The 2014 HME Handbook: Oxygen

How to Adapt Your Oxygen Delivery to a Changing Market

Next week's conference aims to address key industry issues; invites providers to ‘Define Your Future.’

Oxygen DeliveryEver since the 36-month rental cap was implemented, providers have been striving to eliminate the costly practice of delivery oxygen from their businesses. The goal is to replace delivery cylinders by offering portable oxygen concentrators and home filling systems.

Low- and no-delivery business models are a strategy that has helped providers reduce their costs by as much as a whopping 70 percent. That is critical in a Medicare reimbursement market that has become almost hostile given the miniscule single payment amounts for Round Two of competitive bidding — and private payor rates are low, as well. Suffice it to say that margins are as thin as the air on Mt. Everest.

And from a care perspective, low- and no-delivery models are also important. It has been shown that increased patient ambulation benefits patient outcomes. However, it’s important to note that oxygen systems that let them get out of the home more frequently do more than that. By letting patients go about their daily lives; by letting them travel; by letting them stay out longer and go further, portable systems are helping increase patients’ enjoyment from life, which truly has an almost inestimable value.

But how can providers drive even more efficiency from their oxygen business models? It’s a safe bet to say that reimbursement will continue to drop while clinical expectations for better outcomes will increase. How can providers adapt?

Diversify Offerings

Strictly speaking about ambulatory patients, providers need to fine tune their low- and no-delivery oxygen businesses to drive more margins while continuing to emphasize patient outcomes. This means looking at the patients’ therapeutic needs and level of ambulation. In many cases providers might be surprised to find that they don’t necessarily have to provide a portable oxygen concentrator (POC), and can provision a home filling system, instead. That is important because POCs are expensive and more delicate, and a little trickier to operate for patients. If a patient can derive the same level of therapy, ambulation and independence from a home filling system, then it is a win-win for the patient and provider considering the lower cost and increased durability of a home filling system.

Studying Subcontracting

Still, for many providers, competitive bidding — especially Round Two — has meant that they have been cut out of the core of their business. Many respiratory providers are specialty providers that really focus on oxygen products and services. Once Round Two brought the program up to 100 competitive bidding areas, there were many providers that were left serving only their grandfathered patients. How will they build for the future? Many of them answered the question by either selling out or diversifying into retail, or new lines of business. But is there a third way? Could Subcontracting work?

Subcontracting was much maligned in Round One of competitive bidding because it did not seem that there was enough reimbursement to go around. How could the contracted provider and subcontracting provider possibly scratch out a living given the low reimbursement rates? However, given the scale of Round Two, subcontracting might be viable in some situations contract holders who are trying to live up to newly aquired patients’ needs, and providers that lost bids, but are trying to hang on to at least a part of their oxygen business.

One approach might be to subcontract a specific element of the oxygen service. For instance, one provider could conduct the initial equipment set-up, education and training with the patient, but then another provider would conduct maintenance, deliveries and refills, depending on the services and equipment that was provisioned.

Retail Sales

Given the staggering demographics of COPD, a retail sale market has emerged for nondelivery systems, particularly for portable concentrators. The size of this market varies by provider and geography but it is clear that there is a market of patients willing to buy high-end portable oxygen equipment on a cash basis. This is often driven by some of the more affluent patients, as well as family members willing to pay for a device they want. That is a market that providers without competitive bidding contract in particular should be pursuing.

Private Payor

Those providers should also be pursuing the private payor insurance carriers and similar new market opportunities. 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.

Points to Remember:

  • The oxygen market is no stranger to upheaval, starting with the 36-month rental cap.
  • The cap, along with competitive bidding, taught respiratory providers the importance of low- and no-delivery models.
  • That said oxygen providers must still determine who they can drive even more margin from their businesses.
  • Determining which equipment is ideal from both a care and business standpoint is critical; patients might see optimal results with less-expensive solutions.
  • Providers must also explore important opportunities such as retail sales (yes, there are oxygen patients and caregivers willing to pay cash) and private payor insurance.

Learn More:

  • You’re not alone if you’re concerned about how the oxygen market and reimbursement pressures are impacting your business. In fact, it is something HMEB and its special Respiratory & Sleep Management publication regularly study. To learn how other providers feel and how they are responding, check out the results of our Sixth Annual Oxygen Market Survey.

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

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