Stepping Into Liquid

Staying Competitive in Today's Market

Whether you’re currently carrying liquid oxygen or you’re in one of the metropolitan statistical areas (MSAs) in the competitive bidding program, chances are you’re examining the viability of liquid. While there are many clinical benefits of this modality, especially from a patient standpoint, traditionally, the costs for providing liquid have been prohibitive. If you’re reconsidering liquid or just looking for a way to stay profitable, here are some things you should know.

Proven Viability

There’s a reason patients keep asking for liquid oxygen: portability.
“The original reason that people put patients on liquid is the equation of weight to duration for the ambulatory patient,” says Dan Easley, president and CEO of Inspired Technologies, North Huntingdon, Pa. “From the patient preference standpoint, they’re going to look at that combination similar to how we would look at laptops in terms of weight and battery duration and then pick the best combination, meaning the lightest weight and the longest duration.”

Liquid oxygen has a reputation of delivering that combination, and physician/referral sources know it. Jeff Hennelly, vice president of sales at Inspired Technologies, says the reason is simple science. A lot more gas molecules will fit into one liquid molecule. In fact, 1 liter of liquid provides 860 liters of gaseous oxygen.

“There’s a demand out there by patients, and patients these days are much better informed than they were 10 years ago, with the Internet,” says Buzz Bies, vice president of sales, Chart Inc. (CAIRE Medical), Marietta, Ga.

Maintaining Profitability

Why is liquid so expensive? Reimbursement cuts and rising operational costs have made all delivery models price prohibitive, and liquid is no exception. According to Easley, liquid oxygen has all of the drawbacks of delivering gas cylinders, including fuel, staff and trucks. Plus, providers typically have to deliver slightly more liquid than gas because of the evaporation rate.

Hennelly points out that there are other costs associated with infrastructure as well, such as hazardous materials carrying costs, federal and state clearances, and the cost of large refilling tanks for facilities and/or trucks.

“What (providers) have to do is understand there is the acquisition cost for infrastructure if they choose to go that route,” says Steve Krentler, global product manager, Precision Medical, Northampton, Pa. Providers must decide if they will “milk can” the oxygen to patients, which requires more equipment, or fill reservoirs at the curb, he says.

Despite those upfront costs, Krentler says there are benefits to liquid. “The equipment is not the lowest cost, but it’s the lowest maintenance.”

Bies says that product longevity makes liquid profitable, even under the constraints of the 36-month rule, if providers have a suitable number of patients. “There’s going to be continuing payments made for refill of liquid oxygen for both the base and the portables,” he says. “That provides home care companies with an ongoing revenue stream. So, when (providers) look at that and look at the useful life of the equipment, I think they can certainly find that providing liquid oxygen is still profitable.”

Preparing for Competitive Bidding

Since competitive bidding requires that winning bidders offer all modalities of oxygen, providers who’ve exited this segment of the business or simply chose not to offer liquid may be scratching their heads as to how to formulate a bid.

Easley says providers must examine their patient populations. “For the provider that’s trying to figure out where does liquid fit in the business, it’s really that top 25 percent of those ambulatory patients,” he says. Those patients represent the highest-cost patients because they consume the most ambulatory oxygen and require the most deliveries.

Once providers analyze their patient population, they then have to evaluate the costs for providing liquid to submit a successful bid. Bies suggests that providers consider the costs for transfilling, the costs for determining content, the distribution area to be covered and local labor rates.

Many providers have chosen to subcontract. “Sub-contracting certainly takes some complexity out of offering liquid oxygen,” Bies says. Instead of considering different delivery scenarios for the business, providers simply look at one economic model. Bies says this route may be more beneficial if providers have only a handful of liquid oxygen patients.

If a provider has a lot of highly ambulatory patients, subcontracting may not be the best choice, according to Easley. “By paying a third party to do (liquid), you’re obviously having to pay someone else’s margin, and that makes it more expensive,” he says.

Jacquelyn McClure, BS, RRT, FAARC, McClure Connection, Melbourne Beach, Fla., agrees. If a provider who’s not in the liquid business gets a referral for liquid, she says, “I would first look to see if I could do it, if the patient was in close proximity to my office. … Then I would look at a non-delivery system. The last thing I would look at would be subcontracting, and that’s all based on cost.”

Liquid becomes most cost-effective for providers to do themselves when they reach around 150 patients, Krentler says.

“If you’re going to provide liquid oxygen for competitive reasons, to give yourself a com-petitive advantage, then you may wish to do a full analysis because you may or may not find, depending on what kind of contract that’s available, that doing it on your own may be more profitable for you,” Bies says.

Liquid Equipment Considerations

The key with liquid is to match the right product to the right patient. That mentality is becoming a mantra in the respiratory industry as providers strive for best practices. Providers offering liquid today now have the option of a non-delivery system. Transfilling liquid in the home makes sense for highly ambulatory patients and helps reduce delivery costs for providers.

“You’re going to see probably other manufacturers trying to duplicate similar ways of doing (non-delivery liquid),” McClure predicts. “(With) any of the transfilling systems, be it gas or liquid, technology has allowed for the non-delivery system. I think the message … is the non-delivery system has allowed the HMEs to look at their costs more effectively and economically and still provide excellent oxygen therapy.”

To evaluate if new technology is right for your business, McClure says providers must develop a two-pronged approach. That means installing a team that will consider the clinical and operational viewpoints.

From the operational standpoint, McClure says the team is looking at cost of delivery and efficiencies. With a non-delivery system, for example, providers should look at it as an investment and a change in the oxygen fleet, she says. From the clinical standpoint, providers must assess “How many hours of ambulation do (patients) take in? Do they have dexterity? Do they have the cognitive ability?”

Providers also must think about the future, according to McClure. If the modality works today, will it still work in two years? As more patients are diagnosed and ambulation improves, people are living longer with COPD than the standard 36 months. If a provider invests in equipment for a patient today, as the disease progresses, will that modality still be viable after 36 months?

Once a modality is chosen, McClure says, providers must continue to follow up to measure the oxygen model’s success: Is the device saving the company money on gas, payroll and operational costs?

Plan for Growth

“Ultimately in this market, it is one of a growth market, not necessarily a cost-management market,” Easley says. “As the patient population with COPD on oxygen goes from 1.5 million to just under 4 million in 10 years, you’ve got to understand how you’re going to grow share. Typically, growing share is by having a better clinical story that you can relate back to your referrals and then approve it with your patients.”

McClure says that providers can use the volume of COPD patients to their advantage by growing their patient base to make up for any loss in margin due to reimbursement cuts.

As technology continues to improve, margins also will reap the benefits.

This article originally appeared in the Respiratory Management July/August 2008 issue of HME Business.

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