Oxygen delivery systems may be the least understood and least appreciated machines in the eyes of government regulators. As the target of relentless reimbursement reductions throughout the years, oxygen providers suffered yet another blow in the form of a Government Accountability Office report issued in February.
At its core, the 114-page report contained many of the same conclusions as in the past but with a hint of a silver lining lurking beneath the black cloud.
"In the report, the GAO did come flat out and say that CMS is paying too much for oxygen," says Bob Hoffman, RRT, director of VGM's Nationwide Respiratory, Waterloo, Iowa. "More importantly, at the end of the report, they did say that CMS should restructure Medicare's home oxygen payment methodology to establish more accurate rates for all the different types of oxygen."
Medicare payment for concentrators, for example, encompasses the machine, supplies and oxygen refills. "That should not be the case," argues Hoffman. "As a result, they are paying less than they should for the portables."
At the same time, some clinicians are pushing for better prescriptions and more monitoring to make certain that oxygen therapy — and equipment — is doing its job for the patient.
As usual, providers are left wondering how they are going to provide service and survive in today's market. As to the question of whether CMS is subtly pushing providers toward one modality or the other, Hoffman doesn't believe it. "I don't think CMS really cares as far as one modality or the other," he says. "They are just looking for ways to cut the budget."
Fundamental concerns with the GAO report include specific questions of methodology. Ron Richard, vice president and general manager, respiratory, Chart SeQual Technologies (a division of Caire), San Diego, points out that the eight private insurers the GAO interviewed for its report used payment methodologies similar to Medicare's, but seven did not use a rental cap.
According to the report, if Medicare had used the payment rates of the lowest-paying private insurer, it could have saved about $670 million of the estimated $2.15 billion it spent on home oxygen in 2009. But Richard explains, "If the cap is taken out of the equation, one has to assume that they are not projecting a 'longevity' variable, just per-year costs. In other words, it does not seem they are accounting for a particular beneficiary's length of usage — and suppliers' billing — to calculate costs/savings."
Adds Joe Lewarski, RRT, FAARC, vice president of Elyria, Ohio-based Invacare's Respiratory Group, "I don't think anyone is surprised to see another government report that suggests oxygen payments should be further reduced." However, he says, "The report did recognize the costs associated with the service component of home oxygen therapy, as well as the need to ensure access to ambulatory oxygen technologies. In this regard, the report suggests a need for oxygen payment reform to better address the costs associated with the provision of ambulatory oxygen systems, and the services associated with home oxygen therapy."
Lewarski believes that any future proposed payment reduction and/or change in payment methodology will naturally point up the viability of non-delivery systems as the most cost-effective option for ambulatory oxygen patients. "This only gets exaggerated with additional payment reductions," he says.
Money Matters
Portable oxygen concentrators are still a relative newcomer to the market, and acquisition costs can be a barrier for some providers. As always, the definition of pricey depends on many factors.
"You can't say POCs are too expensive for everyone," says Hoffman. "It depends on the size of the company. POCs take away the delivery costs. That certainly is efficient for some, but not the answer for everybody."
Hoffman calls transfill systems the future of the market. "Home transfill systems take away all the costs associated with delivery," he says. "In addition, manufacturers are coming up with smaller tanks with conserving devices to use in conjunction with transfilling. These conservers extend the time that the tank can be utilized away from the home."
Kelly Riley, CRT, RCP, agrees that POCs and transfill systems will reign — a decade from now. "As the new technology evolves," says Riley, director of Lubbock, Texas-based The MED Group's National Respiratory Network, "the benefits of portable oxygen will enable ambulating patients to lead a better quality of life, with better outcomes for all involved."
On the persistent question of upfront costs, Riley says her organization has crunched the numbers and POCs come out favorably. "We found that for patients who need portability, the break-even is at about half of the total cost of the traditional concentrator-tank delivery model," she says.
Scott Decker, president of Cramer Decker Medical in Santa Ana, Calif., says providers have been reluctant to invest in rapidly changing POC technology that they still perceive as too expensive. "Other products offer the same oxygen supply at much less cost," says Decker. "Portable oxygen cylinders have dominated the market in the last five to seven years. With that said, POCs are up-and-coming technology, and in a few years I see them as a much larger feature of the market."
"If one is simply comparing the acquisition cost of a cylinder to the cost of a POC, it looks expensive," concedes Lewarski. "However, the cost of providing cylinder gas is heavily weighted in the recurring operational costs associated with storage, filling, record-keeping, customer service, warehouse staff and delivery of cylinder gas. In most cases, the recurring monthly cost of providing cylinder gas to ambulatory oxygen patients is significantly more expensive than the amortized monthly cost of a non-delivery system."
While non-delivery options lower gas expenditures and many other costs, patient education and service are still necessary. CMS has never understood this service component, Riley says, and despite the hopeful wording in the GAO report, she believes the mentality shows little sign of changing.
"Government entities simply cannot grasp the concept that oxygen is a service-driven industry," she says. "Many of those costs are directly associated with doing business with the government. They are enhancing the message that you must diversify away from Medicare markets, because we simply cannot afford to take any more cuts, no matter what delivery model you are using."
Moving POCs into the cash-sale realm is another option that is already happening at some providers. "Baby boomers are willing to spend money on their medical care over and above what Medicare and insurance carriers will pay," notes Hoffman. "Certainly some providers are looking at POCs as more of a retail cash item as opposed to a reimbursed item, because Medicare is not going to pay for both systems."
As is the case with other consumer products, Scott Wilkinson, executive vice president, sales and marketing, Inogen, Goleta, Calif., believes providers must review patient wants and determine which POCs fulfill the majority of those wants.
"One of the keys to success in any market, and ours is no exception, is delighting the patient," says Wilkinson. "Size, weight, noise level, battery life and ease of use all factor into this decision. Providers also need to look at what's important to their business. Durability, warranty, range of patients serviced, marketing support and post-sales service should all be considered."
Competitive Bidding Not Registering Yet
Inogen experienced its best revenue year in 2010, Wilkinson says, and he expects strong growth in 2011. He anchors his optimism to expansion of the overall patient market — but he tempers his enthusiasm.
"Many oxygen suppliers are reluctant to make the investment in new technology products due to reimbursement uncertainty," Wilkinson acknowledges. "It's still unclear what will happen with Round 2 of competitive bidding. Will it be implemented similar to Round 1 in the 91 MSAs? Will it be revised to address flaws uncovered in Round 1? Will it be repealed? Many suppliers are not sure they will even stay in business."
Prior to competitive bidding, Chart SeQual's Richard points out that stationary rates were as high as $250 to $280 per month, and competitive bidding has reduced that by at least half, if not 60 to 65 percent. "Now that those rates have been established, adopt them and eliminate competitive bidding," he states.
"Utilization trends show overall beneficiary access to home oxygen has not diminished, despite reductions in payment rates and in the number of suppliers from 2001 through 2008," he continues. "There is a world of difference between beneficiary access to home oxygen and beneficiary access to clinically appropriate home oxygen. CMS' own numbers indicate that 85 percent of oxygen prescriptions warrant portable/ambulatory devices, but only 65 percent receive them. This is a huge issue."
Wilkinson believes the oxygen market is in transition from a delivery model to a non-delivery model, a transformation that started about 10 years ago with home transfilling systems.
"Normally such a business model change would not take 10-plus years to materialize," Wilkinson says. "Reimbursement uncertainties of competitive bidding stalled this transition, and we have been in a holding pattern for the past four to five years while providers wait and see if they will be able to stay in the market. Once we have clarity on reimbursement and competitive bidding, you will see the conversion to a non-delivery model accelerate."
But clarity could be a long-time coming, and experts see two scenarios that could ultimately play out. According to Jeff Woodham, MED's senior vice president and general manager, one scenario is that reimbursement will not recognize the value of the portable unit, therefore limiting its adoption in the marketplace.
"If payers do not accept that increased ambulation leads to better health outcomes, increased patient/caregiver satisfaction and more efficient health care provision," says Woodham, "then portable technology probably does not get the traction needed for critical mass adoption."
On the other hand, MED's Wayne Grau, vice president, contracting and business services, says CMS could someday understand that new technology such as POCs must have price support to make sure the equipment can be provided and that manufacturers can still invest in research and development to make units better, smaller and less expensive.
"We must reach critical mass so that the large investments that have already been made continue for the betterment of the patient," says Grau. "Treating COPD is not just about getting them the oxygen, but helping to make lives better."
When providers are certain of long term conditions, Wilkinson believes they will choose POCs over the more established modalities. "The weakest segment is liquid oxygen," he contends. "It is expensive, requires specialized equipment and personnel, deliveries, and it is scary for patients."
These days, business conditions are scary for providers and manufacturers as well, but Wilkinson believes many in the industry will demonstrate a familiar resiliency through a combination of optimism and hard work.
"I continue to think the future of the oxygen market is bright despite all the recent gloom and doom heard around every corner," he says. "We have a growing patient market, we have new business models that are inherently lower cost than historical models, and the 'consumerism' of the oxygen market creates rewarding opportunities for marketing and product innovation."
Continues Wilkinson, "The key to success, whether you are an oxygen supplier or a manufacturer, will be to embrace change. Those that live in the past trying to preserve the status quo won't be competitive, and they will die."
