Look before you leap. This advice may sound simple, but for home medical equipment providers who are considering opening a sleep lab, it is solid. Many providers would like to diversify their businesses — and for some, the sleep business is alluring. But it requires a careful and diligent approach.
HME providers who want to open a sleep lab must do their homework, says Ron Richard, senior vice president of strategic marketing initiatives for ResMed Corp., Poway, Calif. “[Providers] need to look at the utilization in their market, examine the backlog of patients waiting for sleep testing and do some marketing and research before they dive in,” he says. “I would advise they do it cautiously.”
For example, some markets are saturated, say experts, although there is opportunity. “There are areas of this country that are under-utilized. The Southwest and the Southeast are growing,” says Al Calfo, president of McMurray, Pa.-based Center Pointe Sleep Associates.
Michael J. Breus, Ph.D., who is a diplomate of the American Board of Sleep Medicine and chairman of the clinical advisory board for Sleep Holdings, Dallas, agrees. “There are certainly parts of the country where sleep labs are needed and some rural areas that will be needing them, but you may have a problem [keeping those in rural areas] full with patients sometimes. Whereas the more urban areas where you have got a higher population will need more sleep labs, but there will be a lot more competition,” he says.
A realistic view of the market is necessary, continues Breus. “I do not want anybody to go into this business thinking that this is a cash cow, free-for-all where we are all ready to jump in and have gobs and gobs of cash because it just does not work that way,” he explains. “There are a ton of moving parts to this business.”
Calfo, who also consults with companies starting sleep labs, says he asks these companies three initial questions. They are:
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Where will your volume of patients come from?
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Can you receive preferred provider status from third-party payers?
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Where will you locate your sleep lab?
He adds that you must also consider the “politics” in any locale. “Do you have a lot of strong hospitals? Do you have strong competition? Is there a lack of sleep labs?” he asks.
Breus says prospective sleep lab owners should also evaluate their ability to obtain the requisite staff. “When people tell me they want to get into this business, I ask them if they have the contracts and if they have staff that is willing to stay up all night to monitor their patients,” he says.
Another point that must be considered in beginning a sleep lab is funding. “In terms of doing a fresh start-up with a sleep lab, it costs about $150,000,” says Richard. “You do not recoup that for two or three years because you have to buy the furniture, beds and polysomnography equipment, which will cost between $20,000 to 30,000.”
LEGAL CONSIDERATIONS
As with any new venture, there are legal concerns specific to opening a sleep lab.
Clay Stribling, a health care attorney with Brown & Fortunato, PC, in Amarillo, Texas, says owners must understand the legal guidelines that apply, particularly where physicians are concerned. “A lot of sleep lab owners are lulled into a false sense of security because sleep studies are not covered by the Stark law,” he says. “The Stark law does not limit physician ownership necessarily in companies that are doing sleep studies, but it is very narrow.”
Stribling adds that companies need to understand their investors' backgrounds. “Be aware of who your owners are and what limitations that might place on your operations,” he advises. “A physician-owned sleep lab can certainly perform polysomnography and perform sleep tests, but they might be more limited than some other types of sleep labs and what other kinds of services they might branch out into because of the physician ownership.”
According to Neil Caesar, president of the Health Law Center in Greenville, S.C., all the laws and rules for fraud and abuse affecting joint ventures and other kinds of relationships apply to sleep labs as well. “There is a lot of subtlety to these rules,” he emphasizes. “You still have to have all the safeguards between the HME operation and the sleep operation to be able to demonstrate to anybody looking at you that you are not making improper referral decisions in any direction.
“When you are teaming up with somebody such as a physician or another sleep lab or management company, you have to deal with all of the anti-fraud rules at the federal and state levels that apply to those kinds of team-ups.”
Payer restrictions are also a concern. “Because you are dealing with so many payers in sleep and so little of your revenue is driven by Medicare, it is important to understand that all the payers are going to have their own set of restrictions and guidelines that must be followed,” adds Stribling. “Just because you are not dealing with Medicare or Medicaid, it does not mean the payer does not have rules you have to operate under.”
This involves carefully reading the payer's contract. “These companies are probably placing restrictions and limitations on providers that are similar to those that Medicare and Medicaid have in place. Most of the time not only are you limited by what's in the written agreement, but most written agreements also require you to follow the rules and regulations of the insurance companies,” he says. “A lot of times they do not give you those rules and regulations up front — you have to ask for them.”
State law also varies. “State laws may restrict what you can and cannot do as far as the structure of your operation,” explains Stribling. “So, from a start-up standpoint, legally it is very important to know all the different areas of law that could impact you — federal, state and contractual — and be able to identify the restrictions that you are operating under in each of those areas and how you are prepared to set up the entity to prepare for complying with all of those criteria.”
Caesar notes certain state laws emphasize “kickback” language. “Some states focus a lot on the kind of language that has to do with the fact of the relationship, not the motivation for certain kinds of referrals or certain kinds of payments. So, the distinction really will affect structure and practicality of different kinds of options,” he says.
When evaluating an opportunity within the sleep lab market, Caesar says referrals need to be handled carefully. “You have to be able to demonstrate that all of the financial opportunities people are drawing from the lab are tied entirely to commercially reasonable, legitimate lab operations where no one is getting — or could be perceived as getting — a special benefit because they refer patients or because they are tied to the hospital, for example.”
STRATEGIES FOR SUCCESS
If market viability, legal and financial evaluations prove favorable, then it is time to consider marketing strategies. What type of lab to open, staffing needs, billing and reimbursement issues must be evaluated.
- Marketing matters
Successful sleep lab marketing involves a focus on both referral sources and consumers. And what works for some companies may not be successful for others.
Breus believes sleep labs must send well-educated sales representatives into the field. He also says to concentrate on reliable referral sources. “I would suggest that new companies do not go to the pulmonologists, ENTs or the neurologists because, typically, they all have sleep labs or they are associated with a sleep lab,” he advises. “Go to the primary care, internal medicine and family practice doctors because those are the ones who are actually going to be able to send you a lot of patients.”
“You can't just show up at the [doctor's office] with cookies and a pretty face; historically, that's what pharmaceutical companies did for a long time,” says Breus. “Now, they have gotten wise to the idea that it is not appropriate. You have to have somebody who knows and understands sleep medicine to talk to the doctors.”
He adds that he would require the sleep lab medical director make a certain number of marketing calls each month.
Calfo, whose company owns eight sleep centers, feels differently. “We have tried everything from newspaper advertising to open houses. The gold standard for marketing is the same that the HME is doing now, which is to go out and meet with the doctors' offices, meet with the office employees and buy lunches. That's what works,” he says.
- Getting a good night's sleep
Location and atmosphere have a significant impact on the success of a sleep lab. “I tell people this is not the sleep business, this is the hotel business. It is about heads in beds and it is about making a great impression,” says Breus. “Think about one of the nicer, reasonably priced hotels that you have stayed at and what were the things that would make you want to return, and then duplicate those in your sleep labs.”
Rooms should be soundproof, and there should be rules for sharing the bathroom so people can have private time. “This is a very intimate setting and we have sort of dehumanized it, turning it into a clinical test, when in fact, it is a very private situation,” he explains. “People are getting undressed, getting into undergarments and having someone put electrodes all over all parts of their body and then told to go to sleep. So being … cognizant of this is very important.”
Many sleep labs are thinking aggressively when it comes to location. Center Pointe houses two of its labs in a hotel. “Hotels have been a big marketing pull for the patient. Patients who normally would not go to a lab are saying yes when they are asked if they would go to a hotel for an overnight study,” says Calfo. “There is secure parking and everyone seems to know where the Holiday Inn is in town. They just feel more comfortable going to a hotel.”
He adds this is a cost-effective solution. “You do not have any facility costs and you do not have any furniture or fixture costs, so you just get the equipment and the tech and you move right in. You do not pay utilities, you do not have any linen costs; [the hotel does] the rooms,” he explains. “Some of these hotels have a continental breakfast for the patients. It is a real nice touch.”
Richards says HME providers should look close to home for a location. “Frankly, if they had a big enough building or a facility that could fit a couple of beds in their home care location, that's what I would consider,” he says.
- Hiring the right people
Another concern start-up sleep labs must take into account is staffing. These employees will be the face of your company, and their approach to patient care and service can make or break you.
Breus says they may need social skills training, and he suggests bringing in a customer service expert. “These are night people — often, they do not like to socialize and sometimes you have to teach technologists social skills training,” he says. “In contrast, what is also fascinating about technologists is that they are fiercely loyal to their patients.” This is a good thing, according to Breus, because your customers are your best billboards.
He emphasizes that sleep labs also need to find the right physician to read the sleep studies. “As an example, there are just so many sleep labs that the doctors can associate themselves with for Blue Cross/Blue Shield,” he says.
- Getting paid
Reimbursement for sleep studies and equipment used to treat sleep-disordered breathing is generally recognized as being fair and viable. “Reimbursements remain steady. I've been in the business for four years and it has remained steady in this time,” says Calfo.
Yet experts caution a decline may be on the horizon.
“We are going to see reimbursement decrease. People have to be ready for that to be able to reduce their cost structure so that they can still maintain enough of a margin to keep their center open so they can still make money off their CPAP sales and rentals,” says Breus.
“Reimbursement is going to move south, and within the next three or four years, we are going to see ambulatory testing become reimbursed by some of the major payers. So, when building a lab, people should be ready for that and be able to figure out what they need to do with ambulatory testing to enhance their model, not take away from it.”
Also, many providers may be looking to the sleep lab business as a reprieve from Medicare. It may be for some, Breus says, but Medicare claims typically add up to 20 to 25 percent or revenues.
Stribling adds that, moving forward, sleep labs are in a position to be successful, but they must recognize that eventually they are going to be closely scrutinized by Medicare.
“Medicare has made it clear that this is a priority. They are out in the industry currently reviewing the relationships between sleep labs and other types of entities, and we will probably see enforcement on the horizon, the kind of enforcement that may make headlines,” he says. “In the meantime, I think all the sleep labs need to be organized in a way that the owner states ‘we are perfectly ready for and prepared for scrutiny, and we are not afraid of it.’”
Moving Toward Accreditation
At present, accreditation of sleep labs is not mandatory except in certain situations. However, it most likely will be — and soon.
“A lot of payers are requiring that sleep labs be accredited through the American Society of Sleep Medicine or some other organization,” notes attorney Clay Stribling of Brown & Fortunato, PC. “If that's the case, what's the time frame for getting accredited, and what are the requirements that accreditation places on you? If you want to get those contracts, you are certainly going to have to meet that requirement. That brings another level of complexity to [the consideration] that a lot of sleep labs are not necessarily thinking of when the owners decide this is an area of health care they want to diversify into.”
Ron Richard, senior vice president of strategic marketing initiatives for ResMed, says there are two reasons driving the accreditation of sleep labs: “to raise the bar and the quality of care” and “to get rid of facilities that you walk into where you are actually embarrassed to even be there to spend the night to get a sleep study.”
For freestanding labs, the requirement for accreditation is close. Richard says that already BlueCross/BlueShield will not pay for any of its beneficiaries to have a study in a freestanding lab unless they are AASM-accredited or technician-accredited.
Staying Closer to Home
If the thought of opening a sleep lab seems too extreme, there may be an alternative in the future.
Prompted by a request from the American Academy of Otolaryngology-Head and Neck Surgery, CMS recently began a review of its coverage policy on patients with obstructive sleep apnea, specifically looking at coverage of in-home sleep tests. The current policy dictates that OSA patients needing CPAP treatment be diagnosed through a sleep lab test in order for Medicare to cover the cost of treatment.
In 2005, CMS confirmed its national coverage determination on sleep testing, stating: “Unattended home sleep testing for the diagnosis of OSA is not considered reasonable and necessary. Polysomnography must be performed in a facility-based sleep study laboratory, not in the home or a mobile facility.”
But according to the AAO-HNS, “Home sleep testing has been demonstrated in several studies to have diagnostic accuracy similar to polysomnography. Allowing coverage of home sleep studies would improve access, lower costs to the Medicare program, and eliminate treatment delays thereby providing Medicare beneficiaries with high quality care that is safe, effective, efficient, equitable, timely, and patient-centered.”
Ron Richard, vice president of strategic planning for ResMed, says home testing could be a good fit for HME providers, noting they “have a bit of an advantage [over sleep labs] when it comes to portable monitoring because they have got a longer-standing history of caring for patients, setting them up on CPAP, and working through the compliance issues.”
Tim Pederson, CEO of WestMed Rehab in Rapid City, S.D., says it is good for HME providers to be diverse, but he is concerned about the response of physician referral sources to those providers who decide to open a sleep lab. That is why he is optimistic about the future of home-based sleep testing.
“There is a fine line between being diverse and overextended; the trick is to make sure you are on the side of being diverse instead of trying to be everything to everybody,” he says. “You are doomed to failure if you do that.”
Sleep Lab Checklist: Points to Consider
- Talk with an attorney who specializes in health care and who knows state law.
- Partner with those who share your goals, ethics and concerns.
- Assess the volume of potential customers in your community.
- Determine who will be referral sources and their willingness.
- Ensure you will obtain preferred provider status from third-party payers in your area.
- Decide where your sleep lab will be located — and the cost of outfitting it.
- Know the local politics.
- Perform due diligence on where the volume will come from.
- Track the backlog of patients waiting for sleep studies in your area.
- Talk to potential staff members to determine interest and availability.
