Special Focus on Portable Oxygen
The Two Sides of Rental
While respiratory providers typically focus on Medicare's 36-month rental, there is also a short-term rental market. Entering either requires solid planning.
- By Holly J. Wagner
- Sep 01, 2018
While respiratory providers typically focus on Medicare’s 36-month rental, there is also a short-term rental market for oxygen equipment. Entering either business requires solid planning.
When is a rental not a rental?
As respiratory providers know, the oxygen business splits into two main categories: One is called rental, but that really describes the payment arrangement in which Medicare pays a provider a monthly fee for three years to provide equipment for long-term oxygen therapy (LTOT) patients. After the 36 months, the patient owns the device, but the provider must continue to provide warranty protections and service for another two years. The other model is true rental, in which companies – usually specialized providers – offer true equipment rental and support for patients with short-term needs.
The first group is long-term oxygen therapy patients, primarily chronic pulmonary (COPD) patients. They are likely to use oxygen supplements an average of 15 hours a day. Much of that is at home, where they may use a tank system as a primary source but portable oxygen concentrators (POCs) are expanding patient horizons with devices that are compact, lightweight and less intrusive.
The second group overlaps the first: it might be a home oxygen patient who just needs a POC or other arrangement for an event or trip, or as support for another treatment.
Who are the Short-Term Renters?
“Short-term POC patients are hospice patients who want to go to a wedding or graduation, someone who is traveling across the country,” says Elliott Campbell, senior vice president of Trace Medical. The company’s main business is ventilators, but, “We were getting people who say, ‘I need a POC, but I don’t need it for long.’” Campbell says. That launched Trace’s POC rental business, “for people where it does not make sense to buy.”
For those patients, companies such as Trace and VGM Freedom Link work with DMEs to give patients the service they need, without encumbering the DME with long-term oxygen support obligations. In this scenario, the DME is mainly a middleman providing a referral as a service, a facilitator cultivating the broader customer relationship.
“When we get a call directly from a patient, we refer them to a DME. We rent [equipment] to the DME and they rent it to the patient. Trace does not deal with patient billing,” Campbell says. Trace has a relationship with an authorized service center that does all of the maintenance, repair and service on equipment the company rents. True rental is also largely a cash business with few, if any, reimbursement options.
Either way, oxygen is a drug, so providers need the correct licensing to provide it. That means providers need to have the right resources and knowledge.
“To sell POCs retail, there are several basic infrastructure requirements including state licenses and the ability to retrieve and store a prescription in a compliant manner,” says Nick Jacobs, senior director of respiratory at Invacare Corp. “I would not say that certain DME retailers have inherent capabilities that make them better suited to provide oxygen services; however, some are better at it than others. This ultimately comes down to whether the retailer views the sale as a transaction or something more than that. And it’s about business model and choice more than anything.”
Once the legal hurdles are cleared, financial and operational considerations kick in. “There are some decisions that need to be made about the business model,” Jacobs says “Are you going to provide the high-touch, in-store retail experience, sell solely online, or both? The answer to this question – and others about how the retailer is going to compete in the market – will dictate what else is needed in terms of financial commitments, space, and personnel.”
Seasoned home oxygen providers know they must not only provide the device, but supply and service tanks and other equipment. POCs can reduce some of that cost, but there’s no shortcut to a successful business or care model.
For many LTOT patients, a POC is a backup and may not eliminate deliveries. “When we place a POC, we don’t take the tank out of the home,” says Caleb Umstead, education director at First Class Medical. “When we do a non-assigned claim, we set them up with a concentrator and tank. If they come back for a POC, our script for that is ‘you need a backup.’”
Building the Infrastructure
The cost of stocking and offering rental oxygen equipment adds up fast in the equipment itself, space for it and, unless you are doing retail sales, the time to payoff. Even filling specific patient orders can be a cash-intensive proposition for an item that takes 36 months to pay off. A deep dive into oxygen might require outside funding unless your business is very well capitalized.
“The only ones who can really play there is the big guys,” says Umstead, who acknowledges the competitive pressure his own and other online retailers put on brick-and-mortar DMEs. “You want to showcase that you have POCs, but cash flow is king. If you go out and start getting a bunch of referrals for it, you can’t sustain it unless you have cash flow... If you sign up 10 patients, that’s $15,000 that you might not get back for 24 months.”
Once you have the licenses, capital, space and staff to offer oxygen, you have to bring in the business and choose what to stock. Some DMEs may choose to handle oxygen strictly by filling one customer order at a time.
“You can stock a limited number of items by choosing carefully for the best capabilities. One device that covers a range of oxygen needs will serve patients as well or better than multiple devices with lesser range,” Umstead says.
Making product decisions may involve checking which manufacturers will offer better pricing if you offer a range of their products, like CPAPs, ventilators and POCs. Another important consideration, Umstead says, is to look for manufacturers who support your business with training on their equipment, MAP (minimum advertised price) policies, and consumer-facing product advertising that raises the product profile. MAP pricing helps small DMEs compete with online retailers who sell through their own websites as well as third-party retailers like Amazon and Walmart.
As for staff expertise, it’s helpful but not necessary to have a respiratory therapist on staff. “The small DME can use the manufacturer training process. Most manufacturers are really good about sending someone out to do that, train them on the device,” Umstead says.
Getting the Word Out
Once you’re committed to providing oxygen, you need to make your existing clients aware that you offer it, and let referral partners know how you can help improve patient satisfaction.
“The referral sources for oxygen patients are vast and include hospitals, physician offices, long-term care facilities, pulmonary rehabs, and COPD support groups.,” Jacobs says. “There are many ways to contact these referral sources, including face-to-face meetings or through social media. Regardless of how this is done, it needs to be a two-way relationship where the provider is also bringing value to the table. And at the end of the day, it is about establishing a long-term relationship built on trust.”
With POCs, that value is in patient comfort and convenience that leads to better compliance and better outcomes.
“My experience with some of the better home care providers that I’ve known, they are always out working with the referral bases and marketing patient satisfaction,” says Frank Lazzaro, Director of Global Product Management, Philips Sleep & Respiratory Care. “They want to go to their referral bases and say they are going to provide the best equipment the patient can desire. By doing that, that’s going to keep the patient compliant with the therapy and if they do that they will have better outcomes. That’s what you want to market to a referrer: you are going to keep their patient happy and complying.”
To POC or not to POC?
To POC or not to POC? That is the question. As with many lines of business, the decision may boil down to payment sources. Oxygen equipment is subject to the same competitive bidding and other reimbursement pressures as other items, and it may not be profitable to offer them through Medicare or private insurers. That leaves retail and the world of non-assigned billing, but that’s not a bad thing.
“For a variety of reasons, more and more patients are choosing to purchase POCs with cash rather than use their Medicare or insurance benefit,” says Nick Jacobs, senior director, respiratory, at Invacare Corp.
One reason is direct advertising by manufacturers. Patients see their products on TV and ask for them by name, and may want a product or model that insurance won’t cover. Another reason is online merchants like Amazon, which let manufacturers sell directly to consumers. The DME value proposition is going to rely on customer service.
“I lose to a local provider if the local provider gives good service. I can’t beat ‘em,” says Caleb Umstead, education manager at First Class Medical, the largest provider of oxygen devices in the country.
“Retail for POCs can work well if you provide great customer service and think of the patient’s best interest. Having product knowledge, coupled with patience and responsiveness, will help build customer loyalty, something that can’t be experienced by shopping online,” says David Lyman Lyman RRT, vice president of respiratory at VGM & Associates.
Marketing the reimbursed purchase option to referral partners can set a DME apart from competitors. The person tasked with outreach to referrers should meet with them to explain which items the DME will offer on assignment.
If all the cost and support obligations that go with providing oxygen seem too expensive or daunting for the size of your business, there’s still a way to capitalize on the growing oxygen market without the burdens of certifications, licensing, equipment maintenance and the insurance billing minefield.
Small DME providers can stick to retail accessories such as cleaning devices. “One of the things I love is the SoClean. It’s not covered by insurance and is a cash product,” Umstead says. “Part of [succeeding] is finding those products that make your life easier. When we find products like that, we find niches.”
Cultivating those niches can blossom into a good business if the DME’s focus is on problem-solving and service.
“If I make the user experience good for them, we sell multiple devices to the same customer over a three to five year period,” Umstead says. “The most important piece to me is customer experience. Just do what you say you are going to do.”
This article originally appeared in the September 2018 issue of HME Business.