The home oxygen therapy market has certainly seen its share of
reimbursement cuts and regulatory changes over the years. But the
newest policy change, enacted under the Deficit Reduction Act, will
create unique challenges for both HME providers and patients
alike.
Under CMS' final rule on oxygen, issued to implement the DRA
provision last month, ownership of oxygen equipment transfers to
Medicare beneficiaries after a 36-month rental period. The rule
takes effect Jan. 1, 2007 — with a counter from Jan. 1, 2006
— which means providers must take action now to change
practices that will allow them to remain successful in the oxygen
business.
“The reality is that some level of service and support
will be reduced to balance the impact of the reductions,”
says Kim Snyder, U.S. marketing manager, home respiratory care,
Respironics. “Providers that have the greatest control over
reducing their non-value-added services, without compromising
quality of patient care, have the best chance of
succeeding.”
“You can only stay in this business if you start working
smarter,” agrees Kelly Riley, director of The Med Group's
national respiratory network.
“Providers also must be willing to embrace new technology
and streamline their businesses. There is absolutely no room any
longer for duplication in any process. The front end has to be
streamlined, and the assessment piece has to be accurate —
making sure you are matching up the right system with the right
patient.”
Providers must also consider effects of the new rule on patient
care and service following the 36-month cap. Under the rule, CMS
will pay for “reasonable and necessary” maintenance and
servicing visits every six months, beginning six months after the
equipment title transfers, but there are other considerations that
have not been addressed.
“Operationally, it will be a challenge to be able to
address the concerns of the beneficiaries who own their own
equipment from a service and repair standpoint,” says Tom
Pontzius, president of Nationwide Respiratory, a VGM Group
company.
“Many beneficiaries will call the provider who provided
the repair and maintenance of their equipment during the first 36
months, but after transfer of ownership, the provision doesn't
provide for emergencies or making additional visits to a
beneficiary to check the operational efficiency of their
equipment.”
Additionally, providers should consider every avenue to reduce
operating costs while still offering new options to their patients,
according to Ed Radtke, vice president of sales and marketing and
co-founder of SeQual Technologies. “One approach is to adopt
the latest oxygen concentrator technology, which not only lowers
costs by reducing the need for the delivery of oxygen cylinders but
also qualifies for a higher reimbursement,” he says.
“With the higher reimbursement for oxygen generating
portable equipment that becomes effective on January 1, even
patients that cap out at 36 months can be profitable.”
Mike Irvine, product manager for Invacare Corp.'s HomeFill
system, says providers must evaluate their operations to make
changes that reduce costs, including lowering overhead and
improving business efficiency. He cites a study from Morrison
Informatics, commissioned by the American Association for Homecare,
which found that more than more than 70 percent of the cost
involved in serving an oxygen patient is operational.
“Part of the problem a lot of providers have had is when
they get a cut in reimbursement or when things are getting tight,
the first thing they look at is acquisition costs,” Irvine
says. “It is easy to choose to buy the cheapest equipment
without doing an in-depth analysis of whether the equipment can
service your patients better as well as cut operational costs.
“Perhaps 10 years ago you could make money just by being
in the oxygen business because reimbursements were high and costs
were low,” Irvine adds. “Now, with reimbursement coming
down and costs holding and increasing, providers need to take a
close look to make sure they are being good businesspeople and not
just good health care providers.”
Size May Not Matter
According to Respironics' Snyder, all providers, large and small
alike, have an opportunity to adjust business models to account for
the DRA's changes.
But how they react may differ.
“The nationals do have purchasing power that enables them
to get better pricing but, on the other hand, they're not as
nimble. They have to set up internal procedures that are more
restrictive for their employees … whereas the small, local
companies can be much more flexible,” explains AirSep
President and COO Joe Priest.
“I don't think either one is going to suffer greatly to
the benefit of the other, whether small or large,” he
notes.
But Riley adds that small providers must make sure “they
are keeping up and they are staying ahead of the curve. They have
to partner with the right people who can help them succeed in
business [including manufacturers, associations and buying
groups],” she says.
All providers will face difficulties regardless of their size,
says Pontzius.
“All providers — small, regional or national —
will certainly face the challenge of ensuring their beneficiaries
and their referral sources are educated on the impact of the
DRA,” he says. “However, small providers face
additional burdens in that many of their employees play multiple
roles within their organization where some larger companies have
dedicated employees to fill a single capacity.”
Legislation vs. Product Development
Legislation such as Public Law 100-203, which in 1989 mandated
modality-neutral reimbursement, can influence the development of
new technology, says Radtke. “The modality-neutral
legislation resulted in a massive move to oxygen concentrator
products and away from oxygen molecule container products. Now, the
36-month cap underscores the need for manufacturers to produce
products that lower the cost of servicing an oxygen patient,”
he says.
But Radtke is careful to add that the push for new and improved
technology is more complex than this might suggest. “It takes
millions of dollars and years, if not decades, to develop a product
that is a significant step beyond existing technology,” he
points out.
Yet the impact of legislative and regulatory changes on the
industry can't be ignored, says Snyder. “In general, the
increasing cost pressures that have come from legislative decisions
have helped the introduction and rapid acceptance of technologies
that reduce operating cost,” she says. “Examples of
this are no-delivery technologies that eliminate recurrent oxygen
delivery and products with significantly lower maintenance
requirements.
“However, if legislation pressures providers to adopt only
the lowest-cost products, it will limit patient access to newer
technologies.”
Pontzius believes legislation has a significant impact on
manufacturers' utilization of their research and development
dollars. “Legislation has the potential to cancel
work-in-progress projects due to the changing climate of the
beneficiary-provider relationship. In addition, legislation also
affects supply and demand that has a huge impact on product
acquisition costs,” he explains.
Invacare's Irvine says it is a “two-way street. If CMS
cuts reimbursement to a point where nobody can afford our product,
then we either have to figure out a way to make it cheaper or do
something entirely different,” he says.
“Likewise, new products also influence legislation, or at
least the implementation of the legislation.”
Technology, Present and Future
In light of reduced reimbursement, many manufacturers have
created home oxygen modalities that reduce delivery costs, thus
increasing providers' operational efficiency. By focusing
cost-cutting on non-essentials, specifically delivery of equipment,
providers can look for ways to enhance patient outcomes and
convenience.
“Obviously, we have staked some of our future on a
non-delivery model,” says Priest. “We think the
portable oxygen concentrator was a great invention before [the
DRA], and it is probably an even better one now that it has come
into effect.”
He cautions that like any other form of oxygen therapy, patient
use of POCs requires proper follow-up to ensure that the patient is
following his prescription, the equipment is working properly and
that it is working appropriately for that patient.
“One of the things that the non-delivery model and the
POCs bring to the table is the ability to get out of the service
side,” Priest says. “The delivering of oxygen is not a
value-added feature if there are alternatives out there that are
economical. Value is added when a therapist or technician comes
into the home and either helps the patient maintain his equipment
or helps ensure patients are utilizing their equipment and giving
it the best advantage they are supposed to.”
Do-it-all oxygen systems, such as SeQual's continuous flow
Eclipse are the wave of the future, says Radtke. No-delivery
technologies that eliminate the cost of recurrent oxygen delivery
while giving patients new therapy choices are an important
development, echoes Snyder, pointing to Respironics' EverGo POC as
an example.
According to Erika Laskey, vice president of sales and marketing
for Chad Therapeutics, respiratory equipment manufacturers continue
to push the technical envelope with the development of new
products.
“Ambulatory oxygen solutions will continue to become
lighter in weight, smaller in size and incorporate increased
patient ambulation features,” she says, adding that the
company — and the industry — has “historically
focused on technological advancements and product innovation that
benefit our patients as well as home care providers.”
Invacare's Irvine says the focus of the future will be for
manufacturers to continue working on low-cost modalities and ways
to help providers drive operational costs out of their business.
This includes products with longer cylinder duration,
lighter-weight cylinders and lighter-weight and less expensive home
transfilling systems.
“As long as there is enough money for the providers to
survive, and hopefully thrive, we as manufacturers will be trying
to develop products that are cost-effective and clinically
effective,” emphasizes Priest.
“There is a drive there. Where it gets tricky is when the
government starts to manage technology by creating incentives or
disincentives for different types of technology.”
What Will You Tell Your Patients?
One of providers' greatest challenges in dealing with the
36-month cap on home oxygen rental will be patient comprehension
and acceptance of the changes that will take place, experts
say.
“All home care providers are concerned about the
beneficiaries and the management of their current disease
states,” says Tom Pontzius, president of VGM's Nationwide
Respiratory. “There will come a time and point where
additional services that had been previously provided will be
eliminated or scaled back to a large degree.”
And making sure that beneficiaries completely understand their
roles in oxygen therapy treatment could be tough.
“In today's environment, providers may find it difficult
to educate beneficiaries in understanding there are certain
components they are responsible for and ensuring they understand
when equipment may need servicing,” Pontzius notes.
“Beneficiaries — especially those who have been on
oxygen for some time — will have a more difficult time
understanding why some of their services are no longer available.
Many will hold the provider, and not CMS, responsible for the lack
in service they deem necessary.”
Joe Priest, president and COO of AirSep Corp., says there is a
fine line between informing patients and frightening them.
“Home care companies are fairly wise in trying not to [scare
patients] for a couple of reasons: One, you don't want to get the
patient population really scared and upset, and, two, I think you
create a lot of disruption when that occurs,” he
explains.
Priest adds that “spooking them” might drive some
patients away. “If you try to scare them too much, they may
think ‘Oh, gosh, this company doesn't know what they're
doing,’ and another company that comes in and calms their
nerves could capture their business,” he warns.
Experts advise waiting a bit to detail the changes that will
occur until all details of the new oxygen rule are fully understood
and the government's view of “reasonable and necessary”
service is defined.
“Frankly, it is probably a piece of this whole puzzle that
no one is really taking into consideration,” says Invacare's
Mike Irvine. “We talk about the dealers, we talk about
Congress, we talk about what doctors are going to think and what
the manufacturers are going to do, but nobody sits down and asks
how this will affect the patients.”
The Final Rule on Oxygen
According to the final rule on new oxygen classes and payments
issued by CMS on November 1, following the 36-month rental period
when title of oxygen equipment transfers to the beneficiary,
Medicare will:
Continue to make monthly payments for oxygen contents for
beneficiary-owned tanks and cylinders for as long as the
beneficiary medically needs oxygen.
Pay for reasonable and necessary maintenance and servicing of
beneficiary-owned oxygen equipment not covered by a supplier's or
manufacturer's warranty.
Specifically, CMS will allow payments for general maintenance
and servicing visits every six months beginning six months after
ownership for those beneficiaries using certain oxygen equipment,
in addition to allowing payment for any reasonable and necessary
repairs.
Payment for maintenance and servicing will be based, as it is
currently for other beneficiary-owned DME, on the carrier's or the
DME Medicare Administrative Contractor's rates for parts and
labor.
Allow one payment for suppliers to pick up and store or dispose
of equipment for those beneficiaries who own liquid and gaseous
tanks and cylinders and for whom they are no longer medically
necessary.
Continue to make separate payment for necessary supplies and
accessories such as replacement of cannulas and tubing.
For more information on CMS' final rule, see the
“Headline News” section in this issue.
Experts Interviewed:
Mike Irvine, product manager, HomeFill, Invacare Corp., Elyria,
Ohio; Erika Laskey, vice president of sales and marketing, Chad
Therapeutics, Chatsworth, Calif.; Tom Pontzius, president,
Nationwide Respiratory, a VGM company, Waterloo, Iowa; Joe Priest,
president and COO, AirSep Corp., Buffalo, N.Y.; Ed Radtke, vice
president of sales and marketing and co-founder of SeQual
Technologies, San Diego; Kelly Riley, director, national
respiratory network, The Med Group, Lubbock, Texas; and Kim Snyder,
U.S. marketing manager, home respiratory care, Respironics,
Murrysville, Pa.
