Problem Solvers

Out-of-Pocket Oxygen

How providers can tap into the cash sales oxygen market.

• By Joseph Duffy
• Sep 01, 2014

Some providers might find it hard to believe, but there is a retail respiratory equipment market. Patients who pay for oxygen systems out of pocket seem unlikely, especially with a price tag that might run from $2,500 to $3,500. However, Scott Wilkinson, executive vice president of sales and marketing for Inogen, says that there is a growing cash sales market for these products.

“From our own experience as a retailer, the majority of the oxygen patients who are willing and able to pay cash for equipment are baby boomers who are just entering retirement age,” he explains. “They have held solid jobs throughout their life, and invested in 401ks for their retirement. They are used to getting what they want, and they are willing to spend their own money to try and maintain a lifestyle as close as possible to the life they led before being prescribed oxygen.”

Joe Lewarski, vice president of clinical affairs for Invacare Corp., says that the industry tends to underestimate the financial status of oxygen users. There is a growing population of affluent, Medicare-aged individuals, as well as a population of patients with adult children and caregivers capable of purchasing oxygen devices for the family members, he said. CMS data suggests that more than half of Medicare beneficiaries have annual incomes greater than $23,000 per year, with the 75th percentile at $39,000, the 90th percentile at about $65,000 and the top 5 percent around $90,000. These data don’t include savings, which CMS suggests half of Medicare beneficiaries have savings above $53,000.

“If we estimate about 1.9 million home oxygen users, of which about 60 percent to 65 percent are prescribed an ambulatory system, the potential market in the U.S. is about 1.1 million to 1.2 million patients in any given year,” he says “This is a very dynamic population, with tens of thousands of patients starting and stopping home oxygen every month.”

Why pay out of pocket?

Before marketing to this demographic, it helps to understand why more patients are willing to pay out of pocket. Wilkinson said the main reason patients are paying out of pocket for oxygen equipment is to be in control.

“This means to be in control of their treatment, their equipment, their supplier, everything,” he says. “While the competitive bidding program has reduced the number of Medicare participating suppliers across the United States, the retail market for POCs really took hold around 2006 to 2007, well before competitive bidding. So while the restrictions of competitive bidding is a driver of oxygen retail sales, it’s not the only thing. It’s about patient choice, security, independence — really a mindset of continuing to make choices.”

Frank Lazzaro, Director of Global Product Management, Home Respiratory Care, said that patients may choose to pay out of pocket for POCs for a number of reasons, but their decision to do so is usually driven by device availability and lifestyle desires.

“In terms of availability, some patients may find that the DME that provides their daily home and portable oxygen may not provide POCs additionally,” he explains. “Patients can, however, purchase a POC from any DME provider with cash if they have a prescription. In respect to lifestyle desires, a highly active patient may want a diverse set of oxygen therapy equipment to sustain their lifestyle. Medicare and many other payers will only reimburse for one medically necessary oxygen system, so if a patient would like additional products beyond what is reimbursed, they need to purchase this equipment out of pocket.”

Wilkinson said a main reason more customers don’t consider cash sales options for oxygen is they simply don’t know the opportunity exists. Ty Bello, President and Founder, Team@Work, agreed, pointing out that the industry needs to more diligently educate and market to this demographic.

Marketing to oxygen cash sales customers

“We need to target this demographic,” Bello says. “What do they read, where do they go, who are their physicians? Market to the medical community and be specific about who you share your POC program with. Then launch a full campaign around the POC. Talk about the features and benefits of such a device and how it will impact their lifestyle. Use advertisements, and even articles that can be written and published in the local paper. The ‘campaign’ cannot be a onetime advertisement, but a commitment to a long-term solution to a demographic that needs and desires this product. Do not fool yourself that the numbers are equivalent to that of the traditional oxygen patient because they are not, but there is a significant population for you to reach.”

When marketing to this demographic, Lazzaro advises to remember that oxygen patients typically want to carry on their daily lives and be independent while treating their conditions discreetly.

“Advertising that demonstrates patients enjoying an active lifestyle and having the ability to be mobile typically resonates well with this patient class,” he says. “When marketing POCs, providers should consider messages that may also reach the family members of COPD patients, who may be able to afford these devices and be willing to purchase them for their family members.”

Wilkinson notes that a retail sales approach has been difficult for providers because they have traditionally focused their marketing and sales efforts toward physicians. Providers do a terrific job of taking care of patients once they get them, he said, but they have a weakness when it comes to marketing to patients.

“For maximum success, providers need to educate themselves and become proficient in patient marketing — attracting patients directly and efficiently,” Wilkinson says. “In addition, providers need to review their product strategy — patients pay out of pocket for premium products that provide incremental value versus their options through the traditional insurance reimbursement system. So it’s imperative to have a product offering that delivers not only what patients need but also what they want to be successful.”

For in-store sales, Bello recommended that when a customer enters a store, providers should perform a casual conversational interview.

“Obviously we are looking for those customer who are already on oxygen with us and our interest lies in their lifestyle, frequency they currently ambulate, number of days, and length of time for each,” he said. “Then our focus should shift to if this is meeting their needs and if they had the option of increasing travel would they like that. Then we can introduce the POC offering as an option.”

Finally, Lazzaro points out that providers should display products to demonstrate exact weight and size, which lets patients compare POCs to other devices. The provider should also be able to educate the patients on the tradeoffs that all POCs need to make, such as weight versus oxygen output versus battery life.

“Making the patient aware of these tradeoffs,” Lazzaro says, “will help with sales opportunities and a more satisfied patient customer.”

This article originally appeared in the September 2014 issue of HME Business.