COVID-19 has strained America’s oxygen infrastructure like nothing before. What factors are impacting supply and demand, and how are stakeholders responding? What other factors are impacting the oxygen market at the same time?
- By David Kopf
- Feb 12, 2021
The impact of COVID-19 can’t be understated. If anything, we can barely comprehend it. Roughly a year ago, the first United States recorded its fatality from the disease on Feb. 29, 2020. Fast forward to the moment this story goes online, and the United States has seen more than 27 million cases and 486,000 deaths from the disease. That’s more than the population of Minneapolis or Miami.
And that’s just the grim human toll of COVID-19. There’s the service economy, unemployment, and countless other metrics we could measure the disease’s impact. On the less numbers-driven, more qualitative impact of the disease, there are the ways we have had to adapt our lives and our relationships. All of us can speak to the cabin fever, the isolation, and the longing to simply go visit an old friend without having to worry if either person is a vector for a potentially deadly disease. COVID-19 has impacted everything.
When it comes to COVID-19’s impact on the home medical equipment industry, no category has felt the blow more than oxygen. Oxygen providers not only had to implement new policies and procedures to minimize both staff and patient exposure to the disease, but the treatment of that disease involves oxygen, which means all-new demands being placed on the supply chain they use to serve long-term oxygen therapy patients. It’s been an on-again, off-again struggle since nearly the word “go,” and even with vaccines starting to get deployed, no one in oxygen services is breathing easy.
“There’s the early, March-April period when we saw shortages, particularly in ventilation, uncertain PPE or supply based products like gloves and other things like that,” says Josh Parnes, president of national provider AdaptHealth, which provides a full range of HME supplies and services that includes in-home and portable oxygen, ventilation, and CPAP and BiPAP. “Getting into the end of 2020, and particularly the last couple of months, we’ve seen a surge in oxygen. I think that started probably in October time and has steadily increased over the last few months pretty significantly.
“At this point, I’m seeing that suppliers are really, really struggling, particularly on oxygen concentrators and oxygen tanks,” he adds. “Our particular supply chain has been okay. That being said, it’s been tight, but not to the point that we can’t get anything. I’d say lead times are longer, and there’s less quantity available.”
Because so much of the fight to stop COVID-19 is happening on a state basis, pinning down the issue isn’t an easy task. At press time, the American Association for Homecare is conducting a survey with its members to track providers’ costs to provide services, as well as a survey on oxygen access, according to association President and CEO Tom Ryan.
“I think we’re heading into a potential crisis, because there are back orders,” Ryan says. “There are allocation issues, and I’m hearing some providers are having trouble. I haven’t heard about any particular area of the country being out of oxygen yet, but I think we’re approaching a critical concern. After the holiday surge, it was already getting critical.”
The Supply Side of COVID-19
The reasons why the supply chain has alternated between being attenuated and then opening during the pandemic is multilayered, and not just for providers, but for manufacturers as well. It’s not just an issue in North American; it’s worldwide.
“It has been a learning experience, not only for manufacturers, but I think for the global supply chain in general,” says Eli Diacopoulos, Business Leader, Respiratory Care at Philips. “During the early stages of the pandemic, as demand for the general supplies that crossed the oceans went down, some shipping companies, for example, stopped taking the shipping lanes because they didn’t have products and raw materials to move from one continent to the other.
“Some companies like us, as a medical device company, we saw significant demands on the respiratory side,” Diacopoulos continues. “You’ve heard the stories about the ventilator shortages in the early part of 2020, and what the U.S. government undertook to drive supply chains up [via the Defense Production Act]. That led to high expediting of products from across the globe or raw materials from across the globe to support the increased demand.”
Now, instead of waiting for materials to make their way by the ocean on a 30-day or longer journey, manufacturers were paying to deliver those materials by air in order to scale up production in a way that would hopefully keep pace with a rapidly expanding public health emergency.
Of course, the demand for oxygen equipment isn’t just due to the public health emergency, either.
“COPD didn’t go anywhere,” notes Jon Schultz, director of sales OxyGo. “With COVID-19, we have a new challenge with the respiratory that’s affecting so many other people. Our product can be a substitute for a lot of situations with oxygen. Depending on the patient’s situation they can use our product instead of a stationary device for a lot of the time.
“So providers can take their stationaries away from regular oxygen patients and re-deploy them where they’re really needed for COVID,” Schultz explains. “That’s been going on for a while; I’ve seen it through a lot of different levels of DMEs. It seems to be going pretty well. And anything we can do to keep the supply up, we’re going to do. It’s not just the concentrators and it was still a lot of other products there.
The Demand Side of COVID-19
The big change in demand for oxygen equipment is that while ventilation was initially seen as the main treatment for COVID-19, that shifted more toward oxygen becoming the preferred treatment methodology by hospitals. However, it’s important to understand how that’s playing out. There is definitely an increased use of oxygen concentrators in the hospital, but patients being sent home by their physicians with oxygen equipment, and some patients are being prescribed oxygen devices even before getting to the hospital.
“They’re using oxygen to try to keep people out of the emergency room and keep people out of the hospital altogether,” AdaptHealth’s Parnes explains. “And we’re seeing a tremendous increase in demand for high liter flow concentrators; particularly oxygen concentrators that can go up to 10 liters per minute. We’re seeing a demand for those because some of those patients can ride it out without having to be in the ICU, as long as they have a higher liter flow under the care of a doctor at home. That would be bucket number one.
“Bucket number two is the patients that are being sent home post-COVID,” he continues. “They went to the hospital, they recovered, and their sats are okay. They’re not great, they’re not in danger anymore, but they clearly need oxygen to continue to help them get stronger and get their body back to oxygen levels that are satisfactory.
“And then the last bucket is patients that have COVID symptoms, and the doctors are trying to really get ahead of this by saying, ‘Hey, let me prescribe you oxygen in your home. Take this, take a pulse ox, take an oxygen concentrator in your home, call me if your sats drop below 90 or 89 or something like that, and then we can evaluate whether or not you should go to the hospital,’” Parnes says.
Fortunately, providers such as AdaptHealth saw what was happening in China in January and February of 2020, and then saw the initial demand for ventilators, and realized that there was going to be increased demand for all sorts of oxygen equipment and services and needed to ramp up. So they did everything to create a robust supply capacity ahead of time.
However, from that point onward, the demand on oxygen providers has been a “hockey stick” growth chart that essentially overlaps with COVID-19’s diagnosis rate. Inventory wasn’t going to be the sole solution. Technology and people — two key provider assets — would need to play an essential role.
“Starting with the first wave of the pandemic, particularly with our hospital partners, we worked on a number of fronts to expand portal technology and e-prescribing,” Parnes says. “Working to give on-demand inventory for our hospital partners so that they could discharge patients quicker. And with e-prescribing, you can qualify the patient electronically with the doctor signing off on it electronically. A tremendous focus of our teams and our hospital partners is understanding telehealth and the pandemic and how do we keep people away from each other face-to-face while speeding up the delivery of care.
“And the HME heroes are really the liaison and frontline delivery technicians that are literally working days, nights and weekends in the face of a dangerous pandemic and be their first line of defense in getting these concentrators in the hospitals and to these patients’ homes,” Parnes says. “And we have nothing but unbelievable gratitude to these drivers — not just for us, but across the industry — that are sacrificing their own safety to make sure that people are able to get their oxygen and get in time so that they could literally save lives.”
At the end of the day, there’s no one-size-fits-all approach to the oxygen’s current supply crunch. Some providers saw the problem coming down the road at the outset of the public health emergency and started amassing supply to meet the anticipated demand. (And even then, they still might be feeling the pinch of overdemand.) Other providers might have had their entire business models set up on a more just-in-time inventory model and might be scrambling a little.
Furthermore, because there have been up-and-down surges in diagnoses, the demands placed on oxygen providers is inconsistent. That inconsistency is only magnified by the varying responses by the different state governments to contain those surges.
Other Oxygen Factors
Of course, other factors are influencing the oxygen category besides COVID-19. One of them is competitive bidding. At the end of October, CMS announced that after originally taking bids for 16 product categories in the 130 competitive bid areas of Round 2021 of its competitive bidding program, it was only awarding contracts for the off-the-shelf back and knees braces categories.
That left the oxygen category would remain wide open for new entrants, as it has since the last competitive bidding contracts expired on Dec. 31, 2018. As long as they meet federal and state criteria to support the category, they can support the benefit, which means potentially increased competition. But even then, it might also help with the pandemic, according to AAHomecare’s Ryan.
“For a while, AAHomecare along with other stakeholders have been advocating to put the Round 2021 on hold until this pandemic itself cleared up,” he says. “I think that’s been our push for a long time, particularly for oxygen, hospital beds, and respiratory products. To take capacity away, starting in January 2021, and decreasing it by upwards to 35 to 40 percent, which typically happens when you go to the bid cycle and remove all those, any willing providers, was certainly going to be problematic.
“It’s interesting that they also noted they didn’t see the significant savings, and that’s something we are looking to address as well, but all in all, having more providers out there, being able to serve the patients on this critical pandemic need, is very, very important,” he adds.
The industry could shades of CMS’s intent to table competitive bidding in order keep vital oxygen supplies flowing when it removed non-invasive ventilators (NIVs) from competitive bidding. CMS added the category to the bid program in 2019, which many in the industry labeled “terrifying” given the vulnerable patients that need such care, but by April 2020, it had removed them, acknowledging the vital necessity of such devices during the pandemic. The industry’s lobbying was proven right — and just in the nick of time given that Round 2021 was looming.
“What was good about that was, if providers were going to be providing these ventilators, and they knew that competitive bidding was looming, then they were going to be reluctant to buy product, knowing that they might not win the bid,” Ryan explains. “What were they going to do with that inventory? So I think [removing NIVs from Round 2021] freed up everybody to gear up, get the non-invasive ventilators that they needed and be prepared for the pandemic. That was very, very important.”
Another key reimbursement development that should help oxygen providers in 2021 and beyond is the Dec. 21 COVID-19 relief bill, which included provisions that fixed a Medicare reimbursement disparity for oxygen items provided in rural areas due to the application of outdated budget neutrality provisions from the 1997 Balanced Budget Act.
Back then, the idea was to essentially take Medicare dollars out of stationary oxygen to encourage the migration of patients to new oxygen technologies, and do so in a budget-neutral manner.
“When CMS began to apply this budget neutrality adjustment to oxygen in non-bid and rural areas, or as we coined the phrase, they ‘doubled dipped’ for oxygen,” Ryan explains. “We saw rural to CBA comparisons averaging 1 percent lower and non-bid, non-rural rates averaging 10 percent lower than competitive bidding rates.
“The example I used in discussions with legislators was Birmingham-Hoover Alabama, where the disparity was 21 percent,” Ryan recalls. “So, a competitive bidding winner in that competitive bidding area had a rate of $89 dollars for oxygen concentrator while the non-rural, non-bid supplier seeing no increase in market share got $71 dollars a month. The optics and illogical approach to setting those rates were outrageous.”
The provisions in the most recent COVID-19 relief package to fix that offset as well recent legislative and regulatory actions that apply a 50/50 blended rate to oxygen and other HME products in rural areas and a 75/25 blended rate in non-bid, non-rural area, should give those providers room to breathe a little easier, even during a pandemic.
“That win we had in the last relief package was four years of sustained grassroots advocacy that this industry should be proud to have accomplished,” Ryan says. “This persistent engagement gave us a permanent fix that will put back $650 million into rural providers bottom line over the next 10 years.”
This article originally appeared in the January/February 2021 issue of HME Business.