The glass is cracked, but it is still half full for oxygen providers who are willing to work intelligently and adapt to changing times.

If you took the Medicare concentrator rate from 1985 ($302.50) and compounded it by the consumer price index (CPI) used to update Medicare over the past 20 years, you would arrive at a fee today of $544.58. This was just before the introduction of the six-point plan that ushered in the first of what was to become many reductions in the fee for oxygen. It is no wonder that providers from that era said this was the “end of the industry.”

How is it that today our Medicare oxygen fee is $200.41, and there are many private and public companies still in business—and a lot of them are doing well? The answer is that oxygen has become a niche product with a great deal of specialization. Companies that prospered have a focused marketing program, solid financial data, comprehensive personnel training, and technology to boost efficacy.

We see more respiratory therapists making sales and marketing calls than we see going into patients’ homes to instruct them on the use of equipment. Will this trend reverse? I think not!

One of the key benchmarks is sales per employee. As reimbursement has come down, successful companies have had to find ways to gain more efficiency from their employees. We talk about “patient contacts” today rather than “patient visits.” We write “care plans” that state the visit frequency rather than just send a clinician out on a monthly basis. This and the better use of technology have increased the sales-per-employee ratio.

Better communications and up-front training of patients help companies to reduce the number of home visits. Using mapping programs and GPS has enabled companies to increase the number of deliveries per hour worked. Better engineered oxygen equipment allows field maintenance to be performed in a short time. Sophisticated billing systems have reduced billing errors and become essential management information tools, while reducing the number of man-hours required to collect third-party funds. There is also reduced tolerance for nonpayment of co-pays.

Fierce Competition
Today, the successful company has a media plan that includes TV, radio, print ads, and direct marketing. The manufacturers have stepped in to provide co-op programs to promote their products with your company. We see ads on TV for noiseless concentrators, liquid portable oxygen, home fill, and lightweight power concentrators. To survive, we have become an industry of promotion rather than attraction.

All these things have been done already by the companies that are prospering today. This is not a niche market for the faint of heart. If you think you can dabble in the business, you are on a collision course with disaster. A hurricane will look like a little afternoon rainstorm compared to what your balance sheet will look like after all the pending changes go into effect. I am referring to competitive bidding and the 36-month lifetime cap for beneficiaries on oxygen therapy.

What will your company look like in 2010? If history is a good teacher, many private and public companies will still be in business and a lot of them will be doing well. The harsh reality, however, is that the utopian era when all oxygen customers are created equal is coming to an end.

Customers will be classified according to their ability to pay. The most desirable will be those who have the resources to buy the value-added services offered by a home care company. The next tier will be those who try hard to pay for value-added services and do so most of the time. At the bottom will be those who have not planned for health care needs and cannot pay for any services other than those provided by a third party. That is not much different than today, but each class in the future will be clearly labeled.

Of course, we will put our own spin on the classification of patients to make it sound more desirable. We will talk about giving patients more choices. Those at the bottom of the ladder have the most choice—the freedom to choose any provider who will come to their home for a fee when the equipment malfunctions or delivery of a portable device is needed.

How will you generate the funds to cover the costs of providing service to customers who have reached their lifetime cap—especially if you acquired your patient base through a competitive bidding process? Oxygen providers have been leaving revenue on the table for years. In 1985 dollars, the current co-payment for oxygen users would be $108.92—a little more than half the current allowable. In 1985, about 75% of customers paid their co-payment with little difficulty, and 25% struggled to pay or paid nothing at all. The same scenario is true today—75% pay and 25% do not. Many more patients have the resources to cover their needs than those who do not.

In the future, your oxygen company will have a targeted marketing program that not only attracts new patients but generates additional revenue from patients when they come on board. For example, you will offer an up-front maintenance, service, and delivery agreement that covers all customer’s needs when they exceed the 36-month lifetime oxygen cap. Like Medicare Part B, the cost of this service agreement will increase as the customer moves closer to the cap.

Customers will be offered the latest technology—but now it will be on a private-payment basis. The fill-at-home models, lightweight liquid portables, or portable concentrators will be given only with an Advance Beneficiary Notice (ABN). Again, you will be generating more private revenue per patient.

We will all read the Medicare equipment definition of purchased oxygen equipment. For example, the container (tank) is not included in the E0430, and there is no mention of a backup system in the E1390. Under owned oxygen equipment, the documents are silent about delivery. These items become revenue opportunities to oxygen users for a lifetime service-maintenance agreement.

You will know from actuarial tables exactly how many customers will need to subscribe to your service program to make it economically feasible to provide such guarantees to future users. Your financials will monitor your daily sales and collections as well as serve as a forecaster for the days to follow.

Everyone will need to respond to customers to identify those who can be introduced to value-added services. Courtesy will still rule the day, but customers will receive service according to the agreement to which they have subscribed. DP

Don White is president of Associated Healthcare Systems, Amherst, NY. He is a Dealer/Provider editorial advisory board member and a past chairman of AAHomecare. White can be reached via e-mail: white@associatedhealthcare.com.