Business Solutions

Changing the Game

How oxygen providers are coping with an ever-shifting funding environment.

• By David Kopf
• Feb 01, 2010

Have you ever played checkers with dice, or lost a fortune in Monopoly money while playing Scrabble? Probably not. However, this is the exact, and very surreal, dilemma that many oxygen providers have experienced over the past year, and yet, many of them have found ways to survive.

In our December issue, HME Business examined the various regulatory and funding hurdles oxygen providers were facing. In 2009, oxygen providers, like many providers in the industry, continued to be staggered by the 9.5 percent cut the industry agreed to endure in order to delay the implementation of the first round of competitive bidding. However, they were also floored with a the implementation of the 36-month rental cap. Add to that the cost of surety bonds and accreditation, as well as the increasing costs to run any kind of delivery-focal business, and the last year was a complete game changer for all oxygen providers — and a game ender for some.

But as bad as 2009’s upending of the funding landscape was for oxygen provider, they also had to prepare for CMS’s re-bid of round one of competitive bidding, try to get the industry’s foot in congress’s door when it comes to health reform, and work hard on the industry’s own effort to reform the oxygen benefit — only to watch it stagnate while health reform bills with provisions that could hardly be described as “oxygen friendly” enter the congressional debate.

You have to hand it to oxygen providers. The rules keep changing, but they’re still in the game. As many hits as they have sustained, many oxygen providers have found ways to remain standing. What’s their secret, and what are the new rules to the oxygen game?

Business Model

Of course, the major business model change for oxygen providers has been to leverage portable oxygen concentrators, home fill and similar advances in order to transition to a low- to no-delivery business model. Delivering oxygen easily comprises the lion’s share of providers’ overheard, so anything to obviate that continual capital outlay is clearly desired. That said, transitioning to portable oxygen isn’t necessarily cheap. POCs come at a greater up-front cost to the provider, and this doesn’t necessarily fit all providers’ budgets.

Moreover, some providers can be understandably gun shy about committing to a new product, when POCs see regular advances. It’s like buying last year’s mobile phone and trying to rent it out when everyone wants this year’s smart phone.

Factors such as these have slowed the adoption of a low-/non-delivery model on the part of oxygen providers. A year and a half ago, the number of providers that had transitioned to the model was minimal, according to Kelly Riley, CRT, RCP, the director of the National Respiratory Network. However, 2009’s abysmal funding landscape and bleak outlook in terms of reforming the oxygen benefit (at least while Congress is fixated on health reform and the industry is focused on ending competitive bidding) have forced providers to adapt this model.

“We are now really starting to see a shift in embracing the advanced technologies,” Riley says. “We have several supplier contracts with key providers … and those numbers in the advanced technologies are continuing to rise.

“I have yet to see a driver walk into a provider’s office and say, ‘That’s it, I’m all done depreciating. Don’t pay me anymore,’” Riley jokes.

“We’re looking a lot closer at costs,” Louis Kaufman, RRT-NPS, AE-C, FAARC, the vice president of patient/client services for Roberts Home Medical Inc., a regional HME covering most of Maryland, Virginia and the District of Columbia. Roberts Home Medical provides the gamut of DME, and a primary focus of its services is providing oxygen. “Certainly one of the big cost centers for us is delivery. We embarked before this latest round of hits — and we’ve been taking these hits for a long time; this is just the latest round — at looking very closely at the ‘high tech’ means of delivering portability to patients.

“We looked at portable concentrators or systems that allow the patients to fill their cylinders at home, themselves,” he continues. “We’re well on our way in moving towards that. It’s a lot of up-front cost to us versus decreasing delivering costs, but it’s also a lot of benefit to the patient that’s not necessarily realized when you look at the initial cost of this equipment.”

Other advantages to the patient include increased ambulation and enjoyment of life; reduced energy costs since they don’t have to run their concentrators all day; and a decreased fall risk since the patient isn’t tied to a “leash.”

As it stands, approximately 50 percent of Roberts Home Medical’s patients are on a POC or home-filling system.

Transitioning to a low-/non-delivery model is not a slam-dunk. In fact, it’s not right for all patients, and can wind up incurring addition expense for the provider if misapplied. This is an important consideration when evaluating a business model shift.

“Talking with dealers, they are certainly concerned about the state of reimbursement and how it’s going to impact their businesses,” says Ron Richard, CEO of SeQual Technologies Inc., which designs and manufactures POCs. “I think the general shift towards low-/non-delivery technologies is being well thought through and algorithms are being developed by a number of dealers that seriously want to stay in the oxygen business, and they are trying to identify up front what patients are going to placed on which technology, and trying to match the lifestyle needs of that patient to a portable oxygen concentrator, versus a stationary with tanks.”

If the provider mismatches the solution to the patient need, unwanted expenses can occur as the months go by, Richard says. A non-ambulatory patient that is well along in the disease process would probably be better suited with a stationary 5 liter concentrator with backup cylinders, as opposed to a POC. To ensure they make the best matches to patient needs, providers are reviewing factors such as distance from the office, or patients that require more than one delivery a month, he notes.

Richards adds that many oxygen equipment manufacturers are offering providers spreadsheets and similar tools to input their costs of delivery, number of cylinders delivered, acquisition costs and similar factors to produce a report that outlines the best technologies for different patient profiles.

Operations

So, how does the low-/non-delivery business model transition into changes in oxygen providers’ operations? Ultimately it comes down to cutting any cost possible. “Everyone is looking to drive out every 1 percent to 2 percent of excess cost that they have,” Riley says.

And if that means cutting deliveries, that means cutting time with patients, as well.

“The reality is that there is simply less time with the patient,” Riley explains. “We are not able to continue to have viable business models without some concessions somewhere. And we are seeing providers simply having to spend less time with patients.

“Whether that means they have gone to a reduced maintenance and service plan, as well as less time in home assessments and patient education, that is where a lot of the operations models have had to change,” she continues.

Another way to drive down costs is to focus on core competencies. For instance, if a provider specializes in providing oxygen services, perhaps it’s time to reconsider some of the aspects of its operations that were traditionally operated by the provider, but might need to be handled by another party. Here too, oxygen providers are facing some dramatic rule changes.

“We are hearing of more and more people that are considering outsourcing both billing and collections,” Riley says. “That’s something I don’t think this industry would have even considered five years ago.”

And of course, while providers are still shifting to new strategies such as non-delivery, they must still alter their operations for existing processes, such as tank delivery, in the meantime. For Roberts Home Medical, of which 50 percent of its patient base is using low-/non-delivery oxygen options, the remaining half must still be serviced. GPS tracking is one option for gaining efficiencies there, Kaufman says.

“All of our trucks have GPS; that’s a hazmat requirement,” he says. “We’re looking at GPS routing system for us to know where the trucks are.” While oxygen providers are trying to minimize their deliveries, many providers are also concurrently trying to explore their cheapest options when they do have to roll a truck.

“From an operations standpoint, we’re looking to see the least costly delivery model that’s out there,” Tom Ryan, president and CEO of Farmingdale, N.Y.-based Homecare Concepts Inc., a regional oxygen provider. “Between a combination of drop shipping, courier and internal driver use we have been able to chart out what kind of orders would go via what type of delivery method.”

For instance, couriers that specialize in working for HMEs now perform equipment pickups for Homecare Concepts, rather than internal drivers. “The average cost for courier deliver is about 40 percent less than our average cost for a Homecare Concepts driver,” Ryan explains. “You pay these guys a flat fee per day and you manage for a fixed cost. So you if you give more deliveries you are going to get more value for that dollar.”

Staff at Homecare Concepts have adopted this approach so intently that depending on the order, customer service reps typically already know which shipping methodology will be used as they are processing orders. In fact, couriers can be particularly cost-effective. Ryan says that they sometimes can windup ringing in cheaper than drop shipping. And Homecare Concepts can ensure quality of service by working with their courier contractors to ensure they understand its requirement, he adds.

“If you get some consistency with the driver, you can train them on your own and use them to the comfort level that you feel appropriate,” Ryan says. “Right now have them deliver supplies for us and we have them do pick-ups for us. I would never have them do an oxygen setup for us. We really try to use them for what we consider a lower-level delivery.”

The only issue with using third-party couriers is that it could be a grey area in terms of accreditation when it comes to competitive bidding.

“We’ve become a competitive bid area and if we win the bid there is a question about the couriers and subcontractors,” Ryan says. “So that model might be changing as we move forward.”

Staff Considerations

Additionally, Roberts Home Medical has conducted inventories of patients and determined which ones could be serviced instead of on a weekly basis, either a bi-weekly or monthly schedule, without overloading the patient with cylinders.

Another one of the other major costs of providing quality oxygen services, according to national practice guidelines, requires a respiratory therapist in order to evaluate each patient before they go on a conserver. However, the RT is not reimbursable under Medicare, but it is certainly costs, Kaufman notes.

“So, we have been able to change our requirements for follow-up visits by therapists,” he says. “We have used some technology for some of the products for products other than oxygen, such as apnea monitors, to decrease the number of visits the therapists are doing in some areas, and increase their emphasis on seeing and following up with oxygen patients. Put them where they would do the most good for patients and use technology to decrease their requirement to see patients that could be monitored remotely.”

Also, Roberts Home Medical has changed the way in which it therapists schedule their visits. Previously, RTs planned their own schedules, and now that has been brought into the office, and a therapist in the office contacts the patient, performs some preliminary needs analysis with the patient in hopes of determining the best solution for them.

“Our philosophy all along has been that we want to try and analyze the patient’s lifestyle match the equipment to them as closely as possible so that they don’t have to change their lifestyle significantly, if possible,” Kaufman explains. “Having some of that preliminary work done by a therapist in the office and then that therapist make the schedule for the therapist in the field has increased the number of patients the [field] therapist is able to see.”

Another aspect of transitioning to the new model is ensuring that biomedical engineers get proper training. “We’ve seen a pretty big surge in the number of homecare companies asking us to do on-site biomed training, because POCs require a different level of service and attention than a stationary,” SeQual’s Richard notes. “As you can imagine, these things are out and about in different kinds of environments; they’re getting put in cars and trains and planes and everything else, and getting bumped and banged around.”

Additionally SeQual is providing webinars for providers that provide the biomedical community information on how to troubleshoot and service POCs to ensure they are up and running 24/7, Richard says.

In the same way providers are trying to optimize their operations efficiency, Homecare Concepts is taking a similar approach to its human resources. “As profits decrease, we have to get more efficiency from our employees, because they are our biggest asset,” Ryan says.

So, the oxygen provider is measuring every aspect of different employees’ duties, and use those measurements as a basis for scoring and maximizing staff efficiency. The result is a “score card” for each employee that can serve as a training and review tool.

“The development of that score card has been really helpful for us,” Ryan says. “We look at things like driver efficiencies, paperwork compliance, how long it takes for drivers from when they punch in to when they get on the road, the number of completed stops, deliveries per man hour.

“So we look at each individual area,” he continues, “whether it be the documentation department, CSRs, and different metrics for each department — not every many; just three or four. They’re very specific and very measurable, and that has helped us.”

This has led to interesting revelations. For instance, scoring CSRs based on how many orders they process created a competitive environment that could have led to staffers not sharing the workload, so the scoring had to focus on overall efficiency.

Also a process evaluation/operational efficiency team at Homecare Concepts have focused on workflow and process and applied lean management techniques to find additional efficiencies. This has helped the provider create a “red light tracking dashboard” that lets it know when a department is falling behind in its primary function, so that the situation can be readily addressed.

“We’re constantly driving for efficiency and not settling,” Ryan says, summing up the number one rule of the new oxygen game. “You can’t settle for mediocrity anymore in this environment. You have to be the best of the best.”

This article originally appeared in the February 2010 issue of HME Business.