No segment of the HME industry has suffered more recent slings and arrows than oxygen providers. Indeed, there has been a perfect storm during 2009 that has pushed many oxygen providers beyond their limits: The 36-month oxygen equipment rental cap began to make its impact this year.

Oxygen was one of the DME categories that had to shoulder the 9.5 percent funding cut to which the industry agreed to in order to delay the implementation of competitive bidding via the Medicare Improvements for Patients and Providers Act (MIPPA).

Delivery-focal oxygen providers suffered a continuation of 2008’s high fuel prices.

The accreditation and surety bond requirements added additional cost to providers’ businesses.

Presently, the re-bid of the first round of competitive bidding is now in play, with bidding having begun on Oct. 21, a program that will result in even more cuts to the oxygen category.

Moreover, the legislative front has not been kind to oxygen providers this year. After some internal debate followed by some consensus building, the industry worked with Rep. Mike Ross (D-Ark.) to develop a set of oxygen reforms that would have repealed the 36-month rental cap; maintained supplier status for HME providers who furnish home oxygen therapy; eliminated the adjustment provision; and implemented a cost survey to be completed by a statistically representative sample of suppliers each year rather than by all oxygen suppliers.

Ross presented the oxygen reform legislation to the House Energy and Commerce Committee this week in the form of an amendment during markup of the House health reform bill, H.R. 3200, America’s Affordable Health Choices Act of 2009. Before much momentum could be put behind the effort, there were issues regarding its “scoring” in terms of budget.

“There have been some scoring issues in terms of how the Congressional Budget Office would evaluate it in terms of its costs, because it was designed to be budget neutral,” says Michael Reinemer, vice president of communications and policy for AAHomecare. “My understanding is that it still is stuck in that process of resolving some of the cost issues.”

Moreover, much of the legislative momentum in the House shifted to H.R. 3962, The Affordable Health Care for America Act of 2009, leaving the industry’s reforms completely stalled. H.R. 3962 has since passed a House vote and is now on its way to the Senate, and it is full of HME-specific provisions, including oxygen-specific items.

Among these items is a requirement that an oxygen provider that provides oxygen to a patient during the 27th month is required to provide the equipment through the 60th month regardless of circumstances or location. This change effectively moves the commitment to the patient from the 36th month to the 27th month while leaving the cap at 36 months (unless another supplier has accepted responsibility through the 60th month). A statement from the National Association of Independent Medical Equipment Suppliers labeled this provision “a game changer” for oxygen providers.

H.R. 3962 also stablishes rules that will restart the 36-month rental period for oxygen if the supplier goes bankrupt after 24 months of payments have been made for the patient.

Does this mean the industry’s oxygen reform package doesn’t stand a chance? Not necessarily, Reinemer says.

“Whether it’s included in the current health bill or some other healthcare legislation, there will be other opportunities,” he says. “There’s the doc fix, for instance, so this won’t be the only opportunity. … Typically the doc fix bill contains other measures. … It’s hard to say since everyone’s attention is fixed on the health reform bills. Once that dust settles, then we can start looking at other packages.”

That said, both in terms of present-day public policy and a bill that could very well become tomorrow’s public policy, as well as an uncertain fate for the industry’s oxygen reform package, oxygen’s horizon is far from picture perfect.

Closing Up Shop

As if to confirm that bleak outlook, the Accredited Medical Equipment Providers of America (AMEPA) recently reported that the number of oxygen providers in certain U.S. counties was down by roughly 50 percent. AMEPA said that a search of Medicare’s website showed that, in Los Angeles County, Calif., there are only 120 oxygen providers remaining, compared to 258 in April 2008. Oxygen providers in Miami-Dade County, Fla. plummeted from 401 to 205 over the same time span. (For more details, see “News, Trends & Analysis,” page 8.)

“When the competitive bid results came out with the reduced number of oxygen providers, for example, in the Miami MSA, they reduced it to 44 oxygen bid winners,” says Rob Brant, president of AMEPA. Brant also is the CEO and general manager of City Medical Services, an oxygen and sleep provider in North Miami Beach, Fla. “We looked and saw how many oxygen providers exist now, so we looked at Medicare.gov, where you can actually look up the number of providers by specialty and you can look it up by county.

“We collected that and kept an electronic file of MSAs and the surrounding areas at that time,” he continues. “ … When competitive bidding was delayed and we started having all the issues with the 36-month cap, we felt like keeping an eye on it.”

That was when AMEPA saw a significant drop in the number of providers in Miami-Dade County and other locations. Besides the 36-month cap, issues such as accreditation and the surety bond requirement could have been a contributor to the rank thinning as they pushed providers that were already on the verge of going out of business over the cliff.

“I think it has to do with a combination of the 36-month cap and the mandatory accreditation and surety bond,” Brant said.

“I think some of it is to be expected in terms of the higher bar for operating in Medicare as an HME provider,” Reinemer said, echoing Brant’s sentiment. “You have accreditation, surety bond requirements.

“So that might be the last straw for some providers who simply cannot continue to be in this line of work in this reimbursement climate, which is deeply and drastically cut revenue,” Reinemer continues. “That trend continues. It is harder and harder to provide the same kind of quality and service that’s required to serve oxygen patients.”

Of course, that depends on the provider. Some providers that might have also dealt with various private payor funding sources or other entities might have already boiled into their cost of business. Such is the case for metro New York-area provider Homecare Concepts Inc., which has maintained accreditation for the last two decades simply in order to remain competitive in its marketplace, says its president and CEO Tom Ryan.

Points to Take Away

• The 36-month rental cap, 9.5 percent funding cut, and surety bond and accreditation requirements have created a brutal funding environment for oxygen providers.
• There are reports that some U.S. counties are seeing oxygen providers down by as much as 50 percent.
• While the industry’s oxygen reform package has stalled in Congress, the House healthcare reform package with the most momentum contains numerous hits against HME, including oxygen.
• Providers need to find some way to survive the current funding landscape while fighting for a better future.
• Key ways to do that are to eliminate activity costs, conducting sober cost analyses, diversifying into complimentary businesses, and employing technology when a real ROI can be gained.

“I’ve been accredited for 21 years and my opinion is that we should have had accreditation a long time ago,” Ryan says. “So that to me is not an extra cost of doing business, and the surety bond was a minimal fee, and I think if that’s the minimum barrier to entry and that’s going to keep fraud out of our industry, then that I can deal with.”

But the funding environment is a problem shared by all oxygen providers, and there can be no denying that it is anything but smooth sailing.

“I think the concern in the oxygen industry is that it is continuing to remain unstable,” Ryan says. “And that’s concerning. … The key is the continuous cuts. We’ve been under attack essentially since the BBA of 1998 and we have seen decreases of upwards of 40 percent and freezes in our CPI. We continue to remain threatened.

“These numbers are real,” he continues. “And as [CMS] begins to eliminate more providers form the standpoint of competitive bidding, you’re going to get to the point where you have access issues.”

What About the Patients?

The big unknown is how patients are being affected by CMS’s oxygen provider clear cutting. In terms of his specific oxygen business, Brant says he is already experiencing an influx of patients looking for a provider to take them on.

“We’re obviously getting calls now from snowbirds — obviously we’re a seasonal area — and we’ve been getting calls from people saying they can’t reach their companies and that their phones are disconnected,” he says. “We even hear from doctors that their patients are unhappy with their providers and can’t reach them. We find out the company is out of business and let the doctor know that unfortunately we can’t take another patient.” The problem of folding oxygen providers has become pronounced enough that CMS issued guidelines for dealing with oxygen provider bankruptcy. The guidelines outline the process for contractors regarding processing of claims for replacement oxygen equipment in situations in which the equipment is considered lost because an HME oxygen provider files for Chapter 7 or 11 bankruptcy and is unable to continue furnishing oxygen and oxygen equipment. (See “News, Trends & Analysis,” page 8 for details.)

“The funny thing about that is that, if you read the fine print, only if they have the court documents that show [the folding provider] has filed for bankruptcy,” Brant says. “So if a company says ‘I’m closing my doors, and I’m not going to file for bankruptcy’ there are no court documents showing they filed for bankruptcy, and the patient can’t get a fresh 36-month cap.”

Brant adds that is not a small trend and has seen several providers go to auction or through some other process, rather than file for bankruptcy.

“How many companies are actually going to go through that whole scenario of filing for bankruptcy,” he asks. “I’ve closed businesses in the past and said ‘The business didn’t work out,’ and that was it. Not everyone is going to lose a million dollars even though Medicare has made that a reality for some providers.”

This is creating a situation that could very well push patients out of the homecare environment and back into an institutional environment. “Some patients are being told ‘You can’t get an oxygen system because you’re into your 36 months,’ or ‘we’re not participating providers, so we’re not obligated to give you an oxygen system,” Brant says. “All the patient can do is pay out of pocket, and they say ‘well, I’m not going to pay out of pocket. So they wind up getting sick and going back to the hospital.”

As far as quantifying the issue, it’s hard to arrive at the exact numbers of patients being affected by the drop-off in providers. That said, CMS has sent a letter to providers in Montana acknowledging patient access issues, and NAIMES has reported that it has been told by undisclosed insider sources that CMS has created a system to triage access issues in various regions (see “News, Trends & Analysis,” page 8, to learn more).

“It’s hard to quantify the access issues, but it is an obvious problem when the number of providers is shrinking, the reimbursement is declining and there are government programs designed to wipe out the vast majority of providers,” Reinemer says. “We dodged a bullet getting competitive bidding delayed. Had that gone through, there would have been much, much severe access problems. It continues to be a threat, but thanks goodness, as far as we know there haven’t been any disasters in terms of putting patients at risk so far.”

And, if patients are feeling access issues, then perhaps now is the best time to enlist them in the fight to protect homecare.

“Right now I think the key thing is to keep reminding your member in the House and you senators that home medical equipment and services are the answer to healthcare reform,” Reinemer says. “It’s one of the sectors that helps control costs by reducing emergency room visits and hospital stays.”

Weathering the Storm

So how are providers surviving CMS’s anti-oxygen onslaught? Many are exploring ways to increase efficiencies and dropping costs so that they can maintain their margins. This can mean dropping services. Brant says his business has stopped services such as liquid oxygen and battery operated concentrators that had set it apart.

Additionally, diversification is a key main solution. For example, Brant says that City Medical has been moving away from oxygen and shifting its focus on sleep. “Before we said, ‘you can come to us for specialty items,’” he explains.

“Now we can’t afford to do that anymore. We’ve cut back on new technology. We’re trying to focus on the sleep niche.”

Perhaps the most notable shift in business practices for City Medical has been to adopt a much more fastidious approach in determining which patients it supports.

“But that’s also been a little difficult,” Brant says. “We’ve been a lot more careful. In the past we’d get the order and run out and do the delivery and handle the billing afterward. Now we’re making sure that the patient hasn’t had equipment in the past. And we’re turning down a lot orders. We’re fortunate that we’re in an area without much competition. We’re still one of the only companies doing full respiratory in our area.”

Not surprisingly, this approach has sometimes annoyed some of City Medical’s referral sources that had grown accustomed to instant gratification, Brant says.

“Some of the hospitals close to us are contacting us expecting a simple discharge of an oxygen patient and we’re letting them know that they days of ‘sure we’ve got an oxygen prescription, we’re going to run out and do it,’ are over,” he says. “Sometimes the nurse will say the patient qualifies and we’re letting them know that we need to see they oximetry, and then we see the oximetry and they don’t qualify. … So it’s upset some referral sources, but we’re letting them know that’s the way it is.”

Painstakingly reviewing paperwork has become even more important now that CMS has begun auditing oxygen providers. Brant says that he is already getting into CMS’s new sample audits of a random 20 oxygen patients in which he must show ongoing physician notes saying that the patient needs oxygen.

“When a doctor writes a prescription for lifetime use, it’s typically for lifetime use,” he says. “So we’re having to track down patients. Sometimes they are looking at charts from a year ago and the patient has expired and it’s hard to get the doctor’s notes out of storage. It’s been a learning experience and now we’re changing policy so that we don’t make a delivery without having the paperwork in place.”

So the onus is on oxygen providers to maintain picture perfect documentation for all their patients. “It’s not a question of if, it’s a question of when they are going to audit you,” Brant says. “If you don’t do things properly, you’re not going to get paid by Medicare. You’re going to go out of business a lot faster if you don’t handle your documentation properly.”

It all comes down to making dollars and sense, says Homecare Concepts’ Ryan. Providers need to start budgeting, forecasting and coming up with numbers that give them a reason to stay in business.

“No margin is no mission,” Ryan says. “We cannot be Florence Nightingales. We have to make money in order to keep going. A lot of providers are going to have embrace lean management … you have drive as many activity costs out of this business as possible.”

Ryan also says technologies that can help providers function more efficiently should not be avoided because of their up-front costs. While they might encounter a larger up-front capital expenditure, they should be able to ultimately win a much lower ongoing back-end operations cost. This can help them identify which layers of cost they might be able to trim.

“There are some canned management tools that you can use to move your business in those directions, but people need to do that very, very soon,” he advises.

That said, for providers doing less than, say, $300,000 a year, taking advantage of technology isn’t necessarily a slam-dunk, especially after all the funding cuts.

“All of these hits are absolutely brutal to the smaller providers,” says Kelly Riley, CRT, RCP, director of the National Respiratory Network branch of The MED Group. “Certainly businesses that perhaps oxygen is not their core business line, they are simply too small to have the efficiency of any scale. … Under any scenario, it does take cash up front and that’s tough to do when you are smaller and oxygen is not your core business.

“There are so many avenues where technology will pay off in volumes over time, but you have to have that base volume in order to get any kind of return on your investment,” she adds. “And you certainly have to have cash.” And some business models might have to get scrapped. For instance, focusing on a oxygen cylinder delivery business model in a rural area could simply be a non-starter in the current funding environment. The vehicles might be paid for, but there are a slew of other costs, including personnel, that remain constant.

“I have yet to see a medical equipment delivery technician walk into any CEO’s office and say, ‘That’s it, I’m all done, I’m all depreciated now, you don’t have to pay me any more,’” Riley jokes. “Anytime that you have someone out on the road burning gas, you are going to have to really look at that model, especially in those rural areas.”

However, if a provider were able to embrace a non-delivery model and expands it territory, it could have enough volume to actually have a good business model, especially if there is a highly ambulatory patient population in that geography, Riley explains. The key is to crunch the numbers and know their costs, she says.

“We are still hearing stories of providers who still don’t know what their costs are,” she says. “And that is a basic survival tool. You need to know what your costs are for everything that you do, and if you have the ability to segue other business lines into that, then yes.”

In terms of diversifying, Riley says the key is to expand into complimentary areas of business. For instance, the bariatric market could be a good opportunity given that respiratory patients often have a secondary co-morbidity of obesity.

“To me, those two lines will compliment each other,” she explains. “You have respiratory therapists on staff who know a lot of the elements of that disease and what is needed to talk about working with breathing and all those things. Again, it’s about efficiency of scales, using the talent you have on board, giving them something to reach and stretch for while not breaking the bank in trying to diversity.”

Regardless of what tactic providers take, the goal is enduring over the short term to fight legislatively for long-term survival. Focusing on fundamentals and finding legitimate diversification opportunities will hopefully be a key to surviving the tough climate while the industry wages its legislative fight to hopefully reform oxygen policy, Brant says, adding, “We’re hoping that the slow and steady will win the race and that the industry can get past this, and we will get fair reimbursement for oxygen.