Less Delivery, More Savings

The current competitive bidding situation may be the development that finally pushes home respiratory providers off the fence when it comes to nondelivery oxygen modalities. While many providers are down in the mouth about the industry’s future, those committed to home transfilling systems are happy to speak about its benefits. That difference in outlook alone should make everyone listen up. Meet execs at three different companies — one company was founded on the transfilling premise, another expanded using the technology and the third uses transfilling strategically for certain patients.

It’s no secret that the primary hurdle to widespread use of home transfilling is the acquisition cost of the systems, but nondelivery devotees say that providers must figure out how to afford them. “A home transfilling system certainly costs way more money to buy upfront than a concentrator and tanks,” says Doug Coleman, CEO of Major Medical Supply, Loveland, Colo. “But from our perspective, it’s the most costeffective way to serve the oxygen patient over the long run.”

With that in mind, review the efficiencies that nondelivery brings and assess the changes needed to make it work.

Extrakare LLC, Norcross, Ga., began five years ago with a business plan centered on home transfilling systems, says Scott Lloyd, co-founder and president. “Back in 2005, there was no additional reimbursement for transfilling equipment, but the additional capital expenditure made sense to us even in that environment,” Lloyd says. “We knew by investing in the technology, we would have the operational efficiencies and cost savings on the backside. Today’s environment makes that even more true, and there is now reimbursement for transfilling.”

The financial benefit of the nondelivery model is proven, Lloyd says. “We have demonstrated to ourselves that there is significant operational savings on transfill patients over contents-delivery patients,” he says. “It’s difficult for us to imagine how people are going to remain profitable delivering contents to lots of patients.”

While Extrakare does supply all oxygen modalities, approximately 85 percent of its ambulatory patients use transfilling equipment. “Basically, it’s all of them,” Lloyd says. “The ones who don’t use transfill have patient-specific reasons, such as they need high flow rates or they are not conserver tolerant.”

Because deliveries equal dollars, Extrakare measures efficiency by the number of visits. Lloyd says Extrakare visits their nondelivery patients’ homes substantially less than their contents-delivery patients. And contrary to the industry’s perception of this, that’s not all bad. “Our patients are not leaving us so apparently we are doing a pretty good job.”

Major Medical Supply, Loveland, Colo., started using transfilling equipment about five years ago, when it opened up a
branch in Fort Collins about 30 minutes from the company’s fill plant. “We thought it would be inconvenient to travel back and forth, so we bought transfilling systems. The more experience we had with the equipment, the more we liked it.”

Coleman says he liked it so much that now transfilling equipment is the predominant modality the company supplies to ambulatory patients in all of its eight branches. “Some of the advantages are not as obvious as you think when you first start. They have smaller dollar values, but they are still important.” For example, home transfilling equipment eliminates the lot-number tracking challenges associated with tanks. Further, the equipment travels easily to patients’ homes in smaller, less-expensive vans. “When we started the new branch, we didn’t have to buy big, heavyweight delivery vehicles.”

Major Medical has enjoyed significant growth due to transfilling technology, Coleman says. “It allowed us to grow at double the rate that we would have using the old technology, because the efficiencies allow us to dedicate more resources elsewhere, and the competitive advantage offers a better system for the patient.”

Alpine Home Medical Equipment, Salt Lake City, reports that 10 percent to 15 percent of the company’s patients use home transfilling systems, according to Greg Dunn, director of respiratory. “We use it as an oxygen modality for patients who live in rural locales far away from the physical location of our stores, and we use it with highly ambulatory patients who go through lots of oxygen cylinders.”

Alpine is vigilant about applying the home transfilling technology strategically, Dunn says. “With Salt Lake City in Round Two of competitive bidding, we absolutely need to be getting more and more efficient,” he says. “We conduct case management meetings biweekly to look at the deliveries to oxygen patients to identify candidates who would benefit from this technology and well as have the technology benefit the company’s bottom line.”

Making the Transition to Transfilling

Dunn’s point captures the essence of the transfilling trend. Why not provide something that’s good for the patient and good for business? Best practices can help providers realize the benefits.

Lloyd has witnessed providers try home transfilling with limited success, mostly because they haven’t made the necessary changes. “Here’s the thing about transfilling or any nondelivery product,” he starts. “If you are going to make the additional capital expenditure for the equipment, it’s only successful if you have a commensurate offset in operating expenses. If you are going to spend $50,000 in equipment, you need to get rid of at least $50,000 a year in operating expenses.”

Cutting those operating expenses requires significant change, Lloyd says. “Many in the business have developed a staff that is very patient-centric,” he says. “If you are my patient, and I normally deliver two times a month, but you call today with a problem, and I move up a delivery, I didn’t really incur an expense that I wasn’t going to incur,” Lloyd says. “But if I am a transfilling company, and I go see that patient, that was a visit that was not going to occur otherwise. When you visit patients more than the once a year that the equipment needs to be serviced per the manufacturer, that is an avoidable expense.”

Indeed, transfilling technology changes the staffing dynamics at home respiratory companies that adopt the model. When deliveries are reduced or eliminated, employees are affected and job requirements change. For example, Coleman has repurposed his delivery staff. “Instead of having a guy or gal always on the road making deliveries, we are able to keep our staff in the office doing other tasks and being on standby for setups and pickups,” he says. “We are able to give better levels of service to referral sources because we deploy more resources to managing the referral relationship instead of having a fleet of people on the road making deliveries.” Plus, Major Medical can employ fewer folks. “We have maybe half the delivery staff of most other dealers. Staff is expensive, and so are vehicles, gas and insurance.”

Lloyd emphasizes that transfilling requires a philosophy change among the staff. “Employees think they are doing a good job and being responsive to patients if they send someone out to the house,” he says. “But when you implement nondelivery, you really have to go through a cultural shift. Your organization has to fulfill customers’ need without going to their homes very often. For example, take an envelope, put five cannula and a new tube inside, put a stamp on it, and give it to the postman to deliver. To some, that may seem very cold and impersonal, but if you are going to do nondelivery, you have to do things like that.”

Major Medical has found that it can serve patients personally — and economically — through telephone contact, Coleman says. “Every two months, we call our patients to stay in touch with them and to make sure their health conditions haven’t changed. We ask them about supply issues and put their supplies in the mail. Some dealers would use the ‘not seeing the patient’ as a negative against us, but we’ve overcome that with the telephone contact and supplies through the mail.”

Dunn notes that Alpine’s home transfilling strategy didn’t lead to staff cuts, but instead allowed the company to accommodate growth with the same staff. “We had a growth rate that was strong enough that we retained our people, and with the nondelivery model, we were able to reduce the amount of employees that we needed to bring on.” Home transfilling means that fewer employees can handle larger patient bases.

Realizing Marketing, Patient Benefits

Given that home transfilling systems are not yet the dominant technology in the oxygen market, today’s providers may enjoy a marketing advantage that sweetens the bigger investment, experts say.

“Transfilling gives us a significant marketing advantage, in that we strongly encourage patients to be using their portables as much as possible to maintain their independence, whether that’s outside the home or inside the home,” Coleman says. “They are never restricted on the number of portables, even within the same day. We feel people are likely to stay more active, and if they stay more active, they are likely to live longer. We tell referrals that we are going to help their patients have a better lifestyle.”

Dunn reports that his referral sources are getting the message. “From a clinical perspective, study after study shows that patients who are active and ambulatory realize benefits in their overall health and a slowdown in many of their disease processes. Pulmonologists want their patients to exercise, and home filling systems offer a small portable oxygen system that weighs only 2 pounds, which may help patients get more activity. Pulmonologists see the benefit of this modality.”

Interestingly, patients themselves don’t realize the difference. “Most patients don’t have experience with other systems, so it’s difficult for them to say that transfilling systems are the greatest thing since sliced bread,” Coleman says. “Only a very small percentage of our patients have converted from other systems. It’s a big marketing challenge for us to educate the referral sources that transfilling is far superior and gives the patient a much higher degree of freedom.”

Even so, the patient advantages are clear: Transfilling systems eliminate having to wait around for deliveries or having to store bulky tanks. “A lot of patients live in assisted living facilities, and the extent of their living area is one small bedroom,” Dunn says. “They don’t have room for tanks, but they need lots of portable oxygen. They are out of their rooms, eating meals in the dining hall or conversing with residents or family in a rec room. Transfilling systems appeal a lot to these patients.”

Improving Technology and Affording It

Providers appreciate that transfilling equipment options are evolving. The first manufacturer in the market, Invacare Corp., continues to make improvements to its HomeFill, and new entrants are debuting products, such as evo Medical Solutions’ UFill. For example, Coleman says that Invacare’s introduction of post valve cylinders opened up transfilling systems to a broader range of patients who can only use certain conservers. The new UFill fits a niche as an economical, filling-only device that works with any concentrator and any regulator, according to Dan Bunting, CEO of the Adel, Iowa-based company.

The transfilling market is also showing some price flexibility. “Competition coming into the marketplace has done some to lower prices,” Dunn notes. “It gets manufacturers to be more competitive when there are more players in the market.”

Manufacturers, too, can be providers’ partners in funding the transition. “Some manufacturers are very aggressive with their leasing and financing agreements, with terms as low as zero interest, spread out over three years,” Dunn says. “A lot of costs are offset, so you can ease the burden if you can get the manufacturer to work with you. That’s an option.”

In the end, weighing the investment comes down to taking a hard look at the future. “You have to be committed to being in this business for long enough to retire the debt,” Lloyd says. “Lots of people are saying right now, ‘I don’t know if I’m going to be doing this a year from now.’ But if you are one of the people who believes you are going to be in it 10 years from now, I see no challenge in taking on the capital expense and buying this equipment. To make the investment, you have to do the cash flow plan, suck it up and get over the hump. It’s going to be a really short list of suppliers who can do contents delivery profitably for the majority of patients in the future.”

This article originally appeared in the Respiratory & Sleep Management September 2010 issue of HME Business.

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