Business Solutions

Oxygen Outlook: The Next Big Hit

Oxygen providers keep changing up their businesses to survive CMS’s blows, but can they go the distance?

• By David Kopf
• Aug 01, 2011

Like a champion prize fighter, the oxygen industry has put up an amazing fight when it comes to CMS’s funding onslaught. As the agency delivers one blow after another, respiratory providers have outwitted their opponent and changed up their fight; constantly revising and rethinking how they will run their businesses to survive.

But how many times can you reinvent your business? This is a question that oxygen providers most likely ask themselves on a nearly daily basis. For the past two years, oxygen providers have had to try to re-tool, re-plan and re-think their businesses in the face of major funding upheavals. Those that have been able to succeed in that regard have helped demonstrate not only the HME industry’s tenacity, but also its flexibility, because, let’s face it, 2009 thought 2011 have not been kind to the oxygen sector.

For starters, providers first started seeing oxygen patients reach their 36-month rental cap in 2009, and would no longer see funding for supporting those patients. Where once they would receive the full five years’ funding, now they had to deliver 24 months’ service with no funding.

On top of that, because oxygen was part of the initial bidding of Round One, those providers had to suffer a 9.5 percent cut to their funding in order to pay for the initial delay to implementing Round One secured by the Medicare Improvements for Patients and Providers Act. So, not only were oxygen providers seeing a cap to how long they would receive funding for the services they were providing, but that funding was getting cut.

Add to that the implementation of the Round One re-bid in the first nine MSAs, and CMS’s stepping up of both pre- and post-payment audits, and it’s fair to say that dealing with Medicare has been a “if it’s not one thing, it’s another” situation for oxygen providers. Yet, somehow they continue to work through the obstacles put in their way.

“We’re an industry of entrepreneurs, and we’ve been able to scramble and make things work,” says John Shirvinsky, executive director of the Pennsylvania Association of Medical Suppliers. “You do everything you can to hold costs downs.”

Providers have worked to develop business models that strive to minimize cost and are as efficient as possible. Every dollar that isn’t spent is a dollar that regularly goes right back to the bottom line. So providers have focused on trying to implement non-delivery or low-delivery models by leveraging portable oxygen concentrators and home-fill systems. They have also used information technology tools such as route planning software and even GPS tracking systems to fine-tune their delivery management — a key area of oxygen provider overhead. And they have used information technology in their daily operations to again drive cost and inefficiency out of the business.

Oxygen providers have also leveraged their accreditation policies and procedures to help them implement rock-solid documentation requirements to ensure they are processing clean claims and insulating themselves against possible pre- or post-payment audits. Moreover, they are also putting into place resources such as document imaging and management systems so that they can quickly find and add patient, claim and physician documentation in case any questions arise.

Getting Lean, Getting Mean

That said, while oxygen providers have figured out ways to roll with the funding punches, the business has become much more difficult.

“It’s not so fun to be an oxygen provider these days,” says Tom Ryan, president and CEO of oxygen provider Homecare Concepts Inc. “Obviously, the 36-month cap was very significant for my company, and every [oxygen] company. There were significant dollars that, when that transition happened, weren’t there any more.

“You have to be lean as can be,” he adds. “Every order has to count. You can’t take unprofitable orders.”

Homecare Concepts has taken the ethic of “lean and mean” to a whole new level when it comes to driving cost of the business. It had even gone as far to generate reports on each employee position to try and leverage its human assets to their fullest potential. The goal is to have every staff member be a B or A player, he says. Moreover, when the CMS audits hit, Ryan say his business began implementing rigid documentation policies and procedures in order to insulate itself from audits.

“That’s created a tight cash flow situation,” he says. “You have to be prudent, and get all the documentation. Because if you don’t and you get a pre-pay [audit], they can put you on full pre-payment review, which would be a cash-flow nightmare.”

Ryan wryly jokes that his business has been classified by physicians as “difficult to do business with,” but at the same time notes that he’s seeing more and more providers in his area adopt similar policies when it comes to documentation.

“But I tell you, I can’t operate any other way,” he says, noting that his business tries to convince physicians that being rigid on documentation requirements is a positive for them, as well.

The Clinical Fallout

One common point of frustration in all this cost-cutting is that most providers have had to drastically reduce their regular clinical visits in order to contain costs. It’s hard to provide quality care under those circumstances.

“We used to visit the patient every month,” recalls Bob Hoffman, RRT, vice president of the VGM Group’s Nationwide Respiratory. “That obviously went away years ago, and it got scaled back to every couple of months, then every three months, and now for many it’s every six months. You’ve lost that personal touch with that patient. We spent years trying to make it a medically oriented profession, and now unfortunately it lacks that personal touch.”

Those opportunities to assess the patient and perhaps intervene in time to prevent a hospital visit are long gone. Moreover, the need to cut down those visits to the bare minimum, from a psychological standpoint, is very frustrating to providers because they can’t provide the care levels they feel are necessary, and because that regular interface with the patient is quite frankly a rewarding and gratifying facet of the job.

“People who are clinicians, really aren’t very happy with what the industry has become,” Shirvinsky says. “There used to be a really strong clinical component to what we did. Back before the cutting started.”

“When you lessen that amount of contact, you lessen the degree of clinical care that oxygen patients are receiving,” Shirvinsky explains.

And if providers think the clinical care element of oxygen services has gone in a bad direction, recent trends in how other government healthcare agencies are handling clinical care point to even worse care. For instance, the Veterans Administration helps its patients who suffer from obstructive sleep apnea by sending them a CPAP device and a video on how to use it, Shirvinsky notes. Given how difficult compliance is when it comes to sleep therapy, that’s an alarming scenario.

“This seems to be the direction in which we are headed,” he warns.

Ding-Ding! Round Two

But as providers continue to find their stride when dealing with challenges such as the 36-month rental cap, or the 9.5 percent MIPPA cut, or even audits, it seems like they just keep getting hit by CMS. Whatever they have done to find their equilibrium, they always face a new challenge that threatens to throw them off-balance. The latest challenge facing oxygen providers is one that is universal to the industry: competitive bidding.

Obviously, Round One contract holders and providers that did not win bids are already trying to pick up the pieces, and those that are facing Round Two are watching to see how those Round One providers fare in order to gain some strategic insights. But even with Round One helping to at least give some hints as to how the next roll-out of competitive bidding will fare, oxygen providers have had to adopt an uncomfortable, “wait and see” approach when it comes to how they will respond to Round Two.

“For those companies awaiting Round Two, they find themselves in a holding pattern when it comes to financial planning,” Hoffman says. “It is very difficult to make investments in oxygen when you are not sure of securing a bid.

“Business aren’t used to being like that,” He adds. “You want to be aggressive and you want to grow, and it’s very difficult to do that when the future is so uncertain.”

The one thing Round Two oxygen providers can do when it comes to planning is to look at Round One bid rates for Round One’s nine competitive bidding areas in order to see if there is any way that they could fare under similar funding cuts, and if so, how. That kind of projecting could at least point providers in some business planning direction.

“If they want to stay in the game, they better be pretty attuned to what has happened in the first round … and see if they can work under similar reimbursement,” Hoffman says. “It’s not always getting the bid. Be careful what you wish for.”

But for Ryan’s case and many providers like him, that planning makes for difficult arithmetic.

“When I add competitive bidding into that, I go from a slim margin to no margin,” Ryan says. “I’m still trying to figure this whole thing out. I’m hoping that providers have gotten a lot smarter so that when it comes to Round Two, the bids aren’t going to be as outrageous. … We’re doing everything we can, but I don’t see how we could survive on a 32 percent cut.”

Strange, New Math

And therein lies the puzzler to Round One. As much as many responsible providers in Round Two work to determine how they can maintain service at Round One funding levels, some in the industry are questioning how contract holders are surviving under such huge cuts. As an example, Shirvinsky says he collected the bid amounts for all of PAMS member companies that bid in the Pittsburgh CBA, which had the lowest bid amount for oxygen in the Round One re-bid. The result was surprising.

“In plotting them out, I can tell you that the median bid for solid companies in the Pittsburgh market was about $135 a month; not $102,” he says, adding that looking at the latest set of findings from University of Maryland economics professor and auction expert Prof. Peter Cramton, he found that 78 percent of the preexisting oxygen market in Pennsylvania was excluded from competitive bidding.

“So the well established, quality of providers in Western Pennsylvania are blocked from the program,” Shirvinsky says.

How is it that oxygen long-time oxygen providers in an MSA lose out because they won’t bid well below what they have determined is a reasonable business model for them? Doesn’t that run counter to the program’s sustainability requirements?

“It’s very difficult to understand,” Hoffman says. “Obviously, the bigger players can weather through this in order to eliminate the competition....They think they can survive, and a lot of the competition goes away. Then the next round of bidding comes along, and they can certainly bid higher with no one to bid against.

“The expression ‘suicide bid’ is exactly right,” he adds. “That’s the word we hear a lot, and ‘suicide’ has never been a good word in my vocabulary.”

Fighting Back

Clearly, if the competitive bidding program is so poorly outlined and governed that the majority of long-time, established oxygen providers are severely undercut when the bid responsibly, their main play is to stop competitive bidding.

As most everyone in HME knows, the industry has a bill in the House, H.R. 1041, a bill introduced by Reps. Glenn Thompson (R-Pa.) and Jason Altmire (D-Pa.) that calls for the repeal of the bid program. Providers are trying to gain support for that bill in the form of co-sponsors so that it can ultimately be put to a vote. At press time there are 137 co-sponsors for the bill. (To read the latest lawmakers to add their support to the bill, read “Industry Continues H.R. 1041 Push”.)

However, that wasn’t always the industry’s only option for fighting to save oxygen services. Roughly two years ago, the industry put together oxygen reform legislation that would have seen an elimination of 36-month rental cap and a recognition of the service component to what oxygen providers do to serve Medicare beneficiaries.

Roughly two years ago the industry put together legislation to reform the benefit and ensure that what oxygen providers did for patients would be considered a service. To a large degree the efforts of the Health and Human Services Office of Inspector General put a stop to that worked. CMS and the OIG have worked overtime to make comparisons between Medicare’s oxygen benefit and commodity purchasing, and to convince lawmakers that Medicare is overpaying for the oxygen benefit and that it must be cut.

“Our industry has been so thoroughly discredited by the work of CMS and the Office of Inspector General, that everyone on Capitol Hill is convinced that [the oxygen benefit] is a giant rip-off,” Shirvinsky explains. “So there’s really no stomach in Congress to do anything to raise benefits or make things easier for [providers].

“I had one very powerful Congressman’s staffer refer to the oxygen benefit as an ATM card,” Shirvinsky recalls. “But we were able to get them on competitive bidding. That’s the same office; very helpful on competitive bidding.”

Shirvinsky’s experience, in a nutshell, is why the industry has focused so much of its lobbying efforts on competitive bidding. It is not only an industrywide
threat to both providers and patients, but it offers a point of political traction. It resonates with lawmakers where reforming oxygen did not.

“They [lawmakers] see it as anti-competitive,” Shirvinsky says, explaining that lawmakers also see the bid program as ripping up the network of small providers that constitute their constituents’ access to DME and related services.

So the hope is to secure a repeal before Round Two gets bid out. Whether or not that happens remains to be seen. And the kind of sentiment Shirvinsky describes is a good thing among lawmakers. The question is whether or not that sentiment is bicameral, and the answer is “not now.”

“We have absolutely no pull in the Senate, and that’s concerning,” Ryan says. Having companion legislation in the Senate is critical to ensure there is momentum to stop competitive bidding in both Houses, not just one. The industry has a slim chance of securing any sort of delay without it.

The problem is that CMS has done a good job convincing the Senate that competitive bidding is the best thing since sliced bread. Providers might recall April’s Program Advisory and Oversight Committee meeting, during CMS representatives described the implementation of Round One bidding as “very smooth” and “very quiet.” (Despite having already received 54,000 of what CMS amusingly referred to as “inquiries” from beneficiaries.)

Also, and more problematic for the industry, the chair of the Senate Finance Committee, Sen. Max Baucus (D-Mont.), supports the notion of competitive bidding.

“He has a rural state, so his state is carved out of it,” Ryan notes. “He’s been a stumbling block all along. And when the powerful chair of the Senate Finance Committee is not for it, that makes it that much more difficult to get a Senator to drop the bill.”

Ryan, who is also a Board member for the American Association for Homecare, noted that the industry has worked with Senators that have been “homecare heros,” but has been unable to generate and real traction because of Baucus’s influence. Moreover, with a pay-for of $20 billion, fighting for a bid repeal is not exactly an attractive proposition for Senators who are as mired in the debt ceiling debate as their counterparts in the House.

“It’s not very palatable at the moment for any Senator to sign onto a bill like that,” Ryan notes.

In fact, the stand-off between President Obama and House Republicans has also slowed down the pace of support of H.R. 1041. The industry has added a few co-sponsors to the House bill since the showdown began, but not nearly at the same rate as when the bid repeal was first floated in the House. A slow-down in support is not what the industry needs.

“The debt ceiling debate has sucked all the oxygen out of the room,” Shirvinsky says. “Until that is resolved, there isn’t going to be that much appetite for anybody to look at anything else. Hopefully, we’ll have a better idea of the lay of the land when lawmakers return in Fall.”

“I think the chances of getting a repeal are getting tougher and tougher,” Ryan says. “The industry is going to have to make a decision if repeal doesn’t seem to work.”

Other options would be to look for a change in the way the program is run, such as using the lowest bid to limit the funding, but not the not limit the number of providers capable of holding a contract at that bid, or secure a delay to the program, either by convincing CMS to do so, by some other regulatory means, or by legislative means similar to the MIPPA delay.

“But if it’s done legislatively, it will be scored, and that will be another dollar amount,” Ryan explains. “There’s always a concern that you have to give a certain percent to get a delay, and then you get competitive bidding at a later period of time, yet with that cut as the new baseline.” (Like the industry experienced with the MIPPA delay’s 9.5 percent cut.)

Perhaps CMS could be convinced to see reason to change the program without having to go through yet another protracted legislative battle.

“I’m hoping that with enough pressure, which is beginning to get a little bit smarter, to look at some of the changes that we’ve requested they look at: transparency; a clearing house price vs. a median bid; a different look at capacity — all of those issues that could potential change the way the bid rates came out,” Ryan says. “Whether CMS will listen to us remains to be seen, and whether we need to ratchet it up legislatively is something we’ll have to figure out between now and October.”

But the central strategy remains to work for repeal. Most likely, if there is more Medicare-related legislation, it will hit by October, and hopefully that will provide the industry with another opportunity to make its case with lawmakers.

“I would hope, from a grassroots standpoint, that every provider is still lobbying their House member,” Ryan says. “The more pressure we can get in the House — maybe we can get more than 200 co-sponsors — the more likely we can get CMS to open its eyes to what we’re saying about what needs to tweaked or reformed.”

The one thing that is certain is that these times are unprecedented for oxygen providers. Profits are diminishing, but the demographic prospects for this industry with the aging Baby Boom are the light at the end of CMS’s long, dark funding tunnel. As long as oxygen providers can continue to bob and weave and outwit CMS to survive from one round to the next, they will remain standing as champions when the final bell is rung.

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