New Opportunities in Oxygen

Government policy has long nudged the oxygen industry to new market models, but the July 1, 2013, implementation of Round 2 competitive bidding rates is more like a bulldozer wreaking havoc across the industry. If the program goes through without a hoped-for delay, the long discussed “non-delivery” model again becomes more important than ever.

For manufacturers of portable oxygen concentrators (POCs), the lower reimbursement may result in an uptick in sales. Patients, however, may need to get used to a new breed of provider that offers less service than they’re accustomed to. “Competitive bidding’s reduced reimbursement rates are forcing HME companies to reduce the amount of service they provide,” says John Rush, president and CEO, Inova Labs, Inc., based in Austin, Texas.

If competitive bidding rates are enacted without a delay, and no market pricing program replacement is mandated, there are still grandfathering options. “Any oxygen patients you have now, for whom you are receiving monthly rental payments from Medicare, are going to be grandfathered at the old rate for up to three years,” Rush explains. “If you made the move early to POCs you’re in a better position today, but it is not too late.”

New Approaches

Joe Lewarski—vice president of clinical affairs at Invacare Corp., and a former HME business owner—thinks some providers have historically been slow to recognize the clinical, patient satisfaction, operational and profit-related benefits of moving to non-delivery portable oxygen systems. “It’s hard to walk away from a warehouse full of old and fully depreciated cylinders,” he says. “Many providers keep trying to make the old model work in the new world. It’s like trying to be in the pager business in the world of smart phones.”

Instead of taking out liquid oxygen or gas tanks that must be refilled, Rush believes these delivery fleets will soon be off the road, because providers simply can’t afford to do business the old way anymore. “Everybody is moving to non-delivery,” he says.

Once deemed to be “part-time” devices, POCs are increasingly seeing full-time use, a culture shift that Rush expects to continue. As a relatively young company of three years, Inova officials believe they are equipped to seize on new market trends and embrace the new culture. “We don’t have preconceived notions about what can or can’t be done,” Rush muses. “In our opinion, the industry has been a little sleepy for a long time, but we’re trying to change that with newer, smaller, lighter and more capable technologies.”

Brett Townsend, biomedical marketing director at CAIRE, agrees that competitive bidding is pushing home care companies toward non-delivery modalities, a market trend that will inevitably lead to “significant growth for portable concentrators and maybe to a lesser degree the home fill devices.”

Increased Efficiency

Chart Inc., the parent company that owns CAIRE, has demonstrated considerable faith in the oxygen market through a series of high-profile acquisitions in recent years. The company has acquired the SeQual brand, Covidien’s liquid oxygen business and, most recently, AirSep. “Portable oxygen is the high growth segment of the oxygen industry,” Townsend says. “It’s a competitive market, and we now   have very diverse offerings.”

Lewarski saw the AirSep acquisition as “representative of the type of industry consolidation” that is normal in a maturing market. “For Chart, I think it indicates their obvious interest in staying in the home oxygen space,” he says, “and it recognizes the changing environment, particularly the significant reduction or near elimination of liquid oxygen use in myriad markets.”

According to Lewarski, the 100 metropolitan statistical areas (MSAs) contained in Round 1 and 2 of competitive bidding will impact approximately 65-70 percent of the Medicare population. In light of CMS’ recently announced Round 2 contract providers, Lewarski points out that it limits participation to 799 providers for 91 major markets. “That’s an average of about nine per market,” he says. “Even with grandfathering, companies not awarded a contract that have a high Medicare mix will face major operational and business challenges. I think this may be the catalyst for significant consolidation of providers.”

Mitchell Yoel, MPT, executive vice president of business development and government affairs at Drive Medical Design & Manufacturing, expressed “shock and disappointment” after Round 2 rates were announced. Like so many providers and manufacturers, he believes the bid process has been “untenable and unfair,” leading to unsustainable single payment amounts.

“It unfortunately lends credence to Medicare’s implied assertion that the HME industry provides only products, rather than products, services and clinical management,” he says. “It also informed the types of modalities and products that the future market will demand. Providers will need cost-effective products that are operationally efficient, reliable and, perhaps most importantly, that can help brand their company in a positive way.”

Yoel warns, however, that the oxygen business is more complex than simply developing new ways to “stop seeing” the patient. “The concept of dropping off equipment that is self-sustaining for patients so that providers do not need to incur the expense of seeing the patient again has actually made it easier for big box retailers and e-commerce providers to enter this space. The right balance must be struck between operational efficiency and the opportunity to see the patient’s home environment. The information gleaned in a home visit is invaluable to referral sources, and potentially to providers.”

Rising Demand

While acknowledging the overall need to do more with less, Scott Frenz, senior director of downstream marketing at Philips Home Healthcare Solutions, believes that the number-one priority for all parties must still be to preserve the integrity of patient care. “Ongoing collaboration with our customers has enabled us to introduce meaningful technologies and programs that may help reduce some of the sting,” says Frenz. “Tools like EncoreAnywhere were developed with input from providers, and it quickly became an invaluable resource to care teams who need efficient, remote access to vital patient information.”

Despite the undeniable challenges facing the industry, manufacturers and providers alike are banking on massive demand that can be satisfied with the proper modalities. “The need for oxygen is growing in the United States,” he says. “The portable market is the fastest growing oxygen modality. There is a push in the industry toward oxygen generating models due to competitive bidding and lower overall reimbursement. Most of the providers’ costs are from labor and delivery. These innovative non-delivery models help providers with business efficiencies while allowing them to give patients a clinically effective therapy.”

As patients and caregivers study the clinical effectiveness of various therapies, Frenz believes many will be willing to pay for the privilege of convenience. “Providers should consider looking at alternative models like cash sales to mitigate some of the pain associated with lower reimbursements,” he says. “Patients and caregivers are requesting the ability to purchase portable concentrators and not all providers are set up to accept a non-reimbursed sale. This is one way for providers to diversify and improve their bottom line.”

Good Vibrations

The mood at Philips’ Medtrade Spring booth was one of optimism, and Frenz hopes that feeling will continue throughout the year, despite the obvious difficulties. “While there was reaction to headwinds in the industry, the overall feeling seemed to be commitment to overcoming the challenges,” he says. “We plan to attend Medtrade 2013 [Oct. 7-10 in Orlando, Fla.] which gives us an opportunity to meet and collaborate with our customers.”

Oxygen Online

AirSep
www.airsep.com

CAIRE
www.cairemedical.com

Drive Medical Design & Manufacturing
www.drivemedical.com

Inova Labs, Inc.
www.inovalabs.com

Invacare Corp.
www.invacare.com

Philips Home Healthcare Solutions
www.healthcare.philips.com