Less Delivery, More Savings
- By Janis Rizzuto
- Sep 01, 2010
The current competitive bidding situation may be the development
that finally pushes home respiratory providers off the fence when
it comes to nondelivery oxygen modalities. While many providers are
down in the mouth about the industry’s future, those committed to
home transfilling systems are happy to speak about its benefits. That
difference in outlook alone should make everyone listen up.
Meet execs at three different companies — one company was founded
on the transfilling premise, another expanded using the technology and
the third uses transfilling strategically for certain patients.
It’s no secret that the primary hurdle to widespread use of
home transfilling is the acquisition cost of the systems,
but nondelivery devotees say that providers must figure
out how to afford them. “A home transfilling system certainly
costs way more money to buy upfront than a concentrator
and tanks,” says Doug Coleman, CEO of Major Medical Supply,
Loveland, Colo. “But from our perspective, it’s the most costeffective
way to serve the oxygen patient over the long run.”
With that in mind, review the efficiencies that nondelivery
brings and assess the changes needed to make it work.
Extrakare LLC, Norcross, Ga., began five years ago with a business
plan centered on home transfilling systems, says Scott
Lloyd, co-founder and president. “Back in 2005, there was no
additional reimbursement for transfilling equipment, but the
additional capital expenditure made sense to us even in that
environment,” Lloyd says. “We knew by investing in the technology,
we would have the operational efficiencies and cost
savings on the backside. Today’s environment makes that even
more true, and there is now reimbursement for transfilling.”
The financial benefit of the nondelivery model is proven,
Lloyd says. “We have demonstrated to ourselves that there
is significant operational savings on transfill patients over
contents-delivery patients,” he says. “It’s difficult for us to
imagine how people are going to remain profitable delivering
contents to lots of patients.”
While Extrakare does supply all oxygen modalities, approximately
85 percent of its ambulatory patients use transfilling
equipment. “Basically, it’s all of them,” Lloyd says. “The ones
who don’t use transfill have patient-specific reasons, such as
they need high flow rates or they are not conserver tolerant.”
Because deliveries equal dollars, Extrakare measures efficiency by the number of visits. Lloyd says Extrakare visits
their nondelivery patients’ homes substantially less than their
contents-delivery patients. And contrary to the industry’s
perception of this, that’s not all bad. “Our patients are not
leaving us so apparently we are doing a pretty good job.”
Major Medical Supply, Loveland, Colo., started using transfilling equipment about five years ago, when it opened up a
branch in Fort Collins about 30 minutes from the company’s
fill plant. “We thought it would be inconvenient to travel back
and forth, so we bought transfilling systems. The more experience
we had with the equipment, the more we liked it.”
Coleman says he liked it so much that now transfilling
equipment is the predominant modality the company supplies
to ambulatory patients in all of its eight branches. “Some of
the advantages are not as obvious as you think when you first
start. They have smaller dollar values, but they are still important.”
For example, home transfilling equipment eliminates the
lot-number tracking challenges associated with tanks. Further,
the equipment travels easily to patients’ homes in smaller,
less-expensive vans. “When we started the new branch, we
didn’t have to buy big, heavyweight delivery vehicles.”
Major Medical has enjoyed significant growth due to transfilling technology, Coleman says. “It allowed us to grow at
double the rate that we would have using the old technology,
because the efficiencies allow us to dedicate more resources
elsewhere, and the competitive advantage offers a better
system for the patient.”
Alpine Home Medical Equipment, Salt Lake City, reports
that 10 percent to 15 percent of the company’s patients use
home transfilling systems, according to Greg Dunn, director of
respiratory. “We use it as an oxygen modality for patients who
live in rural locales far away from the physical location of our
stores, and we use it with highly ambulatory patients who go
through lots of oxygen cylinders.”
Alpine is vigilant about applying the home transfilling technology
strategically, Dunn says. “With Salt Lake City in Round
Two of competitive bidding, we absolutely need to be getting
more and more efficient,” he says. “We conduct case management
meetings biweekly to look at the deliveries to oxygen
patients to identify candidates who would benefit from this
technology and well as have the technology benefit the company’s
bottom line.”
Making the Transition to Transfilling
Dunn’s point captures the essence of the transfilling trend. Why
not provide something that’s good for the patient and good for business? Best practices can help providers realize the benefits.
Lloyd has witnessed providers try home transfilling with
limited success, mostly because they haven’t made the necessary
changes. “Here’s the thing about transfilling or any
nondelivery product,” he starts. “If you are going to make the
additional capital expenditure for the equipment, it’s only
successful if you have a commensurate offset in operating
expenses. If you are going to spend $50,000 in equipment, you
need to get rid of at least $50,000 a year in operating expenses.”
Cutting those operating expenses requires significant change,
Lloyd says. “Many in the business have developed a staff that
is very patient-centric,” he says. “If you are my patient, and I
normally deliver two times a month, but you call today with
a problem, and I move up a delivery, I didn’t really incur an
expense that I wasn’t going to incur,” Lloyd says. “But if I am a
transfilling company, and I go see that patient, that was a visit
that was not going to occur otherwise. When you visit patients
more than the once a year that the equipment needs to be
serviced per the manufacturer, that is an avoidable expense.”
Indeed, transfilling technology changes the staffing
dynamics at home respiratory companies that adopt the model.
When deliveries are reduced or eliminated, employees are
affected and job requirements change. For example, Coleman
has repurposed his delivery staff. “Instead of having a guy or
gal always on the road making deliveries, we are able to keep
our staff in the office doing other tasks and being on standby
for setups and pickups,” he says. “We are able to give better
levels of service to referral sources because we deploy more
resources to managing the referral relationship instead of
having a fleet of people on the road making deliveries.” Plus,
Major Medical can employ fewer folks. “We have maybe half the
delivery staff of most other dealers. Staff is expensive, and so
are vehicles, gas and insurance.”
Lloyd emphasizes that transfilling requires a philosophy
change among the staff. “Employees think they are doing a
good job and being responsive to patients if they send someone
out to the house,” he says. “But when you implement nondelivery,
you really have to go through a cultural shift. Your
organization has to fulfill customers’ need without going to
their homes very often. For example, take an envelope, put five
cannula and a new tube inside, put a stamp on it, and give it to
the postman to deliver. To some, that may seem very cold and
impersonal, but if you are going to do nondelivery, you have to
do things like that.”
Major Medical has found that it can serve patients personally
— and economically — through telephone contact, Coleman
says. “Every two months, we call our patients to stay in touch
with them and to make sure their health conditions haven’t
changed. We ask them about supply issues and put their
supplies in the mail. Some dealers would use the ‘not seeing
the patient’ as a negative against us, but we’ve overcome that
with the telephone contact and supplies through the mail.”
Dunn notes that Alpine’s home transfilling strategy didn’t
lead to staff cuts, but instead allowed the company to accommodate
growth with the same staff. “We had a growth rate
that was strong enough that we retained our people, and with
the nondelivery model, we were able to reduce the amount
of employees that we needed to bring on.” Home transfilling
means that fewer employees can handle larger patient bases.
Realizing Marketing, Patient Benefits
Given that home transfilling systems are not yet the dominant
technology in the oxygen market, today’s providers may enjoy
a marketing advantage that sweetens the bigger investment,
experts say.
“Transfilling gives us a significant marketing advantage, in
that we strongly encourage patients to be using their portables
as much as possible to maintain their independence, whether
that’s outside the home or inside the home,” Coleman says.
“They are never restricted on the number of portables, even
within the same day. We feel people are likely to stay more
active, and if they stay more active, they are likely to live
longer. We tell referrals that we are going to help their patients
have a better lifestyle.”
Dunn reports that his referral sources are getting the
message. “From a clinical perspective, study after study shows
that patients who are active and ambulatory realize benefits in
their overall health and a slowdown in many of their disease
processes. Pulmonologists want their patients to exercise, and
home filling systems offer a small portable oxygen system
that weighs only 2 pounds, which may help patients get more
activity. Pulmonologists see the benefit of this modality.”
Interestingly, patients themselves don’t realize the difference.
“Most patients don’t have experience with other systems,
so it’s difficult for them to say that transfilling systems are the
greatest thing since sliced bread,” Coleman says. “Only a very
small percentage of our patients have converted from other
systems. It’s a big marketing challenge for us to educate the
referral sources that transfilling is far superior and gives the
patient a much higher degree of freedom.”
Even so, the patient advantages are clear: Transfilling systems
eliminate having to wait around for deliveries or having to store
bulky tanks. “A lot of patients live in assisted living facilities,
and the extent of their living area is one small bedroom,” Dunn
says. “They don’t have room for tanks, but they need lots of
portable oxygen. They are out of their rooms, eating meals in the
dining hall or conversing with residents or family in a rec room.
Transfilling systems appeal a lot to these patients.”
Improving Technology and Affording It
Providers appreciate that transfilling equipment options are
evolving. The first manufacturer in the market, Invacare Corp.,
continues to make improvements to its HomeFill, and new
entrants are debuting products, such as evo Medical Solutions’
UFill. For example, Coleman says that Invacare’s introduction
of post valve cylinders opened up transfilling systems to a
broader range of patients who can only use certain conservers.
The new UFill fits a niche as an economical, filling-only device
that works with any concentrator and any regulator, according
to Dan Bunting, CEO of the Adel, Iowa-based company.
The transfilling market is also showing some price flexibility.
“Competition coming into the marketplace has done some to
lower prices,” Dunn notes. “It gets manufacturers to be more
competitive when there are more players in the market.”
Manufacturers, too, can be providers’ partners in funding
the transition. “Some manufacturers are very aggressive with
their leasing and financing agreements, with terms as low as
zero interest, spread out over three years,” Dunn says. “A lot of
costs are offset, so you can ease the burden if you can get the
manufacturer to work with you. That’s an option.”
In the end, weighing the investment comes down to taking
a hard look at the future. “You have to be committed to being
in this business for long enough to retire the debt,” Lloyd says.
“Lots of people are saying right now, ‘I don’t know if I’m going to
be doing this a year from now.’ But if you are one of the people
who believes you are going to be in it 10 years from now, I see
no challenge in taking on the capital expense and buying this
equipment. To make the investment, you have to do the cash
flow plan, suck it up and get over the hump. It’s going to be a
really short list of suppliers who can do contents delivery profitably
for the majority of patients in the future.”
This article originally appeared in the Respiratory & Sleep Management September 2010 issue of HME Business.