Market Trends

Putting the Fleet to Pasture

Three providers that implemented non-delivery home oxygen delivery models discuss how their strategies have improved their companies.

• By Joseph Duffy
• Apr 01, 2011

In the HME industry, delivery systems typically rank in the topthird of costs (along with inventory and human resources). Add to that Medicare cuts, caps and competitive bidding, and it’s easy to see why more providers are implementing a non-delivery business model when it comes to the home oxygen market. To help providers explore the benefits, costs, ups and downs of implementing a non-delivery home oxygen delivery model, RSM interviewed three companies. Here are their experiences, and why a non-delivery oxygen delivery model has made them stronger companies.

Homecare Concepts
Tom Ryan, President, CEO

Tom Ryan, president and CEO of Homecare Concepts, decided to transition to a non-delivery business model because like most providers Homecare Concepts was faced with rising operational costs, declining reimbursements and a growing demand for portable oxygen systems.

“As a clinically focused company, we believe in promoting frequent ambulation and activity among our home oxygen population, and despite the payment changes, we didn’t want to compromise our approach to care,” says Ryan. “However, trying to meet the portable oxygen needs of our ambulatory oxygen patients in a costefficient manner with traditional technology was proving extremely difficult, if not impossible. We serve the New York metro market, so delivering portable oxygen quickly proved to be a losing proposition.”

Homecare Concepts is built around home transfilling systems as their primary oxygen technology. However, to meet myriad patients’ clinical, lifestyle and travel needs, the company also offers both lightweight portable (POC) and the continuous flow transportable oxygen concentrators (TPOC).

Before transitioning to a non-delivery model, Ryan’s company researched products with what they thought were the best records in quality, inventory fulfillment, product support and financing. This internal evaluation took 30 days, after which Homecare Concepts chose Invacare’s Homefill system.

“Obviously the upfront cost of the product was significant when compared to the traditional concentrator and cylinder model,” Ryan says. “We determined that the Homefill would be our primary product because it offered the best technical track record and we believe it can serve a very diverse clinical patient population. We also evaluated several POCs and TPOCs to use when specifically requested by the physician or if we had short notice, same-day deliveries to the hospital for patients discharging quickly with the need for both a stationary and portable system.”

Invacare offered leasing options that Ryan says allowed Homecare Concepts to minimize the initial capital outlay.

“We had been doing activity cost accounting and had a number for just what our activity costs were from: filling the portable tanks in house (including cost of FDA oversight, transfill system, etc.), to delivering them to the home several times monthly,” he explains. “This is where the activity costs or ‘high touches,’ as we call them, proved to be significant. At the time we determined that 37 percent of our monthly deliveries were for portable tanks; we were essentially the milkman for much of our operation. We managed our cylinder refilling in house and had a full-time oxygen filler and all of the comprehensive logistics and regulatory elements to contend with, including daily oxygen deliveries, serial and lot number tracking, labeling and delivery reconciliation. These were all non-value-added activity costs. When we looked at the cost to finance versus the activity costs to continue business as usual, we were convinced that we would successfully and profitably transition to the new model.”

The standard order set for portable and stationary units delivered to patients’ homes is a HomeFill. If the order is for portable to hospital and stationary to home, the order set is for a POC. Homecare Concepts uses either the Invacare XPO2 or the SeQual Eclipse.

As for patients, Ryan says their experience to the non-delivery model has been positive.

“Patients no longer depend on us for scheduled deliveries and they now have control over their daily trips,” he says. “We still maintain contact with our patients via phone and periodic home visits for routine maintenance and service. However, control, scheduled calls and visits are more predictable and have a lower cost. In regard to care and what pitfalls to avoid I would remind everyone that it’s important not to confuse routine deliveries with good service and care. You now have more control over when and how you engage with your patients, which can make these interactions more meaningful.”

According to Ryan, the Homecare Concepts oxygen delivery tech spends time educating the patient and family member about the product, its features and using the home-filling component. The patients receive a follow-up call several days after delivery to answer questions and are put on a maintenance follow-up schedule and are visited when appropriate.

“The previous delivery strategy was to provide the patient with enough tanks to visit no more than two times per month,” Ryan says. “This did not always work out and our outlier list of more than two times remained in the 10 percent area. The emergency call for portables was in the 5 to 6 percent range of all monthly on-calls.”

As a result of implementing a non-delivery model, the touches or non-revenue deliveries for Homecare Concepts’ runs have decreased significantly: They now make up 5 percent of its monthly deliveries, down from 37 percent. Its costs for the oxygen to supply the transfill system dropped by over 50 percent, and it was able to transition its filler to other roles in the warehouse. The decrease from over 30 percent of deliveries to non-revenue portable refills allowed Homecare to grow without the need to add another delivery technician or vehicle, as significant time was freed up from eliminating those stops each day.

“Find a system you are comfortable with that has a great track record, get the financing in place and start with all new patients,” Ryan says. “We spent quite a bit of time trying to convert and were tying up duplicate inventory as well as quite a bit of manhours by trying to do it all at once. The longtime patients were more difficult and the time and effort spent trying to convert some of the more ‘delivery conditioned’ patients was costly. I would still make the effort to convert costly existing patients but not as aggressively as we did.”

Keene Medical Products
Darryl Coplan, General Manager

Serving the rural states of New Hampshire and Vermont with 11 locations — some deliveries as far as 60 miles away — Darryl Coplan, General Manager of Keene Medical Products, called transitioning to a non-delivery business model a “no-brainer.”

As they do with any new product line they introduce, Keene Medical Products prepared their new non-delivery strategy by developing a marketing action plan, which included product analysis, goals, target markets and staff responsibilities. In short, they started with a detailed roadmap, which they published on their website for staff education and product promotion.

“We started with the Invacare HomeFill about five years ago,” he says. “We added the first generation SeQual 3 Litre portable concentrator to our product offering about four years ago. We have since added the Devilbiss I-Fill and most recently the Airsep FreeStyle to our oxygen mix. We feel that there isn’t one transfill or portable oxygen concentrator that addresses all of our customers’ needs. With a comprehensive mix of non-delivery oxygen equipment we can also promote our versatility to our referral sources.”

With the cost of the non-delivery oxygen system being about four times greater than standard oxygen concentrators, Coplan pointed out that this is one of the biggest obstacles for HME providers adopting a non-delivery model.

“Although the initial capital outlay is high, the return on investment is well worth it when you consider the expenses of a routine oxygen delivery model,” Coplan says. “Although pricing varies based on quantity purchased, the costs of non-delivery systems average about $2,000 for a complete portable and stationary system.”

Today, Coplan calculates that it costs Keene Medical products about $55 to deliver oxygen cylinders to a patient. When making two to three deliveries per month, it doesn’t take long to justify the extra cost for non-delivery systems. Coplan says that equipment cost recoupment can be achieved in as little at 10 months.

Regarding patients, Coplan says that setting up non-delivery oxygen systems involves spending a little more time educating patients, family and caretakers. Patients’ ambulatory requirements, as well as their physical ability and dexterity, should also be considered.

“New oxygen patients can be a little overwhelmed with their therapy regardless of which system they are set up with,” Coplan says. “Some patients may require additional follow up until they become comfortable with a particular system.

We currently offer in-person follow-up services for all of our oxygen clients. Again, additional follow up may be provided if necessary; however, we try to assure the patient is properly educated at the time of setup. We have not experienced a lot of extra follow-up time with non-delivery systems compared to conventional oxygen systems.”

In summary, Coplan says that the quality of care provided to patients has improved with non-delivery systems.

“No longer do they have to depend on weekly cylinder or liquid oxygen deliveries,” he says. “Patients enjoy a newfound freedom with non-delivery systems. They can take their POC to a relative’s house or travel to a warmer climate for vacation without the worries of running out of oxygen.”

Rx Stat Inc.
Sam Jarczynski, President

Rx Stat is a large respiratory pharmacy that was affected by declining reimbursements in nebulizer medication back in 2006.

“At that time we were selling POCs because no other providers really wanted to sell or provide them,” says Sam Jarczynski, President, Rx Stat, Inc. “When we started to provide oxygen to Medicare patients it was a good fit for us because we did not need to buy as many vans, tanks, etc. to enter the oxygen business. Invacare had done some good studies on non-delivery, so the POCs fit well into that model.”

To Jarczynski, perhaps the best outcome from developing a nondelivery model is that the patients he serves have a better quality of life. But it’s not just about how the equipment affects their lives — it’s also about how the company interacts with the patients.

“The oxygen business is all about service,” Jarczynski says. “If you just drop ship a POC to patients and never do any follow up, it would not work. Rx Stat has several respiratory therapists who see oxygen patients and discuss the disease state with them. We do more than monthly deliveries. We also call our patients monthly to check up on them and ship supplies if they need them. We have a customized patient tracking database that has evolved from the nebulizer medication disease state processes that we have always had.”

Part of service is patient evaluation. Jarczynski suggested that providers make sure that patients’ needs are measured and met. And remember: just because you are moving to a non-delivery model with different equipment doesn’t mean one size fits all. A POC is not right for everyone.

Jarczynski says the only challenges he encountered in transitioning to a non-delivery oxygen delivery model are POC batteries and the Medicare cap.

“If a battery fails after a year or so, we have to replace it and not get any reimbursement for it,” he says. “They are expensive and that adds up. The other problem is when a patient’s disease state changes for the worse. With the Medicare cap, we still have to provide for that patient.”

Although Jarczynski says that even with Medicare cuts and capped rental problems, a non-delivery model has helped keep his company strong. But is going to a non-delivery model enough to secure a bright future in the oxygen industry?

“Oxygen providers should call their Congress representatives and complain about competitive bidding and the capped rental problems,” Jarczynski says. “Have your patients call also. Patients’ access to care has been severely hurt by the 36-month capped rental period and no one talks about it because of the bigger problem of competitive bidding. If no one steps up, then oxygen providers will go the way of respiratory pharmacies. There are not many left and they are working on very thin, if any, margins.”

This article originally appeared in the Respiratory & Sleep Management April 2011 issue of HME Business.