From Tortoise to Hare -- HME Business

From Tortoise to Hare

By David Kopf
Dec 01, 2008

We all remember the moral of Aesop’s fable about the tortoise vs. the hare: “slow and steady wins the race.” The cocksure hare lost to the persistent tortoise due to his overconfidence. However, in the world of oxygen delivery, which depends on a combination of promptness, flexibility and dependability, perhaps the adage should be altered to say “smooth and efficient preserves the provider.”

Of course, providers have more important issues to overcome than trash-talking from a bunny. From the price of gas to CMS’s recently released oxygen policies (see News, Trends & Analysis, page 8), oxygen providers are finding it increasingly difficult to realize a justifiable profit margin. Needless to say, this is why they have been trying to move to a non- or minimal-delivery business model.

While providers might ultimately seek to evolve to that non-delivery business model, in which most of their patients are on self-filling devices such as portable oxygen concentrators, providers still need to deliver tanks to patients in the meantime. This means they must find ways to cut costs and enhance efficiencies so that they can maximize their margins, and afford the initial investments of transitioning to a non-delivery model.

Take, for instance, ASAP Home Oxygen, a large, St. Petersburg, Fla.-based independent provider of home oxygen that services more than 3,000 concentrators in locations throughout the Sunshine State. ASAP Home Oxygen is still very much focused on tanks.

“We are your traditional DME that has 75 percent Medicare business, and, of that, probably 75 percent is oxygen from a revenue standpoint,” says ASAP owner Roger MacClellan, who has been in the oxygen business over 15 years. “We have very little self-fill. We’re still traditionally delivering tanks.”
This is because ASAP Home Oxygen has very few rural patients and its patient populations are very centralized in its “hub” areas. Also, the demand for self-filling systems is not yet there.

“The market hasn’t pushed me to go down that path,” he explains, “and of course I own all this equipment. So, like many other players, we’re trying to utilize the equipment we have for as long as we can.”

MacClellan says that as he looks at his customer base in each service area, he can see, for example, that in one he has 1,000 patients and of those, approximately 65 percent also get portable, but of those only half need tanks every month. That could represent a spot for reducing cost. Figures such as these are where MacClellan has found ways to slash unnecessary cost from his operations, but he says providers don’t always take a moment to review the numbers.
“During discussions I had with [providers] at Medtrade Fall, I learned a lot of them still didn’t even know how many tanks they were delivering a month,” MacClellan explains.

Discussions like those, along with the reality that many providers are still doing sizeable tank delivery, are why MacClellan decided to create a tool not only for his own business, ASAP, but also for other providers to optimize their route planning and delivery schedules. “My vision for early in this transition period was for ASAP to figure out what’s the most efficient way to deliver tanks to patients,” MacClellan says. The result: eTankPro, a subscription service for managing oxygen delivery.

Intelligent Delivery
A typical oxygen provider serving 300 or 400 oxygen patients might have four drivers serving different territories — the north, south, east and west quadrants of its service area, for example. Those drivers typically perform four main tasks: set-up, maintenance and service, pick-up and tank deliveries. Emergency service related to any of those four tasks is boiled into each driver’s routine, explains MacClellan, who also is president of eTankPro. If a patient needs an emergency repair in a driver’s territory, the driver prioritizes that patient.

But that sets up a highly inefficient model, MacClellan says. “If you could pull out half of your work, and run it as efficiently as you could, that would at least make that portion of your business that much more efficient,” he explains. “And the other half could move on the fly and respond to the emergencies.
“Pull one driver out and have him do just tanks and pick-ups and you’ll see the whole operation get ridiculously efficient,” he adds. “If routed properly you can do 18 to 20 stops a day, depending on your area.”

Tank stops don’t take long, but with multiple drivers doing them in a distributed fashion and with few accountability measures to ensure drivers are sticking to their route, providers are often running operations that waste time and money, MacClellan says.

MacClellan says eTankPro wrangles that whole situation by creating a subscription-based service that lets providers manage their incoming orders, schedulethem, create efficient distribution routes, and then ensure that drivers stick to those routes. “The idea is to automate and use technology to minimize labor costs and to make the operation more efficient,” MacClellan says.

The system is relatively simple: patients input their tank orders using a simple interactive voice response system over the phone, or via a web page (if they are tech savvy). A server at eTankPro then collects the providers’ incoming orders and sorts them each morning to create delivery schedules.

Using Google and Mapquest licenses, as well as some proprietary routing software, eTankPro automatically creates the most efficient route plan for each driver. The printable plans not only include turn-by-turn directions, but also provide lists of the lowest-cost gas stations nearby and pre-populated delivery tickets.

As the delivery driver makes each stop, the driver calls in to answer various questions about the stop so that the provider is updated on each patient’s status as the day’s deliveries progress.
That information is then stored in logs and reports to help the provider review and manage its operations. Also, if there are any errors or necessary diversions from a day’s rounds, the driver can then insert comments in a narrative field for that day. Providers can then log in from any web browser to monitor and manage their delivery operations.

Set up is mostly handled by providers sending eTankPro an excel file of customer data, as well as setting some additional delivery parameters. The key step in this process is notifying patients and transitioning them to the eTankPro service. This can be accomplished via mailers and the drivers, who can input the customer into the service. This also can be done when the customer dials into the provider.

The cost for the system is $2 a stop. Factoring in gas costs, reduced driver wage costs, increased efficiencies for front-office customer service reps and other gains, MacClellan says the ROI is nearly instant. The system uses various industry benchmarks to show the provider how much it saved on each delivery.
“Literally, a company that is doing 200 stops a month is getting charged $400 for all these services, charged on an as-needed basis,” he explains. “We go into clients and say, ‘Hey, your $2 saved you $10.’”

Leveraging GPS
Another way to help providers manage their deliveries and drivers is through global positioning satellite systems that let them monitor the activity of each truck in real-time. Done right, this can provide a wealth of feedback that can help them enhance driver efficiencies and cut fuel consumption and vehicle maintenance.

One such system is HMEGPS, which is based on GPS fleet management technology from GPS technology company On-Board Communications Inc. (Dallas), and is tailor-made for HME providers.

That’s because, like eTankPro, HMEGPS is led by an HME provider, Bob Wagner, who operates Wagner Medical Supply serving patients in the North Hills of Pittsburgh. Wagner says that at the end of the day, oxygen providers often contend with the same set of variables: the drivers, demanding referral sources and decreasing Medicare funding. Improving driver efficiency will help address the other two, and one way to do that it is through monitoring drivers in real-time via GPS.

“GPS takes good drivers and makes them better,” Wagner says, adding that in a typical crew of drivers, 10 percent are stellar performers, 10 percent could be non-performers and the remaining 80 percent are good drivers, who simply don’t take an ownership interest in what they are doing. That’s where GPS comes in, he says.

“When we go to providers we always ask the same question, ‘Have you ever sent a manager to ride along with a driver, and at the end of the day, that driver was more productive?’” Wagner explains. “[GPS] is like you have a manager out there riding with a driver.”

The HMEGPS system is straightforward. To begin with, the OBC-5100, a $399 device about the size of a wallet that includes a dual-purpose antenna that combines a GPS receiver and a cellular transmitter. The device is hardwired under the dashboard in each truck, and cannot be switched off. Then the provider subscribes to a monitoring service that costs $1 a day for each vehicle.

That service lets the provider use a web browser to monitor all drivers and their trucks in real-time to see where they are on their route, what stops they have made, how long they were at each stop, and the speeds at which they are traveling in order to maintain optimal gas mileage.
“The return on investment on those ancillary items is nowhere near as significant as the return on investment for knowing where your driver is and making sure your driver has been productive,” Wagner adds. “What we hear from HMEs across the country all the time are two things: number one, ‘my drivers are now accountable for their time,’ and number two, ‘the day has tightened up.’”

And a wealth of GPS data is collected in the system’s reports that the provider can then review to inspect a variety of factors, such as productivity at referral sources, the length of gas stops, or customers requiring decreased frequency of delivery. That translates into information that can help a provider significantly reduce costs, Wagner says, who has collected some useful provider feedback.

“In general, we’re seeing that overtime is down — about a 30 percent decrease in overtime,” he says. “Miles are down anywhere from 10 to 15 percent, depending on the operation. We’re seeing a much better increase in customer service. Finally, we’re seeing a much better relationship between the customer service staff and the drivers.”

Reducing Deliveries
Of course, while increasing delivery operations efficiency is critical, providers must also look at ways they can minimize the deliveries themselves. One solution to do that is Cyl-Fil from oxygen equipment maker Responsive Respiratory (St. Louis, MO.). Essentially, Cyl-Fil seeks to replace small tank delivery with large tank delivery, and then, using a special regulatory/valve connection, have patients fill up their own smaller tanks.

The provider delivers a single T-sized supply cylinder, which can fill 17 empty M6-sized Cyl-Fil cylinders, or top-off 30 (and possibly more) M6 cylinders. Also the supply cylinder functions as a stand-alone emergency oxygen source of more than 40 hours. The patient simply hooks up the small cylinder to the valve, which regulates the filling speed, and stops filling when the cylinder reaches 2100 PSI. It also automatically shuts off if the patient loosens or removes the cylinder before it is finished filling.

This approach can be well suited to patients who are ambulatory 11 to 20 hours a week and who use seven to 11 cylinders per month, which comprise roughly 31 percent of patients, says Tom Bannon, president of Responsive Respiratory. “We really believe that is the group that providers should convert to Cyl-Fil because now you are at nine to 14 weeks on a delivery cycle, minimum,” he adds.
“If you support those patients with Cyl-Fil you bring in your assets, meaning the cylinders you supported those patients with, and reallocate those to the patients who need six or less tanks a month,” Bannon explains.

These sorts of numbers are resonating with providers, who are now well aware of the impact of CMS’s new oxygen rental cap, and the 36-month caps, which begin in January, Bannon says. “What we’re seeing now is that providers are telling us how much money they stand to lose in January,” he says. “Up until this point, I bet there wasn’t one in 10 who couldn’t tell us what that impact would be.”

Bannon adds that regardless of any transition to low- or no-delivery, there will always be a need for emergency oxygen, a key patient need that can be more efficiently served using a system such as Cyl-Fil. “You have that peace of mind,” he says. “We have a provider in Florida, who just prior to hurricane season went out to 24 patients and sold Cyl-Fil to 20 of them.”

Keep on Truckin’?
At the end of the day, the transition to a non- or minimal-delivery model will most likely take providers some time. While they make that move (see “Moving to Non-Delivery”), they need to make their current reality work for them, MacClellan says, and the first part of that is to know your real costs.
Providers should model their patients, know the real costs of serving them, and perform the necessary cost-benefit analysis to see how it pencils out — something not every provider is able to do on a regular basis, MacClellan says.

“At the end of the day, if you pull that data out, there are still margins in delivering tanks,” he says. “Providers have to get their arms around what does providing oxygen cost them, and what is the cheapest way they can do that.”

Points to Take Away
•   Tank delivery is still very much a reality. While oxygen providers might ultimately want to transition to minimal- or non-delivery business models, many still need to transition to that model, and the transition won’t be instant.
•   Providers must find and remove unnecessary costs and inefficiencies, and optimize their operations in order to stay competitive and profitable while they make the transition to non-delivery.
•   Even then, providers still might have some remaining patients who will require deliveries, so any newfound efficiencies will remain critical to the bottom line.
•   Some key ways providers can gain those efficiencies are through route optimization, global positioning satellite systems to cut delivery costs, and ways to reduce overall deliveries.

Learn more
Here are some solutions for increasing oxygen delivery operations efficiency:
•   eTankPro — provides a subscription service that helps providers optimize their oxygen delivery business. Visit www.etankpro.com.
•   HMEGPS – a GPS delivery tracking system and service designed with HME providers in mind. Visit www.hmegps.com.
•   Cyl-Fil – an oxygen system that lets patients refill their cylinders from a much larger tank that is delivered less frequently. Visit www.respondo2.com.