While liquid oxygen is rarely the most profitable method of oxygen delivery, its use can set you apart from the competition if you follow a solid set of best practices.

Recent reductions in home oxygen reimbursement have caused many HME providers to begin using transfilling or dual-purpose concentrators in lieu of liquid oxygen (LOX) devices.¹ Many providers, however, are still promoting LOX in their local markets and doing so cost-effectively.

What is their secret? What do they know that other HME providers do not know? What are they doing differently that allows LOX to fit into their business models? And what are successful providers using to provide liquid oxygen in a declining reimbursement climate?

Best Practices
To understand the best practices to provide liquid oxygen cost-effectively, we surveyed several HME providers. Each provider had a successful and growing oxygen business in which liquid oxygen was an important product offering. No provider surveyed was providing liquid oxygen only. All were offering several methods of oxygen delivery, and all of the providers surveyed were following the same general “best practices” described in this article.

Negotiate Price per Pound Carefully
It sounds like a cliché, but what you pay per pound for liquid oxygen matters (see Table). The lower the purchase price, the better for your business. A patient that uses 2 L/min at rest and 3 L/min during exercise with a LOX system, and who ambulates 21 hours per week on average (3 hours/day), uses 258.03 pounds per month. If you service 250 patients per month and each patient uses 258.03 pounds per month, purchase price matters. For example:

Let’s make the following assumptions:

• The patient uses 2 L/min at rest.
• The patient uses 3 L/min during exercise.
• The patient is using the portable for 7 hours each day (the patient may choose to use the portable even when not ambulating because it provides more freedom since they are not tethered to 50 feet of oxygen tubing).
• The LOX stationary system holds 110 pounds of LOX when full. The average normal evaporation rate (NER) is 1.1 pounds/day unless the NER drops to zero when a patient is breathing off it consistently (as in this example).
• The LOX portable holds 0.9 pounds of LOX when full. Each fill actually uses 1.1 pounds (including 0.2 pounds for loss).
• During ambulation, continuous flow from the stationary reservoir is turned off.
• When the LOX stationary reservoir is supplying continuous flow, the pressure drops to the lower economizer value and the NER loss goes to zero on a standard reservoir.
• 342 L of gas = 1 pound of LOX

Results

• 1 L/min x 60 min/hour x 24 hours = 1,440 L of GOX/day
• 2 L/min x 60 min/hour x 17 hours = 2,040 L of GOX/day
• 2,040 L of GOX/day divided by 342 L = 5.96 pounds/day
• Therefore, use per day is 5.96 pounds on the stationary unit + 0 pounds for the NER on the stationary unit + 1.1 pounds to fill the LOX portable/day = 7.06 pounds per day
• 30.5 days a month x 7.06 pounds per day = 215.33 pounds/month.

Own Your Own Bulk Storage Tank
There are three primary advantages to owning a bulk storage tank that can store liquid oxygen at your facility and serve as a filling station for your trucks. First, you purchase liquid oxygen at the lowest possible price because of the quantity you use. Second, you can fill your delivery vehicles on-site and have them loaded and ready to go each day. This allows drivers to pick up their daily route, perform a pretrip inspection, and be on their way quickly each morning. Owning a bulk oxygen storage tank also eliminates the windshield time to drive to another facility and the subsequent wait time for your vehicle to be filled. Third, these vessels can be used to fill oxygen cylinders, thereby lowering those costs as well.

The cryogenic tank and vaporizer system that is installed at your facility is called a bulk storage tank or customer station. The most common manufacturers of these devices are Air Products, Praxair, and Linde. When these storage vessels are placed on-site at an HME provider’s location, the gas distribution system is generally held at a relatively constant pressure. Technology adjusts the rate of liquid oxygen vaporization to track the changing liquid oxygen demand of the HME provider.

Bulk storage tanks are available in various sizes. Some tanks hold as little as 300 gallons or as much as 15,000 gallons with larger tanks (or multiple tanks) used for higher volume customers. The tanks and vaporizers are typically rented from the liquid oxygen supplier, but they also may be purchased by the HME provider.

Drive Time: High Tech and Low Tech
The key to routing is to minimize the drive time between patients and overall windshield time. Routes change weekly because some patients are added while others are deleted. The key to good routing is to look at where all the patients are located in a given area. An ideal route is one in which you can make a loop and end up with your last delivery close to your start point in the quickest time.

Many HME providers have begun to use computer software to help them schedule the most efficient route. Use of a Nextel or GPS system can tell them where a driver is at any given time. This is useful because a driver can often be contacted in the middle of a route and a new patient added. Deliveries are expensive so decreasing the number of them over the lifetime use of the patient is cost-effective.

Routing can be simplified by taking a day and dividing it into minutes. For example: one 8-hour day equals 480 minutes. If you assume your driver will drive 120 miles for the day at 40 mph, that means he will have 3 hours windshield time. He is also entitled to at least 60 minutes for lunch. This leaves 4 hours of work without overtime. If you assume 15 minutes per stop, that means one driver can make a maximum of 16 stops per day. Because of unexpected delays and other business variations, 12 to 14 stops per day is excellent.

Routing becomes even more efficient if you work one driver 10 hours per day for 4 days (40 hours) and another driver part-time for 10 hours per day (Friday and Saturday). This can allow them to make an additional eight stops per day. The key is to have economical routes that keep the windshield time down and the truck and driver making more deliveries. To reduce windshield time, your liquid oxygen patients have to be located in a tight radius. If windshield time can be reduced, it is possible for a driver to make 30 stops per day.

Measure Delivery Costs
What gets measured gets managed. Accurate delivery costs are rarely known in the HME industry. Most HMEs use the industry average of $50 per stop, but that may or may not be correct. There are many variables that affect the delivery cost. At a minimum, the following metrics should be placed into an Excel spreadsheet and measured for all deliveries and in particular for liquid oxygen. They can be done per driver and then aggregated to obtain a complete picture: driver salary, work day, route, total miles, gas price/gallon, total hours worked, total stops, average stops/day, average miles/stop, average miles/day, average time/stop, and average cost/stop.

Curbside Filling vs Milk Canning
Cost-effective HME providers fill the patient’s stationary liquid oxygen vessel from their truck (curbside filling). Some HMEs are buying delivery vans and equipping them with 120- or 190-gallon medical oxygen delivery systems. These units are specifically designed for the safe transportation and delivery of liquid oxygen in a vehicle.

Other HMEs are using larger box-type delivery trucks and installing 300-gallon units. The larger the vessel, the more stops a driver can make per day without going for a refill. Other providers are exchanging one liquid oxygen base unit with another full unit. This practice is called milk-canning because it resembles the old method of delivering milk to a home.

In the old days, the milkman would deliver milk in containers and pick up the empty ones for recycling and refilling. Milk-canning is expensive for several reasons. First, it requires a one to one exchange of units in the patient’s home. The HME provider drops off a full container (milk can) of liquid oxygen and picks up an empty or partially filled one. This practice requires twice as much inventory. Second, each delivery vehicle can hold only a certain number of milk cans. This requires frequent trips back to the branch to restock, which can be a very inefficient practice. Third, it is harder on the equipment because it is being moved more frequently. This could lead to inadvertent equipment failures. Fourth, milk-canning requires that each unit be cleaned before it can be placed back into service. This increases labor costs.

Consider Back-up Oxygen Equipment
Medicare language addresses the supplier’s responsibility for providing backup equipment to deal with an emergency in which the primary piece of life-sustaining equipment malfunctions. Given this fact, it is common for suppliers to place an oxygen concentrator or other backup equipment in a patient’s home for emergency purposes in case the patient’s stationary liquid oxygen is depleted. Medicare does not pay separately or make an additional payment for backup oxygen.

Use Appropriate Patient Equipment
All liquid oxygen vessels have an NER. Low-loss equipment is best used when the HME provider is providing the patient with a combination system (concentrator, liquid oxygen reservoir, and portable). Use of low-loss equipment reduces the NER to a minimum level so that patient deliveries do not need to be made as often. Stationary devices are available in various sizes by manufacturer such as 21 L, 31 L, 36 L, 41 L, and 46 L. Lightweight portable devices hold 0.3 L, weigh 4 pounds, and can last up to 8 hours with an oxygen-conserving device set at two.

Minimize Emergency and Overtime Deliveries
There is nothing more frightening for an oxygen patient than the fear that they will run out of oxygen before their next delivery. Emergency deliveries can be minimized by using three simple strategies. First, teach the patient how to read the gauge to determine how much oxygen they have left in their stationary system. This allows the patient to call you if they have used more than their usual amount of liquid oxygen. Second, if you have the patient on a routine delivery schedule, call the patient ahead of time and remind them when you will make a delivery. Once patients get used to a set delivery schedule, this will not be necessary. Third, have drivers work 10- or 12-hour shifts and carry some minimum inventory. If you receive an oxygen order late or after hours, they can set the patient up. It is better that they divert from their scheduled route than have someone else come in and work overtime to set up the patient.

Special Contracts
Not every patient on home oxygen receives the Medicare benefit. There are many newborn, pediatric, and under-65 patients that require home oxygen. Contracts with third-party payors that pay higher than the Medicare allowable can diversify your business. However, these contracts have to be carefully negotiated.

Pay Cash for LOX Equipment
Sometimes leasing LOX equipment is necessary to preserve cash flow. Paying interest, however, will cost you money and decrease your gross margin. If not used judiciously, leasing can impact the overall viability of your business.

Ultimately, LOX is one of several methods of providing oxygen for active, mobile patients, and it is often the modality of choice for physicians and patients. On the other hand, unless the reimbursement for liquid oxygen improves, it will rarely, if ever, be the most profitable method of oxygen delivery. Its appropriate use, however, can set you apart and positively impact your business.

Thomas J. Williams, MBA, RRT, is managing director of Strategic Dynamics, Scottsdale, Ariz. He can be reached via e-mail: TWilliams@StrategicDynamicsFirm.com.