Is the Oxygen Business Up in the Air? -- HME Business

Is the Oxygen Business Up in the Air?

Feb 01, 2009

What Oxygen Providers are doing to stay grounded.

Leery oxygen providers awoke January 1, 2009, to new oxygen payment rules and supplier responsibilities required by the Medicare Improvements for Patients and Providers Act of 2008.

The new policy states that the rental payments will cover oxygen equipment, contents, maintenance, supplies and accessories, but not the costs of providing the services and maintenance associated with the core oxygen benefit.

Oxygen payment rules from CMS state that the 36-month rental cap will remain. Once the 36-month period is past, providers must still provide any equipment, supplies, accessories and contents medically required during the five-year useful lifetime of the original oxygen equipment.

Now suppliers will be reimbursed only for one 30-minute routine maintenance visit every six months after the 36-month period and will not be reimbursed for emergency visits or the replacement of supplies associated with oxygen use, such as oxygen masks.
“Most providers believe that the cut and the cap will amount to at least a 20 percent reduction in revenue,” says Roger MacClellan, President of eTankPro. “If you throw in Medicare deductibles in January you have the perfect storm. Providers will not pay vendors, rents will be late, payrolls will bounce, and probably provider lines will be busy or ring many times over for beneficiaries. Unless you were making over 20 percent profit or have made drastic cuts to everything, providers will not be able to sustain in this industry given the 2009 changes to Medicare reimbursement.”

Bob Hoffman, director of Nationwide Respiratory, sees the new regulations damaging one of the qualities that has made oxygen providers successful.
“Unfortunately, one of the few areas which can be cut is what has made many businesses successful: customer service,” says Hoffman. “Being the provider that will deliver the portable tank after hours or respond immediately to a patients’ non-emergency needs who is 50 miles away will not be possible anymore. This is what our congressmen and CMS fail to recognize. The cost of the equipment is minimal compared to the amount of time and resources it takes to adequately service the medical needs of the patient dependent upon their oxygen for survival.”

Although providers and myriad industry groups, such as The American Association for Homecare, have labeled the new regulations “alarming” and “wholly inadequate,” and worry that patients will not receive the level of care required, they still need to sustain profitability in a volatile industry during a down economy.
In response to these changes, oxygen providers are taking a look at cost-cutting and efficiency measures to maintain a thriving, successful business. According to Kelly Riley, director of the National Respiratory Network at MED Group, it all starts with taking a long hard look at your current business.
“It is essential that providers know the metrics surrounding their own business,” Riley says. “For example what is its average oxygen patient length of stay (LOS)? Many providers use ‘current patients’ to come up with this number when in actuality they should measure from patients who have been discharged in order to get a more accurate number.”

To help providers realize the overall margin they can expect to achieve in the oxygen segment of its business, they need to know what percentage of their clients stay on past 36 months, and what percentage stay past 60 months.
In addition, Riley says providers should know what it costs to perform the various components of the business, including billing, intake, marketing and delivery.
She points out the focus of businesses has been the cost of capital, but now it’s very important to look beyond that.
“The capital cost does go away in a couple of decades of doing this,” she says. “I’ve never seen the cost of vehicle maintenance, fuel, or manpower stop at 36 or 60 months!

Now that the provider will maintain ownership of the delivery device, as well as the fact that the non-delivery models did not get hit with the cut, it makes even more sense to move to a non-delivery model when patient appropriate.”

Joseph Lewarski, Vice President of Invacare’s Respiratory Group, agrees with Riley that non-delivery models must be considered.
“Over that last few years many providers have been implementing numerous cost-cutting and operations efficiency programs,” says Lewarski. “Observing the steady decline in the number of patients receiving liquid oxygen systems, it is clear that many providers have exited the liquid oxygen business due to the immense capital equipment, labor and cost demands. Based on the increasing sales of HomeFill and other new technologies, I think there is a strong movement to non-delivery oxygen systems for the management of the ambulatory oxygen patients. With a number studies and experts noting that oxygen equipment typically represents less than 25 percent of the cost of providing home oxygen therapy, delivery and all of the other delivery-related expenses — such as order intake and processing, testing, filling and tracking cylinders, documentation and paperwork — need to be reduced or eliminated.”

MacClellan also points to technology as a way to help create a successful oxygen business. “Making critical decisions on payroll reductions is absolutely necessary. Another area that companies can find savings is by implementing technologies including document-imaging charts, fax servers, CMN management software, delivery management software, and denials software. Finally providers must go line item by line item and reduce everything from bottled water to cell phones.”

MacClellan’s business, eTankPro (www.etankpro.com), automates the ordering, delivery, routing, and management of the tank delivery process.
Riley offers the following advice for oxygen providers:

Drill down into operational costs. For example, “What is your current turnover rate for employees? Companies spend thousands of dollars in recruitment and training; know if you have a problem.

Know the regulations. Many have seen in recent weeks, erroneous stories and data. And unfortunately it has even come from CMS. Don’t develop business models-based sources that are not proven.

Pick good partners. In tough times we often look at getting the cheapest price for the product. In the end that costs the provider and the industry as a whole. It is pretty easy to see who has a presence and is fighting for the overall viability of this industry. Don’t start buying or partnering with the new latest greatest. Go with the tried and true.

Delivery-driven cost savings

Bob Wagner of HME GPS offers GPS solutions for oxygen providers. Wagner says his solution is viable because it targets one area that providers have control over: internal operations. According to Wagner, here’s how using GPS helps oxygen providers:Improves customer service and driver satisfaction. Most providers tell HME GPS that the largest benefits — improved customer service and driver satisfaction — cannot be quantified in dollars. The ability to confidently communicate with customers and referral sources cements relationships and spreads goodwill. The fact that the drivers are more productive leads to better customer service. As the drivers are more productive, and the staff can see the productivity, live as it is happening, respect for the drivers increases and yields better driver satisfaction and retention.

Increases productivity and reduced overtime. As soon as the units are installed, drivers immediately become accountable for their time, resulting in an increase in productivity and a reduction in overtime. We see an average savings in overtime of 35 percent.
Reduces miles. Better route planning and the ability to monitor unnecessary miles have resulted in significant savings. Wagner says its average customer is saving 10 percent of their total miles or better.

Improves sales. With some providers HME GPS has seen an increase in sales. Because the drivers are more productive and moving faster during the day, often times they are returning to their base faster and delivering some of tomorrow’s deliveries today. This creates excess vehicle capacity, which provides the ability to drive more volume with the same number of drivers and vehicles. Some HME GPS customers have also installed the system in their marketers’ cars. This has resulted in an increase in sales calls and more sales.

“When we implemented GPS we chose FleetTraks GPS because of its competitive offering and focus on our industry,” says Charles Boyte, Director of Operations of Edge Medical Supply, which purchased the HME GPS service. “We knew that we would gain control of our 11 delivery vans. We also knew, however, that we needed control of our six marketers, so we also installed GPS in their vehicles. The results quickly confirmed our uncertainties. We found that the financial benefits gained from the implementation of GPS in our marketers’ cars are just as powerful as the benefits of our vans.”
Edge Medical Supply says since implementing the GPS system, they have had an increase of marketers’ quotas resulting in a direct sales increase of 18 percent; referral sources visits are up by 10 percent; entertainment expenses are down by 10 percent; and a monthly mileage reduction of 5 percent resulting in savings of $500.00 per car per month.

A new model for oxygen providers

Responsive Respiratory, which offers high-pressure oxygen products, recently published a white paper titled, “Steps to Financial Freedom in 2009 — An Oxygen Provider Solution Study.” The study looks at Responsive Respiratory’s Cyl-Fil Systems, which allow patients to refill their own portable oxygen cylinders at home within 15 minutes. In three steps, the study shows how providers can address key aspects of an oxygen provider’s business in light of Medicare cuts, the 9.5 percent reimbursement reduction and cap rental.

The problem the study addresses is that rising costs and decreasing reimbursements are making a weekly to three-week delivery period model unprofitable. The solution, according to the white paper, is to assess your patient mix and implement an oxygen strategy designed to reduce the outlay of expenditures and shift assets for best use. The study used three steps:
Step 1 — Identify your patient mix and current costs. Review current delivery records for cylinder usage by patient and number of deliveries. Compare results to the industry average.
Step 2 — Plan for new patient growth. Invest in and set up new patients on Cyl-Fil Systems by Responsive Respiratory [70 percent of new patients are MED/LOW users].
Step 3 — Streamline current costs. Reduce current costs and eliminate unnecessary deliveries by focusing on maximizing resources allocated to each patient group.

Through reduced deliveries and reduced oxygen expense, the study claims that providers with 100 patients using the Cyl-Fil System will save $43,177 in the first year; $61,622 in the second year; and $61,622 in the third year. You can request the white paper by calling (866) 333-4030 or via email at [email protected].

The air you breathe

When it’s all said and done, perhaps it’s going back to basics and good common business sense.
“There are really no secrets to success here,” says Lewarski. “Good basic business fundamentals are key:

Know the details of your business, including all cost- and care-related components. This includes the cost of providing care and service, equipment total cost of ownership, oxygen patient lengths of stay and true revenue vs. cost (don’t mistake revenue for profit).

Reduce and eliminate non-value added services and processes. Find the most cost-effective methods that don’t compromise your commitment to patient care and service. In today’s environment, look to technology and automation to replace tasks.

Embrace change, as it is the only constant in this business.”

Through all the frustrating regulatory and reimbursement issues they are facing, oxygen providers must position themselves to win this fight, not just for their businesses but for the patients they serve.
“Providers can’t forget the valuable, life-saving service they provide,” says Lewarski. “Regardless of the politics and policy issues, there is continued and growing demand for home oxygen therapy services. COPD remains the fourth leading cause of death in the United States and its morbidity and mortality continue to increase faster then most chronic diseases. Long-term oxygen therapy is the only treatment that has been clinically proven to improve life expectancy and outcomes in COPD patients with chronic hypoxemia. While it may be difficult if not impossible to predict what the home oxygen therapy benefit will look like in the future, it is clear that demand for quality home oxygen therapy services from HME providers is essential to the near- and long-term future of our health care system.”

Points to Take Away

•   Jan. 1, marked new oxygen payment rules and supplier responsibilities required by the Medicare Improvements for Patients and Providers Act of 2008.
•   Suppliers will be reimbursed only for one 30-minute routine maintenance visit every six months after the 36-month period.
•   After the 36-month period, suppliers will not be reimbursed for emergency visits or the replacement of supplies associated with oxygen use, such as oxygen masks.
•   To understand how these changes will affect providers, they must know the metrics surrounding their own business.
•   Many providers have exited the liquid oxygen business due to the immense capital equipment, labor and cost demands.
•   Delivery-related expenses, such as order intake and processing, testing, filling and tracking cylinders, documentation and paperwork, need to be reduced or eliminated.
•   Use technology to automate your business.
•   Pick good partners and don’t pick cheap products just to save money.
•   Consider GPS as a strategy to cut costs and improve efficiency.
•   Read “Steps to Financial Freedom in 2009 — An Oxygen Provider Solution Study,” a white paper published by Responsive Respiratory
•   Remember to practice good business basics.