Industry Perspective

Thriving in Today’s Market

One word summarizes the bilateral impact of new oxygen technologies: independence.

• By Joseph Lewarski
• Nov 01, 2010

Over the last 20 years there has been one constant in homecare: oxygen reimbursement will decline. The recent release of the national competitive bid fee schedule for oxygen and the other categories shocked even the most seasoned home care veterans. A terribly flawed bid methodology produced irrational bids, which if implemented, will result in some of the most drastic cuts in the program’s brief history. Even if repealed, NCB will likely leave a scar, as Congress will likely seek a “pay for” to compensate for the perceived savings. This will meanmore cuts to Medicare’s battered home oxygen program.

In the face of lower reimbursement there remains an increasing demand for home oxygen therapy and in particular, ambulatory oxygen systems. Modern oxygen users are much more active, which is strongly encouraged and supported by both clinicians and scientific literature. They are also more informed about treatment options and oxygen technologies. So, providers, face rising costs to support increased portability while seeing their paymentsslashed. They must provide much more for far less.

The HME industry is relatively young, experiencing much of its growth over the last 25 years. As it matures, many of the normal business life cycle processes take place. These include but are not limited to greater regulatory oversight, pricing (reimbursement) compression, manufacturer/supplier consolidation and competitor consolidation, typically resulting in fewer but often stronger competitors. Organic revenue growth begins to slow, margins shrink and operating costs are always pushing upward. This is generally about the time many businesses begin to invest in lean and other process improvement/operational efficiency efforts, with a primary goal of eliminating all unnecessary and/or nonvalue added processes. Non-value added can be simply defined as “an activity that generates a zero or negative return on an investment of resources and can be eliminated without impairing the process.” In many cases, nonvalue added activities can represent from 20% to as muchas 75% of the total cost of a given process.

In home oxygen therapy, portable cylinder and/or liquid oxygen delivery and the cascade of delivery related expenses (order intake, invoice processing, cylinder filling/lot tracking, routing, delivery, equipment return/cleaning, etc.) represent the greatest volume of nonvalue added and often expensive, non-reimbursed activities.Although it varies by market and patient, delivery expenses can routinely consume 50 percent to as muchas 75 percent of the monthly revenue, leaving very little tocover the cost of goods and other SG&A expense. In manyhighly ambulatory cases, delivery costs can exceed themonthly reimbursement. While there is clearly an argumentthat periodic patient interaction is a value addedelement, it is only one component of a complex and costlymatrix of delivery-related activities. It is also importantto distinguish a delivery from patient care and service.Patient interactions can be cost effectively managed andoften more meaningful via other means, such as scheduledcustomer service or clinician interventions.

Elimination of the delivery and delivery-related nonvalue added activities associated with the provision of home oxygen therapy are essential to survive and thrive in today’s homecare environment. For many industries, technology has cost effectively replaced non-valued operational processes. For the HME provider, oxygen generating technologies (often referred to as non-delivery oxygen systems), which include concentrator transfilling systems (such as HomeFill), transportable and lightweight portable oxygen concentrators are the ideal, practical and ready-to-implement technological solutions. These technologies cover nearly all stable home oxygen patients’ stationary and ambulatory oxygen needs.

Eliminating routine delivery is clearly good for both providers and patients. One word summarizes the bilateral impact of new oxygen technologies: independence. Oxygen users and their families experience unprecedented independence, as they can plan activities based on their schedules, not based on a limited volume of cylinders and the route of a delivery technician. Providers find new independence as they take control of their operational processes and drive efficiencies into their business. As a result, patients continue to receive high quality of care and service while the provider can operate efficiently and profitably.

Although no one can predict what the future will bring, it is clear that today’s economy requires all providers to become the low-cost provider. Replacing non-value added processes with clinically relevant and economically sound technologies is one way to survive and thrive in this dynamic market.

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