Business Solutions

Oxygen Outlook: Portable Oxygen's Leap of Faith

Despite portable oxygen's strong value proposition, many respiratory providers still haven't transitioned to using these devices. However, as 2018 approaches, the need to do so becomes all the more pressing. How can they jump in?

• By David Kopf
• Nov 01, 2017

For at least a decade, industry experts have been telling oxygen providers why portable oxygen solutions, such as portable oxygen concentrators (POCs), will redefine their businesses. From a business operations perspective, portable oxygen’s value proposition has been that, while the devices might cost more up front, they will save providers far more money on the back end, by helping them transition to a low- or no-delivery model. From a clinical perspective, POCs give patients far more mobility and independence, allowing them to get out and live their lives. That increase ambulation results in improved long-term oxygen therapy and better outcomes. And, from a sales and marketing perspective, that improved clinical care will resonate with referring physicians and other key healthcare partners, which should drive more business for providers.

Still, there is a sizable population of respiratory providers that are waiting in the wings when it comes to portable oxygen. Why is that? How can they get started? Moreover, why, as the industry enters another year of expanded competitive bidding and audit programs, is it becoming a business imperative that respiratory providers finally take this important leap of faith?

Why Some Won’t

Ever since the implementation of the 36-month rental cap, various sources have been pitching the low/no delivery model. With the implementation and expansion of competitive bidding, the need to transition to such a model seems obvious.

“It’s just not sustainable with the competitive bid rates and some of the state Medicaid rates that are coming out to be delivering oxygen cylinders to patients’ home,” says David Lyman, RRT, director of Alternate Care for the VGM Group. “Not that the patients can’t be on that modality, your standard oxygen concentrator and tanks, but if you’re going to use that model, the patients are going to need to come into their branch to pick up those tanks, because you really cannot ... There’s not enough revenue for providers to deliver those to the patient’s home.”

So why then do a sizable portion of oxygen providers continue delivering tanks? A lot of it comes down to familiarity, according to Lyman.

“It’s what they’ve done all along for years and years,” he explains “They just feel that they’ve got it down, and that the cost is not what everybody says it is.”

In addition to a reticence to calculate operational savings, a key issue is the cost of portable oxygen devices.

“Folks are afraid to spend that much capital upfront,” Lyman says. “Whether it’s some type of a home filling device or a portable concentrator, I still think that they’re worried about the cost.

“But I don’t believe a lot of providers have done a true cost analysis of what a delivery costs them,” he continues. “They are just looking at potentially the salary, the vehicle, and the gas. I don’t think they’re adding in all the other overhead expenses.”

Lyman says those costs go far beyond that. Providers must tabulate the total operational costs related to vehicles, such as rent and utilities related to their storage, man hours spent answering phone calls, shuffling delivery dates and times, and the toll on other employees.

Moreover, providers have to “bake in” the lost opportunity cost: “There is a lot of time involved where the customer service folks could be on the phone with a referral source as opposed to somebody reordering tanks,” he says.

Apart from costs, other provider concerns might be the technology itself. To begin with, some providers might have worried that battery life on portable devices, particularly POCs, was too short, but for several years battery life; the ability to hot-swap fresh batteries; and a variety of recharging options have made battery life a non-issue.

The other might be a lack of standardization across devices when it comes to the bolus of oxygen generated at one setting or another. A setting of three on one POC might not produce the same amount as a setting of three on another device.

Why They Should

This is why moving to a low/no delivery model with portable oxygen is such a leap of faith for so many providers. They are operating in familiar territory, delivery models are something they know and understand, their patients are used to it, and their referral partners are used to it. As the old saying goes, if it ain’t broke, don’t fix it.

But the problem is that the current model is broken, or, more to the point, it’s breaking in slow motion. Besides the much deeper cost impact that portable oxygen actually involves, providers must face up to the fact that those costs are making for an unsustainable business model. The reality of competitive bidding assures us of that fact, explains Joe Lewarski, vice president of global respiratory and sleep for Drive Devilbiss.

Lewarski relates a dinner conversation he had with a senior healthcare executive who related to him an earlier meeting with representatives from a small, family-owned oxygen provider in a relatively rural market. The meeting had occurred on the Monday before the implementation date of the expansion of competitive biddingderived rates to rural and non-bid areas of the country. The representatives said that they hoped CMS would not go through with the expansion — a policy that would severely undercut their business.

“At the end of the week they are going to get 40 to 50 percent reductions in their core product lines and their strategy on Monday was hope,” he says. “’I hope they don’t do this by Friday.’ Third party payment, and Medicare and Medicaid, at least in the near term … are still going to be where the majority of the healthcare spend and the majority of the patients are going to be — and you’ve got to find a way to operate within that system.”

Certainly, maintaining existing costs in a declining reimbursement market is not a sustainable model, which is a key reason why providers must move to portable oxygen. However, there’s a more important reason that will become increasingly pressing, Lewarski says: customers want it. More to the point, some of them demand it.

How can we tell? One need only type “portable oxygen concentrator” into Google. The results will show a thriving marketplace — a marketplace that most providers currently do not serve.

“There are literally tens if not hundreds of millions of dollars’ worth of transactions occurring on the internet and in the retail segment,” Lewarski says. “However, whether it is e-commerce or some version of that, durable medical equipment products are being sold to cash paying customers.”

Retail is a massive lost opportunity to providers, and more important, it is where customers go when providers don’t give them what they want. This is particularly true of the Baby Boom.

“There is a more depending, more critical, more consumer-focused healthcare recipient out there, and they won’t settle necessarily for lowest cost options,” Lewarski explains. “It’s a different revenue source, but the margins are exponentially different and the cost to get your money is exponentially different. There is no billing. There are no audits. It’s all credit card transactions or cash.”

Even if some of those patients might not qualify for a portable oxygen system, the massive demand for POCs and similar devices should clearly demonstrate that there is a huge population of underserved patients looking for — and buying — those types of systems. Moreover, even if some of those online buyers are already receiving tanks, that should make providers wonder two things: how much wasted cost is built into the business, and on how much retail or funded revenue did they fail to capitalize?

Obviously, selling on a retail basis can be very difficult for Medicare providers. They need to have new business infrastructure, they must adhere to a number of legal requirements under Medicare, and the guidelines can sometimes be confusing. Moreover, many providers interested in retail will set up entirely separate businesses in order to serve a retail customer base (and even then there are specific Medicare guidelines regarding referrals between the two businesses, and similar issues).

“It is a little bit more complicated for the HME provider or other medical professionals to get into the retail business,” Lewarski says. “But it is not that hard. There are much harder things that we are doing right now, like survive audits, and things that require significant resources and time.”

How They Can

One of the best ways a provider can get started in providing portable oxygen is to talk to some vendors. The manufacturers of portable oxygen systems are well aware of some oxygen providers’ hesitation to take the leap, and they are developing a variety of programs and services to help providers make the transition.

“I think that the most important thing the providers can do is partner with their manufacturer on this,” says George Coppola, the director of marketing for CAIRE Inc. “Obviously I’m a little biased … but we are positioned where we can help them. Work with us and we will work with you. We’ll help you select the right materials. We will work on helping you train your referral sources on the clinical benefits of the products. We can help you grow the business.”

As mentioned, the big barrier is the financial aspect. To address providers’ concerns about up-front costs, many vendors will offer financing programs.

“We clearly recognize the up-front cost of a provider to do [portable], and we try to help them,” Coppola says that his parent company, CHART, provides financing and bundling programs across its portfolio of portable oxygen offerings, which includes the CAIRE, Airsep and Sequal brands. “We have a number of programs for provider financing. Our most popular one is our 0 percent, 12-month program, but we also have programs up to 36 months.”

VGM’s Lyman says that various vendors are working to support a gentle transition from a financial perspective.

“Many of the manufacturers have a relationship with a lending agency and they even offer promotional offers, such as three months skipped, or 12 equal payments,” Lyman says. “So they’re willing to work with the provider on those costs, and depending on the volume that they purchase, I’ve known some of the vendors to actually work with the lender on points so the provider doesn’t even have to pay the point. So, they might offer 0 percent for 12 or 15 months, for example.”

Coppola says CHART also works to reinforce and participate in providers’ referral education efforts to explain the benefits of portable oxygen.

“We will explain to them the benefits, do the full demo of the unit, and walk them through the program,” he says. “We provide them with the material needed to help work with their referral sources.”

In addition to working with vendors, Lyman suggest that providers consider a trial with a select group of patients to see how portable oxygen will pan out in terms of the business and the patients’ care.

“I would say you should at least try it at least 8 to 10 percent of your population,” Lyman says. “You have to have a significant amount of folks, because you’re going to always have failures.

Lyman also suggests that respiratory providers coordinate with discharge planners at hospitals and physicians’ office staff to educate them on the benefits of portable oxygen and then partner with them to see if they would be amenable to keeping portable devices on-site, so that the therapist can work with the patient to dial in the right settings before discharge.

“It helps expedite that discharge,” he says. “The discharge planner doesn’t have to wait for you, and you don’t have to get out there immediately and be waiting for them. You can schedule it when it’s more convenient when the patient’s relaxed, and had time to think.”

Time to Take the Leap

Lewarski notes that in his lengthy professional experience in respiratory care he had the opportunity to work with industry veteran David Miller, the former CEO of the MED Group. Lewaski says that Miller had an expression that perfectly applies to providers who are hesitant to take the portable oxygen plunge:

“Running an HME company as a family-run business, or a small, mid-size company like mine was — we had 100 employees at our peak,” Lewarski recalls,” he said, ‘You spend more time working in your business than you spend working on your business.’”

In other words, providers need to continually plan strategically, monitoring their business and market; assess how they are performing against that strategy; and reassess when that strategy doesn’t pan out. It’s a constant process, and it’s fraught with distractions, but providers must keep working on their businesses. Having been a provider, Lewarski knows this first-hand.

“When I went back to High Tech and was running a company, it probably wasn’t even a month or two, and all these grandiose ideas I had when I left MED Group that I planned to implement got buried under day-to-day stuff,” he recalls. “Two of my trucks were in an accident today. My top biller just went out on maternity leave. This person quit. My liquid truck just exploded in the yard.

“Ten things, and all the sudden you are buried in your business, and that was before audits, and competitive bidding and all that,” he continues. “All of the sudden you are buried in your business and you stop working on your business and thinking about it strategically. It is hard to step away, but where you see [providers] who are able to do that successfully, who step away from day-today operations, you see providers that are surviving and thriving in tough times.”

Stepping away, it’s clear that respiratory providers need to transition to portable oxygen because that is where the patients are going, that is how providers can protect their margins, and that is where the new revenue exists. If providers want to continue serving respiratory patients, they’re going to have to take that leap of faith just to catch up.

This article originally appeared in the November 2017 issue of HME Business.