Dealing with the Ups and Downs

There are few thrills that rival the excitement of riding a roller coaster, but riders must have a strong stomach, remain calm and, at times, be able to scream very loudly. The same could be said of the market for home oxygen therapy.

A decade of reimbursement cuts and legislative changes has forced providers and manufacturers to look at new devices and delivery modes, all while keeping a focus on patient care. At the same time, fuel and labor costs have increased, placing additional burdens on providers.

Legislatively speaking, declining reimbursement is still a concern, but there are a few nuggets of hope.

“The good news is that there’s not much opposition to repeal of the title transfer provision of the Deficit Reduction Act. The Bush administration and both sides of the aisle in Congress agree that the title transfer provision was a mistake and represents potential safety and regulatory issues for beneficiaries and their families,” explains Robert D. Hoover, Jr., MD, MPH, FACP, chief medical officer of DeVilbiss Healthcare.

“The bad news is that oxygen reimbursement cuts are still squarely in focus from both the Senate and the House of Representatives as they look for ways to pay for the ‘physician fix.’”

At press time, Congress was still wresting with the issue, so whether the industry will see further reductions in Medicare payment for home oxygen therapy remained a question. However, one thing is certain: It will not increase.

“The one certainty within oxygen reimbursement is that it has always been under the microscope and a target for payment reductions,” says Daryl Risinger, Inogen’s vice president of marketing. “The ‘next’ reduction in reimbursement has been the topic of conversation for years, and no one I’ve spoken with believes the reimbursement pendulum will swing in the other direction.”

According to Jay Vreeland, Respironics’ U.S. director of marketing, ongoing discussions in Congress regarding payment for oxygen and the uncertainty of the effects of competitive bidding are keeping the industry in a state of uncertainty. He says the landscape for providers is going to change, but how exactly no one yet knows.

“There has been a lot of speculation due to the reimbursement pressures and competitive bidding, but how competitive bidding will play out has not yet been determined,” he says. “Future potential cuts to reimbursement or changes to length of reimbursement have been acknowledged by the industry, but the severity or magnitude of the changes is yet to be clearly understood.”

SeQual Technologies’ Ron Richard, senior vice president of sales and marketing, notes there are several scenarios that could change the payment structure for home oxygen. One could be a reduction in the rental cap to 18 months for stationary concentrators and liquid oxygen, while the cap for oxygen-generating portable equipment would remain at 36 months.

But Richard says the primary issue the industry should consider is that the category for OGPE could be redefined and set as a code with a payment apart from stationary oxygen. “[OGPE] could be billed using E1392 … then stationary devices would be defined under the E1390 code and paid at some cap and rate apart from the newer technologies,” he explains.

Hoover emphasizes the industry has supporters in Washington who recognize the importance of home oxygen therapy and the savings it provides in keeping patients out of costly in- patient environments. “Unfortunately,” he adds, “there are others on committees with jurisdiction over Medicare … that have yet to understand the severe impact that further reductions in oxygen reimbursement will have on patients and this industry.”

The matter could be resolved by the time providers read this issue.

Dan Easley, president and CEO of Inspired Technologies, says reimbursement will force the industry to be more competitive with costs.

“Becoming cost-competitive is crucial, but the real answer is to be able to understand how to grow,” he says. “Patient volume is projected to grow from 1.5 million to an expected 4 million in 10 years, so any way you look at that number, it is a growth industry.”

Joe Lewarski, BS, RRT, FAARC, vice president of respiratory products for Invacare Corp., believes the Medicare oxygen benefit continues to be a target.

“In the near term, we are still looking at some more pain and, again, that pain means that the providers are going to have to continue to look for ways to be more efficient in their business,” he says.

Inogen’s Risinger points out that “although CMS continues to forge ahead with competitive bidding, providers in the first MSAs have indicated the bidding process has helped them take a closer look at their costs of doing business and, in some cases, immediately improved operating efficiency.

“Given the history and consistency of reimbursement change, providers who are paralyzed by what might happen are at risk for losing revenue and market share. Now more than ever, it’s critical to adapt to the changing reimbursement.”

Lowering Costs, Leveraging Growth

So how can providers do this? Experts advise looking at ways to increase efficiency and lower costs.

“Providers have to continue to do what they’ve been doing for the last few years,” says Lewarski. “This involves looking into their businesses and finding the efficiencies and solutions that lower their overall cost of doing business.”

The growth that is expected in the oxygen market also presents an opportunity for providers to look forward. Volume, such as that forecasted for oxygen, is healthy for any kind of business, adds Lewarski.

“You just need to be able to pick out the right strategy — one that emphasizes a leadership model versus continually focusing on cost,” he says.

However, growth can be defined in many ways, some of which keep oxygen providers behind the curve.

“It’s time to abandon the notion that adding trucks or employees is a sign of growth and instead look for ways to grow without adding significant operating costs,” says Risinger. “This is the time to evaluate whether or not you have the right business model in place.

“As counter-intuitive as it may seem, your initial capital asset may have been long since paid for, but it may be time to retire it. If costs surrounding deliveries and traveling patients continue to escalate, then there will simply be insufficient reimbursement using older technologies to remain profitable,” Risinger says.

According to Easley, cost consideration should also involve patient categories, technology and business assistance programs, such as software programs that drive efficiency.

“It [takes] understanding what drives your costs and the ability to remove those costs in your business by getting the right scale in terms of implementing non-delivery technologies, and then paying attention to your overhead leverage,” says Easley.

“The beauty of growth is that it is going to leverage your overhead, and you need to make sure that you do have the right strategy, whether it’s software or best practices or non-delivery technologies in the home. You need to have a model in your business that allows you to understand where that leverage comes from when you grow.”

A push toward non-delivery models has been gaining steam in the last few years.

“Providers are now taking a much closer look at how they run their businesses and searching for opportunities to improve their business models or better ways to differentiate themselves in their marketplace,” says Respironics’ Vreeland.

“Providers looking at their businesses are looking at possible solutions such as a non-delivery model to improve operational efficiencies and reduce expensive delivery costs. Some providers have gravitated toward home-filling devices, while others have found success using a stationary concentrator with a portable concentrator as an alternate to making deliveries.”

Risinger agrees the interest in non-delivery models is increasing. He also sees it as necessary, noting such new technologies will enable providers to decrease their operating expenses.

“Portable oxygen concentrators and transfilling systems are no longer seen as niche product categories. Compared to more traditional modalities, they now have better reimbursement structures,” he explains. “Oxygen therapy devices and business models that support a new paradigm of lower operating costs for the provider and independence for the patient are now more important than acquisition costs, not only to be competitive but to be profitable.”

Meeting Patient Needs

Vreeland adds many providers are looking at additional opportunities to increase revenue with portable oxygen concentrators for an increasingly ambulatory patient population.

“Many providers offer portable oxygen concentrators as rentals for either a week, a month or longer. These opportunities augment their existing revenues but also give them the opportunity to differentiate themselves compared to their competition,” he says.

While the first portable oxygen concentrators struggled to gain a foothold, primarily due to absence of reimbursement, times are now very different, according to Risinger.

“With strong reimbursement and the ability for select products also to eliminate associated travel costs, there are now five devices available on the market with at least another three in development,” he says. “Every major manufacturer in the oxygen therapy space either has a portable oxygen concentrator available or has a development program in place.”

He adds the industry will see continued development within this category with an eventual segregation of devices — under 10 pounds and over 10 pounds — to meet the varying clinical and lifestyle needs of patients.

Even though portable concentrator technology is improving, DeVilbiss’ Hoover says it is still hampered by high cost, relatively short battery life and lack of any clinically meaningful continuous flow mode.

“The devices on the market today that have continuous flow are heavy and tend to exhaust their batteries more quickly in continuous flow mode. This is a function of the current technology used in portable concentrators which is basically the same zeolite-based technology used in the larger stationary concentrators,” he says.

The attention that transfilling systems and portable concentrators have been receiving is due to their ability to lessen the workload for providers.

“These technologies shift some of the work and responsibility for the providers and move some of the non-value-added components, like delivery and refilling tanks, away from providers so they can concentrate on value-added portions of their business such as billing, clinical evaluations and communication with physicians,” says Lewarski of Invacare.

Oxygen-generating portable equipment, including transfilling devices and portable oxygen concentrators, should continue to see growth as they fit into a more attractive reimbursement scheme.

“It is likely that any congressional action to reduce reimbursement for oxygen therapy will center only on stationary concentrators,” predicts Hoover. “Assuming the reimbursement cap remains at 36 months for oxygen-generating portable equipment, it will make these technologies even more attractive.”

Adds Vreeland, “In a marketplace with many challenges, there will be opportunities for someone to develop new solutions. These solutions may be technology-focused, but any new technology must focus on positively impacting the reimbursement scenarios for providers.”

Switching to new models of oxygen delivery and investing in new technology can be difficult for HME providers, the experts say. However, the changing reimbursement scenario makes it worth considering.

“When you are changing your business model and are moving from an operational expense model where almost all of your cost is tied to labor and general overhead and moving to a capital equipment model, you are depreciating that equipment,” says Lewarski.

“However, your cost of service will drop substantially. It requires more cash up front, but the return on investment is different and, ultimately, long-term the financial impact becomes stronger because the costs become much more consistent and controlled.”

What Do Patients Want?

As providers of home oxygen therapy look toward new technology to increase profits and drive efficiency, they should be aware they are not the only ones interested in the newest products on the market.

“We are seeing a generational transition in oxygen patients, moving away from the traditional World War II-type of patients who are not necessarily technology-savvy and who may simply not be physically able to ambulate as much,” says Dan Easley, president and CEO, Inspired Technologies.

Easley says the newer generation of patients is different.

“They are demanding the freedom and the mobility they had before. They understand their disease process and are willing to take an active part in delaying that process as long as they possibly can,” he says.

These patients are using the Internet as a resource and may start using their own money to get the products they want.

“In a recent survey of oxygen therapy patients, 18 percent learned about their oxygen therapy device over the Internet, while only 16 percent obtained information from their home health care provider,” notes Daryl Risinger, vice president of marketing, Inogen.

“Even now, providers are seeing the impact. Patients and referral sources are asking for specific modalities or even specific products they feel will meet both the clinical and lifestyle needs of the patient.”

Robert D. Hoover, Jr., MD, MPH, FACP, chief medical officer, DeVilbiss Healthcare, adds the newer technologies offer an additional benefit for patients.

“A mainstay of therapy for chronic obstructive pulmonary disease is encouraging patients to be more active and exercise,” he says. “Portability of their oxygen source is critical to the independence necessary to engage in pulmonary rehabilitation and exercise.”

Risinger adds that to stay competitive, providers must be willing to make newer products available.

“This emerging dynamic reinforces the need to evaluate current business models to meet the demands of an evolving industry,” he says.

Experts Interviewed:

Dan Easley, president and CEO, Inspired Technologies, North Huntingdon, Pa.; Robert D. Hoover, Jr., MD, MPH, FACP, chief medical officer, DeVilbiss Healthcare, Somerset, Pa.; Joe Lewarski, BS, RRT, FAARC, vice president, respiratory products, Invacare Corp., Elyria, Ohio; Ron Richard, senior vice preesident of sales and marketing, SeQual Technologies, San Diego; Daryl Risinger, vice president of marketing, Inogen, Goleta, Calif.; and Jay Vreeland, U.S. director of marketing, Respironics, Murrysville, Pa.