Business Solutions

Cloudy Forecast for Respiratory

Despite challenges obscuring the oxygen market outlook for 2015, experts help to clarify the future.

• By Joseph Duffy
• Dec 01, 2014

Myriad issues continue to plague the oxygen market but some rays of legislative and retail hope are fueling oxygen providers to hold on and keep fighting. HME Business magazine invited seven industry experts to talk about the future of oxygen and what providers should be doing over the coming months to make sure their business is better tomorrow than it is today.

HME Business talked with a number of oxygen market experts and respiratory providers to get their take on how the market is fairing and what’s in store for oxygen in the coming months:

Bob Messenger, Manager of Respiratory Education for Invacare Corp.

The industry is clearly under duress. Although CMS is enforcing new regulations in all sectors of healthcare, they have chosen a full court press approach to oxygen. All sectors are being audited, but oxygen, in addition, is being challenged with ‘competitive’ bidding, the 36-month cap, face-to-face, and now a specific order for oxygen contents. There is no doubt that they wish to impose change on our industry.

The top three challenges or market pressures facing oxygen providers for the coming year are documentation/audits, referral source demands for provider programs aimed at reducing COPD readmissions, and controlling operational costs.

The best ways to overcome these challenges include vigilance regarding documentation, using checklists and strict compliance reviews.

Reach out to other providers and use social media to stay current with the latest audit pitfalls and how to avoid them.

Providers will have to demonstrate that they have a program in place to reduce COPD readmissions. This can be in the form of titration of the conserving device setting, educating patients beyond how to use their equipment, or following up on patients who might need additional support. Although hospitals might be interested in the components of a program, they will be mainly concerned with how effective it is in keeping patients at home. Hospitals will be collecting readmissions data that relates to providers, so providers will need to collect their own data to improve their efforts and as a very powerful marketing tool.

It’s no secret that the best way to reduce operational costs in the oxygen business is to commit to a non-delivery strategy. Aside from reducing costs, non-delivery provides the added clinical benefit of an unlimited supply of portable oxygen, which has the potential to aid in reducing readmissions.

As the boomers continue to age and swell the ranks of the senior population, their acceptance of technology and willingness to pay more for quality will help drive cash sales both in the retail and online space. Providers need to offer customers better understanding of their disease and how oxygen equipment can be used to improve their quality of life. Customers will be more willing to shell out several thousand dollars for an oxygen system if they understand the benefits and perceive a value beyond just fulfilling their doctor’s order for oxygen.

Historically the average COPD patient on oxygen was 66 to 88 years old. A third had less than a high-school education and close to 70 percent had an income less than or close to the federal poverty level. However we can expect these demographics to change as the boomer generation continues to flood the pool of senior citizens. Boomers are equally comfortable conducting business face-to-face, as well as using the Internet for information and shopping. They also are used to paying extra for the options and services that they want. Providers that recognize these needs and offer the information and services demanded by this growing group will realize continued growth through both the retail and on-line sales and service.

Tom Ryan, President and CEO of the American Association for Homecare

The American Association for Homecare is proud to represent so many companies involved in furnishing home oxygen, and we’re actively working to promote policies that support this vital segment of the healthcare field.

We are spearheading much-needed fixes for Medicare’s badly flawed competitive bidding program covering numerous categories of HME, including oxygen. One of our latest initiatives, H.R. 4920, the Medicare DMEPOS Competitive Bidding Improvement Act of 2014, would help limit lowball, speculative bidding practices by making sure that companies are properly licensed in the states where they are bidding, and holding winning bidders to following though to provide equipment.

This common-sense, budget-neutral legislation should yield more reasonable bid results that can cover the actual costs associated with providing home oxygen to patients who depend on this essential healthcare product under Medicare.

We’re also working hard to streamline Medicare’s burdensome audit programs, both in regular exchanges with CMS, and through a legislative solution: H.R. 5083, the Medicare DMEPOS Audit Improvement and Reform Act (AIR Act) of 2014. The AIR Act would increase transparency, education and outreach in the audit program, and reward suppliers that have low error rates on audited claims.

Improvements in the audit program would reduce the time and effort needed to clear up minor errors and pare down the ridiculous backlog of hundreds of thousands of claims that are waiting for an Administrative Law Judge review, after which an overwhelming number of cases are ultimately paid.

We hope that these broadly supported, bipartisan bills will be taken up in the ‘lame duck session’ of Congress after the elections; otherwise, we’ll work to have similar legislation move forward in the next Congressional session.

AAHomecare’s Home Medical Equipment/Respiratory Therapy (HME/RT) Council is coordinating with other advocacy groups in the respiratory field to develop additional legislative and regulatory initiatives that recognize the unique demands in the home oxygen segment, including a better reimbursement regime based on the high degree of service required for all oxygen delivery systems, including concentrators and liquid oxygen.

HME/RT Council membership is open to any AAHomecare member company that wishes to become more involved in setting standards, encouraging better practices, and fighting for fair regulatory treatment for home oxygen. While we currently have great participation from the home oxygen community among the membership rolls of AAHomecare, we need even greater support from companies across the entire spectrum of HME to protect this industry and the individuals and communities we serve. If you’re not already a part of the premier trade association representing HME providers, manufacturers and vendors, I hope you’ll consider joining us — please see aahomecare.org for more information.

Frank Lazzaro, Director of Global Product Management for Home Respiratory Care for Philips Healthcare

Over the past two years, the oxygen industry in the United States has seen unprecedented change. More than 1.5 million patients are now using home oxygen and that number is climbing. As more and more people require innovative medical care, the oxygen industry is ripe with opportunity and well poised to provide reliable, clinically effective oxygen therapy, as well as treatment for COPD co-morbidities, such as sleep therapy devices and masks for obstructive sleep apnea.

In the year ahead, the oxygen industry must understand and plan for changes related to the CMS Round 2 re-compete. And the 2016 national competitive bidding process is right around the corner. Businesses should study their complete COPD patient and oxygen delivery model to make sure they’re as efficient as possible. This means changing or adapting traditional business models, and considering a plan that not only allows them to be efficient, but also positions them to expand into other business areas, such as ventilation, sleep, and consumer purchase. Adopting new technologies from manufacturers, such as portable oxygen concentrators (POC) and home filling systems, has helped accelerate the shift to more efficient delivery models.

Along with these changes and challenges, 2015 will bring tremendous opportunity.

Patient demand is helping to drive the POC cash business. As patients are diagnosed in earlier stages of the disease, we estimate that approximately 20 percent of the oxygen patient population is interested in purchasing a POC out-of-pocket to better fit their lifestyle and disease state. These people are active, they may travel, and some still work outside the home. They are searching the Internet for POC alternatives and seeking advice and recommendations from support groups and doctors. Some providers are already embracing this model, helping oxygen patients choose the modality that supports their lifestyle and ambulatory needs. Other DMEs should consider this as a way to expand their traditional business into something more diverse and sustainable.

Another opportunity for homecare providers is emerging as specific patient care models for these COPD patients change. One significant development for the industry is that, effective Oct. 1, Medicare now penalizes hospitals for a readmission of a COPD patient within 30 days after discharge. Homecare providers have an opportunity to create a welldesigned care model for COPD patients who are discharged from hospitals with the purpose of keeping them stable and at home, thereby avoiding exacerbations. Hospitals and other health care systems that treat COPD patients are eager to find and partner with the homecare providers that can prevent these readmissions.

Justin Blanchard, CEO of Assured Medical Supply Inc.

What is the current state of the oxygen industry? While the answer to that question may depend on whom you are speaking with, overall I think everyone is feeling some universal pressures in healthcare.

Medicare is the 800-pound gorilla that has, contrary to Economics 101, inflicted price controls throughout the healthcare market. Can you name another healthcare sector that has been forced to operate at 75 percent less revenue than they received in 1997? Oxygen companies dealing with Medicare have been saddled with a monthly decline in revenue from $350 per month for home oxygen service in 1997 to $90 a month for oxygen service in 2014. Private insurance, managed care, and hospice companies have all jumped on the bandwagon, enjoying Medicare rates, which effectively punish and further thin the pool of oxygen providers.

Increasingly onerous federal and state regulatory requirements demand the valuable resources of time and money be spent to placating the bureaucracies. A guilty-until-proven-innocent machine operates within government healthcare system and strips money from providers until previously correctly paid claims are re-proven medically necessary. Seemingly beholden to no one or nothing, Recovery Audit Contractors (RACs) indiscriminately attack providers with a ‘throw things on the wall and see if they stick’ mentality. When neither time nor resources merit a provider spend more time and more money to re-capture a correctly paid claim in RAC review, the RAC claims victory and yells fraud.

And if the implementation of the Affordable Care Act ever takes hold, it is game over. While private insurance may pay $1 for a claim, Medicare reimbursement of that claim is 80 cents, the ACA will look to pay 60 cents on the dollar. It is no wonder upwards of 70 percent of physicians and suppliers will not participate in the ACA.

The profit margin for the insurance side of the oxygen industry has been cut to the bone. In some not too distant future providers who have not left the industry may simply elect not to provide oxygen services any more, or simply provide the least costly alternative. Ultimately the patient will bear the burden of the majority of these changes. Quality equipment, new technology, and quality of life will all suffer for oxygen dependent people.

Retail sales for providers able to generate leads for portable concentrators continue to help recover lost operating capital, but competition is growing daily. Shortsighted manufactures have allowed online companies to cheapen the product the manufacturers produce by undercutting minimum advertised pricing contracts on a daily basis. The results have been disastrous as new MAP prices had to be introduced. Where a portable concentrator used to average about $4000 in online pricing, $2800 is now the norm. As MAP pricing drops, suppliers will demand lower cost for inventory and in turn unscrupulous online companies will continue to advertise and sell below MAP prices.

Retail sales, managed care and hospice, while hit hard, still maintain the best profit margins with the least hassles. As the Round 2 re-compete bid approaches, and as dictated by law, reimbursement rates for oxygen will decline again, the 800-pound gorilla will again negatively affect the entire oxygen industry.

Get ready to tighten your belts again.

David Baxter, President of Medical Necessities

Oxygen continues to be a great revenue source for DMEs, as long as you manage your operational costs. For example, for your higher utilization patients you must move them to a non-delivery model. If you do this and manage your cost to keep them under 25 percent, then it continues to help you have a profitable oxygen business.

The No. 1 challenge facing oxygen providers is how will the bids shake out this time and will there continue to be more cuts in office related to competitive bid repeat. Audits are challenging to oxygen in comparison to all other products because it seems to be more open to interpretation where other products have specific guidelines. Another challenge is efficient management of your oxygen base. As reimbursement changes, some manufacturers are making cheaper products that break down more often than before and this causes more operational cost.

To overcome these challenges, win a bid at a fair rate. I would love to see prior approval for all oxygen patient setups like the HMOs do in our areas. This would eliminate the need for audits. Finally, try to encourage manufacturers to make a product that will last the five-year life cycle.

The baby boomers continue to get older, which allows for continued oxygen growth. There will always be a need for home oxygen.

Rob Kent, President and COO of O2 Concepts

As the oxygen industry continues to grow and evolve, O2 Concepts is diligent about finding ways to better improve the process for both distributors and end-users of portable oxygen.

The main challenge with portable oxygen concentrators (POCs) is that it is still a largely expensive and disjointed process. Providers need to shift their thinking and approach cost challenges from a broader perspective. Too often, people get wrapped up in the acquisition cost of the equipment, as well as the time and complexity of setups and providing travel solutions for the end-user.

Our solution to these issues is helping customers analyze total costs to find the best product fit. For example our POC is often discharged with a patient at the hospital, allowing for a regularly scheduled setup the following week. This reduces overtime and the need to ‘follow’ a patient home, as is currently done with many other providers.

While non-delivery models are being adopted locally, we are seeing a growing need to expand that reach. We’ve been helping providers along these lines by drop-shipping to patients’ doorsteps — providing a single 24/7 ambulatory oxygen solution with no setup needed. We are filling a growing market need for remote patients and see that envelope being pushed further as we continue to make a noticeable difference in the quality of life for our product users.

Karen Butterton, Chief Strategy Officer for Barnes Healthcare Services

Along with audits and continued reimbursement reduction for oxygen services, a third underlying challenge for RT/DME companies is that the oxygen market is now a “commodity business.” It is no longer about patient care but profitability and sustainability. Also, payers are looking for healthcare cost reduction. RT/DMEs must be involved with healthcare cost reduction and “evidence” their value and cost savings tied to the Affordable Care Act future requirements. Bundled payments are being tested, Medical homes with ARNP involvement, physician involvement in the home (revenue generation) and extension to the home, the requirements to managed COPD ER visits, CHF readmissions, AMI, etc., higher acuity levels at home all require a stellar disease state management program from the providers. Barnes, like other companies, has the programs, but resource allocation is critical to determine opportunities and to implement these programs and obtain ALL the opportunities is high priority. RT/DME companies must operate as lean as possible.

To overcome audits challenges, consistently perform internal company audits to insure your company has all the required documentation for reimbursement. Prepayments will reduce ( percent’s) and so will post payment.

For reimbursement reduction, understand your cost structure and make sure that your company understands what reimbursement rates it can accept: both tied to recomplete and MCO’s reduced reimbursement. For the commodity business, differentiate your company with other viable programs that can be seen by payers as answer to their most challenging costs. Determine what you need to do to carve out opportunities and then complement the ACOs with the Patient Center Medical Home movement.

The retail oxygen patients are the baby boomers. They are Internet savvy. They shop around, not just with companies such as ours, but for hospitals and elective surgery costs. The challenges they face are their out-of-pocket costs. They would rather not file a claim and pay cash outright. They want mobility, they want state-of-the-art equipment and they will pay cash for these items. Oxygen retail providers need a retail website, market strategy plan and a walk-in showroom in an urban area. Numbers and demographics drive the business into the retail sector.

Oxygen providers must learn all aspects of their cost structure. They must create an effective logistics model to service patients efficiently and effectively achieve profit. Oxygen providers will need to think “outside the box” to survive. They will need to maximize technology to work with ACOs and be a part of the bundling payment movement. They need to stop thinking about oxygen and start thinking about disease state management and how they can impact the healthcare spend.

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