Oxygen delivery goes way of dinosaur

The “new normal” in Medicare oxygen might be the toughest business challenge respiratory providers have had to face in their history. With Round 2 of competitive bidding about to start, the respiratory market is looking at a reimbursement cut that is roughly 41% nationwide, causing bid winners to reevaluate and modify their business models.

“We envision most players will utilize a product mix of two non-delivery products paired with a stationary concentrator or an all-in-one transportable POC that allows them to service their patients with non-delivery products,” says Dikran Tourian, CEO of Oklahoma City-based O2 Concepts.

In other words, the delivery component of the oxygen business may be going the way of the dinosaur.

“Reimbursement has been cut more severely on tanks than on POCs, making non-delivery the clear choice for providers to maximize profitability,” Tourian said.

John Frank, senior vice president and general manager of sleep and respiratory care for Murrysville, Pa.-based Philips Home Health Solutions, says the second round of competitive bidding “signals the changing dynamics of our industry” and that respiratory providers will “feel increased pressure to offset the reimbursement cuts.”

Frank says providers are seeking help from manufacturers on optimizing their efficiencies and improving patient compliance. In response, he says Philips is happy to offer assistance where it can.

“We are working collaboratively with providers to introduce meaningful, value-added solutions to help HME providers survive and prosper in a changing homecare world,” Frank said. “In the respiratory market, our broad range of oxygen solutions helps providers to implement a non-delivery oxygen model and with diagnostic, therapy and service solutions in the sleep and respiratory markets, we're able to offer providers chances to leverage our full portfolio and take advantage of new business offerings.”

The oxygen industry “will need to adjust and work diligently to find ways to provide the necessary equipment and support for Medicare beneficiaries,” agreed Bob Fary, vice president of strategic alliances for Santa Barbara, Calif.-based Inogen. “Given the ever-rising costs of doing business, the non-delivery strategy, in which POCs play a large part, is one way to go.”

POC growth

The oxygen cuts that came with Round 1 of competitive bidding in 2011 caused a spike in Medicare billing for portable concentrators as CMS data shows a dramatic 44% increase in claims for code E1392. “I expect to see a similar increase when the 2012 Medicare claims data is released,” Fary said.

Driven by both patient demand and providers' need for non-delivery programs, portable concentrator growth should continue in the wake of the Round 2 results, manufacturers say.

“Providers are looking at every aspect of their business closer, and this has contributed greatly to the growth of POCs,” Tourian said. “POCs give patients freedom, but they also benefit providers. Deliveries can be avoided by furnishing patients with a transportable POC directly from the hospital or referral source. This trend will continue and POCs will continue to grow as a result.”

Bidding wars

Even though two rounds of competitive bidding are complete and drastic business changes are being made to compensate, the HME industry hasn't given up its fight against the bidding program. In fact, manufacturers like Philips have joined the trade associations and other professional groups in trying to stop it.

“Competitive bidding presents serious concerns about the quality of care for patients, and manufacturers need to work to advocate on behalf of the homecare providers and drive awareness of the service that HME providers offer to patients,” Frank said. “We've dedicated considerable resources to driving awareness and educating policy decision makers on our concerns with competitive bidding.”

Philips' government relations office and senior executives are “engaging directly and regularly “with Washington policy makers to advocate for change, Frank said. 

“We stand alongside those who are dedicated to providing quality home services to the millions of patients with COPD and sleep disorders, and we are committed to serving as their ally in this changing environment,” he said.

New world

Besides removing oxygen delivery from the business model, respiratory providers also need to make other modifications as the fallout from competitive bidding takes place, Tourian says.

“The new environment hasn't necessarily brought new opportunities, but it has certainly caused providers to look harder at channels other than Medicare,” he said. “Retail sales—both brick and mortar and the Internet—will continue to grow and the providers that provide great customer services will see the benefit.”