Paul Gammie calls it the double whammy. The general manager of Gammie HomeCare in Kahului, Maui, like other respiratory providers in the nation, is grappling
by Susanne Hopkins
June 1, 2005

Paul Gammie calls it the “double whammy.” The
general manager of Gammie HomeCare in Kahului, Maui, like other
respiratory providers in the nation, is grappling with new Medicare
oxygen reimbursement cuts — which, in Hawaii, top out at 20
percent for stationary oxygen and 29 percent for portable
systems.

“We got the double whammy. We're also getting squeezed out
of the cost-of-living adjustment for businesses [located in an
area] with a higher cost of living,” Gammie says. “We
weren't expecting to get both of those at the same time.”

So Gammie is scrambling to ensure that his home medical
equipment business somehow remains on solid footing. “I've
run our raw numbers; this will not cause us to close our doors.
We'll still be here next year,” he says, “but what kind
of changes do we have to make [to continue to be a viable
business]?”

It's a question oxygen providers across the nation are asking as
they figure out ways to deal with Medicare's 2005 oxygen fees,
which went into effect in early April. The drop in reimbursement
was dictated by the Medicare Modernization Act, which required the
Centers for Medicare and Medicaid Services to align oxygen fees
with the median Federal Employee Health Benefits Plan pricing set
down by the Office of Inspector General.

According to CMS, the average rate reduction is 8.6 percent for
stationary oxygen and 8.1 percent for portable units. The cuts vary
by state; those with higher Medicare fees saw the deepest cuts,
while states with reimbursement already in line with FEHBP pricing
saw lesser or no cuts. New reimbursement rates range from $194.48
to $200.41 for stationary oxygen, and from $30.57 to $32.08 for
portable units.

REVISITING THE PAST

For some providers, it is, as Yogi Berra says, like déjà vu all
over again. Back in 1997-98, providers were hit with oxygen cuts
mandated by the Balanced Budget Act that totaled about 35 percent.
Consumer Price Index raises were frozen, as well. Providers took it
on the chin then, and for many it proved to be a good business
lesson since they were forced to figure out exactly how much it
cost to deliver oxygen and service their patients.

This time around, though, the stakes are a bit higher. Most
companies have already pared unprofitable business lines, sought
other venues such as retail opportunities or private contracts and
computerized their business operations for better efficiency.
Today, they're living with narrower profit margins and higher fuel,
insurance and personnel costs.

“We were at $350 [for stationary oxygen] in 1997, then we
dropped to $220 and we didn't get the CPI increases [of 2 or 3
percent a year],” says Dennis Trach, corporate regulatory
compliance manager for Amherst, N.Y.-based Associated Healthcare
Systems. Add up those cuts since 1997, Trach says, and his company
is looking at a 53 percent decrease — before the state's
current 12 percent cut for stationary units.

So what's a home care company to do?

Trach says his company is studying alternative delivery methods,
such as conservers or home filling systems. It is also seeking ways
to become more efficient. “And you don't become more
efficient by adding personnel,” Trach says. “You have
to look for ways to make the ones you've got more efficient. All
the clinical stuff we did for free — it's gone, or if it's
not, it will vanish pretty quickly.”

L. Jack Clark, RRT, principal and founder of Mid Georgia
Respiratory (MGR) in Griffin, Ga., is pretty philosophical about
his cuts, which in that state are 12 percent for stationary systems
and 11 percent for portables. “I have been taking care of
patients with lung problems at home for 26 years,” Clark
says, “and in 26 years, I have enjoyed 22 fee cuts. But
people are living longer and needing more services. Respiratory
therapists are in short supply. High technology requires more
therapists. I don't have the fear I used to have that, ‘Oh,
my gosh, we're going to go broke.’

“We are a lot larger now in numbers of patients,” he
continues. “We had to look at doing business
differently.”

For example, he says, the company began asking people to come
into the office for sleep therapy mask fittings. It stopped
purchasing expensive equipment like ventilators, which sat on a
shelf until someone needed them. Instead, Clark rents them when the
need arises.

The current cut translates into MGR having “to find
$100,000 in additional revenue to do business as we currently do
it. We are going to have to focus on what we can do less of that
won't [result in] poor outcomes,” Clark says. “And
sometimes, less is enough.”

WORKING SMART

At Binson's Home Health Care Centers in Centerline, Mich., the
answer is to increase the business, says Brian Chambers, director
of respiratory. “You try to increase the business 20 or 30
percent because you have other costs that are going to go up, like
gas and health insurance for employees,” he says. “We
just increased our marketing efforts; we started about a year ago
to increase our profits.”

The company has also invested in home oxygen filling systems,
which has cut delivery costs, and increased its sales force to
cover more territory, he says.

Jim Kissler, chief executive officer for Boise, Idaho-based
Norco, has a business philosophy of always trying to position his
company the best he can in terms of productivity. That way, he
says, he's prepared for the inevitable cuts.

“To a certain degree, we're always trying to wring [out]
every ounce of productivity we can,” he says. He is looking
for more efficient ways to handle deliveries and dispatching, has
hired a person to work on safety issues that could result in lower
insurance costs and is barcoding merchandise, which should help
increase productivity among his sales personnel. In the face of
ballooning gasoline prices, he is also trading in his heavy-duty
trucks for vans that get better gas mileage.

“I think working smarter is the key,” Kissler says,
noting that the company is upgrading its software at a cost of
$600,000. “We think it will help us be more efficient in our
billing side of the business, or even order-entry … If you
can operate smart and have your niche, if competition is not
dog-eat-dog and you have an average or above-average net profit,
then you take the cuts and your profitability drops, but you're
still in business.”

Mark Sheehan, president of Cape Medical in Sandwich, Mass., is
also taking the smart road. His company is seeking more
non-Medicare business, he says, and it has started to invest in
home filling systems.

Sheehan also is taking a look at every product the company
carries. “Every product has to be analyzed on a cost
basis,” he says. If it is not cost-effective, it will likely
be dropped. “We stopped doing wound care and ostomy years
ago. The margins were low and the billing headaches were
huge.”

The only problem is, he says, “there are only a couple
more product lines I can drop, and then we're not in business
anymore.”

As for Hawaii's Gammie, he's also kicking into action, seeking
ways to pare business costs and, at the same time, offer his
customers a high level of service. It's a tough proposition since,
as he points out, Hawaiian providers are already seeing margins
less than 50 percent of what they were before the 1997 cuts.

Since the BBA cuts, “the growth in the market has provided
us with economies of scale that we have been able to tap into in
the past,” he says. He's unsure whether that is going to be
enough now.

“We have to look at what the core services of home
respiratory are,” Gammie says. “Any type of medically
unnecessary service is going to be impacted greatly.”

His state does offer some unusual challenges. Since it is made
up of islands, nothing can be trucked in. Everything comes by
airplane or ship, which increases his costs. And his patients like
to travel off the islands.

“There's a lot [of services] we have put in over the years
to make a positive impact on our people and allow them to not be
homebound,” Gammie says. “How are we going to assist
our traveling patients in the future? Where do you draw a line
related to convenience and lifestyle versus necessity?”

He doesn't know the answers yet, but he still holds out hope for
the future. Hawaii's busy tourist trade allows him “to
function a little on the retail level,” which could be a
boon. “I just have to have faith that the necessary services
that we provide will be recognized,” he says.

THE NEXT CUTS

It's that service component that is leading Sheehan down another
path as he wrestles with the effects of the reimbursement cuts. A
member of the New England Medical Equipment Dealers Association, he
and others are talking about a variety of options.

“One of the areas we are beginning to explore is service
fees,” he says. “The electrician, the plumber, any kind
of service company that comes to your house [charges] a minimum
fee. We are service providers. [Medicare has] to start thinking
about the cost of the service.”

Where these talks will go is anybody's guess. But Sheehan is
hopeful that something concrete regarding service will happen
before nationwide competitive bidding comes along in 2007.

Frankly, competitive bidding in medical care scares him —
and a lot of other industry players.

“Competitive bidding, in my view, is going to turn all of
us into Home Depots,” Sheehan says. “You've gotta be a
Home Depot or you're gone — grow or die. … Why are they
taking the most basic of all human service — medical care
— and putting it to the lowest bidder?”

Clark calls competitive bidding “the biggest threat”
to home care. “The big companies can low-ball it for several
years and run the small moms-and-pops out of business, then ratchet
up the price because there's no one left to do it for less,”
he says.

Binson's Chambers thinks competitive bidding will cut profits
even more than the current round of cuts. “It could drop to
the [Veterans Affairs] level,” he says.

Trach believes competitive bidding cuts could be as much as 18
percent. “Where are they going to get this from?” he
asks. “People still expect their raises, and our costs are
not going down — they are going up. Eventually, it will be to
a point where you cannot make it up in volume. That's coming pretty
quickly. We have taken our hits too much.”

What types of respiratory/sleep products and services do you
provide?*


Nebulizers 86.8%
CPAP/Bi-levels 84.2%
Oxygen concentrators 83.8%
Cylinders 79.3%
Portable oxygen systems 79.3%
Conserving devices 78.2%
Pulse oximeters 76.7%
Compressors 74.1%
Humidifiers 69.5%
Aerosol therapy 66.5%
Tracheotomy care 55.6%
Sleep therapy devices 54.5%
Liquid oxygen systems 50.4%
In-home fill systems 45.1%
Asthma/allergy 44.0%
Inhalation therapies (respiratory medications) 42.1%
Ventilators 36.1%
Apnea monitors 35.0%
Sleep diagnostic equipment 24.4%
Vaporizers 21.1%
Air purifiers 19.9%

*Respiratory providers responding to HomeCare's
Respiratory/Sleep Survey, January 2005

18 WAYS TO SAVE

Of respiratory providers responding to HomeCare's
Respiratory/Sleep Survey (January 2005), their oxygen strategies
include:

  1. Scheduling tank deliveries rather than responding to calls from
    patients
  2. Requiring patient pick-up instead of home delivery
  3. Improving control over cylinders, such as not allowing patients
    to stockpile cylinders, better tracking to reduce cylinder loss and
    tightening up on patient waste and abuse
  4. Limiting the types of systems offered, with a focus on
    equipment that will decrease patient visits
  5. Decreasing use of liquid oxygen, including taking no new liquid
    oxygen customers
  6. Increasing the utilization of conserving devices
  7. Encouraging use of home-fill systems
  8. Cutting in-home visits by using database follow-up systems to
    maintain contact with patients
  9. Servicing concentrators less frequently
  10. Discontinuing any extra services, such as rearranging home
    furniture, or charging a fee for extra services
  11. Education of political leaders to protest reimbursement
    cuts
  12. Purchasing cylinders instead of renting
  13. More use of transfill systems
  14. Increasing volume by adding oxygen patients
  15. Better routing, such as delivering only to certain areas on
    certain days, and reviewing routes to maximize time and cut down on
    the number of miles driven by therapists and technicians
  16. Turning away long-distance referrals
  17. Having delivery technicians perform patient visits instead of
    RRTs
  18. Beefing up or diversifying into other areas of respiratory
    business. One in three respondents (34 percent) said they plan to
    provide respiratory products via mail order.