Cost & Effect

Oxygen has long been the bread and butter of the home medical equipment industry. For the moment, it still is. The question is, will oxygen be able to sustain its status as the product that carries the not-so-profitable items in your business?

The advent of the Deficit Reduction Act of 2005 is certain to change the way the HME provider community deals with Medicare home oxygen patients. Although there are many more questions than answers, it is time to examine the change and its impact on your business, specifically intake.

WHAT WE KNOW

As it stands, the DRA will cap all oxygen reimbursement at 36 months. All patients started a new count beginning Jan. 1, 2006, whereby every oxygen patient began as month one in the 36-month counter. Your software should be counting every month from here on out to determine when 36 months comes up. This is true for new patients as well as old. After 36 months, the patient will own their oxygen equipment.

Until January of this year, oxygen could be rented as long as the medical need existed. Pursuant to Medicare regulations, this meant rent ad infinitum, or until the patient switched to another provider, another insurance or passed away. The typical oxygen patient — Medicare age with chronic obstructive pulmonary disease — will continue to need oxygen for the duration of his or her life. The average length of stay on home oxygen is characteristically between two and five years.

What does this all mean? What we know at this point is that Medicare will pay for “reasonable and necessary” maintenance and servicing (i.e., parts and labor not covered by a supplier’s or manufacturer’s warranty) of beneficiary-owned equipment (including oxygen concentrators). It appears, therefore, that you will not obtain additional revenue from maintenance and servicing beyond what is necessary.

The real question is, what is “necessary?” Until this is clarified, providers are left in a state of limbo.

WHAT WE NEED TO KNOW

Now that Medicare will cease payment after 36 months, there are many questions needing immediate answers from CMS.

For example, how much will Medicare pay for refills/contents of patient-owned equipment? Does this imply that providers are required to service these patients beyond 36 months for both refills and maintenance? If the patient owns equipment and needs maintenance, how should the patient expect to get their equipment to the provider? Whose responsibility is it to pick up and deliver the oxygen equipment? Since Medicare requires every patient to have backup oxygen, are they going to pay for the sale of the backup tank(s) that theoretically the patient will soon own?

Since oxygen is life support for patients, many of whom are frail and weak, how does CMS expect the patient to care for the device on his or her own?

Currently, HME providers periodically visit the patient to check on the unit and the patient’s well being. Providers make themselves available to their oxygen patients 24 hours a day, seven days per week. This will undoubtedly cease when payments stop. Without filter changes, proper liter flow checks, regular maintenance and more, fatality is very possible for oxygen patients. Is this what CMS means by “reasonable and necessary” maintenance?

I don’t honestly believe the government intends to compromise the patients’ well being over money such that it would cause fatal results. If it is up to the patient to call for refills, if they do not contact the HME provider, they are on their own, including during a disaster. A certain liability, CMS should consider this when crafting its maintenance guidelines.

What will happen with patients who switch from one oxygen provider to another? What about traveling oxygen patients? Similar to capped-rental items, if a patient has previously rented the equipment, there would be a disincentive to accept the patient on your service because you know your number of payments is limited. Many patients may be left searching for a provider because nobody will be interested in taking their case. This will particularly victimize “snowbirds.”

If a patient enters a nursing home and the 36-month diary stops, what happens when the patient comes home again? Do you start the 36-month clock again or do you resume where you left off? It is easy to imagine glitches in systems as a result of this. It also will cause maintenance to begin at a different time; what looks like 36 months is really 38 months, for example, because the patient was actually in the nursing home for two of those months.

YOUR EXPOSURE

One thing you can do while we wait to find out how Medicare will define maintenance is to calculate how much exposure you expect based on the 36-month cap.

You should be able to determine how long, on average, your oxygen patients remain on service based on data over the past several years. Break it down by location if you have several. From the companies I have queried, the answers have hovered around 25 percent, meaning that a quarter of all patients rent beyond 36 months. Translate this into how much money you stand to lose. Once you determine the answer for your current book of business, you will be able to plan for your future.

How many of your Medicare oxygen patients rent beyond 36 months? How far from your store do your patients live? Will you be able to afford to continue servicing patients in outlying areas? As you prepare for your revenue loss beyond 36 months, how will you make up the difference? Will you grow geographically, become more operationally savvy, cut service expenses or diversify your product mix and more?

This is the time to think about change and challenge yourself to determine alternative revenue sources.

INTAKE’S IMPACT?

Similar to capped-rental patients, the intake team must establish if the patient has ever rented the equipment before rendering service. If so, they will have to learn for how long the equipment was rented and from whom. You will want to see a pick-up slip to determine for how long you can actually bill this equipment.

Management will have to devise a cutoff number so that if the patient has rented the equipment from another company for more than a certain amount of time, you will not be able to accept the patient. For example, if the patient has been renting oxygen equipment from another provider for two months, it may be profitable for you to service this patient for the remaining 34 months. However, if a patient has rented this equipment for 30 months, it may not be worth your financial while to accept this patient on service.

Management will obviously need to meet with the referral sources in the community to explain the new regulations and why you will be changing the way you conduct business.

Additionally, supplies that you now give away for free will not be given out to patients once they own their own equipment (unless the government makes this mandatory). Depending upon the patient’s length of need and previous home oxygen use, you may want to keep a fleet of older equipment that you use for these purposes. You know that they are paid for, and whatever revenue you garner is better than using new equipment that has not yet been paid for.

Further, if the referral source begins to make it difficult when the intake department says it cannot accept the patient, a supervisor should be available to support the intake representative and explain the government’s policy as a disservice to the patient. Giving away oxygen equipment to content the referral source may become a thing of the past.

Finally, if you find patients continue to switch providers, beware. You could end up the 36th-month provider and gain no reimbursement for the oxygen. This is similar to the existing capped-rental program for HME products such as hospital beds and wheelchairs. More pointed questions will be required of the intake staff to determine if the patient has ever used home oxygen before.

The only saving grace is that, unlike a wheelchair or hospital bed, once a patient is on oxygen, they don’t usually come off. They would be more likely to switch providers than anything else.

WHAT TO EXPECT

Until CMS issues further clarification about oxygen maintenance, you will not know exactly how to proceed. In the interim, plan as though your revenue will cease at 36 months so that you are not caught off guard.

Expect patients to be noncompliant with maintenance of their equipment. They will not likely remember how to clean and protect the concentrator. More equipment repairs should ensue. In fact, expect new aftermarket repair and extended warranty businesses to evolve. Manufacturers may no longer focus on more sophisticated technology when making the next generation of concentrators, such as lightweight, more efficient devices that measure compliance electronically. Rather, they will more likely focus on making less expensive machines to meet the needs of the providers.

Depending upon the answers to the many questions that CMS has left unresolved, HME companies hopefully will be able to adjust as they have historically when sweeping regulatory change has occurred.

However, if Congress supports the president’s 2007 budget proposal to reduce the rental period to 13 months, dramatic and extensive change would follow. Fewer HME companies would be able to participate in Medicare, and patients would potentially go without their oxygen. Devoid of life support and 24-hour service, the patient would truly suffer, maybe mortally.

Moreover, what would the HME industry be without its bread and butter?

Miriam Lieber is president of Lieber Consulting, Sherman Oaks, Calif., specializing in operations management and reimbursement for the HME industry. She can be reached at 818/789-0670 or by e-mail at [email protected].