Funding Focus

Preparing Your Business for the 36-Month Oxygen Cap

• By Kelly Riley
• Jun 01, 2008

A historical event in our industry is quickly approaching. Pending any new Congressional changes, effective January 2009, the payment ceiling will be reached for some of your existing oxygen patients, and your company will no longer receive monthly rental fees. January 2009 could be your worst single month in terms of revenue decreases, or it could be the same as any other month. The question is: Do you know?

There are many things providers should be doing over the next several months to determine the immediate and long-term impacts of the oxygen rental cap.

As a review, the rules on oxygen reimbursement changed because of the Deficit Reduction Act (DRA) passed by Congress in 2006. The act set the oxygen rental payment to “cap out” at 36 months. There have been several attempts since then (and will still be more) to reduce the number even further. An implementation date of January 2007 was published; however, for the purposes of counting, the stopwatch turned back 12 months to January 2006. The act also established new classes of oxygen equipment and new reimbursement levels, and the modality neutral principal went away. There was a slightly higher reimbursement level set for oxygen generating portable equipment (OGPE) because of higher acquisition costs for the supplier.

Despite the fact that January 2009 is only a few short months away, many questions have yet to be answered: What will the proposed storage fee for customer-owned cylinders be? What will be in the LCD related to replacement supplies? We do know one thing for certain: There will be change.

To prepare for this change, the most immediate step should be to understand your business metrics, including attrition rates for oxygen patients, length of service, and patient mix as related to the type of product and use.

All businesses have a certain amount of attrition, which represents the average number of oxygen patients the company loses every month for all causes. To calculate attrition rate, take the number of active oxygen patients on service 12 months ago. Add to that the number of new starts. Now, subtract from the number of existing patients and divide by 12. This will give you the number of patients “normally” lost every month. By completing some amortization for the months remaining prior to January 2009, you can calculate the number of patients you would lose anyway, without the impact of the DRA. As an example, if you had 1,000 patients 12 months ago and added 200 new starts, that equals 1,200. If your current census is 1,080, that leaves you with 120 loses for the 12-month period, or 10 loses per month — (1,000 + 200) – 1,080 = 120/12 = 10. If there are seven months left prior to January 2009, using this data, you would normally lose 70 patients based on your company’s historical performance.

Directly related to the attrition rate is the average length of service (LOS). To get accurate data, it is important to only use patients who are no longer active. If you have not billed for the product in 90 days, the assumption generally is that the patient is no longer active. To calculate the length of stay for oxygen patients, take the following steps.

• Select inactive patients by HCPCS for the last 36 months
• Include the following data with inactive patients: first service date, last service date, HCPCS
• Subtract the first DOS from the last DOS; the result is days served
• Average days served and divide by 30.

This gives you the average number of months oxygen patients remain on service. Using this data, you can formulate a factual picture of what the impact of the 37th month will be.

The last area of consideration is patient mix based on patient needs. Consider how many nocturnal vs. highly ambulatory patients you serve.

In our industry, some of the most significant costs for providing oxygen include equipment acquisition and ongoing delivery expenses. While the initial sticker price of newer technologies can cause a provider to pause, many realize that the cost of the equipment does eventually go away. On the other hand, costs related to ongoing delivery do not and will continue to rise.

Companies should implement action plans now that are based on thought-out strategies, facts and data derived from their own company records. As a presenter at an industry show said last fall: Hope is not a strategy!

Author’s Note: Information within this article was taken, in part, from “36 Months” by Wallace Weeks, The Weeks Group, presented to the National Respiratory Network in April 2008.

This article originally appeared in the Respiratory Management June 2008 issue of HME Business.