O2 cap poses product choices

Tuesday, February 28, 2006

YARMOUTH, Maine - Even with Medicare oxygen reimbursement capped at 36 months, manufacturers of expensive, high-end equipment like portable concentrators still expect their technology to play a leading role in the marketplace.
"A good business decision is a good business decision," said Joe Priest, president of AirSep, which makes a portable concentrator. "I would (still) say our approach would be the most cost effective for the provider and most appropriate for the patient."
The future of respiratory therapy, maintains AirSep and others, mandates that providers cut costs by reducing deliveries but also meet the clinical needs of patients. The question remains, however: Will providers invest in this more expensive equipment now that Medicare had reduced reimbursement?
Yes, said Invacare's Lou Slangen, senior vice president of worldwide market development. They have no choice.
The recent legislation to cap oxygen "is a shot across the bow" that oxygen delivery and reimbursement will change, Slangen said.
"The underlying model of home oxygen delivery will change whereby a provider visits a patient once every six months or once a year, depending on the product, for maintenance," he said. "He does the set up and that is it. That is were we are going."
Providers now have 36 months to reconfigure their delivery model in a way that reduces deliveries and expenses.
In addition to capping rental at 36 months, the legislation also transfers title of the equipment to the beneficiary at that time. The thought of turning over a unit that could cost $2,500 to $3,500 to the beneficiary gives some providers pause.
"I've got a $3,500 unit sitting in my inventory and it has been a good product for some patients, but now this could be converted to a purchase in 36 months," said Tom Ryan, CEO of Homecare Concepts in Farmingdale, N.Y. "I can't put a cost of goods out like that."
Indeed, with the cap on oxygen, cost of equipment becomes a major issue, said Tom Williams, managing director of Strategic Dynamics, a consulting company that helps providers improve performance.
Williams agrees that providers must reduce deliveries to cut costs, but when it comes to high-end equipment, manufacturers may also have to cut prices.
"Nothing changes for the provider," he said. "They are going to have to look at what meets the clinical needs of the patient, their activities of daily living. Then they are going to say, 'If two products both meet the needs of the patient, what can I buy cheaper?'"
As manufacturers face that kind of price pressure, they'll most likely have to reduce the cost of their product or prove that it is worth more than another product that performs the "same perceived functional utility for the patient," Williams said.
"Price is going to have an effect," he said. "It will force HMEs to look at technology. There is a lot of technology out there, but you have to weigh the pros and cons of each."