The State of the Industry: And the Forecast Is: Torrential Change

• By Deborah Cooper
• Sep 01, 2006

Turbulent. Transitional. Dynamic. Ever-Changing. Struggling.

This is how manufacturers responded when asked to describe the state of the respiratory industry. Nobody is under any illusions. Even the most optimistic recognizes the fundamental truth that the industry is experiencing perhaps its most intense period of change. Of course, it’s not the first time that changes have come around, but the levels of change proposed in such a relatively short period of time weigh heavily on the entire industry.

The Perception Gap: Service vs. Equipment
By now it has become something of a mantra: The Morrison Informatics survey of July 2006, commissioned by the American Association of Homecare (AAHomecare), shows that only 28 percent of the cost of providing home oxygen therapy to Medicare beneficiaries represents the actual oxygen equipment. The other 72 percent of the cost represents services, delivery and operational expenses.

The concept of “service versus equipment” lies at the heart of the debate. While some in the industry were holding out hope that the Centers for Medicare and Medicaid Services (CMS) would finally realize the value of the service component, the latest oxygen reimbursement proposal on July 26, 2006, firmly laid that hope to rest. The perception gap has become a chasm. Why is it that CMS fails to view home oxygen therapy with recognition for the entire service? A more holistic view is vital to any chances of reversing the trend.

“There is a pivotal misunderstanding on the part of government policy-makers,” says Chris Kane, VP government affairs, Pacific Pulmonary Services. “The perception gap is very significant. It manifests itself in the policy recommendations that came out [in July]. The providers find this very disappointing because by and large the new proposal continues the fundamental assumption of the equipment delivery model.”

The proposals announced July 26, 2006, represent a complete departure from the historical modality-neutral payment system. Instead, CMS proposes to use its authority to create classes of oxygen for payment purposes. The classes are determined by the type of oxygen technology the patient utilizes. There is a different payment level per technology. For example: Traditional stationary oxygen equipment with a portable tank is reimbursed at half the amount that a completely portable system is reimbursed at ($32 for the add on, versus $64 for fully portable).

The other problem with the proposal is figuring out who will get paid to service the client, since CMS will only pay for an authorized technician. “It’s a very narrow view of what they will pay for,” explains Cara Bachenheimer, VP government relations, Invacare Corporation.

What Is to Be Done
Convincing CMS to look elsewhere for savings is fundamental: “The thing we need to do this year is to stem the tide and make sure they don’t worsen the situation and cut back further,” says Joseph Priest, president, AirSep Corporation. “We need to convince people not to swipe at it thinking they will save money. We’ve shown many times that it doesn’t save; it’s penny wise and pound foolish.”

Another strategy put forward by John Gallagher, VP government relations, The VGM Group, is for RTs to unite their voice with providers and emphasize to members of Congress that RTs are out there for valid reasons. If price is the only issue with oxygen therapy, he says, then patients should just make the trip to Wal-Mart, “but remember, Grandma will have to pick it up herself.”

Many others agree that there is a basic lack of knowledge outside the industry about the high level of satisfaction and care that beneficiaries receive. The message needs to be shouted more loudly, says Dennis Cook, president of the Respiratory Division, Medline: “The service we provide is a great service and that’s what is getting lost.”

The need for more education outside the confines of the respiratory arena is repeated in all corners of the industry. “We need to educate physicians and congressmen on what the HME business is all about,” says Jacki McClure, director, National Respiratory Network and Government Relations, The MED Group. “Bring them into your business, show them what you do. It’s so eye opening for them. When they ride with an oxygen delivery truck driver and see what it takes to set up an oxygen concentrator, they will ask themselves whether they could realistically see their father or mother doing that.”

Letting Loose on Lobbying
“Lobbying is vital now more than ever, “ says Cara Bachenheimer, Invacare. “The industry has been getting better at lobbying. We’re still a small part of the lobbying system and we have a long way to go. But significantly more has been invested in lobbying across the board.”

It’s not just Congress that is hearing from the industry: “Just as important are our lobbying efforts with CMS,” says John Ledek, VP and category manager, Respiratory, Invacare. “How they develop those rules for the implementation of competitive bidding will have a huge impact on the industry.”

Predictions
Looking at the bigger picture isn’t always easy when you are struggling with the day-to-day operational realities. The general feeling appears to be that in order to survive, companies should embrace the changes. Many look at this time as an opportunity to change the course of their business, enter into new markets and operate even more efficiently than before. Will it be painful? Of course. But there is a strong vein of optimism running through the industry today.

“I’m an optimist,” states Joe Lewarski, VP clinical and governmental affairs, Inogen. “The positive indicators for the industry are there: The incidence of COPD is growing, and it is likely to become the third leading cause of death; a huge population is turning 65 every day. We’re keeping ill patients—both babies and the elderly—around longer. There’s going to be a continued demand for home care services.”

The united front reflected in lobbying efforts will also pay off. “On the bright side, the threat to the industry has brought people together, whereas it was previously fragmented. That will be one of the good results. We’ll become more organized and stay more organized in the future,” believes Dennis Cook, Medline.

Out of the turmoil some see new models of business emerging, either “a very stripped-down model, or an HME that is very clinically oriented,” says Jacki McClure. “Some HMEs are finding ways to really profitably use their RTs, such as with COPD management programs.”

The facts about industry growth underscore the overwhelming optimism of industry professionals. “The demographics have not changed,” says John Gallagher. “More people are getting older, more people are becoming diabetic, more are going on oxygen; the demographic alone indicates this industry is a great industry to be in. Most people got into it because they wanted to help. There’s a great opportunity to be able to prove we are the answer.”

This article originally appeared in the Respiratory Management Sept/Oct 2006 issue of HME Business.