How to Survive the 36-month Oxygen Rental Cap

At the beginning of this year, the 36-month rental cap for the Medicare oxygen benefit went into effect. Under it, providers’ funding for oxygen equipment rental is capped at 36 months, even though the benefit can last as long as five years, which is the useful lifetime of the original equipment under CMS guidelines.

Also, under the rental cap rules, providers must continue to care or arrange care for patients when they move or travel, even if the move is outside the provider’s normal service area. For providers that serve large numbers of patients that travel frequently or seasonally, this requirement can create a number of dilemmas, such as arranging for licensing in other states.

Moreover, patients also suffer under the rental cap, since it will diminish their access to new equipment innovations, and hamper their access to quality respiratory care. No matter how you slice it, the cap is a terrible deal for everybody concerned.

So, while the industry might fight legislatively to end the rental cap, what can providers do in the meantime in order to survive?

Know the numbers. Know the details of your oxygen business, including all cost- and care-related components. This includes the cost of providing service, the total cost of equipment ownership, patient lengths of stay, and true revenue vs. cost (don’t mistake revenue for profit). Monitoring operation metrics such as your current employee turnover rate are key in understanding costs, as well. The same goes for studying your patients. What percentage of oxygen patients stay on past 36 months? Sixty 60 months? Until you know the numbers, you can’t develop a strategy to cut costs and preserve margins.

Non-delivery. Of course the business model that many providers are trying to evolve to is a non-delivery modality in which patients use portable oxygen concentrators and other self-filling respiratory devices that reduce the volume of regular tank delivery. Non-delivery dramatically cuts oxygen business overhead by slashing the very costly infrastructure required for delivery. This includes items such as drivers, dispatch and vehicle fleets. Those vehicles entail steep maintenance and fuel costs — and gasoline prices are yet again on the rise. Trying to trim those costs in the face of reduced reimbursement is critical for surviving the cap.

Furthermore, POCs give patients more control over their lives. They can choose to go on battery power and hit the road. This opens up a whole new way of living for patients who might otherwise be tethered to heavier oxygen equipment. Now patients can easily run errands and travel, and thusly become more active, which can help improve outcomes.

Find other efficiencies. That said, while providers might ultimately seek to evolve to a non-delivery business model, they must still deliver tanks to the majority of their patients in the meantime. This means providers must find additional ways to cut costs and enhance efficiencies so that they can maximize their margins. These savings should help them afford the investments needed to move to a non-delivery model.

Optimize delivery. One way to gain efficiency lies in optimizing their oxygen delivery operations. A typical oxygen provider might divide its service area in regions, with drivers in each region undertaking tasks such as set-up, maintenance and service, pick-up and tank deliveries. Emergency and unscheduled service related to any of those regions is boiled into each driver’s routine. If a patient needs an emergency repair in a driver’s territory, the driver prioritizes that patient and alters the route and schedule.

Instead, implement a delivery management system that lets you manage incoming orders, schedule them, and create efficient distribution routes that are distributed to the drivers each morning — and then ensure that drivers stick to those routes. Route management systems will optimize the routes for efficiency and fuel savings, and some include reporting systems that help you track drivers’ progress. Then nominate one or two drivers to address emergency calls.

GPS. Beyond route management, you can implement GPS systems that combine route optimization tools with real-time monitoring of drivers in the field. They can even track drivers’ rate of speed, which can be important in terms of gas mileage. GPS lets providers more closely manage deliveries and quicken response to emergency service calls.

Fight the good fight. In the meantime, you still need to stand up for your business, industry and your patients by fighting to protect the oxygen benefit. So far, there are two man initiatives in the industry, the HOPP Act, a House bill that seeks to end the 36-month cap, and a multi-point oxygen reform policy the New Oxygen Coalition seeks to have integrated into whatever healthcare reform takes shape in Congress. Make sure you understand the issues and effectively lobby your Congress members on these two fronts (see “How to Lobby Congress to Help Your Industry,” to learn more.) Living under the cap is a daily reality, but getting rid of it is the ultimate objective.

Points to take away:

  • Understand the true cost structure of your oxygen business.
  • Move to a non-delivery model using self-filling devices such as POCs.
  • While transitioning to a non-delivery model, optimize your oxygen delivery business using tools such as route management and GPS systems.
  • Ensure you are participating in the fight to end the rental cap by getting involved in industry lobbying efforts.

Learn More

There are two main efforts to end the oxygen rental cap. The first is the Home Oxygen Patient Protection (HOPP) Act, which would amend part B of title XVIII of the Social Security Act in order restore home oxygen payments through the beneficiary’s full period of medical need, not just 36 months.

The second is the New Oxygen Coalition’s multi-point oxygen reform platform, which not only calls for an end to the cap, but a complete overhaul of the benefit in order to recognize that oxygen providers perform far more services, which entail far more costs, than simply supplying equipment.

Visit the Oxygen Solutions Center to learn more.



This article originally appeared in the July 2009 issue of HME Business.

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