The Sleep Business Blueprint: Running a Profitable Sleep Center

Written by
Aarogram Team
Published on
May 12, 2023

In the second episode of The Efficient Care Podcast, Kashyap Purani, co-founder at Aarogram chats with Leonor Pereira, CEO at Sleep and CPAP Center, Rancho Cucamonga, California. She's ahead of curve when it comes to applying technology to improve the state of sleep practices. She's passionate about providing high quality services to her patients as well as helping other independent sleep centers to be a viable business in the face of the overall trend towards consolidation of independent practices with large healthcare systems.

Leonor is incredible at running her sleep center, which she has been doing for close to 12 years now and is a strong advocate of access to sleep apnea care for underserved groups.  

Listen to the full episode here.

Transcript of the full episode:

Kashap:  So Leonor, we are so excited to have you with us today. Thanks so much for joining us.

Leonor: I'm excited to be here.

Kashyap: I have heard so much about your journey. We have been talking about this for a while. Can you tell our listeners a bit about how you got started in the sleep center business and how has this journey unfolded for you?

Leonor: Oh wow, so I have been involved in, first of all in the medical industry since 1995. I was a young college student working as a medical sales representative. And the first company that I worked for, I was selling oxygen tanks and concentrators and eventually the company added CPAP and BiPAP devices.

And so I was doing that through, I think, my undergrad first, second year. And then while I was in that company, I got a little sister of mine to work there. And I eventually finished college, went on to law school while my sister became a little bit more involved in that field.

It was in 2003 where we partnered up and started a respiratory company providing the CPAPs and BiPAPs and sleep labs. And so, it's been a long time now that we've been exposed to the sleep industry and it has been really good for us. It has been really good to us.

We're continuing. Now we have sleep labs in California, Nevada, and Texas. And so, in collaboration with my sister, we've been able to keep each other informed as laws, insurance providers and reimbursements are different in different states. So, we've gained a lot of knowledge and I'm excited to share it with you guys.

Kashyap: That's an interesting journey and it's been quite a few years right? How has sleep medicine practice evolved over the years while you have been involved with it?

Leonor: It has changed. Definitely. I'll just tell you let's say 10 years ago we used to be able to pretty much see anybody without an authorization, without a referral. That patient could just come and say, I need a sleep study. Now it's just so much harder, but I think the biggest thing that has changed is  on the profit side.

10 years ago, I remember we used to get on average $2,000 for a sleep study and in-lab sleep study. A home sleep test, back then we didn't have them. And so $4,000 I think we used to get for a CPAP setup, sometimes more. I'm just saying on average. And now we're lucky. We get like $600. You know, contracted providers want to give you Medicare rate, 80% of Medicare rate, 110% of Medicare rate.  

Whatever small amount they reimburse us, it's barely enough to pay the staff, pay the overhead, pay the medical director if you're an independent diagnostic facility and you're paying the doctor for the review of the reports, pay the scoring. I mean it's hard and I think that a lot of sleep centers have compromised quality care because we have to do quantity, you know.  

I ttink that that's the most detrimental change that I've seen and obviously the most important because as much as we're here to care for the patient, we're also here to make money. And so now we have to have more creative ways to do so. And I guess sleep centers, more creative ways would be to also become a full service center where not only are you doing the sleep study, but you're also doing the treatment portion.

Kashyap: Yeah. You have touched upon so many important aspects to it, including prior authorization, access to the quality of sleep care for the patients, right? And ultimately, also about running the business. We have so much to unpack here. But first, it's also important to talk about the role of sleep medicine in the overall health for the sake of general healthcare audience and providers in the industry, also to remember what we are doing is important. So why does sleep matter so much for the overall health of a patient? What are the misconceptions that you come across about sleep medicine?

Leonor: Well, as far as misconceptions, I think that one of the biggest ones is that thin people don't have sleep apnea. Back before we started getting more awareness, more knowledge of what sleep apnea is, we used to think that when a person was snoring, oh, they were sleeping soundly. Now we know that they're dying. They are killing their cells. Another misconception I think is that if you're thin, you don't suffer from sleep apnea. We think that it's only for obese or overweight people and it's not so.

Actually yesterday we saw a firefighter- very fit, young. He was really young, and I was shocked to see that. It wasn't necessarily obstructive sleep apnea (OSA), he had central sleep apnea. And so, I think that now we've learned that sleep apnea is not just for overweight people, sleep apnea is not just for adults, it's also for the kids. There's a lot of kids, I mean as young as one that snores, stop breathing  and I think people are becoming aware that something that affects everybody. As far as the role that we play, I mean sleep is vital.

We spend half of our life sleeping . Sleeping so, it's such an important thing for overall health that it's just something that is like I said, it's just vital, necessary, and something that's never going to go away as far as diagnosis or sleep medicine. I mean, we already know that inadequate sleep, especially sleep apnea, leads to heart attacks, strokes, obesity, diabetes, anxiety, decreased brain function, memory loss, low fertility rates. I mean, we have immediate effects of low energy, sleepiness, irritability, memory, and the long-term effects are always going to be around, and sleep is vital to our survival.

Kashyap: You put it very well. I think it's kind of crazy that sleep has so many downstream health impacts as well as the overall cost as well. But still, more than 80% of cases of sleep apnea are still unbiased. But sleep medicine is evolving.

Leonor: Absolutely, yes.

Kashyap: New innovations are happening so hopefully you know we can address this problem. So how do you stay up to date with the latest research and development in sleep medicine? I remember you saying that you also perform evaluation studies for other research organizations, right?

Leonor: Yes, actually, right now our center is starting a new study with a pharmaceutical that is testing a drug for, I wanna say, I think it's ADHD in young adults. And so, we've done a lot of research with different types of companies that are testing a drug, whether it's for adults or children.

Kashyap: Okay.

Leonor: So that's one of the things that we're doing, but we don't necessarily get inside information from that because it's a subject, it's not a patient, it's not John Smith, it is a subject, a number. And so we don't get a lot of knowledge from that. I think most of our knowledge pretty much comes out for us that we are an accredited sleep center. The American Academy of Sleep Medicine (AASM) has  done an excellent job in keeping its members and the public abreast of sleep issues, developments in the industry. They even give us knowledge and awareness as far as billing insurance issues. It's not just sleep medicine and how it's evolving. So that's one of the most important ways that we keep abreast of what's happening and it's through the AASM.

Kashyap: What role does a sleep center play in the sleep medicine landscape?

Leonor: You know, sleep, like I said before, it's always gonna play a role. I mean, sleep centers are always gonna be necessary. There are certain things that, now that we have so many home sleep tests and a lot of insurance companies are trying to eliminate patients going to a sleep center because of the cost, there are certain things that home sleep tests cannot detect.

It cannot detect restless legs, cannot detect some periodic leg movements. So I think we're always going to have the need for a sleep center. There's also patients that have a certain disability that they cannot make it or they need to come into a center because of home sleep test is not, they don't know how to do it or they have some kind of problem. So I think, you know, sleep centers are always going to be in the sleep medicine landscape.

They're not going to go away. So I also, for example, see the need for sleep centers continuing to be significant when we think about a certain type of a group that right now, for example, we have truck drivers ,they need to be tested for sleep apnea if they have a certain BMI and a certain next circumference. And so, a lot of, we work with a lot of big trucking companies that, or companies that train truck drivers and whenever a class is done, before they go and they get their license, we get a bunch of truck drivers coming in to get that sleep apnea test.

They can take it to their medical examiner and they can get the okay to go and get their commercial driver's license. And they come, a lot of the truck drivers, they come, they pick up a home sleep test and this is a 400 pound person, 300 pound person that you can hear how heavy they breathe. While they're even talking to you, picking up the test and sometimes they come to bring the test and the test has no sleep apnea. And so, what can you think that that happened? What I think is that they probably put that test in their 12 year old so they can pass it, you know? A lot of these people are getting smart. And so I think that as commercial truck drivers they may continue having major accidents that is affecting the public. And there's like, this is a person that has sleep apnea and a home sleep test and pick it up. I think that eventually we're going to get to where they're going to be required to come into a sleep center, show the driver's license so that we know exactly who they are.

Unless where maybe a person is scanned or something and it's monitored online with a camera. You know, I mean, at least for that particular type of group, I don't see how home sleep tests are going to protect us the public from, you know, this tire truck drivers who have sleep apnea, but the home sleep tests that they didn't, you know? So, sleep centers are always going to be relevant.

And we're starting to get now with the knowledge that parents are getting that when their baby's snoring, there's something serious or older kids than now kids who have sleep apnea are, they're saying they're being diagnosed with ADD, ADHD. A home sleep test is not appropriate for that. It's like parents feel more comfortable having their child go to a facility to be, you know, to have a comprehensive sleep study, then a little, I don't think they trust a little device that it's going to pick up what they need for their child. So, sleep centers are always going to be relevant.

Kashyap: Yes, correct. So, on the other hand, you still see sleep centers, especially the independent sleep centers getting consolidated or going out of business. You mentioned the business challenges of operating a sleep center. So, could you elaborate on some of those challenges and how do you handle those challenges?

Leonor: Well, you know, I think that as we already kind of talked, touched on the subject of reimbursement, clearly that's one of the biggest challenges, you know, where sleep centers, especially the smaller ones, the, you know, those that are not associated with the hospital, it's difficult when we're getting such little money from the insurance to be able to provide quality care and to be profitable. So that's always going to be a challenge.

I think the other challenge is staff, just having staff that is cross-trained. I think one of the mistakes that a lot of sleep centers make is that they'll hire staff. They'll hire somebody to check benefits, somebody to do the billing, somebody to do the scheduling. And these people have their individual roles, their individual departments, and they're not working together.

And so, I think this is one of the weaknesses of sleep centers that when they compartmentalize this, they lose site of the main goal. And it's one of the biggest challenges, I think, for sleep centers is to realize that in order for them to not just make more money, but also provide good care and quality service for the patient and the referral source, they need to have staff that is cross-trained, staff that understands when a referral comes in whether there's a need for an authorization. If so, do it efficiently. The patient, does the patient have a deductible? Does the patient have a co-insurance? And to kind of be able to see the patient as a whole, the patient's insurance as a whole, it's not like, okay, so a department did the authorization and then that person who schedules that patient schedules the patient.

And then, oh my God, he's got a big deductible. Let's send him a bill. And so patients get the surprise bills. And for smaller centers, you're not gonna last long when patients are angry at you and they tell the doctors and the doctor's like, oh, you know, that center sends surprise bills. And that's because your person checking eligibility and benefits is not communicating with the scheduler or, you know, the employees don't care. They just do their job. You know? So I think proper employing and training, I think it's vital for the success and survival of at least smaller centers.

Kashyap: Yeah, the staffing challenges affect a lot of other parts of US healthcare system as well. So there's no surprise that it affects the sleep centers too. And then it affects the patient care as well. So in that sense, the workflow efficiency also becomes important.

And it shows when your staff is well trained, but also that you have proper workflow, have clear steps for your staff to follow. So how important is the workflow efficiency while running your sleep center?

Leonor: Obviously, you have to identify what is more time consuming and allocate that to somebody else like for example eligibility and authorizations. Those are time consuming things. And so, you could still cross train an employee to look at the eligibility, the authorization, and say, okay, so this patient's deductible is really high, there's an authorization that we need to seek, but maybe have somebody do that, somebody else do that, that work that is time consuming, you know.

And I think, I think that as far as managing the workflow, definitely seeking an authorization is time consuming, not just because you have to initiate it, but because you have be on top of whether you got it or not.

You can't just wait for the insurance company to send you a letter saying, are procedures authorized or not? You just can't do that. You want to speed that up. And one of the ways that you can speed that up, because if the insurance company in seven days says yes, your authorization is approved, proceed with a home sleep test or an in-lab study, but you're not checking, your staff doesn't have the time to check. It could be a month or two before you call that patient. And nobody wants a sleep lab that is scheduling two, three months later. The patient doesn't want it, the doctor doesn't want it, and it's just not good practice. So, I think workflow management is very important in delegating that task, to have  somebody else so that your employees can focus on more, you know, quality communication not just patients but the physicians. Especially for smaller sleep centers I see a lot of sleep centers that don't update them.

You say you get a referral from a physician in January and then you see the patient in March and it's like this three month gap, you know, the doctor eventually will ask what happened when you have the doctor's office calling you asking about a patient, you're not doing your job. And if you are able to delegate those time consuming tasks to another company or to another department that will also take time, but your employees will be cross-trained to identify that. You'll have more time to do the most important thing which is being able to focus on more revenue related tasks, you know?

Kashyap: Prior authorization is a challenge for a lot of other specialties and other types of healthcare providers as well. And that's why AASM is kind of advocating against it. But why is it especially a challenge for sleep centers and sleep medicine practices?

Leonor: You know, like we were talking about the how sleep medicine has evolved. I mean, insurances don't want to, for example, give you those in-lab studies that pay a little bit more. They don't want to necessarily authorize a sleep study unless the patient has, you know, other certain conditions (co-morbid conditions).

And so they've made it very difficult, very time consuming for a sleep center. And unfortunately, there's not much you can do. I mean, pretty much you're at the mercy of the individual insurance companies. And the best thing that you can do is contract with your contracts when you're in network, you already know. You kind of know that they're going to require an authorization or you get the authorization directly from your provider. No big deal. But we were talking about those contracts that don't pay as well.

So, we sometimes want to work with, you know, maybe out of network that might pay you better or more, you know, other different insurance providers that, yeah, that they might pay you better, but if you are able to have some kind of system where you identify those insurances that are going to be time consuming and those that are not, then you can certainly speed that process up.

And this is cross-training and giving those tasks to somebody else comes into play. For many years, in our center, we have been able to identify a lot of these blue crosses that are going to give us a hard time and those that are going to say, yeah, do it. And there's certain ways that you can find out. Bluecross has a lot of prefixes. I can tell from the prefix that this is a group that is for law enforcement, a group that is for teachers. I can tell you sometimes they're deductible, it's the same one for everybody. They don't need an authorization. So, for sleep centers that have those different departments they don't communicate with each other and then you're never gonna learn. That is so and it's sad because that's how you speed up the process and that's how you increase your profitability so you understand what I'm talking about right.

Kashyap: Yes, yes. I was going to ask, you know, what is the one thing that you could change if you were to about the Prior-Auth process? One thing you already mentioned is, you know, making those algebraic criteria very clear. So, is there any other wish list you would have, you know, when it comes to Prior-Auth? And that's what AMA is also advocating for.

Leonor: No, but certainly being able to tell, if it's even a service that requires no work. I mean, there's, Aetna, for example, in our state, and in our contract, the patient might have a deductible, but sleep is not- doesn't fall within that deductible. Right?

Like, okay, that's cool. So if you kind of know that, I know that a lot of centers, when they check eligibility, they either don't believe it or they still apply the deductible and the certain companies is like, certain insurance companies like sleep is probably considered like a routine physical. It doesn't eat enough predictability.

If we had something that with time can give us that a little bit of that heads up and a little bit of that, you know, that magic that we want to know that like it's going to speed up the process of scheduling and in, in collecting money and I have some insurances that especially like certain blue shields and I'm like, even if they give me a knot, they'll deny it for whatever reason, you know, and certain ones are always the same. And so, you know, having somehow that heads up, I mean, it's helpful.

Kashyap: Yes. So, I like your idea where you suggested that sleep should be like a routine physical, you know.

Leonor: Yes, absolutely.

Kashyap: So, that is definitely a role that sleep centers can play and should be playing. When it comes, I want to remind all of us that things like Prior Auth is not just about the business of the sleep centers, but also affects the access to quality care for the patients. So, it matters to all of us.

So, when it comes to business side, what are the other ways sleep center can diversify revenue streams. So, one of those ways you already talked about, you know, that they're underserved groups, patient groups like drug drivers and transportation staff, for which, you know, sleep health is a critical requirement for the profession. So, you could serve them, but are there other that sleep center can play more active role and in that sense also diversify revenue stream?

Leonor: I mean, I think there's a lot of ways that they can, you know, manage or increase the revenue cycle. What, obviously adding the treatment to the sleep center, you know, it not only gives you more revenue, but those patients that you set up on a, let's say a CPAP machine, they gain weight, they lose weight, maybe they need to come in again to have their CPAP titrated or I mean even when they have an automatic CPAP there's issues with the mask or whatever so it's also opportunities to have your patients come back for a titration sometime later in time right.

I think that another important metric that you have to track is the referrals, where they're coming from. I think that a lot of centers, they, I don't know, they just expect to get doctors referring to them. And you might with initially marketing, but you can't forget about that. And you can't just go and market and not give quality care and updates.

And if you're gonna say you we're going to do a sleep study within a week or two or where you know you're going in advertising that you're going to provide a report within a week or whatever you got to keep your word, you can't just get a referral and then three months later you're sending the sleep study to the doctors you know so I think just taking care of those referral sources some of these doctors that we have I mean they'll they'll send me patients a week, five patients, and it's smaller little offices that you don't expect. It's like some that I'm not even contracted, they send me really good because we provide good quality care. I think another thing that is not considered for sleep centers to increase their revenue is those Google reviews are absolutely in advertising.

I mean nowadays it seems like people when they're going to come they Google you and I remember I mean 12-15 years ago nobody cared but now these people are actually like reading their reviews and people are if you don't treat them well they'll leave you a bad review and trust me that makes a difference. I have so many people find us, people who have insurance, but they don't know what to do. The husband snores, the boyfriend snores, their kid snores. They don't know what to do. They Google Sleep Apnea. A Sleep Center comes up and it's like, you had the nicest lab, you had the most reviews, you had good reviews. Advertising with Google, I think it's a game changer. At least it has been for me.

And the reviews it has definitely held because the more reviews you have and the more content you put out there you come up higher in searches, you know, I mean that's just a metrics of Google. So, I think a lot of sleep centers don't realize the power of that.

Kashyap: That's great. I think these are very effective marketing strategies for the sleep centers to follow as well. And again, I want to remind us, just like prior authorization, the effective marketing, especially the referral coordination with the referral sources, it's also about the quality patient care. It's not just about getting the patient acquisition, the marketing for the sleep centers.

Leonor: Yeah, absolutely. I mean, you know, I think of another thing that I watch out for. Having technicians that are knowledgeable, and I hate to say, but charismatic, there's a lot of females that come into the center. And if you have a tech that look and the person maybe they had a split and it wasn't completed, they don't want to come back or they want to bring their husband so you better have a bedroom for the caretaker or the person and it's something that I don't think a lot of sleep labs consider.

I think they'll hire sleep techs because they need them, but they don't take that into account. I mean it's sad to say but you need to have is not threatening, that it's not, you know, so quiet because it's a very intimate process when you're putting the leads on a patient and, you know, so you need to have somebody that it has a good bedside manner. That is, it makes the person that's going to sleep there comfortable, you know, you're sleeping somewhere different. So you need to feel safe, a nice, you know, personable, non-threatening tech. And I think that having that also is super important for the success of a sleep set.

Kashyap:  Yeah, that's a great advice and somewhat, you know, non-conventional, so I'm sure, you know, that would be very useful. So, how can we make the sleep medicine, you know, more accessible to those who need it the most? So that is one aspect, where as the, you know, from the insurance side, we can make it more accessible. Are there other ways we can make it more accessible?

Leonor: You know, nowadays with the fact that sleep apnea is becoming more prominent, people are more knowledgeable about it. I mean, sleep apnea is made fun of by comedians. So, a lot of people are coming, and they either are not the type that goes to their primary doctor all the time or they have no insurance. So, I definitely think that having you know, in agreement with your staff that if it's a patient that calls for a sleep study and they have a high deductible or an insurance, offer lower prices. I mean, I have so many cash patients, let's say.

And for our DME side, we have payment plans. And nowadays they have that care credit. You know, there's a lot of people that need a sleep test. And so, you want to make it accessible to them. And you have to try to work with them. I mean, there's so many centers that just like, they put such a high amount on a sleep study and people's like, I rather not. Or they forget to say, okay, we have a home sleep test and after that you can get an automatic seatback machine and make it just a little bit more affordable and offer patients other options to pay. I think that makes it more accessible for those that are uninsured. Like I said, we work with a lot of truck drivers.

I mean, I don't know. I mean, 90% don't seem to have insurance, you know? Because they're their own company, their own person, and they don't buy insurance for themselves. And so, and these are the ones that require the treatment. They are always gonna come to your center to purchase supplies, to get their data downloaded. And so, this is like this type of people, you are gonna make accessible for them by not charging an arm and a leg because they're not insured.

Kashyap: That's interesting because having cash patients also is an indicator that it is greatly needed. If people are seeking, even if they have to pay out of pocket, and that means there is a gap. And the gap is sometimes if a patient can afford it, they can pay out of pocket. And there are a lot of other people who can't afford it. So that's where the payers I think need to do some work to make it more accessible.

Leonor: Absolutely.

Kashyap: So overall, looking at the larger picture, especially focused on the sleep center industry, I think there are things that sleep centers can do from their side. And there are things that the peers could do from their side to make it better. So overall, you have shared a lot of great advice on the sites for the sleep centers to follow. Are there other things you want to share? Internal metrics that you measure to understand the effectiveness or efficiency of running your slip center that the other slip centers can also learn from.

Leonor: For me, in my experience, it's just having that ability to track your referrals because then you know if there's a problem. Even that, I mean, a lot of the smaller sleep centers are not necessarily contracted by all insurance companies or HMOs. And so, if you kind of track where you're getting your referrals, even contracted in network providers, for example, I'll get an authorization from a, with an HMO or somebody I'm contracted in. And that doctor, yeah, he's in that network, but he also has other, He also accepts other insurance companies.

So, having a system where you can, you know, especially if you're a small center where you can track your referral sources and somehow market to them, let them know that you also have other, you also accept other insurances, you're going to get more. You're going to get a lot more referrals and some of them are going to be really good. You know, there's a lot of insurances that a lot, a steal paid really well.

So, I think that's one of the, something that is overseen, like, okay, you know, you're happy that you're getting all these referrals and you're contracted when you keep getting those authorized sleep studies, but you forget about the fact that those doctors that choose you from a list of providers have more to give.

Kashyap: That's great advice. So, at Aarogram, we believe that being efficient in your business as a healthcare provider also means providing more patient-centric care and innovating on the go. So, we ask this question to every guest we have on our podcast and so forth. So, what’s the most ridiculous way you have ever solved a workflow problem care setting?

Leonor: I don't know about a workflow problem solved in a ridiculous way, but I'll share that I had hacked that you have employed to solve and fix the thing. You know, it may not be the traditional way you would think, but like, I know you are very creative in terms of when it comes to running the business. So, it would be interesting.

I can't think of a ridiculous way, but I'll share something funny. So, I had a person, I mean, something funny, but like, you know, that could solve revenue, let's say, or lack thereof. I had a, somebody walk in and they were in the wrong suite and it's like, oh, I guess from where they come in, they could see that, you know, bedrooms. Like, oh, what do you guys do here? And I said, oh, we're a sleep center. And he goes, oh, people come to sleep here? I go, yeah, even during the day, we rent our beds for power naps. And so, I was being sarcastic, obviously. And so, I think the next day, two people walked in or working the same place and they walked in and they said, I wanted to make an appointment for a power nap in your center.

And they were serious. They were, they, they, it was so funny because they really thought that they could come during their lunch hour and pay like $20 or something for a power nap. And I thought, oh my God, what a great idea. That would certainly help streamline more revenue during the day when your sleep lab is empty, rented for power naps.

Kashyap: Okay, so Leonor that was incredibly insightful. So, thank you so much for the lovely chat Leonor.

Leonor: Thank you for allowing me to share that. I mean, I hope that this is useful for smaller centers. I hope they get some ideas that they can utilize to survive and to expand if they want to.

Kashyap:mThank you.

Leonor: You're welcome.

This podcast series is brought to you by Aarogram.