While the industry's focus — and most of its headlines — were on the mobility sector last year, providers told HomeCare they are pinning their hopes on continued growth in the respiratory/sleep market when forecasting business prospects for 2005. That's despite worries over oxygen reimbursement cuts, and despite the switch this year to an Average Sales Price (ASP) plus-6-percent reimbursement formula for Part B respiratory drugs.
In fact, most providers participating in the magazine's Respiratory/Sleep Survey said they plan to expand further into the respiratory segment, particularly the still-strong sleep market.
Fielded in November, the survey drew responses from 266 home medical equipment companies from across the country. With median annual revenue of $2.8 million (52 companies reported revenue of $10 million or more), respondents told us their respiratory/sleep business accounts for an average 46 percent of revenue. Of the respiratory/sleep products these HMEs said they provide most often, nebulizers, CPAPs/bi-levels, oxygen concentrators, cylinders, portable oxygen systems and conserving devices top the list, followed by pulse oximeters, compressors, humidifiers and aerosol therapy.
Sleep Market Still Growing
The sleep business alone, respondents said, makes up an average 17 percent of their revenue, and three-fourths (75 percent) expect company revenues from sleep disorder products to increase over the next 12 months, with an additional 15 percent predicting same year-over-year revenue. Only 1 percent of those involved with the sleep disorders market said they anticipate income from those products to decrease.
The fact that most HMEs still do not derive a large percentage of total revenue from the sleep market has not changed over the past several years. Providers say, however, that part of its value comes from accommodating physician requests, making sleep an essential component of a competitive respiratory program.
And with both physician and consumer awareness of sleep disorders on the rise, the market continues to show double-digit gains. One recent industry report projects an annual growth rate for OSA (obstructive sleep apnea) products of 15 percent through 2007.
Survey respondents were primarily independent providers (91 percent). Fifty-one percent said they have one location, while 40 percent said they operate multiple branches. The median number of respiratory/sleep clients among these providers is 208, although 116 companies indicated they have 250 or more clients in this area.
The survey also revealed that a majority of respondents (64 percent) employ at least one full- or part-time registered respiratory therapist (RRT), and 45 percent employ at least one full- or part-time certified RT technician. These figures have grown substantially since HomeCare's 2001 survey, when only 40 percent of respondents reported employing an RRT, and only 18 percent said they had at least one certified RT technician on staff.
Only 5 percent of these providers employ a registered polysomnograhic technician, although 70 percent said they will consider offering in-home sleep studies if CMS approves the use of in-home sleep testing. (At press time, Medicare was in the process of making a coverage decision.)
Currently, 70 percent of respondents indicate that they get patient referrals from local sleep study labs to purchase products, but only 54 percent said they refer their customers to local sleep labs. Results show the average number of sleep study labs in respondents' markets is five, but in 20 percent of the cases it is more than 10.
When it comes to operating a successful sleep program, the largest group of respondents (36 percent) say dealing with patient compliance is the most difficult aspect. “It is a very labor-intensive process,” explained one provider. Past mask fitting for CPAP (continuous positive airway pressure) therapy and initial patient education, providers said they must continue to work with and support patients to assure continued use of the therapy.
Monitoring and tracking is necessary not only for successful patient outcomes but also because the reimbursement model used by many private insurers links payment for CPAP therapy directly to compliance. Half of the survey respondents (50 percent) said private insurance companies are their primary payer for sleep products and services.
Respondents also mentioned qualifying patients for coverage, the time spent with each patient and receiving payment as additional difficulties with sleep program business.
For reimbursement of respiratory claims in general, the survey group overwhelmingly said their greatest challenge is chasing physicians for CMNs (Certificates of Medical Necessity), and getting them filled out correctly on a timely basis.
Cuts and More
Reimbursements for Part B respiratory drugs were also on survey respondents' minds. After drastic payment cuts for staple drugs albuterol sulfate and ipratroprium bromide from the transition to an ASP plus-6-percent pricing formula for these therapies in 2005 — as mandated under the Medicare Modernization Act (MMA) — many of the country's largest respiratory providers had indicated that without some price relief, they would simply exit the business.
CMS apparently got the message and, early last November, announced that $57 monthly and $80 quarterly dispensing fees for respiratory medications would be added this year. But most providers participating in the survey don't feel the additional fees are adequate. Only 6 percent of respondents said that the $57 transitional service fee component will offset their costs, such as patient management, pharmacy, delivery and other administrative costs of providing the respiratory meds. Forty-two percent said the fee will “somewhat” account for the necessary costs in dispensing the drugs, while 30 percent said it will not offset their costs.
Nevertheless, 29 percent of respondents say they plan to continue their respiratory drug operations at current service levels this year, and 11 percent plan to increase their respiratory drug business. Eight percent said they plan to exit this portion of the respiratory business.
O-Pinions on O2
Regarding oxygen reimbursement, which could have the most substantial impact on providers' respiratory business this year, many said they were flummoxed. Although they knew the MMA-mandated cuts were coming and had been expecting information on the 2005 oxygen reimbursement since last spring, the payment schedule had not yet been released at the time of the survey in mid-November 2004. (Shortly before press time for this issue, CMS said it now expects to announce oxygen payment amounts by Jan. 15. (For more, see Headline News, page 10.)
In a separate letter to HomeCare, wrote a concerned provider, “I am amazed that [CMS] has not published anything on [oxygen] reimbursement this late in the term with prices effective as of Jan. 1, 2005. How the heck are we supposed to run a business not knowing what we're going to be paid? Do we buy equipment, or sell the farm?”
Without knowing the exact size of the expected cut, nearly half of responding companies (47 percent) felt, at least at the time of the survey, that they would not reduce in-home visits or related services for their oxygen patients, while 39 percent said they were planning to reduce visits and services.
To prepare for the cuts, providers offered up a wide range of operational changes they hope will lower their costs in providing oxygen while still allowing good patient care, which, some respondents noted, is not necessarily tied to patient visits. We are “looking at ways to reduce and streamline services without compromising quality,” said one respondent.
Commented another, “We are going to get as creative as the government has gotten with its reimbursement cuts. We have no choice if we wish to survive.”
For the Record
Survey methodology conforms to accepted marketing research methods, practices and procedures. Data was collected Nov. 3, 2004, through Nov. 19, 2004. Percentages are based on responses from 266 companies. Not all respondents answered every question, and some totals may add to more than 100 percent due to multiple responses. For a complete copy of the Respiratory/Sleep Survey, visit www.homecaremag.com.
Included among providers' oxygen strategies:
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Scheduling tank deliveries rather than responding to calls from patients
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Requiring patient pick-up instead of home delivery
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Improving control over cylinders, such as not allowing patients to stockpile cylinders, better tracking to reduce cylinder loss and tightening up on patient waste and abuse
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Limiting the types of systems offered, with a focus on equipment that will decrease patient visits
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Decreasing use of liquid oxygen, including taking no new liquid oxygen customers
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Increasing the utilization of conserving devices
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Encouraging use of home-fill systems
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Cutting in-home visits by using database follow-up systems to maintain contact with patients
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Servicing concentrators less frequently
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Discontinuing any extra services, such as rearranging home furniture, or charging a fee for extra services
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Education of political leaders to protest reimbursement cuts
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Purchasing cylinders instead of renting
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More use of transfill systems
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Increasing volume by adding oxygen patients
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Better routing, such as delivering only to certain areas on certain days, and reviewing routes to maximize time and cut down on the number of miles driven by therapists and technicians
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Turning away long-distance referrals
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Having delivery technicians perform patient visits instead of RRTs
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Beefing up or diversifying into other areas of respiratory business, such as asthma or sleep, or into other segments of HME entirely. One in three respondents (34 percent) said they currently provide or plan to provide respiratory products via mail order.
| Nebulizers | 86.8% |
| CPAP/Bi-levels | 84.2% |
| Oxygen concentrators | 83.8% |
| Cylinders | 79.3% |
| Portable oxygen systems | 79.3% |
| Conserving devices | 78.2% |
| Pulse oximeters | 76.7% |
| Compressors | 74.1% |
| Humidifiers | 69.5% |
| Aerosol therapy | 66.5% |
| Tracheotomy care | 55.6% |
| Sleep therapy devices | 54.5% |
| Liquid oxygen systems | 50.4% |
| In-home fill systems | 45.1% |
| Asthma/allergy | 44.0% |
| Inhalation therapies (respiratory medications) | 42.1% |
| Ventilators | 36.1% |
| Apnea monitors | 35.0% |
| Sleep diagnostic equipment | 24.4% |
| Vaporizers | 21.1% |
| Air purifiers | 19.9% |
| Private insurance | 49.6% |
| Managed care | 23.3% |
| Cash | 3.0% |
| Other (including Medicare) | 9.4% |
| Continue respiratory drug operations at current service level | 28.9% |
| Increase respiratory drug business | 11.3% |
| Reduce respiratory drug services | 10.2% |
| Exit the respiratory drug business | 7.9% |
| Stop accepting new Medicare referrals for patients who need respiratory drugs, but continue to serve current Medicare customers | 4.9% |
| Stop serving current Medicare customers requiring respiratory drugs | 1.9% |
| No answer | 34.9% |
