Pain at the Pump

ATLANTA — Nationwide, the average gas price crept over
$3.50 per gallon this week according to fueleconomy.gov,
and predictions put the price at $4 or more by the summer. That’s a
burden sure to be felt by already cash-strapped HME providers
across America when they pay at the pump.

Dallas Jackson, CEO of Jackson Medical Supply, lives in
California, where pain is most acute at $3.90 per gallon —
tops in the nation.

Jackson and his wife Wendy Jackson, who run locations in
Vacaville and Woodland, Calif., have responded to the rising prices
by scheduling deliveries and house calls more efficiently in an
effort to minimize road time. “We are also keeping our vehicles
tuned up and maintaining tires at the optimum pressure for the best
gas mileage,” said Dallas Jackson. “In time, we may have to raise
our delivery charges for our private-paying customers.”

With no real way to predict when prices will top out, more
providers in the delivery-intensive home oxygen sector may also
begin an earnest transition to the non-delivery model, long touted
for its ultimate efficiencies and cost savings.

“Many providers are setting patients up on the newer small
portable oxygen concentrators,” confirmed Helen Kent, CEO of
Progressive Medical, Carlsbad, Calif. Along with eliminating
patients’ fears of running out of oxygen, she said, “the company
saves on delivery costs and additional employee costs.”

Oxygen technology that only requires delivery one time “is
essential” to both protect and grow business profitably, agreed
consultant Tom Williams, managing director of Strategic Dynamics.
“Since 2006, gas prices have only been under $2.11 per gallon for
seven months,” he pointed out. “Since April 2008 they have steadily
increased,” and the cost could remain unpredictable for some time,
he said.

Switching to the non-delivery model requires considerable
start-up costs, but industry veteran Ron Richard, vice president
and general manager, respiratory, SeQual Technologies, believes the
change makes sense. “Instability in the oil and gas market will
continue to worsen,” he said, adding that prices in the $5 range
may not be far off.

“This would have a huge impact on delivering oxygen to patients’
homes,” Richard said. “The other option is to switch all delivery
vehicles over to Prius, hybrids or natural gas. This is a very
costly option, but it could help offsets costs.”

Eliminating non-value added, or “NVA,” business activities can
also help to lower costs and begin to cope, according to Joe
Lewarski, vice president of Invacare’s Respiratory Group.

“These NVA activities start with the order intake and include
invoice generation, pick/pull, serial number and lot tracking,
delivery coordination/routing, the physical delivery, the return of
the cylinders and refill processes,” Lewarski said. “Eliminating
orders through the implementation of a non-delivery oxygen
technology strategy has, and continues to prove over and over, to
be the lowest-cost home oxygen therapy model. It not only
eliminates the routine delivery of cylinder or liquid, it reduces
the back-end workload, which is plagued with NVA activities.”

Round 1 providers locked into competitive bidding contracts are
in even more of a squeeze as pump prices complicate “winning” bid
numbers that likely did not account for exorbitant gas prices.

“According to the Department of Energy, gasoline has gone up
nearly a dollar a gallon since the time I placed my bid in December
2009,” said Rob Brant of City Medical Services in North Miami
Beach, Fla. “This is yet another risk you take when you accept a
three-year contract.

“The real problem is when manufacturers increase shipping
charges and cost of goods based on rising fuel costs,” Brant added.
“UPS and manufacturers can add fuel surcharges, but contracted
suppliers can’t.”