A Managed-Care State of Mind

A first glance at Dallas Oxygen reveals a typical HME business: a 21-employee, two-branch operation that provides oxygen and medical equipment to the greater Dallas-Ft. Worth metro area. Owner Dean Cheney, with a gray beard and ponytail, calls himself an “old-timer.” He’s an industry veteran of 30 years whose business has developed a reputation for good service, with drivers braving their way through miles of traffic-clogged highways. The shop carries the gamut — lots of respiratory products, from liquid oxygen to CPAPs, along with other DME, including mobility products.

But a look at the company’s billing paperwork tells a different story. Much of it isn’t going to any DMERC. Instead, more than 60 percent of the bills go to managed care.

So how has small, independent Dallas Oxygen gotten its foot so far inside the managed-care door, and why did the company tackle payers that stereotypically do not have the greatest reputations for paying bills on time? The answer, according to Cheney, lies in one word: negotiation.

“With Medicare, there’s no negotiation at all,” he explains. “With managed care, at least, you can sit down and negotiate rates.”

That, he says, opens up whole new realms of possibilities. Savvy contract negotiation can bring rates that account for product price plus all costs, including not-so-obvious factors like Dallas traffic. Managed-care representatives “know how big Dallas is,” Cheney explains. “They know you can’t get to the other side of town in 20 minutes. Managed-care groups are in the area, and know the area. You don’t get that with Medicare.”

Getting Past the Front Desk

The company first got attention from managed care about 10 years ago by doing work in the pediatric arena, a niche where many insurers had a tough time finding Dallas-area vendors.

Cheney says that when approaching managed-care contract writers, HMEs get the standard, broken-record response. “The first thing you hear is, ‘We already have a vendor; we don’t need any more,’” he says. “But you can talk to their case managers, and they’ll say, ‘We can never find people to do such-and-such work.’”

An HME representative talking to a case manager starts a new ballgame. These people, on the front lines, can reveal what the insurer really needs. In Dallas Oxygen’s service area a decade ago, it was apnea monitors for children.

According to Cheney, the key is “getting past the front desk.” He explains that many contract writers, with eyes on the bottom line, think more vendors will cost the insurer more. But Cheney says just the opposite is true.

“The more vendors you have, the more options you have for the consumer, the more competition you have between vendors. The vendors will then compete for the business,” meaning each will attempt to offer the most services and best products for the lowest price. “When vendors compete for business, the insurance companies get something for nothing, because they’re not paying for the additional items that they’re getting,” i.e., better prices, better products, better services.

Cheney started out in medicine under the gun, literally, serving as a combat medic in Vietnam. Once out of the service, he worked as a nurse in a Michigan hospital that happened to have a home care department.

From there he went to work for a Michigan-based company that was, as Cheney puts it, “one of the first [true] home respiratory companies.” The company provided, among other things, apnea monitors to children participating in one of the early government grants studying SIDS (sudden infant death syndrome).

Cheney moved to Dallas in 1986 and found a starkly different market. A different location meant different travel times for delivery trucks, along with other specific market demands and idiosyncrasies. That’s why he feels any HME company — be it independent, regional or national — is only as good as its branch managers, and how well each manager understands the local market.

Payers should understand local market subtleties, but Medicare often doesn’t, Cheney says. On the other hand, his managed-care contacts “recognize the market and what the market bears.”

Active Negotiating

Managed-care business requires continual reassessment and, sometimes, renegotiation. For example, Dallas Oxygen once entered a contract requiring individual prior authorizations for each item sold to every patient, a process that created a paperwork nightmare. “We went to the powers that be and showed them [how it was] costing money to do this,” Cheney says. “We said, ‘Let us put all patients on one form, and [the insurer’ could give all prior authorizations at one time. This made it possible for one person to handle multiple prior authorizations.”

Proving this, he says, was no easy task. The solution really lies in having good negotiators on the HME payroll. “I had a really good sales manager,” he says. “He’d go to the top contractors and show them where things were costing them money.” Cheney says that the sales manager negotiated using one underlying philosophy: “If you’re trying to save money, and you want us to give you lower prices, you have to [help us] lower our expenses.”

One insurer came to Cheney because it lacked vendors in the area to provide liquid oxygen. Cheney’s negotiators sat down with the insurer and worked out rates, not based on a Medicare fee schedule. The insurer also wanted Dallas Oxygen to provide walkers. But through the talks, Cheney realized he couldn’t work out a price. It seemed “they wanted walkers for free, so we eliminated those from the contract.”

That negotiation process, he says, exemplifies the managed-care advantage. Not only could his company negotiate price, but it also could drop an item from the contract. Compare that with Medicare, he adds, where “you provide [the product] no matter what.”

New Technologies

Last Medtrade, Cheney smiled over a tiny portable oxygen tank that can provide 8.5 hours of oxygen at 2 liters per minute. “It’s not available yet, but it’s very impressive how they did it,” he said.

With a bevy of contracts in the private sector, Cheney has good reason to smile. He notes the managed-care plans his company has dealt with over the years have been flexible about new technology, even technology with no specific Medicare code. This has been especially true if a product can directly or indirectly prevent long hospital stays.

A prime example, he says, is auto-titrating CPAP (continuous positive airway pressure) devices. “We have managed-care groups paying for auto-titrating, while Medicare pays for the product as a standard CPAP.”

To get those contracts, Cheney and his team went straight to the health plans’ medical directors. “We showed them how we got better compliance and less setup time; [the product] adjusts itself to the patient’s needs, so the patient is more comfortable with the item. When you get better compliance, you get better overall health.” And better overall health, he says, reduces the payer’s overall costs.

A Long Road

But attaining such managed-care contracts didn’t happen overnight. It took the company years to build relationships with area insurers. Keeping a watchful eye on the market, when his competitors dropped any managed-care contracts, Cheney moved in. Today, Dallas Oxygen is listed with 90 percent of the managed-care plans serving the metro area.

“There’s business there to be had, and [other] companies don’t want it,” Cheney says, “so I’ll take it.”

The HME owner is quick to point out that managed care does not necessarily give “better” business than Medicare. But private-sector contracts do make him less dependent upon the government.

There are downsides to managed care that will always be there, he says. Getting paid on a timely basis remains a perennial problem, though Cheney admits his last name has become more useful since President Bush took office. Though he has no relation to Vice President Dick Cheney, over the phone, the “Mr. Cheney” moniker has helped him reach the right people to speed payment, including several CFOs.

Collection of copays also becomes essential with managed care. Because Medicare has historically paid higher reimbursements for certain items, many providers have simply written off the copay, Cheney explains. “You’ll find a lot of people can’t afford the 20 percent.” But with managed care, “it’s more essential to collect that 20 percent from the patient. It’s a real chore.”

Today, the company requires all but Medicaid customers to secure orders with a credit card. “With reimbursements getting lower, we’re getting less and less, so you have to start collecting 100 percent of what you expect — before you collect the 80 percent you bill [to the insurer].

“If you go to U.S. Rental or U-Haul, or even to get a rental car, the first thing they ask for is an ID and a credit card.” So, Cheney asks, why shouldn’t HME providers do the same?

Medicare remains 30 percent of his business, and he hopes to get in on competitive bidding, expected to start phasing in by 2007, even though he feels it is “the most ridiculous thing in the world.” Unlike private contracts, competitive bidding will ultimately force out competition, he says. “[CMS] controls the price — why not lower it? If I don’t want to do it for that price, I won’t provide the product. But right now, with prices set where they are, it’s very competitive, because the only way I’m better than my competitor is to offer more and to do more and take better care of my patients.”

With competitive bidding, he believes, “you have fewer competitors [who win the bids] and less of a reason to offer additional services to compete.”

Although Cheney plans to bid for Medicare business, he does find solace in the fact that he will not force himself to bid unreasonably low.

And if he doesn’t win the bid, there are still other areas of the HME market with a need for quality products and services.

“We’ll still have managed-care groups,” he concludes. “They know you’ve got to make a profit.”

Negotiating for Profit

• Know your costs “Know what you’re doing before you get into the [managed-care] business,” advises Dean Cheney of Dallas Oxygen. “Know what your costs are, know how to negotiate the correct rates — and how to negotiate for good rates. If you can’t make a profit, don’t do it.”
• Two sides to the process Don’t be afraid to ask for certain terms, even if they’re not the industry norm. For some contracts, Dallas Oxygen has negotiated that insurers actually pay penalties for late payments. “There are two sides to the process,” Cheney explains. “If [an insurer] can’t pay us, we can’t provide the services, and how are we expected to continue to provide the services [without payment]? There are reasonable people on both sides of the table.”
• Smarter business than the next guy Managed-care contractors see their share of vendors who offer low prices, and “there’s always going to be somebody out there who’s willing to [provide equipment] for any dollar amount. [The question is,] can you do it smarter than the next guy [can]?” If you can, communicate how, in detail, to the managed-care plan. “If you can’t, you need to find another business,” Cheney concludes.