An Uncertain Air

The home oxygen therapy market has certainly seen its share of reimbursement cuts and regulatory changes over the years. But the newest policy change, enacted under the Deficit Reduction Act, will create unique challenges for both HME providers and patients alike.

Under CMS’ final rule on oxygen, issued to implement the DRA provision last month, ownership of oxygen equipment transfers to Medicare beneficiaries after a 36-month rental period. The rule takes effect Jan. 1, 2007 — with a counter from Jan. 1, 2006 — which means providers must take action now to change practices that will allow them to remain successful in the oxygen business.

“The reality is that some level of service and support will be reduced to balance the impact of the reductions,” says Kim Snyder, U.S. marketing manager, home respiratory care, Respironics. “Providers that have the greatest control over reducing their non-value-added services, without compromising quality of patient care, have the best chance of succeeding.”

“You can only stay in this business if you start working smarter,” agrees Kelly Riley, director of The Med Group’s national respiratory network.

“Providers also must be willing to embrace new technology and streamline their businesses. There is absolutely no room any longer for duplication in any process. The front end has to be streamlined, and the assessment piece has to be accurate — making sure you are matching up the right system with the right patient.”

Providers must also consider effects of the new rule on patient care and service following the 36-month cap. Under the rule, CMS will pay for “reasonable and necessary” maintenance and servicing visits every six months, beginning six months after the equipment title transfers, but there are other considerations that have not been addressed.

“Operationally, it will be a challenge to be able to address the concerns of the beneficiaries who own their own equipment from a service and repair standpoint,” says Tom Pontzius, president of Nationwide Respiratory, a VGM Group company.

“Many beneficiaries will call the provider who provided the repair and maintenance of their equipment during the first 36 months, but after transfer of ownership, the provision doesn’t provide for emergencies or making additional visits to a beneficiary to check the operational efficiency of their equipment.”

Additionally, providers should consider every avenue to reduce operating costs while still offering new options to their patients, according to Ed Radtke, vice president of sales and marketing and co-founder of SeQual Technologies. “One approach is to adopt the latest oxygen concentrator technology, which not only lowers costs by reducing the need for the delivery of oxygen cylinders but also qualifies for a higher reimbursement,” he says.

“With the higher reimbursement for oxygen generating portable equipment that becomes effective on January 1, even patients that cap out at 36 months can be profitable.”

Mike Irvine, product manager for Invacare Corp.’s HomeFill system, says providers must evaluate their operations to make changes that reduce costs, including lowering overhead and improving business efficiency. He cites a study from Morrison Informatics, commissioned by the American Association for Homecare, which found that more than more than 70 percent of the cost involved in serving an oxygen patient is operational.

“Part of the problem a lot of providers have had is when they get a cut in reimbursement or when things are getting tight, the first thing they look at is acquisition costs,” Irvine says. “It is easy to choose to buy the cheapest equipment without doing an in-depth analysis of whether the equipment can service your patients better as well as cut operational costs.

“Perhaps 10 years ago you could make money just by being in the oxygen business because reimbursements were high and costs were low,” Irvine adds. “Now, with reimbursement coming down and costs holding and increasing, providers need to take a close look to make sure they are being good businesspeople and not just good health care providers.”

Size May Not Matter

According to Respironics’ Snyder, all providers, large and small alike, have an opportunity to adjust business models to account for the DRA’s changes.

But how they react may differ.

“The nationals do have purchasing power that enables them to get better pricing but, on the other hand, they’re not as nimble. They have to set up internal procedures that are more restrictive for their employees … whereas the small, local companies can be much more flexible,” explains AirSep President and COO Joe Priest.

“I don’t think either one is going to suffer greatly to the benefit of the other, whether small or large,” he notes.

But Riley adds that small providers must make sure “they are keeping up and they are staying ahead of the curve. They have to partner with the right people who can help them succeed in business [including manufacturers, associations and buying groups],” she says.

All providers will face difficulties regardless of their size, says Pontzius.

“All providers — small, regional or national — will certainly face the challenge of ensuring their beneficiaries and their referral sources are educated on the impact of the DRA,” he says. “However, small providers face additional burdens in that many of their employees play multiple roles within their organization where some larger companies have dedicated employees to fill a single capacity.”

Legislation vs. Product Development

Legislation such as Public Law 100-203, which in 1989 mandated modality-neutral reimbursement, can influence the development of new technology, says Radtke. “The modality-neutral legislation resulted in a massive move to oxygen concentrator products and away from oxygen molecule container products. Now, the 36-month cap underscores the need for manufacturers to produce products that lower the cost of servicing an oxygen patient,” he says.

But Radtke is careful to add that the push for new and improved technology is more complex than this might suggest. “It takes millions of dollars and years, if not decades, to develop a product that is a significant step beyond existing technology,” he points out.

Yet the impact of legislative and regulatory changes on the industry can’t be ignored, says Snyder. “In general, the increasing cost pressures that have come from legislative decisions have helped the introduction and rapid acceptance of technologies that reduce operating cost,” she says. “Examples of this are no-delivery technologies that eliminate recurrent oxygen delivery and products with significantly lower maintenance requirements.

“However, if legislation pressures providers to adopt only the lowest-cost products, it will limit patient access to newer technologies.”

Pontzius believes legislation has a significant impact on manufacturers’ utilization of their research and development dollars. “Legislation has the potential to cancel work-in-progress projects due to the changing climate of the beneficiary-provider relationship. In addition, legislation also affects supply and demand that has a huge impact on product acquisition costs,” he explains.

Invacare’s Irvine says it is a “two-way street. If CMS cuts reimbursement to a point where nobody can afford our product, then we either have to figure out a way to make it cheaper or do something entirely different,” he says.

“Likewise, new products also influence legislation, or at least the implementation of the legislation.”

Technology, Present and Future

In light of reduced reimbursement, many manufacturers have created home oxygen modalities that reduce delivery costs, thus increasing providers’ operational efficiency. By focusing cost-cutting on non-essentials, specifically delivery of equipment, providers can look for ways to enhance patient outcomes and convenience.

“Obviously, we have staked some of our future on a non-delivery model,” says Priest. “We think the portable oxygen concentrator was a great invention before [the DRA], and it is probably an even better one now that it has come into effect.”

He cautions that like any other form of oxygen therapy, patient use of POCs requires proper follow-up to ensure that the patient is following his prescription, the equipment is working properly and that it is working appropriately for that patient.

“One of the things that the non-delivery model and the POCs bring to the table is the ability to get out of the service side,” Priest says. “The delivering of oxygen is not a value-added feature if there are alternatives out there that are economical. Value is added when a therapist or technician comes into the home and either helps the patient maintain his equipment or helps ensure patients are utilizing their equipment and giving it the best advantage they are supposed to.”

Do-it-all oxygen systems, such as SeQual’s continuous flow Eclipse are the wave of the future, says Radtke. No-delivery technologies that eliminate the cost of recurrent oxygen delivery while giving patients new therapy choices are an important development, echoes Snyder, pointing to Respironics’ EverGo POC as an example.

According to Erika Laskey, vice president of sales and marketing for Chad Therapeutics, respiratory equipment manufacturers continue to push the technical envelope with the development of new products.

“Ambulatory oxygen solutions will continue to become lighter in weight, smaller in size and incorporate increased patient ambulation features,” she says, adding that the company — and the industry — has “historically focused on technological advancements and product innovation that benefit our patients as well as home care providers.”

Invacare’s Irvine says the focus of the future will be for manufacturers to continue working on low-cost modalities and ways to help providers drive operational costs out of their business. This includes products with longer cylinder duration, lighter-weight cylinders and lighter-weight and less expensive home transfilling systems.

“As long as there is enough money for the providers to survive, and hopefully thrive, we as manufacturers will be trying to develop products that are cost-effective and clinically effective,” emphasizes Priest.

“There is a drive there. Where it gets tricky is when the government starts to manage technology by creating incentives or disincentives for different types of technology.”

What Will You Tell Your Patients?

One of providers’ greatest challenges in dealing with the 36-month cap on home oxygen rental will be patient comprehension and acceptance of the changes that will take place, experts say.

“All home care providers are concerned about the beneficiaries and the management of their current disease states,” says Tom Pontzius, president of VGM’s Nationwide Respiratory. “There will come a time and point where additional services that had been previously provided will be eliminated or scaled back to a large degree.”

And making sure that beneficiaries completely understand their roles in oxygen therapy treatment could be tough.

“In today’s environment, providers may find it difficult to educate beneficiaries in understanding there are certain components they are responsible for and ensuring they understand when equipment may need servicing,” Pontzius notes. “Beneficiaries — especially those who have been on oxygen for some time — will have a more difficult time understanding why some of their services are no longer available. Many will hold the provider, and not CMS, responsible for the lack in service they deem necessary.”

Joe Priest, president and COO of AirSep Corp., says there is a fine line between informing patients and frightening them. “Home care companies are fairly wise in trying not to [scare patients] for a couple of reasons: One, you don’t want to get the patient population really scared and upset, and, two, I think you create a lot of disruption when that occurs,” he explains.

Priest adds that “spooking them” might drive some patients away. “If you try to scare them too much, they may think ‘Oh, gosh, this company doesn’t know what they’re doing,’ and another company that comes in and calms their nerves could capture their business,” he warns.

Experts advise waiting a bit to detail the changes that will occur until all details of the new oxygen rule are fully understood and the government’s view of “reasonable and necessary” service is defined.

“Frankly, it is probably a piece of this whole puzzle that no one is really taking into consideration,” says Invacare’s Mike Irvine. “We talk about the dealers, we talk about Congress, we talk about what doctors are going to think and what the manufacturers are going to do, but nobody sits down and asks how this will affect the patients.”

The Final Rule on Oxygen

According to the final rule on new oxygen classes and payments issued by CMS on November 1, following the 36-month rental period when title of oxygen equipment transfers to the beneficiary, Medicare will:

• Continue to make monthly payments for oxygen contents for beneficiary-owned tanks and cylinders for as long as the beneficiary medically needs oxygen.
• Pay for reasonable and necessary maintenance and servicing of beneficiary-owned oxygen equipment not covered by a supplier’s or manufacturer’s warranty. Specifically, CMS will allow payments for general maintenance and servicing visits every six months beginning six months after ownership for those beneficiaries using certain oxygen equipment, in addition to allowing payment for any reasonable and necessary repairs. Payment for maintenance and servicing will be based, as it is currently for other beneficiary-owned DME, on the carrier’s or the DME Medicare Administrative Contractor’s rates for parts and labor.
• Allow one payment for suppliers to pick up and store or dispose of equipment for those beneficiaries who own liquid and gaseous tanks and cylinders and for whom they are no longer medically necessary.
• Continue to make separate payment for necessary supplies and accessories such as replacement of cannulas and tubing.

For more information on CMS’ final rule, see the “Headline News” section in this issue.

Experts Interviewed:

Mike Irvine, product manager, HomeFill, Invacare Corp., Elyria, Ohio; Erika Laskey, vice president of sales and marketing, Chad Therapeutics, Chatsworth, Calif.; Tom Pontzius, president, Nationwide Respiratory, a VGM company, Waterloo, Iowa; Joe Priest, president and COO, AirSep Corp., Buffalo, N.Y.; Ed Radtke, vice president of sales and marketing and co-founder of SeQual Technologies, San Diego; Kelly Riley, director, national respiratory network, The Med Group, Lubbock, Texas; and Kim Snyder, U.S. marketing manager, home respiratory care, Respironics, Murrysville, Pa.