When you have to survive the short term, it's admittedly tough to focus on the long term. Can providers simultaneously deal with today's problems while actively preparing for the future? Is there even a choice? Oxygen providers know the dilemma, and manufacturers of portable oxygen concentrators acknowledge the problem.
If some elusive stability can finally be achieved, POC manufacturers believe their non-delivery model will emerge as the modality most favored by CMS and most cost efficient for providers.
"Over the short term, there is a lot of confusion, fear and change regarding reimbursement," says Scott Wilkinson, executive vice president of sales and marketing for Inogen, Goleta, Calif. "People know it is going to change, but they are not sure how. Until there is some clarity, people tend to wait and do as little as they can to get by."
Over the long term, Wilkinson sees a bright future for POCs. Since clarity inevitably drives action and ultimately more efficient systems, he says POCs will fall in line with that goal. Meanwhile, short-term uncertainties add up to noncommittal business models as providers instead prefer to purchase as little as possible.
Wilkinson compares the current situation to financial markets. Long-term investment prospects are good, but confusion and fear are powerful disincentives.
Part of the hesitancy comes from the fact that POCs are not inexpensive, a fact that manufacturers readily acknowledge. How long does it take to overcome initial payments and see a profit? Ron Richard, CEO of SeQual Technologies, says providers who buy the company's Eclipse POC usually become profitable after 11 months, thanks to reduced delivery costs.
With acquisition costs higher than standard stationary concentrators, POCs face the added burden of supplanting entrenched inventory. Chris LaPorte, product manager, POCs, at Invacare, understands the reluctance, but he cautions that standing pat could have severe consequences.
"If you are looking at your sunk costs and not looking at the future to see what you can do with your business, you are probably going to veer off the road," says LaPorte.
"Without changing the business model to embrace more of a non-delivery system, providers are almost assured of having major cash problems. Investing in POCs and non-delivery systems is really one of the only ways that oxygen providers are going to be able to survive in the future."
Many manufacturers, including Invacare, have programs to defray one-time acquisition costs. Despite these programs, Richard, LaPorte and Wilkinson all agree that sunk investment costs are a major deterrent to spending the money. For years, the industry has tried to reduce expenses and improve the efficiency of delivery models. Trucks, drivers and GPS systems all represent a lot of time, energy and money.
"That is not easy to walk away from," concedes Wilkinson. "And over the short term, it is not financially attractive to walk away from. Over the long term it is, but it's hard to turn the corner, especially in tough economic times."
Evolution and Adoption
While POCs have been evolving since the mid 1980s, the current crop is relatively new, and that inevitably contributes to a cautious marketplace.
"As new products are released, everybody knows that there are some bugs to be worked out, and that is true for all manufacturers," says Wilkinson. "There are a lot of POC manufacturers, and everyone must work through growing pains. People tend to sit back and wait for the maturity of the product line."
For large national companies looking to change models, the transition must happen on a massive scale. In this regard, smaller more nimble operations may be at an advantage. However, with the additional burden of a down economy, money is tight and banks perhaps not as willing to help out.
"Typically you are going to finance these assets, and tightening credit markets have screened a lot of people out, forcing them to purchase out of their own cash flow," adds Wilkinson. "Providers are limited so they go back and buy cylinders or stationary concentrators and continue to use their existing infrastructure."
Wilkinson notes that providers who manage to find the needed cash, either from banks or manufacturers who offer creative financing, will likely continue to find a government that prefers the non-delivery model. In good times or bad, the government tends to like anything that drives cost out of the system and reduces expenses, without angering the taxpayers.
When you factor in that most patients prefer POCs to other systems, Wilkinson believes the overall market outlook is favorable. "The nice thing about POCs, and all the non-delivery devices, is that they are a lower total cost to service and patients like them better than the delivery model.
"It's a win-win," he says. "Usually lower cost means lower service. In this case though, lower total costs are coupled with better overall service. You see higher patient satisfaction with this whole non-delivery category."
Another key to boosting the portable market is a shift away from the view that POCs are one-dimensional. Based on conversations at the recent Medtrade Spring show, SeQual's Richard believes people are beginning to look at POCs as not just for travel or part-time use.
"A number of dealers are starting to use POCs as a 24/7 solution for patients who are highly ambulatory, and for patients who use a lot of tanks that are delivered to their house two or three times a month," he says. "You can put up to three months' worth of content in someone's home, but that is inordinately expensive to do, and it's also dangerous because it is difficult to safely store 30 or 40 cylinders on most properties."
For patients who actually do lots of traveling, demand combined with a proposed FAA requirement has only increased the focus on POCs.
According to Jay Vreeland, director of US Marketing, Home Respiratory Care, Philips Respironics, the pending FAA requirement states that all airlines must allow POCs. Currently, individual carriers decide if they will allow POCs onboard.
Vreeland points out that another often-overlooked market driver is adult children who do research on behalf of their parents. "We often hear stories of how oxygen users are now using our EverGo POC because younger family members have encouraged them to do so," he says. "We hear, 'Prior to EverGo, my dad was unable to go to the beach with the family. Now, he is able to make the trip by car and enjoy a week at the shore with the grandchildren.'"
The well-known travel benefits of POCs can also lead to retail opportunities in the form of rental programs for patients.
"Many patients who rent a POC for a vacation return home and want to purchase it for their own use," says Vreeland. "Numerous patients are getting exposed to these types of products for the first time and could not imagine the sense of freedom or convenience they provide."
While sales are certainly a possibility, Robert K. Jacobson, vice president and general manager for AirSep Corp., says providers will likely rely on rentals for the bulk of POC business. "Selling these products, as opposed to renting, greatly limits market size and creates many negative aspects, including Internet sales, lost traceability, uncontrolled dispensing of a prescription drug, missing assessments, lack of instruction and support," Jacobson says.
"Oxygen concentrator rentals, including for POCs, are more viable and profitable in the long-term. Designed for multiple patients and a high number of rental periods over their useful life, POCs allow HME providers to combine the strengths of their business, service and support with their equipment rental package," he continues.
"POCs provide marketing advantages for expanding referral sources, customer base and service area — while reducing traditional infrastructure and associated costs."
- Read the Legislative Matters sidebar for information on legislation affecting oxygen providers.
- Read the On the Market sidebar for information on manufacturers offering POCs.
Legislative Matters
In the world of oxygen, instability is the only thing that remains stable.
As arguably the backbone of the home care industry, oxygen providers face a renewed focus on Medicare fraud and belt-tightening on the part of CMS. What's next? At this point, uncertainty is the only certain thing when it comes to oxygen reimbursement.
The American Association for Homecare's New Oxygen Coalition (NOC) attracted a large crowd at Medtrade Spring, a testament to frayed nerves throughout the industry. "We are getting clear signals that Congress is set to cut the reimbursement rate once again," said Tyler Wilson, president and CEO of AAHomecare, at the association's Washington Update in Las Vegas. Wilson hinted that new cuts could come by way of lowering payments or reducing the 36-month cap to 18 months.
Manufacturers of portable oxygen concentrators say that one way to avoid the ill effects of sinking reimbursement could be more widespread adoption of POCs. "CMS still sees oxygen as a cash cow and thinks they are overpaying for it," said SeQual CEO Ron Richard. "CMS officials will likely continue to cut reimbursement and incentivize the market to go toward a non-delivery type of modality so that they can get out of the business of trailing revenue."
The most challenging aspect for many providers currently is running a business while figuring out how to serve patients adequately — and stay afloat — under the 36-month oxygen cap and the post-cap payment rules that took effect in January. (For an up-close look at those rules, see this issue's cover story.)
"I still for the life of me can't understand half the rules and regulations that are being put out because they change so often," laments Richard. "You have to have someone in your company who is an expert on keeping up with CMS documents. Everybody is cautious. I do think providers have a bit more optimism in quarter two than they had in quarter one, but we are still not out of this economic turmoil."
According to Wilson, the NOC plan has only become more urgent as the nation's health care reform effort picks up speed. As reported by HomeCare Monday, the NOC plan would eliminate the oxygen cap altogether and remove home oxygen from competitive bidding. It would also transform the way payments are made under Medicare's oxygen benefit.
Although stakeholders were divided over whether to request status as "providers" versus "suppliers" under the reform plan — some HME associations do not support the plan — Wilson said he believes it is the best hope of getting out from under "the cycle of cuts" the oxygen sector faces year after year. At press time, the plan's advocates were working quickly to get the oxygen proposal in front of Capitol Hill lawmakers in time for it to be considered in the nation's health care reform legislation.
For more on the NOC plan and Wilson's comments, see A Necessary Challenge.
There was also expectation of a separate piece of legislation focused explicitly on repeal of the oxygen cap, so stay tuned.
On the Market
There are now a number of manufacturers offering POCs, and their makers advise doing some homework to see which products fit your company's and patients' circumstances best. For more information on the specific manufacturers mentioned in this article, see these Web sites.
AirSep
Web site: www.airsep.com
Products: LifeStyle and FreeStyle
LifeStyle is a less-than-10-pound solution for providers who wish to offer increased ambulation opportunities for their highly active and traveling patients. AirSep LifeStyle is available with an optional PowerPack for increased battery time, and an optional custom cart with a telescopic handle for easy movement. As a "wearable" POC, FreeStyle (shown) provides a lightweight 4.4-pound alternative with battery duration from 2 to 3 1/2 hours between recharges. Its optional AirBelt extends battery life up to 10 hours, depending on pulse-flow setting.
Inogen
Web site: www.inogen.net
Product: Inogen One
Inogen offers the Inogen One, an oxygen therapy technology designed to eliminate scheduled deliveries and the associated costs of coordinating patient travel, thereby reducing reimbursement pressure. Inogen One emphasizes single-solution, cost-effective respiratory home health care equipment, improving patient care as well as operational efficiency for providers.
Invacare
Web site: www.invacare.com
Product: XPO2
The XPO2 portable concentrator weighs 6 pounds and incorporates a five-setting pulse dose oxygen delivery system that will keep oxygen patients saturated during all activities of daily living. It operates from battery, AC or DC power. The 2 1/2-hour battery duration (at setting 2) may be doubled to 5 hours through the use of an optional 1.5-pound supplemental battery that attaches easily to the carrying case.
Philips Respironics
Web site: www.respironics.com
Product: EverGo Portable Oxygen Concentrator
The EverGo Portable Oxygen Concentrator features an 8-hour battery life, 1,050 mL per minute oxygen capacity, lightweight design (weighs less than 10 pounds) and a touchscreen. The EverGo can help home care providers control costs by eliminating the expense of oxygen delivery.
SeQual Technologies
Web site: www.sequal.com
Product: Eclipse
SeQual offers the Eclipse Oxygen System. The Eclipse provides 3 LPM of continuous flow oxygen therapy. The telescoping handle cart facilitates movement in or outside the home. The internal auto-recharge power cartridge enables easy movement between AC and DC power outlets without interruption of oxygen therapy, allowing longer excursion times as well as overnight travel.
