Take a Deep Breath

Paul Gammie calls it the “double whammy.” The general manager of Gammie HomeCare in Kahului, Maui, like other respiratory providers in the nation, is grappling with new Medicare oxygen reimbursement cuts — which, in Hawaii, top out at 20 percent for stationary oxygen and 29 percent for portable systems.

“We got the double whammy. We’re also getting squeezed out of the cost-of-living adjustment for businesses [located in an area] with a higher cost of living,” Gammie says. “We weren’t expecting to get both of those at the same time.”

So Gammie is scrambling to ensure that his home medical equipment business somehow remains on solid footing. “I’ve run our raw numbers; this will not cause us to close our doors. We’ll still be here next year,” he says, “but what kind of changes do we have to make [to continue to be a viable business]?”

It’s a question oxygen providers across the nation are asking as they figure out ways to deal with Medicare’s 2005 oxygen fees, which went into effect in early April. The drop in reimbursement was dictated by the Medicare Modernization Act, which required the Centers for Medicare and Medicaid Services to align oxygen fees with the median Federal Employee Health Benefits Plan pricing set down by the Office of Inspector General.

According to CMS, the average rate reduction is 8.6 percent for stationary oxygen and 8.1 percent for portable units. The cuts vary by state; those with higher Medicare fees saw the deepest cuts, while states with reimbursement already in line with FEHBP pricing saw lesser or no cuts. New reimbursement rates range from $194.48 to $200.41 for stationary oxygen, and from $30.57 to $32.08 for portable units.

REVISITING THE PAST

For some providers, it is, as Yogi Berra says, like déjà vu all over again. Back in 1997-98, providers were hit with oxygen cuts mandated by the Balanced Budget Act that totaled about 35 percent. Consumer Price Index raises were frozen, as well. Providers took it on the chin then, and for many it proved to be a good business lesson since they were forced to figure out exactly how much it cost to deliver oxygen and service their patients.

This time around, though, the stakes are a bit higher. Most companies have already pared unprofitable business lines, sought other venues such as retail opportunities or private contracts and computerized their business operations for better efficiency. Today, they’re living with narrower profit margins and higher fuel, insurance and personnel costs.

“We were at $350 [for stationary oxygen] in 1997, then we dropped to $220 and we didn’t get the CPI increases [of 2 or 3 percent a year],” says Dennis Trach, corporate regulatory compliance manager for Amherst, N.Y.-based Associated Healthcare Systems. Add up those cuts since 1997, Trach says, and his company is looking at a 53 percent decrease — before the state’s current 12 percent cut for stationary units.

So what’s a home care company to do?

Trach says his company is studying alternative delivery methods, such as conservers or home filling systems. It is also seeking ways to become more efficient. “And you don’t become more efficient by adding personnel,” Trach says. “You have to look for ways to make the ones you’ve got more efficient. All the clinical stuff we did for free — it’s gone, or if it’s not, it will vanish pretty quickly.”

L. Jack Clark, RRT, principal and founder of Mid Georgia Respiratory (MGR) in Griffin, Ga., is pretty philosophical about his cuts, which in that state are 12 percent for stationary systems and 11 percent for portables. “I have been taking care of patients with lung problems at home for 26 years,” Clark says, “and in 26 years, I have enjoyed 22 fee cuts. But people are living longer and needing more services. Respiratory therapists are in short supply. High technology requires more therapists. I don’t have the fear I used to have that, ‘Oh, my gosh, we’re going to go broke.’

“We are a lot larger now in numbers of patients,” he continues. “We had to look at doing business differently.”

For example, he says, the company began asking people to come into the office for sleep therapy mask fittings. It stopped purchasing expensive equipment like ventilators, which sat on a shelf until someone needed them. Instead, Clark rents them when the need arises.

The current cut translates into MGR having “to find $100,000 in additional revenue to do business as we currently do it. We are going to have to focus on what we can do less of that won’t [result in] poor outcomes,” Clark says. “And sometimes, less is enough.”

WORKING SMART

At Binson’s Home Health Care Centers in Centerline, Mich., the answer is to increase the business, says Brian Chambers, director of respiratory. “You try to increase the business 20 or 30 percent because you have other costs that are going to go up, like gas and health insurance for employees,” he says. “We just increased our marketing efforts; we started about a year ago to increase our profits.”

The company has also invested in home oxygen filling systems, which has cut delivery costs, and increased its sales force to cover more territory, he says.

Jim Kissler, chief executive officer for Boise, Idaho-based Norco, has a business philosophy of always trying to position his company the best he can in terms of productivity. That way, he says, he’s prepared for the inevitable cuts.

“To a certain degree, we’re always trying to wring [out] every ounce of productivity we can,” he says. He is looking for more efficient ways to handle deliveries and dispatching, has hired a person to work on safety issues that could result in lower insurance costs and is barcoding merchandise, which should help increase productivity among his sales personnel. In the face of ballooning gasoline prices, he is also trading in his heavy-duty trucks for vans that get better gas mileage.

“I think working smarter is the key,” Kissler says, noting that the company is upgrading its software at a cost of $600,000. “We think it will help us be more efficient in our billing side of the business, or even order-entry … If you can operate smart and have your niche, if competition is not dog-eat-dog and you have an average or above-average net profit, then you take the cuts and your profitability drops, but you’re still in business.”

Mark Sheehan, president of Cape Medical in Sandwich, Mass., is also taking the smart road. His company is seeking more non-Medicare business, he says, and it has started to invest in home filling systems.

Sheehan also is taking a look at every product the company carries. “Every product has to be analyzed on a cost basis,” he says. If it is not cost-effective, it will likely be dropped. “We stopped doing wound care and ostomy years ago. The margins were low and the billing headaches were huge.”

The only problem is, he says, “there are only a couple more product lines I can drop, and then we’re not in business anymore.”

As for Hawaii’s Gammie, he’s also kicking into action, seeking ways to pare business costs and, at the same time, offer his customers a high level of service. It’s a tough proposition since, as he points out, Hawaiian providers are already seeing margins less than 50 percent of what they were before the 1997 cuts.

Since the BBA cuts, “the growth in the market has provided us with economies of scale that we have been able to tap into in the past,” he says. He’s unsure whether that is going to be enough now.

“We have to look at what the core services of home respiratory are,” Gammie says. “Any type of medically unnecessary service is going to be impacted greatly.”

His state does offer some unusual challenges. Since it is made up of islands, nothing can be trucked in. Everything comes by airplane or ship, which increases his costs. And his patients like to travel off the islands.

“There’s a lot [of services] we have put in over the years to make a positive impact on our people and allow them to not be homebound,” Gammie says. “How are we going to assist our traveling patients in the future? Where do you draw a line related to convenience and lifestyle versus necessity?”

He doesn’t know the answers yet, but he still holds out hope for the future. Hawaii’s busy tourist trade allows him “to function a little on the retail level,” which could be a boon. “I just have to have faith that the necessary services that we provide will be recognized,” he says.

THE NEXT CUTS

It’s that service component that is leading Sheehan down another path as he wrestles with the effects of the reimbursement cuts. A member of the New England Medical Equipment Dealers Association, he and others are talking about a variety of options.

“One of the areas we are beginning to explore is service fees,” he says. “The electrician, the plumber, any kind of service company that comes to your house [charges] a minimum fee. We are service providers. [Medicare has] to start thinking about the cost of the service.”

Where these talks will go is anybody’s guess. But Sheehan is hopeful that something concrete regarding service will happen before nationwide competitive bidding comes along in 2007.

Frankly, competitive bidding in medical care scares him — and a lot of other industry players.

“Competitive bidding, in my view, is going to turn all of us into Home Depots,” Sheehan says. “You’ve gotta be a Home Depot or you’re gone — grow or die. … Why are they taking the most basic of all human service — medical care — and putting it to the lowest bidder?”

Clark calls competitive bidding “the biggest threat” to home care. “The big companies can low-ball it for several years and run the small moms-and-pops out of business, then ratchet up the price because there’s no one left to do it for less,” he says.

Binson’s Chambers thinks competitive bidding will cut profits even more than the current round of cuts. “It could drop to the [Veterans Affairs] level,” he says.

Trach believes competitive bidding cuts could be as much as 18 percent. “Where are they going to get this from?” he asks. “People still expect their raises, and our costs are not going down — they are going up. Eventually, it will be to a point where you cannot make it up in volume. That’s coming pretty quickly. We have taken our hits too much.”

What types of respiratory/sleep products and services do you provide?*

*Respiratory providers responding to HomeCare‘s Respiratory/Sleep Survey, January 2005

18 WAYS TO SAVE

Of respiratory providers responding to HomeCare’s Respiratory/Sleep Survey (January 2005), their oxygen strategies include:

1. Scheduling tank deliveries rather than responding to calls from patients
2. Requiring patient pick-up instead of home delivery
3. Improving control over cylinders, such as not allowing patients to stockpile cylinders, better tracking to reduce cylinder loss and tightening up on patient waste and abuse
4. Limiting the types of systems offered, with a focus on equipment that will decrease patient visits
5. Decreasing use of liquid oxygen, including taking no new liquid oxygen customers
6. Increasing the utilization of conserving devices
7. Encouraging use of home-fill systems
8. Cutting in-home visits by using database follow-up systems to maintain contact with patients
9. Servicing concentrators less frequently
10. Discontinuing any extra services, such as rearranging home furniture, or charging a fee for extra services
11. Education of political leaders to protest reimbursement cuts
12. Purchasing cylinders instead of renting
13. More use of transfill systems
14. Increasing volume by adding oxygen patients
15. Better routing, such as delivering only to certain areas on certain days, and reviewing routes to maximize time and cut down on the number of miles driven by therapists and technicians
16. Turning away long-distance referrals
17. Having delivery technicians perform patient visits instead of RRTs
18. Beefing up or diversifying into other areas of respiratory business. One in three respondents (34 percent) said they plan to provide respiratory products via mail order.