From the Editor: Who's the Boss

Wednesday, August 31, 2005

In 1973 a rock-and-roll writer saw Bruce Springsteen in performance and famously quipped, "I saw Rock and Roll's future, and its name is Bruce Springsteen."
Last month, I glimpsed the future of home oxygen and no question about it, that business model is a Boss. Its name is Airlogix, and they are what you want to be. How so? This disease management company talks the same talk as the home respiratory supplier, who justifies his place in the continuum of healthcare by playing up the savings he contributes to the healthcare system.
Airlogix says the same thing, but they do something the HME supplier can't: They quantify those savings. First, they look at a managed care company's expenditures for its COPD base, and then they promise savings. They told one managed care company that they could save them $20 million per year on expenditures for its 3,000 to 4,000 COPD patients. And they did.
(I couldn't verify this since Airlogix couldn't connect me with this managed care company. But for additional validation of the Airlogix business model, bear in mind that they were just acquired by a public managed care organization called Centene for $35 million in cash.)
How do they save all that money? Their free lance respiratory therapists intervene, by telephone and with visits to the home, to make sure those patients act in a way that keeps them out of the emergency room and out of the hospital. Save $5,000 in ER visits and hospitalizations per patient per year, and you've saved your $20 million.
Airlogix told me that approximately 40% of their 4,000 COPD patient base was on oxygen. Which means those patients had a home oxygen provider. But was that a provider or a dealer? Or an equipment jockey? If he was a provider at the outset, he became an equipment jockey as soon as Airlogix entered the picture.
If that managed care company's dealers were supplying oxygen at managed care pricing, you can't really blame him for not ramping up a suite of home respiratory services. But you might call him a dinosaur.
I talked to a CMS actuary last month. He told me that managed Medicare beneficiaries are just 10% of the overall patient base today. But his model projects that the managed care piece of the pie grows to 20% by 2010. Former CMS Administrator Tom Scully is more bullish, believing managed care will claims 50% of the Medicare beneficiary base by 2010.
Managed care providers are private companies. They like the idea of working with companies that promise the kind of savings that Airlogix will provide. The very existence of a company like Airlogix, to borrow some of the market parlance now in vogue, is going to obsolete you. They'll obsolete you because you can't demonstrate the value of your services in any meaningful way.
The managed care company contracts with Airlogix to be its home respiratory provider, and with you to be its equipment jockey. And how long will it be before the payers decide to do an end-run around you and contract with the manufacturer for the equipment? Not long is what I say.