Name of game in O2: optimize, optimize, optimize

With razor-thin margins an ongoing concern in the reimbursement cut-weary oxygen market, respiratory providers need to find the right resources and strategies to maintain profitability. The solution, manufacturers say, is in supply chain relationships and non-delivery models.

“Providers need to partner with manufacturers that can help them lower their operating costs over the long term, without reducing the level of care to their patients,” said Brad Ritt, business development manager for Newtown, Conn.-based O2 Concepts. “Many equipment providers focus purely on acquisition costs, but that alone won't get you there.  We coach our customers on the value of a device with proven performance, a standard five-year warranty and the ability to monitor equipment from the office to reduce unnecessary visits to patients' homes.”

Most providers see the upside of reducing the risk of repair costs in the fourth and fifth years of the Medicare term, Ritt said, but often disregard the potential added revenue that a five-year warranty presents.

“A number of Medicare patients will not reach the 36-month cap, so the real added value is that you can (provide the device to more than one patient and) collect up to 60 months of billing on one device,” Ritt said. “Spreading the cost over a five-year period on a 24/7 device reduces your monthly equipment cost to less than $30. Many providers who have weathered the storm thus far are seeing the value in these kinds of long-term investments.”

For respiratory providers to gain more leverage within the healthcare supply chain, they must change the perception from being seen as merely “deliverers of things” to “critical consultative partner in transition of care to the home,” says Mitchell Yoel, MPT, executive vice president of business development for Port Washington, N.Y.-based Drive|DeVilbiss.

“This perception and devaluation has allowed payers to cut reimbursement, institute competitive bidding, and excessively audit providers' claims,” he said. “Providers have responded by reducing operational costs, cutting payroll, and reducing value-added services. But that response only serves to exacerbate the problem. A vicious cycle of reduced reimbursements is causing providers to reduce services and this cycle will continue until our industry provides evidence that we are relevant not only to delivering medical equipment, but to providing relevant expertise to health care.”

non-delivery model

Economics is the key force driving technological change in the oxygen market and national competitive bidding is proof, says Bob Messenger, manager of respiratory clinical education for Elyria, Ohio-based Invacare.

“Whether it's transfilling or portable oxygen concentrators, the number of providers adopting and committing to a non-delivery model is growing at a faster pace than ever before,” he said. “The benefit to the provider is not just the reduction in variable operating expenses, but also the ability to redirect some of the saved resources toward other aspects of the business, like expanding clinical services and audit-proofing claims.”

To be sure, POCs have shaved off a substantial amount of overhead and non-delivery models are essential for oxygen business profitability going forward, said Dave Marquard, CEO of Westlake, Ohio-based Applied Home Healthcare Equipment.

“Oxygen provides continuous cash flow and the non-delivery model vastly improves margins,” he said. “When you are running a small business you have to 'optimize, optimize and optimize' every day. It is a tremendous savings over delivering oxygen tanks or cryogenic vessels.”

The market has evolved to the point where providers simply cannot afford to continue delivering oxygen cylinders and provide quality clinical care, Messenger said.

“In today's world, if a provider is still making oxygen deliveries, then all he or she can afford to do is make those deliveries,” he said. “On the other hand, providers that took the long view and were early adopters of the non-delivery model are the same providers that are now developing COPD readmission reduction programs.”

It is also important to keep in mind that readmission reduction programs do not have to be labor and cost intensive, Messenger said.

“The quality, not the quantity of time spent, along with consistent messaging and good supportive elements are the keys to a successful and affordable readmission reduction program,” he said.

Ultimately, oxygen technology has to meet the expectations and requirements of the patients using the products, says Ray Huggenberger, CEO of Goleta, Calif.-based Inogen.

“It has more to do with size, weight, noise and ease of use than with the delivery issue, although POCs have an additional attraction for patients who like to travel,” he said. “Once technology is introduced to oxygen therapy on a broader scale, other services like patient monitoring could be added. This will depend on whether demand for monitoring services will develop, or if patients who are monitored show materially better clinical outcomes.”

'smart' technology

Because the cost of sending employees to patients' homes has become prohibitively expensive, device technology is getting smarter to fill the gap, O2 Concepts CEO Rob Kent said.

The company's DNA Technology system, introduced in the summer of 2015, added cellular and global positioning system technology to each device. The technology provides a new avenue to monitor a patient's ambulatory and total oxygen usage during the initial 30 days after a hospital discharge. Its cloud-based software downloads data from each device daily and includes information on usage, performance and location.

“Providers can not only use a single device to manage their ambulatory patients, but they can now monitor their non-delivery fleet from any computer or web-enabled mobile device,” Kent said. “You can then proactively intervene and ensure a patient doesn't exacerbate and end up back in the hospital. Providing this type of monitoring and care is a powerful marketing tool with hospitals who are focused on abating the risk of readmissions.”