Waiting to Exhale

The squeeze is on for providers of oxygen and inhalation therapy drugs. The respiratory side of the home medical equipment industry, long considered one of the best bets in HME for growth and consistent profits, is learning once again what happens to a profitable but Medicare-dependent business when Congress is looking for ways to save money. Reimbursement gets tighter, margins shrink and only the most efficient providers can make a profit.

This is not a new story in respiratory; in some ways it is a replay of the crunch that came after the 1997 Balanced Budget Act. But the cuts that have come in the wake of the Medicare Modernization Act of 2003 may be the most serious yet.

How can providers survive, and maybe even thrive, in this challenging new economic environment? The answer from providers, consultants and other expert observers of respiratory HME is that survival is possible but not painless.

The new reimbursement regime will demand highly efficient management practices that some providers will probably not be able to achieve. It is also likely to adjust prevailing levels of customer service in ways that many providers — and their customers — will not like. The nature of the respiratory business will change even if the roster of principal players remains largely the same.

The following are possible strategies for staying profitable in oxygen and inhalation therapy services.

For some providers, these may not be enough, and they may have to drop one or more service lines. For others, the suggestions here may reflect their current practices. If so, these companies may be in a position to gain business as others pull out of the market.

Keep an eye on what's coming next — and how it affects you.

A nimble business anticipates change, and there is plenty of change yet to come under provisions of the MMA.

Already, MMA-mandated reimbursement cuts averaging 8 percent have gone into effect for oxygen, and the reimbursement for Medicare Part B inhaler drugs has been reduced in stages. At this writing, the dispensing fee has been cut to $33 per month after a first-month fee of $57, and allowable drug prices are pegged at average sales price plus 6 percent.

At these levels, at least some providers doubt that they can continue to provide inhalation therapy services profitably, and industry leaders are looking ahead to a significant drop in revenue and earnings.