Nursing homes: Lost opportunity?

CARMEL, Ind. - Despite a Medicare landscape that includes a new 36-month cap on oxygen reimbursement, Kevin Merritt, president and CEO of oxygen provider RCS Management, isn't losing any sleep. Even the threat of a 13-month oxygen cap proposed in President Bush's FY2007 budget doesn't faze him. Why? Although RCS has four HME operations, his company generates 85% of its revenues supplying oxygen to nursing homes. Currently, it has 900 nursing homes under contract in 13 states. With a recent infusion of capital from The Riverside Co. (See HME News, March 2006), RCS plans to more than double the number of nursing homes and states it serves in 2006-2007. Why haven't more HME providers taken advantage of this niche? Merritt, who spoke to HME News recently, says that's a good question. HME News: Have nursing homes always been RCS's focus? If so, what made the company dip its toe into HME? Kevin Merritt: Yes, nursing homes have always been our focus. I'll tell you why we acquired HMEs: We found that more patients in nursing homes were being discharged to their homes. We wanted to follow these patients from the nursing homes to their private residences. HME: Why are nursing homes discharging more patients? Merritt: Reimbursement for nursing homes changed in 1999. Their patients were grouped based on illness and they were given a set amount per day to treat those patients. What we found was that nursing homes were rehabbing patients and sending them home. Most people think once somebody goes to a nursing home (he/she) stays there. That's not happening now. Once patients get on a maintenance healthcare regimen, nursing homes are sending them home. We've seen a huge increase. Six years ago, I would have said 25 patients out of a nursing home needed home oxygen each year. Now there isn't a month that goes by when we don't get a large number of referrals from our facilities. HME: Elaborate a little more on your HME operations. Merritt: We have operations in Flagstaff and Sierra Vista, Ariz.; Wautoma, Wis.; and Carmel, Ind. These operations are really a service for the nursing homes. The nursing homes like them because they have the same providers dealing with patients when they're in the institutions and when they're in their homes. It has allowed for better continuity of care. HME: Does RCS plan on increasing its HME presence? Merritt: The jury's still out, because there are cuts coming down. If we do, it'll be organically. What we'll do is take referrals from nursing homes and continue to service those patients when they're discharged. HME: Why haven't more HME providers seized the nursing niche? Merritt: If you're not in it now, you don't realize the number of referrals that come out of these facilities. When reimbursement changed, it created a whole new referral source for HME providers. We've been in nursing homes for 12 years, so we already understood what it was about. Also, a lot of people were nervous about nursing homes, because they went through such a huge reimbursement change. A number even went through bankruptcies. They were looked at as high risk. HME: With the recently passed cap on oxygen, your nursing home niche seems like a safe haven. Merritt: Definitely. What's happened with nursing homes is that, essentially, there is no reimbursement for oxygen. Nursing homes have to pay for it out of their operating budgets. It's just a fee-for-service. We bill the nursing homes, and then the nursing homes turn around and bill the payers on behalf of the patients. It's real clean. Once we get paid, we don't have to worry about books and records; we don't have to worry about audits. We don't have to worry about the government reaching their hand in and interrupting our cash flow. HME: How do the costs of servicing patients in nursing facilities vs. homes differ? Merritt: The average price for a concentrator in a nursing home is $50 a month. It's $200 for the homecare market. We make respectable margins at $50 a month to nursing homes. But what we are, really, is a wholesale provider of respiratory services to nursing homes. HME: Also, you don't provide the same level of services to nursing homes, right? Like RT visits? Merritt: Right. If a nursing home wants an RT, we provide that to them at an hourly rate. The reality is, when we send a truck to a nursing home, we may fill 15 tanks instead of going to one patient's home and filling one tank.