More Competition, More Choices

Is the hype surrounding portable oxygen concentrators finally bigger than the product’s actual growth? It’s not that the market is shrinking — Invacare, SeQual and De-Vilbiss say numbers are up — it’s just that economic factors have apparently slowed the revolution. Figure in a workhorse oxygen cylinder model, and it’s clear that POCs will likely co-exist with traditional modalities for a long time to come.

Similar to the ever-shrinking devices found in the consumer electronics world, patients and providers appreciate the lighter weight and increased battery capacity of some POCs. The concept is strong, but so, too, are other ways of doing business.

“The market for POCs is consistent, and it is growing incrementally,” says Joe Lewarski, RRT, FAARC, vice president of the Invacare Respiratory Group. “However, I do not believe the space is growing as fast as people may have expected.”

Lewarski attributes the slightly slower growth to persistent questions about long-term durability and reliability, concerns that he says will likely diminish over time. “I think you will see a growing maturity in the product line as the products continue to gain more favorable user experiences,” he says. “You will start to see confidence build, and the POC will become a larger portion of the total oxygen space.”

Despite its status as a giant in the world of medical equipment manufacturing, Invacare is a relative newcomer to POCs, with Lewarski helping to launch the company’s first offering (the XPO2 portable concentrator) in 2008. At the recent Medtrade in Atlanta, the Elyria, Ohio-based corporation introduced its new SOLO2 Transportable, which offers both continuous flow oxygen delivery up to 3 lpm, and pulse dose oxygen delivery in settings 1-5.

Invacare’s own success with its HomeFill system continues to draw some of the spotlight away from the POC model, and Lewarski points out that an objective look at Medicare claims bears this out. “If you look at the Medicare claims for 2008, you see substantially more growth in the K0738 code, representing transfilling,” he explains. “You see this more than the 1392 POC code. In the near term, the traditional model of concentrator and cylinders is still, at least by the objective Medicare claims data, by far the prominent oxygen stationary and portable system, with transfilling growing significantly every year.”

Dusty McClintock, vice president of sales and marketing for Worthington Cylinders, Columbus, Ohio, is one who believes that aluminum cylinder technology will continue to offer an affordable and transportable oxygen delivery model. Worthington entered the medical industry as a result of its recent acquisition of Piper Metal Forming Corp., U.S. Respiratory and Pacific Cylinders — all manufacturers in the medical oxygen cylinder market.

While McClintock has only words of admiration for POC technology, he also believes in the relatively inexpensive solution offered by more traditional oxygen models. “Initial capital costs for cylinders is nothing like it is with POCs,” says McClintock, who presides over a diversified company with annual sales of nearly $3 billion — and customers including Rotech, Pacific Pulmonary and Apria.

There are still a lot of providers who depend on the cylinder model, McClintock points out. “The portable oxygen market is time-critical, and you really don’t have the luxury of time to depreciate POC devices. This, combined with the cost-efficiency factor, means that the portable oxygen cylinder technology is going to be here for the long term.”

Many HME companies, at least for now, are choosing to offer a mix of technologies. “There may be a percentage of patients who have a portable prescription but are minimal ambulators and don’t go out as much,” says Lewarski.

“They may need just a few cylinders a month and can get away with a once-a-month delivery, or an every-other-month delivery. Price definitely plays a role. This is still a business of cash flow, and there is still declining reimbursement. Moving to new technology, whether it is a portable concentrator or a transfill, is a business model change.”

Standard concentrators and cylinders remain relatively low capital expenditures, but a transfill system or a POC can typically be as much as four to five times higher in upfront cash outlays. The trade-off is operational expenses, and service like regular cylinder deliveries become a thing of the past.

Lewarski notes that the back-end costs that go with running a traditional compressed cylinder business such as tracking, cleaning and recertifying cylinders are drastically reduced and/or eliminated in the move to new technology.

Growth in Tough Times

San Diego-based SeQual Technologies has preached the nondelivery gospel since 2006, and hopes to continue the momentum with its third generation Eclipse with autoSAT technology. The Eclipse 3 boasts new clinical features, including a display that can measure pulse dosing up to 192mL, and three variable rise time options. The autoSAT technology automatically adjusts to the increased oxygen demands that occur as part of a patient’s everyday life.

According to Ron Richard, RRT, CEO of SeQual, the company saw substantial growth in 2009 despite some slow months. “We had an election with an incoming new cabinet and new appointments particularly in the health care sector,” says Richard. “The looming issues of reimbursement cuts continued throughout the year, along with news about competitive bidding. Home care providers were nervous, plus the overall economy all factored in.”

Many providers were under considerable pressure from fluctuating gas prices, and costs quickly spiraled out of control for some suppliers. Richard reiterates that POCs are a good way to control a changing expense such as gas prices. As for the changing winds of Washington, that still adds up to an unknown.

“What is going to happen to the 36-month cap?” asks Richard. “There is still a lot of discussion about doing away with the cap and putting oxygen back as an uncapped rental item — then lowering the reimbursement rate particularly on stationary concentrators. Payers may then try to keep some of the low-delivery or non-delivery modalities reimbursed at a higher level.”

Another boost for POCs came when the FAA approved portable devices to be used on airplanes. Two major airlines are no longer providing oxygen tanks on flights, and Richard says the result is that airlines are encouraging people to use POCs. “Dealers are seeing this as a means to generate rental revenue,” he adds. “Patients are matching POCs to their own lifestyle, particularly those who like to travel a lot.”

One aspect of so-called lifestyle marketing is paying attention to retail sales within the oxygen sector. More and more providers are looking at POCs as an additional option for patients who want to purchase the latest technology, and providers should be aware of the possibilities.

“A lot of providers see POCs as a retail direct-to-consumer sale, and they are doing more advertising and marketing in that direction,” says Richard. “Many providers are also doing consignment closet programs, and they are just trying to make it easier to set up quicker on oxygen upon release from discharge.”

More Choices

With the entrance of manufacturers such as DeVilbiss and Invacare, it is clear that POCs are not going away despite a somewhat pricey buy-in.

“It is true that innovative products such as POCs will cost the provider more up front, but when you look at the overall operational savings provided by a nondelivery model there are a number of cost savings,” comments Kristin M. Mastin, director of marketing, DeVilbiss Healthcare, Somerset, Pa. “This equates to a quicker return on equipment investment — for the nondelivery model you can expect to break even on the operational and equipment costs in roughly one year as opposed to 18-plus months with a traditional delivery model.”

The company’s new iGo portable system offers two modes of operation — continuous flow or pulse dose, with setting 1 to 6 in pulse dose mode, or 1 to 3 lpm in continuous flow mode.

A glance at the Medtrade exhibitor list yielded more than 40 oxygen-related products and services. The bounty of manufacturers and distributors vying for the attention of providers attests to the undeniable need for oxygen products, and a much-hyped baby boomer generation only ensures that need will grow.

But for providers facing the realities of accreditation, competitive bidding and reimbursement cuts, the business has not gotten any easier. Some providers are turning to liquid-to-gas transfill systems to lower costs and quickly fill tanks themselves.

“There are an awful lot of HME providers going out of business, and there’s no margin left for them,” says Mark Andonian, vice president of Andonian Cryogenics, New Bedford, Mass. “They might have been making 10 percent on an E cylinder, and now they are making nothing. If they can get their price down to a buck an E for contents, instead of, say, $4, it’s a huge savings.”

Andonian urges providers to take advantage of the liquid-to-gas transfill method, which he says is far more economical than gas-to-gas transfilling and costs less than having tanks filled by another supplier. “If a fellow is doing about 100 E cylinders a week, our system typically pays for itself in less than a year’s time,” says Andonian, whose company manufactures the HP-40 liquid-to-gas transfill system. “Why pay $3, $4, $5 dollars or more for your tanks when you can fill them yourself for pennies?”

Better control over the tank inventory is yet another advantage when providers do not have to use outside suppliers to fill tanks. “Tanks do not get lost in the shuffle,” adds Andonian. “This can happen when using outside suppliers, in addition to not having them returned back to you in time for your deliveries, receiving tanks back that are not yours or receiving partially filled tanks.”

Ideally, HME providers can offer multiple oxygen delivery methods to meet a patient’s clinical needs, but each piece of equipment must provide a sufficient return on investment.

Unfortunately for many providers, making money has been just as hard of late as saving money. Rob Brant, founder of the Accredited Medical Equipment Providers of America, recently concluded that the cost of maintaining accreditation, surety bonds and licensed respiratory therapists — combined with cuts in reimbursements and the cap in monthly payments — has finally caught up with oxygen providers.

“According to Medicare’s Web site, in Los Angeles County there are only 120 oxygen providers remaining, compared to the 258 that existed in April 2008,” says Brant, CEO and general manager of City Medical Services, North Miami Beach, Fla. “During the same time, Florida-based providers in Miami-Dade County dropped from 401 to 205.”

According to Brant, other areas such as Brown County, Ohio, showed an even larger drop in Medicare providers. “A 495-square-mile area with 16 townships had a 75 percent reduction in oxygen providers,” laments Brant. “Last year, they had eight oxygen providers, but now they only have two. California’s Riverside County had a 56 percent drop in oxygen providers, the largest in Southern California. Last year, there were 48 oxygen providers, and today only 21 providers are left to cover the 7,200-square-mile area.”

Solutions That Match Lifestyles

According to SeQual CEO Ron Richard, “Long-term oxygen therapy has made dramatic steps to improve and become more patient-friendly over the past three to four years largely driven by a couple of key factors. Patients have become more educated and are demanding health care solutions that match up with their lifestyles and, secondly, the actual technology used in terms of delivering oxygen to a patient has evolved and become lighter weight and capable of producing low flow oxygen using AC-DC or battery options.

“Patients over the years have become more vocal related to the use of oxygen in the home care setting,” Richard says, “and manufacturers have come to a common understanding that they must design devices enabling patients to get out of their homes, increase their exercise routines and be able to travel without worrying about running out of oxygen while living a normal life.”

In addition, Richard continues, advances in battery technology combined with air separation systems and microelectronics “has made the dream of smaller, portable self-generating oxygen systems a reality for thousands of patients and improved the quality of their lives while using long-term oxygen therapy.”

Continuing improvements, he believes, “will certainly lead to the development of future generations of oxygen devices that are more intelligent and match up with the demands and lifestyle of individual patients.” In turn, that will both improve outcomes and reduce the health care costs — “billions of dollars each year” — associated with treating chronic disease that requires oxygen therapy.

“The industry as a whole is beginning to take a different approach to caring for LTOT patients,” Richard says. “NAMDRC, AARC and ACCP are advocating ‘titrate to saturate’ protocols when prescribing oxygen for patients. More care and attention is being given by clinicians to deliver the appropriate levels of oxygen during exercise, and pulmonary rehab is also seriously being considered a key component in many health care plans.”

LifeGas Gains Accreditation

Atlanta-based LifeGas, the medical gases business of The Linde Group, recently became one of the first gases and equipment suppliers to receive accreditation as a home oxygen subcontractor. The accreditation enables LifeGas to instruct patients on the safe and effective use of the oxygen and equipment it delivers.

“LifeGas believes the Medicare Improvement for Patients and Providers Act, which sets guidelines for the use of subcontractors, seeks to ensure that patients get high-quality products and services from accredited subcontractors, so that everyone who enters the patient’s home is following the same supplier standards,” said Anthony Eafrati, home care market manager for LifeGas. “This voluntary accreditation recognizes LifeGas’ ongoing commitment to providing excellent patient care. Our decision to invest in accreditation was a natural progression for LifeGas and another example of our commitment to our home care customers and their patients.”

Attorney Jeff Baird, chairman of the health care group at Brown & Fortunato, reiterates that CMS’ Competitive Bidding Implementation Contractor has indeed made it clear that any subcontractor that provides equipment setup and patient instruction on behalf of a contract winner must be accredited. “Suppliers that use non-accredited subcontractors to provide these services are putting their participation in the competitive bidding program at risk,” says Baird, an attorney at the Amarillo, Texas-based law firm. “CMS also may attempt to impose these same restrictions on subcontract arrangements outside of competitive bidding.”

Experts Interviewed

• Mark Andonian, vice president, Andonian Cryogenics, New Bedford, Mass.
• Rob Brant, CEO and general manager, City Medical Services, North Miami Beach, Fla., and president, Accredited Medical Equipment Providers of America (AMEPA)
• Anthony Eafrati, home care market manager, LifeGas, Atlanta
• Joe Lewarski, RRT, FAARC, vice president, Respiratory Group, Invacare, Elyria, Ohio
• Dusty McClintock, vice president of sales and marketing, Worthington Cylinders, Columbus, Ohio
• Kristin M. Mastin, director of marketing, DeVilbiss Healthcare, Somerset, Pa.
• Ron Richard, RRT, CEO, SeQual, San Diego