Tight oxygen market spawns new tactics

Sunday, June 30, 2002

Despite a long-standing "gentleman's agreement" between home oxygen providers to not pursue each other's patients directly, external market forces are apparently causing some companies to break from that tradition and engage in more aggressive practices. And while many may see that as a breach of decorum, the market has become so tight that providers have little choice but to seek out new options, one industry observer maintains.

"Home care has matured to the point where there are only a couple of ways to grow your business, and one is to lure patients away from your competitors," notes Joe Lewarski, director of Med Group's National Respiratory Network. "There is a finite amount of patients that enter the health care system each year and everyone is going after them aggressively."

Contributing to the stringent competition are various external factors influencing the respiratory market, including shifts in referral source channels, looming competitive bidding at the state and national levels and proposed new rules for retesting Medicare Group I oxygen patients. Providers are also touting technologically advanced oxygen concentrators that are lighter, slimmer and smaller to attract patients and referral sources.

A notable example of the aggressive new competitive approach is Clearwater, Florida-based Lincare, which recently began wooing patients away from the providers who contracted with a large respiratory pharmacy it acquired earlier this year. In June, HME News reported that Lincare would call Med4Home patients about replenishing their respiratory medications, then attempt to steer the patients away from the pharmacy's outsourced provider.

The concept of "consumer branding" has certainly worked on the pharmaceutical side, as a tidal wave of advertising has created a drug demand swell. And while the direct-to-consumers marketing strategy has some providers intrigued, the majority of companies contacted for this story shared the outlook of Robert Sovak, president of East Suburban Medical Supply in Pittsburgh.

"While we would consider marketing directly to the public because it's a piece of the puzzle, we wouldn't go as far as taking other companies'patients," he said. "One reason is because there are a finite amount of patients out there, so the thrust of our marketing will continue to be aimed at referral sources."

Indeed, Lewarski agrees that referral sources will remain the primary business driver for respiratory providers because the market is different than pharmaceuticals or even retail HME.

"The referral source is still the central player in the current market," Lewarski said. "Unlike prescription drugs – which are often associated with a specific medical disorder – HME consumers aren't usually aware of the products or services until they actually need them. Even then they often rely on the referral to guide them to the right product and provider."

In Mitchell Spaiser's experience, however, that's not entirely so. Contrary to popular perception, individuals do shop for respiratory equipment just like they do for other HME supplies, the president of White Plains (New York) Surgical said.

"We get a lot of calls for oxygen from people who looked us up in the Yellow Pages," he said. "There are a lot of people who find out they need oxygen and don't know which route to take. So they'll call me and in turn I'll call the doctor, who then gives us the order."

White Plains Surgical also goes against the grain when it comes to home respiratory referral source channels. As Spaiser explains, "We don't go looking for referral sources, they come looking for us."

A trained audiologist, Spaiser opened shop in 1980 and expanded the business to include HME and respiratory. The versatility of serving multiple markets, as well as conducting HME retail sales has contributed to the company earning a reputation around town as the comprehensive source for health care products – oxygen included, he said. And while clinicians are part of the referral source base, Spaiser says they do not comprise the majority.

"We don't have an outside sales force – most of our oxygen business comes from word-of-mouth," Spaiser said. "People will look us up for a variety of reasons. It's usually because they've received another piece of equipment from us and now they need oxygen, or they're visiting here from another state and need supplies for the duration of their stay."

Conversely, Oklahoma City-based AccureCare Medical Inc. works "strictly with clinicians," said President Kelly West. Although he declined to get specific about his referral sources, West said he has built relationships with local physicians and respiratory therapists through his 26 years as an RT and registered polysomnographist.

"I was a [hospital-based] therapist in the '70s, worked in home care in the '80s and my own business evolved from there," he said. "I worked in a sleep lab, so it was a natural migration for me to work with respiratory patients. As a result, I have come into contact with many respiratory referral sources."

Because Oklahoma has been slow to embrace managed care, referral source channels have remained static, West said. Yet in other markets such as Pittsburgh, managed care is causing changes at the referral source level, Sovak said.

"Primary care physicians who used to refer the patient to pulmonologists now send them directly to us," he said. "They see the managed care mindset and want their patients taken care of as quickly as possible. Our protocols and services attract them."

Approximately half of Sovak's referrals come from hospital-based respiratory therapists, while hospital discharge planners, skilled nursing facilities and case managers also comprise a large percentage, he said. However, there are several large integrated delivery networks (IDNs) in the area that have folded home care into their systems, which makes them practically untouchable for referrals, he said.

"We get very little from them because they have their own captive referral base," he said.

Nevertheless, ESMS engages in a strategy of diversity with referral sources so that no more than 10% of its patient base comes from one place. That system, Sovak says, prevents the company from putting all its referral eggs in one basket. Consequently, the company has doubled in size since 1999.

"The foundation of our growth plan was to get referrals from a wide variety of places so that if one source dries up, it doesn't hurt as much," he said. "By having a broad base of referrals, we are insulated against major losses."

Guarded as he is about disclosing his referral sources, West is more comfortable talking about how portable oxygen systems have boosted their interest in his company.

"They're my best attention-getter from referral sources," he said. "Everyone is interested in these devices."

Likewise, Ken Steber, president of Gulf Medical Services in Pensacola, Florida, says more than half of his oxygen patients are using a portable due to a clamoring public demand.

"Patients are asking for them," he said. "They see other people using it and then ask their doctors to prescribe it for them. As a result, we are getting more referrals."

From a therapeutic perspective though, West says he has reservations about devices that don't offer continuous flow.

"While manufacturers claim differently, I believe it is important to provide continuous flow – particularly when patients ambulate," he said. "I understand the need for conservation, but devices should feature both demand and continuous flow."

When it comes to using technology as a referral source marketing tool, Lewarski advises providers to think about how new devices fit into the overall context of their business.

"Providers need to examine their individual companies and their markets and make business and clinical decisions that are in the best interest of their patients and their organizations," he said. "The HME and RT professionals have been driven by technology, which is a double-edged sword. Technological advances aren't always necessary nor do they always improve patient care or business profitability. We need to find balance in this complex area." HME