New Choices

If you are in the oxygen business, it is time to take a deep breath. Just when it seemed business could not become more complicated for home medical equipment providers — after all, competitive bidding is imminent — a last-minute provision added to the Deficit Reduction Act poses serious concerns for those in the home oxygen therapy sector. The law includes a mandate that caps rental of oxygen devices after 36 months and transfers title of the equipment to Medicare beneficiaries at the same time.

Now more than ever, HME providers must evaluate their business practices and seek new methods to increase operational efficiency while providing clinically effective service for their patients.

“There is ambiguity about the future,” says Joe Priest, president and COO of AirSep Corp. “One of our hopes is that shortly — hopefully, within this year — we can come to a mechanism of reimbursement through CMS that is stable. Then, providers and manufacturers can approach the market based upon that and provide the best equipment that meets patients’ needs and is also reimbursed appropriately.”

At press time in fact, an “oxygen summit” attended by physicians, manufacturers, providers, patient advocacy groups and others had convened to take a look at Medicare’s entire oxygen benefit. And a bill called the Home Oxygen Patient Protection Act, which would repeal the 36-month oxygen cap, had been introduced in the House of Representatives.

But for now, the 36-month cap is a disconcerting and significant policy change, says Jim Clement, global director, DeVilbiss Systems, for Sunrise Medical. “Thus far, there are many more questions than answers since the legislation has not been translated into policy.”

It is possible that technology could provide some answers and, according to these experts, it is also clear that HME providers are best suited for the job of serving patients both during and after the 36-month rental period.

Priest notes the clinical requirement of home oxygen therapy that is necessary and cannot be ignored: “The doctors can’t do it, and there is no one else who can do it; the best people to provide oxygen therapies in the home are the current providers,” he says. “Somehow, that clinical component needs to get addressed in the reimbursement scheme.”

The expertise providers utilize involves determining the right system for each patient, and that is not a simple decision.

“The choices home care providers are being forced to make between ‘what is the best technology for me’ and ‘what is the best technology for that patient’ are becoming increasingly difficult,” says Jon McLellan, Respironics’ director of marketing, home respiratory care. “The lines are becoming more and more blurred.”

And it is important to remember that consumers are better informed than ever and are quite knowledgeable about new technology. With access to the Internet and more information available in general about equipment choices, oxygen-users are intent on having access to products that enable them to remain active and that reduce their anxiety about running out of oxygen.

Many believe oxygen patients also are willing to purchase equipment out-of-pocket without having to rely on Medicare funding — and a large number of seniors have the disposable income to do so. McLellan says that in many situations, the ability to maintain a certain lifestyle weighs in more than the cost.

Looking to New Technology

While they have made previous inroads, with the recent oxygen cap, in-home transfilling systems are garnering even more attention in terms of cost-efficiency and patient satisfaction. Although they are not ideal for all situations, the benefits of such systems both for providers and patients are hard to ignore, say their proponents.

Today’s technologies are currently focused on reducing the variable costs associated with highly ambulatory oxygen patients, according to McLellan.

However, reducing those costs requires an all-encompassing evaluation of business.

“If HME providers appraise their costs related to oxygen supply and delivery, they will understand that the majority of the cost is tied up in the delivery, not the equipment acquisition,” says Mike Irvine, product manager for Invacare Corp.’s HomeFill system. “Therefore, that is where they need to attack their cost structure and look at cost reduction. A system patients can fill at home is the best way to attack the delivery cost structure because there isn’t any.”

According to Carla Laureano, marketing manager for Chad Therapeutics, “Providers need to consider not only which equipment allows them to operate profitably during the 36-month rental period but which will be most cost-effective to service once the title is transferred to the beneficiary.”

She explains that a home transfilling concentrator immediately generates positive cash flow when depreciated over three years due to the lack of delivery and oxygen costs. “It continues to be profitable during the following service period,” Laureano says, as opposed to liquid oxygen, where the provider loses a portion of its reimbursement once title is transferred while still incurring costs for oxygen contents and monthly deliveries.

Jacquelyn McClure, director of The Med Group’s National Respiratory Network, points out that “routine oxygen delivery systems have a definite place in the arsenal of oxygen delivery modalities for the HME provider.” But, she adds, “for the provider faced with declining Medicare reimbursement, competitive bidding, the potential of capped rental and increasing operational costs, these RODS are becoming increasingly less attractive choices for specific types of patients, but still fit that stationary patient scenario.”

Stuart Novitz, North American sales manager for SeQual Technologies, says it’s the same old story: HME providers are under constant pressure to increase operational efficiencies in their businesses due to rising costs and declining reimbursements.

“The 36-month cap to the oxygen benefit is the latest cut that is challenging HME providers to look at innovative ways to streamline their businesses, to increase the bottom line,” he says.

“New technology may cost more up front, but can address the bigger picture of reducing operating expenses over the life of the equipment.”

Making an Investment

Naturally, some providers are apprehensive about investing in new technology for a number of reasons, most notably the cost of purchasing new equipment and worries about changing business plans. Yet manufacturers of home filling systems say when providers look at the total costs associated with providing home oxygen therapy, a new business model is exactly what they need.

“Equipment acquisition is only about 20 percent of the true cost of providing home oxygen therapy — the real cost is in the continual delivery,” says Invacare’s Irvine. “These include gasoline, insurance for vans, commercial driver’s licenses for delivery personnel, lost cylinders and the FDA’s requirement for tracking oxygen cylinders. All of these things add up to very large costs but, unfortunately, because a lot of providers have been doing business this way for a long time, they are somewhat hidden to them.”

Some providers also are reluctant to decrease the frequency of deliveries because of loyalty to employees. One of the benefits of using home transfilling systems is to reduce deliveries, which means a reduction in delivery personnel. Irvine recommends providers look for other areas of the company that could benefit from these employees’ knowledge of the industry and the local market, such as the sales or marketing departments. He adds that if a provider’s market share is growing, there is still an obvious need for delivery technicians, but they will be seeing more patients on a less frequent basis.

To remain profitable in oxygen, HME providers must understand its cost structure, agrees Clement of Sunrise. “It is worth the time, effort and energy to map out the steps involved in the oxygen referral process,” he advises, and all costs must be considered. “When people really get down and look at their business, it’s the operational cost that kills [them],” he says.

“It’s tough today to justify a pure liquid oxygen model you would have commonly seen five years ago in the industry because it’s tough to justify making weekly visits with a $40,000 delivery vehicle,” Clement continues. “I think that by understanding [their] cost structure, people will be able to better make decisions about matching the right modality to the patient’s lifestyle.”

Novitz adds that “everyone wins” when providers can offer a product that helps their bottom line, differentiates the company from its competition and enhances their oxygen patients’ quality of life.

Today there are a variety of systems that are available, and manufacturers seem intent on steadily raising the bar.

“We’ve already seen significant changes in recent years with the adoption of non-delivery systems such as concentrator/cylinder transfill systems along with more options in portable concentrator technology,” says Clement. “The home cylinder filling systems have proven to be a good option for many providers, and this will continue to grow as providers scrutinize their operational costs.”

He also notes that “portable devices will undoubtedly continue to get smaller, and battery life will improve,” adding that a critical element for the success of portable units will be improvement of durability. “If a device does not perform — no matter how small, quiet or convenient it is — it will only add to a provider’s operational costs.”

Thinking Ahead

Chad’s Laureano believes the future of oxygen delivery technology will address both stationary and ambulatory oxygen needs in one unit, whether it is home transfilling systems or transportable and portable concentrators. “Providers are seeking versatility in the equipment that they buy, and manufacturers will continue to respond in kind,” she explains.

Respironics’ McLellan thinks the “true end-all, be-all product” will be a smaller concentrator that provides continuous flow. “Right now, nobody has been able to do that from a technological perspective,” he says. “There are a lot of boundaries that are still being explored, namely the trade-off between battery life and weight. I firmly believe that battery life is going to be a key aspect in the patient’s selection if the patient is fully educated — having the ability to stay out for eight hours is just a great option to have.”

Invacare’s Irvine agrees. “The biggest next step short-term would be a smaller, lighter cylinder that can hold as much oxygen as current systems; the weight of the system is definitely a consideration for the patient,” he says.

“Ultimately, a truly portable concentrator is probably the next generation. That is a concentrator that is less than five pounds, has a battery life that’s going to last at least four to six hours, that is quiet and can provide at least 2 liters per minute equivalent flow. I think we’re five to 10 years out from that.”

Experts Interviewed:

Jim Clement, global director, DeVilbiss Systems, Sunrise Medical, Longmont, Colo.; Mike Irvine, product manager, HomeFill, Invacare Corp., Elyria, Ohio; Carla Laureano, marketing manager, Chad Therapeutics, Chatsworth, Calif.; Jacquelyn McClure, director, National Respiratory Network, The Med Group, Lubbock, Texas; Jon McLellan, director of marketing, home respiratory care, Respironics, Murrysville, Pa.; Stuart Novitz, North American sales manager, SeQual Technologies, San Diego; and Joe Priest, president and COO, AirSep Corp., Buffalo, N.Y