To control acute care hospital costs, the centers for Medicare and Medicaid Services (CMS) changed the reimbursement system from cost to the Prospective Payment System in the 1980s. Faced with declining Medicare reimbursement with no change in overhead, acute care hospitals reduced the average length of stay for Medicare patients while relying on Medicare Home Health Agencies (HHAs) and HME providers to support post hospital care. Often, patients were discharged to post-hospital care sicker and earlier. A crisis may now be looming for physicians, acute care hospitals, HHAs, HMEs, patients, and their families.

Reimbursement for post hospital care services must be sufficient so that the organizations that provide this care can afford to stay in business. Like acute care hospitals, HME providers will need to reduce overhead to maintain financial viability. Feeling the squeeze, patients, families, and physicians will be placed in a tenuous situation to monitor homebound patients more closely without support services.

Competitive Bidding
With revenue for home oxygen capped and competitive bidding right around the corner, finding cost effective methods of home oxygen delivery has never been more important for an HME provider. This is a daunting task in today’s health care environment. HME providers are in a tough position because they must delicately balance several market factors.

First, physicians want patients to be ambulatory to increase the quality and length of life. Second, patients are more informed on products for various reasons and drive product-specific demand. Third, new technology now offers more choices in oxygen delivery.

Never before has it been more important for the HME provider to be the expert resource that matches the technology available to the patient’s needs and abilities. However, the oxygen delivery system provided must be cost-efficient. The challenge for an HME provider is to thoroughly understand the cost differences between different methods of oxygen delivery so that intelligent decisions can be made.

Oxygen Delivery Methods
Stationary oxygen concentrators provide a continuous flow of oxygen by filtering room air. Concentrators are most commonly used with customers who have less than 12 hours per week of activity. These systems are supplemented with portable gaseous oxygen cylinders and oxygen conserving devices to meet ambulatory and emergency needs. Oxygen cylinders can be either aluminum or composite and come in various sizes and weights.

Liquid oxygen systems are thermally insulated containers of liquid oxygen, generally consisting of a stationary unit and a portable unit. These systems are most often used for patients with more than 12 hours per week of activity. For patients with high oxygen demands, two stationary units are often provided to reduce the number of oxygen deliveries per month.

• Combination systems combine an oxygen concentrator with a liquid oxygen stationary and portable system. When this system is used, the patient fills their portable unit from the stationary unit and uses it for ambulation. When the patient is in the home, the oxygen concentrator is the unit of choice. This system is usually the most economical way of delivering liquid oxygen.

• In-home refillable cylinder systems include a stationary oxygen concentrator that has the capability of filling an oxygen cylinder. Depending on the brand of device, various size cylinders can be filled and refilled for patient ambulation. Providing the patient with additional cylinders can increase ambulation time. This system eliminates the monthly delivery of oxygen.

• Portable oxygen concentrators provide both stationary and portable oxygen. They operate from AC/DC power and have an internal battery that allows patient portability. Use of this system also eliminates the monthly delivery of oxygen.

Choosing the Right Equipment
In our opinion, the right equipment meets the following requirements:

• It delivers the amount of oxygen written on the patient’s prescription
• It is clinically effective and appropriate for the patient
• It is easy to use for the patient
• It allows you to provide cost-effecient services to care for future patients.

How do you decide what is the most appropriate oxygen delivery system for your “next” oxygen patient given these clinical and financial considerations? Start by addressing routine situations and using the following assumptions:

1) We assume that you desire to provide a suitable system for the patient while maintaining profitability. The patient comes first, but maximizing profits is important to assure you can continue to service subsequent patients.

2) The patient’s prescription is based on a continuous flow of oxygen, and the prescription distinguishes ambulatory from nonambulatory requirements. The flow rates for sleep and rest are equivalent and we treat them both as nonambulatory.

3) When cylinders are used, we assume use of the contents from the standard operating pressure down to 300 psi.

4) A new patient requires new equipment. We know that you sometimes have equipment in stock, but to evaluate disparate systems we must evaluate them from the same perspective. Use of existing inventory reduces capital expense to the extent necessary.

5) We assume the equipment will last throughout the patient’s usage period.

6) We have not included the use of cannulas and other consumables. These are required regardless of the systems used and do not materially affect profitability.

7) The financial evaluation is based on cash flow (or pretax cash flow to be precise). As such, no consideration is given to depreciation, amortization, or salvage values. Why? These noncash items have no bearing on paying your bills or running your business (with the exception of the tax effect of depreciation). More cash is better than less, and if you run out of cash, you are out of business.

Vernon R. Pertelle, MBA, RRT, CCM, is director of respiratory services for Apria Healthcare Group, Lake Forest, Calif.

Thomas J. Williams, MBA, RRT, is managing director of a Riverside, Calif, consulting corp.

Respiratory Insider Bert Nordman II Portable oxygen use is up, according to Frost & Sullivan, a growth consulting company that expects demand to jump 15% over the next 7 years. Dealer/ Provider spoke with Bert Nordman II, sales and marketing manager for The Respiratory Group, St Louis, about recent market innovations and how dealers can best choose a system and handle changing reimbursement rates. What are the two most significant recent advancements in portable oxygen therapy? The ultralightweight portable (includes conserving device) and portable oxygen concentrator. How will those improvements benefit patients and home health care dealers? Our goal has always been to improve the quality of life for the patient with equipment that is inconspicuous and lightweight. Over the past few years, the miniaturization of oxygen systems has given the patient the opportunity to be ambulatory to their fullest ability. With so many oxygen-conserving devices on the market, how can providers best choose which to carry in their stores? Truth be told, with so many conserving devices on the market today, reporting anywhere from 3:1 to 7:1 conserving ratios, it is becoming confusing to dealers as to which one is actually the best for them. Certainly, nobody wants a device that delivers such a small amount of oxygen (highest conserving ration) with the possibility of desaturating patients. What kind of savings is that? Mandated regulatory cuts in our industry could lead to harming patients due to companies trying to “conserve” as much oxygen as possible without knowing all of the facts about conserving devices. With that in mind, we feel it is best to consult an independent source to help with your decision making. How can providers best cope with the more than 25% reduction in the oxygen fee schedule over recent years? By finding more efficient and cost- effective ways of servicing each patient and reducing labor and inventory. In an effort to help the providers, we have taken steps to offer the most efficient products that require the least amount of servicing. Furthermore, education plays a big role in being cost-effective. Each and every manufacturer is different in their techniques in building products, which means the providers and end users must be trained to use each individual product. To help keep the providers’ inventory as low as possible, we have increased our stock to offer same-day shipments on most of our products. Through improved efficiencies, we have been able to reduce pricing on our regulators, cylinders, liquid oxygen equipment, and many more of our products. Most important, we continue our development of efficient systems at a lower cost without sacrificing quality!