Oxygen On The Go
Providers using low- and no delivery oxygen strategies share how an evolving business and care model is achieving success.
- By Joseph Duffy
- May 01, 2014
Staying off the road — a strategy employed to reduce the staggering 70 percent of total company costs that some providers report spending on oxygen delivery — is contributing to the growth of lower no-delivery oxygen models.
It’s a strategy proving itself effective in a tumultuous industry where cutting costs has become synonymous with keeping the doors open.
“The combination of reduced reimbursement and increasing operational costs, which have been magnified with the expansion of competitive bidding, is forcing a change in the home oxygen paradigm,” says Joseph Lewarski, BS, RRT, FAARC, vice president of Clinical Affairs for Invacare Corp. “Non-delivery oxygen models are quickly becoming the standard of care for ambulatory home oxygen patients, which make up about 60 percent of home oxygen users. The approximately 40 percent utilizing only a stationary system (i.e., nocturnal only) are already non-delivery. There are only two oxygen HCPCS codes consistently showing significant year-overyear growth: K0738 and E1392, the concentrator filling technologies and portable concentrators respectively.”
Rob Kent, president and COO of O2 Concepts, says low- or no-delivery oxygen growth is related to the initial responses to competitive bidding: inventory discipline and cash control. Now, he says, providers are seeing the need for longer-term solutions. Kent routinely helps his provider customers analyze their costs and says they typically find a patient segment of at least 10 percent to 15 percent that are losing money with the recurring operational costs of tanks. The smaller the dealer is, the larger that segment gets, he says.
“Round Two rates have forced even more focus on nondelivery because of shrinking reimbursements and the necessity to find additional efficiencies,” says provider Todd Tyson, BS, RRT, president of Hi-Tech Healthcare. “We were awarded contracts for oxygen in five CBAs. We have seen an increase in volume of 17 percent but we are just now getting back to pre-competitive bidding revenues. It is a huge cash flow challenge, which has required more creative financing and increased terms from vendors, but we are working through it. Previously, Hi-Tech provided full-service HME/RT but we were not awarded a contract for the DME, which has forced us to focus on the Respiratory, Oxygen and Non-Medicare PAP. The good thing for us with oxygen is that it is still a long-term rental and even though we get audits for each initial claim, it is less burdensome to bill than PAP over the entirety of the rental period.”
Low- and No-Delivery Oxygen Models
Although there is no “official” definition of a low- or no-delivery oxygen model, it is helpful to create a snapshot of what they are so providers can understand the products, processes and goals of this growing product group. With this knowledge, providers can make better decisions on whether this is a strategy that fits their business plan.
“Low- or no-delivery oxygen technology and systems are those that dramatically reduce or eliminate the myriad non-value-added tasks and costs associated with the provision of home oxygen therapy,” Lewarski says. “These tasks include the actual delivery plus all of the other delivery-related activities, such as order intake, processing, cylinder/LOX filling, routing, lot tracking, delivery receipts, etc. The models include concentrator filling systems (i.e., HomeFill System), portable concentrators and the lesser recognized and more challenging patient pick-up of cylinders.”
Clint Geffert, national vice president of Sales for VGM, adds that a low- and no-delivery oxygen model must minimize home deliveries without compromising patient care.
“The traditional model of providing home oxygen is expensive and burdensome so dealers have embraced a low and no-delivery oxygen model,” he says. “In this non-delivery oxygen model, there are theoretically limited deliveries of oxygen to the patient. A standard set-up consists of an oxygen concentrator and a device that allows for ambulation. The ambulatory device is typically a portable oxygen concentrator or trans-fill device. These devices are very reliable and easy to use and as such, provide great patient satisfaction and mobility.”
Tyson uses Invacare’s Homefill and Philips’ Ultrafill (3000 PSI), Caire/Airsep portable oxygen concentrators and Philips SimplyGo POCs. He also uses liquid oxygen for low delivery. His business is approximately 58 percent low and non-delivery and the oxygen business accounts for slightly more than half of his revenue. They started implementing liquid oxygen in 2003 and began using POCs in 2006. It was not until 2008 that the company really began to embrace the Homefill and Ultrafill models, but they are now the go-to option for 90 percent of his ambulatory patients.
“We see the homefilling devices as more reliable and our first choice for ambulatory/portable patients, with POCs as a second choice,” he says. “POCs still seem to be less reliable and more costly to operate, secondary to shorter warranty coverage, battery replacement and inventory control issues. We currently receive a 36-month warranty on Homefill, a 60-month warranty on Ultrafill and a 24-month warranty on POCs. I believe low- and nondelivery devices are growing in popularity with providers, especially in the bid areas where reimbursements are very low and providers cannot afford the labor and delivery cost associated with delivery and maintenance of standard concentrators for ambulatory patients.”
According to Lewarski, the percentage of revenue from low- or no-delivery oxygen models varies by provider and the mix of their oxygen users. He says the higher the percentage of ambulatory patients in a provider’s oxygen program, the greater the potential for non-delivery systems.
“The Medicare data suggests about 37 percent to 40 percent of patient are prescribed only a stationary device, which essentially rules out the need for any portable add-on,” he says. “Of the remaining 60 percent or more, any non-homebound patient would be considered a candidate for a non-delivery system. Revenues for the newer technology, non-delivery add-on codes (K0738 and E1392), are higher than the codes for traditional portable devices, so increasing the shift to more nondelivery systems would logically increase the revenues.”
John Eberhart, president of Eberhart Home Health, recently closed its doors in Orange County, California, to concentrate on a storefront opened in Farmington, New Mexico.
Eberhart says that Farmington is basically an underserviced part of the country. Therefore, his customers are used to doing things themselves, including picking up their own oxygen products and paying cash.
Eberhart’s retail success and oxygen expertise have given him the push to look to partner with California providers who do have a storefront model but are not doing anything with oxygen. He says that offering oxygen services to providers who don’t will help them increase foot traffic through their stores and generate revenue either through cash or PPO oxygen sales.
Patient Benefits of Low- or No-Delivery Oxygen Care Models
Aside from low- or no-delivery oxygen models helping oxygen providers to cut costs and increase revenues, they also are improving patient lifestyles and providing better outcomes.
“Intuitively, lifestyle improvements seem obvious,” says Lewarski. “Imagine if the gas for your car was home delivered and in some ways, rationed by the station owners. How easily would you manage your lifestyle and time away from home? Freedom and independence are the two most common terms used to describe non-delivery. Although I am not aware of any studies examining the improvement to patient lifestyles and outcomes directly associated with non-delivery oxygen systems, we have received anecdotal data from providers and end users suggesting high patient satisfaction and compliance to therapy. A number of the small anecdotal and published studies examining reduced readmission of home oxygen patients incorporate non-delivery systems as the primary ambulatory system.”
Geffert points out that low and no-delivery oxygen models let patients be more active, which, in turn, allow patients to live healthier, happier lives. And this, he says, helps reduce doctor visits and hospital stays.
“It gives patients greater control over their lives, allowing for travel and increased mobility,” he says.
Tyson agrees. “If one examines the LOTT study then we all believe that keeping ambulatory patients active not only yields improved quality of life but also reduces complications related to a sedentary lifestyle, such as pneumonia, atelectasis, exacerbations of COPD and hospital readmissions,” he says. “Most all low- and nondelivery portable systems meet the criteria of weighing less than three to four pounds and lasting four to six hours. The exceptions may be some of the POCs that are heavier in weight but yield freedom to be away from a stationary system for longer periods of time.”
Perhaps one negative regarding low- and no-delivery oxygen models is the waning of face-to-face contact with patients.
“Patients lifestyles are about the same, even with the low-delivery models,” says Eberhart. “The big benefit of a DME company historically is face-to-face contact that puts patients’ minds at ease and provides education to patients and family. In this environment that is not possible.”
Subcontracting and Alternative Funding Sources
For providers who didn’t win oxygen bids during Round Two, subcontracting may still be viable in some situations if your trying to keep oxygen a part of your business model.
“In Round One and early into the implementation of Round Two, we heard about numerous companies actively seeking subcontracting opportunities,” says Geffert. “However, as Round Two rates were implemented, providers have moved away from subcontracting because of the poor margins being realized in today’s reimbursement climate. There is great uncertainty in the future of oxygen subcontracting, and given the current climate and existing margins, dealers are finding subcontracting may not be the answer to delivery they once sought.”
Tyson’s Hi-Tech Healthcare subcontracts its LOX curbside refill with its gas/LOX vendor. Hi-Tech provides the initial install, education and training with the patient but the vendor provides all delivery of refills for the stationary contents for a fixed monthly fee, which lets Tyson control most of the costs and expenses. Hi-Tech does not subcontract any of the POCs, Homefill or Ultrafill equipment. They own a fleet and do all installs, education and maintenance.
“We were awarded contracts in areas that we did not previously serve and we have had conversations with local providers regarding their interest in subcontracting the O2 services but have not implemented any contracts to date,” he says.
Regarding alternate oxygen funding sources, Lewarski says that because of the demographics of COPD, a large majority of home oxygen users are Medicare or Medicare Advantage beneficiaries. That said, a retail, cash sale market has emerged for non-delivery systems, particularly for portable concentrators. Lewarski points out that the size of this market varies by provider and geography but it is clear that there is a cash market, which is often driven by some of the more affluent patients, as well as family members willing to pay for a device they want. Eberhart says he served oxygen patients from affluent parts of Orange County, California, who would pay cash for oxygen services.
Lewarski says that most private insurance pays for oxygen using the same HCPCS codes, medical necessity criteria and modality neutral model as that of Medicare. Fee schedule amounts vary and some payers do recognize the cost and patient benefits of non-delivery systems, and, therefore, pay at higher rates. Other care models, such as hospice, also pay for home oxygen systems, which may include non-delivery. However, the hospice model has its own set of operational and business challenges, which can also vary contract to contract.
“Most providers seeking alternative funding sources have looked at growing or diversifying their private payer insurance contracts or have sought out-of-pocket options,” Geffert explains. “Providers continue to seek additional private payer insurances to diversify and grow their business. Contracts once thought to be poor payers or low reimbursement are being revisited. Others are seeking out-of-pocket as a way to increase revenue. Dealers are either looking at retail alternatives to sell portable oxygen concentrators or are looking to the Internet as an alternative source of revenue.”
Tyson recognizes that some manufacturers are helping providers by being great partners and offering creative financing for capital equipment, which is now required to cash flow the program.
“The scary part is that we are purchasing equipment with extended terms and the problem may be that we are stuck with excess inventory if we do not receive contracts in the Round Two re-bid,” he says.
This article originally appeared in the May 2014 Respiratory & Sleep Management issue of HME Business.