2011 Big Ten

Oxygen

Oxygen providers’ ability to withstand stiff funding cuts makes them an example to watch in 2011.

• By David Kopf
• Jan 01, 2011

Oxygen was a key element in our Big Ten list for 2010 because it was feeling the full extent of the 36-month rental cap, which had started to make its impact in 2009, but looked to be pronounced in 2010. Add to that the 9.5 percent cut to their funding per MIPPA, and last year was stacking up to be a rough 12 months indeed for oxygen HMEs. However, as we enter 2011, it’s clear that many oxygen providers proved to be much tougher than the funding climate.

If anything, oxygen providers’ survival could demonstrate how providers might be able to weather difficult storms. Instead of billing the full duration of a five-year rental period for oxygen services, providers could only bill for 36 months, but had to continue providing services for the full five months. Moreover, if a patient moved or traveled, the provider was required to find support for that patient. Obviously this was not an ideal situation. So, oxygen providers changed their business models to refl ect the funding restraints under which they were now working.

But providers showed that they could come up with ways of doing business, as well as completely new business models in order to save their businesses. The cornerstone element to oxygen providers’ business overhauls came down to deliveries. If oxygen providers could transition to a business model that greatly reduced or altogether eliminated deliveries from their business models, they just might find a way to survive CMS’s funding cuts.

So oxygen providers focused on cutting as much cost from their delivery overhead as possible. Route planning software, self-filling systems and other solutions helped them make dramatic cuts, but no technology has been more revolutionary from a reduced overhead perspective than portable oxygen concentrators. Of course portable oxygen concentrators have higher up-front purchase costs, but if providers could survive that initial financial hit, then they could perhaps survive their reduced rental income.

So far, that strategy looks to have worked. While 62.9 percent of the respondents to our third annual Respiratory & Sleep Management Oxygen Market Analysis (conducted in October 2010) said that the 36-month rental cap represented the biggest challenge to their businesses, 60.4 percent of them also said that their businesses had grown over the last 12 months.

That said, providers were still contending with challenges because of the cap, such as servicing and repairing equipment, negotiating pricing for serving traveling patients, and supporting traveling patients themselves. But the biggest challenge was maintaining adequate service, with 35 percent of the providers citing that as their key concern. In fact that was in line with COPD patients’ concerns. Seventy-six percent of the providers responding to our survey said their patients cited that as their top need.

But surviving the cap is only one piece of the oxygen puzzle. We can’t forget to mention competitive bidding, which covers oxygen. The Round One re-bid of competitive bidding is at the fore of most providers’ minds, given that for winners, it represents a massive reduction in their funding for oxygen, with the 9.5 percent cut from MIPPA, plus the cut from the re-bid. And those cuts can be significant. For instance, the previous allowable on an oxygen concentrator averages $173.17 per month, but with the Round One rates, with the new payment at $116.16.

And for Round One losers it means they will be nixed out of their oxygen business in the affected territory altogether. They might be able to establish a subcontracting relationship, but given that the margins would most likely be minimal in such an arrangement, no one is expecting that business model to be viable.

Also competitive bidding could have a ripple effect in the private payor funding arena. Even if a provider isn’t in an Round One CBA, it’s very likely that private payor insurance and other sources of funding will look at the new rates under the Round One bids as an indication of how they should trim their funding. No matter how you slice it, the Round One re-bid does not bode well for respiratory providers.

And we can’t talk about oxygen without mentioning reform. In 2009 the industry worked hard to shape and advance an oxygen reform package that would force CMS to recognize the service costs attached to providing oxygen services and fund accordingly. However, this was stalled out when the reform was attached to an earlier iteration of the healthcare reform that was not passed.

Over last year, that reform package was not advanced by the industry, because HMEs were so fixated on trying to beat back competitive bidding. Will an oxygen reform package be advanced in 2011? The likelihood is no, or, if one is advanced it wouldn’t happen until much later in the year. For now, competitive bidding is the industry’s central funding fight.

So, for 2011, providers will continue to face a tough funding climate, but they might also show the rest of the industry (especially mobility providers facing 13-month rental periods for standard power) that it is possible to survive when CMS turns their business models upside down. This will be an important industry segment to watch for all providers this year.

This article originally appeared in the January 2011 issue of HME Business.