of HME360. Reach him at John@hme360.com.