For Mike Marnhout of Bluegrass Oxygen, the race for success starts with customers.

In the early 1980s, when Mike Marnhout wanted to start a DME business, he found himself short of cash. He asked his parents for a loan, a request that was granted—but with one stipulation. Marnhout’s hospital administrator mother made him promise he would always, no matter what, take care of people in need, regardless of their ability to pay.

Marnhout honored that pledge, right up to the day he sold the company in 1993 and then, in 1996, picking it right up again with the launch of an entirely new venture, which he named Bluegrass Oxygen. “I’m still keeping the promise I made to my mother,” says Marnhout, president and CEO of Bluegrass Oxygen, now with five Kentucky locations, one in Ohio, and others likely to be added in nearby states. “I am keeping that promise because our growth has been directly tied to the fact that we have never turned anybody away. Never will, either—and national competitive bidding is not going to change that.”

No Fear
Bluegrass Oxygen offers four primary products—oxygen therapy, sleep apnea therapy, aerosol therapy, and oximetry testing. Two of its offices are in rural settings, so these locations carry full-line DME in addition to the respiratory-related goods and services (as soon will all Bluegrass Oxygen locations, according to Marnhout).

Beginning with an office in the city of Lexington, Bluegrass Oxygen has steadily grown into a leading regional player. That could prove to be a ticket to ride once national competitive bidding commences, for Bluegrass Oxygen is now sufficiently large to compete against the industry giants on pricing, while remaining small enough to deliver what those same major leaguers tend to fumble—patient- and referrer-pleasing service tailored to individual needs.

Marnhout knows he will be going toe-to-toe with some remarkably muscular opponents, and will be fighting above his weight. That does not worry him, though. “The big guys don’t scare me; they never have,” he says. “I’m a pretty competitive-oriented guy to begin with, so I look forward to taking them on.”

That’s the way they talk at National Football League press conferences before a big game, something Marnhout knows a thing or two about thanks to a brief stint in 1975 as a defensive end with the Houston Oilers (prior to that, he was a college gridiron great at the University of Kentucky and later at Cal Western in San Diego). “I see national competitive bidding as an opportunity: an opportunity for Bluegrass Oxygen to become even bigger and better,” he says.

Winners and Losers
Marnhout nonetheless recognizes national competitive bidding for what it is: an ill-conceived policy likely to decimate smaller providers. “The losers will be the little guys in major metropolitan areas, because they won’t be able to meet or underbid the pricing of the big companies,” he predicts. “The federal government’s own estimate is that 50% of the home care providers operating today will be gone 3 to 5 years after national competitive bidding takes effect.”

Small operators probably will not even be granted the consolation of a graceful exit by selling off to the giants, since the larger players no longer have much of an appetite for acquisitions. Accordingly, about all the mom-and-pops can do is sit back and wait for the end to come—unless, as Marnhout suggests, “they band together and form or join buying groups, pooling their resources to obtain product at a shared price low enough to place them in the same ballpark with the major chains. If they join hands, they can have a shot at survival.”

Marnhout believes CMS should take a second look before they leap, and make sure national competitive bidding is really necessary. “CMS initially forecast a savings of 20% resulting from competitive bidding but, since that analysis was made, it is estimated that they have already achieved a 17% saving through the various reimbursement cuts,” he says. “I think if they reevaluate this, they will find that the cost of the bidding process may now outweigh the benefits. This is certainly something Congress should review.”

National competitive bidding could, of course, become a moot issue in the event Congress passes HR 3559, the Hobson-Tanner bill. However, Marnhout notes that the measure still is well short of the support it needs on both sides of the aisle in the lower chamber on Capitol Hill. “The problem is that not enough people in our industry have gotten involved and applied pressure to their elected representatives,” Marnhout says. “If we could have more voices speaking up, I think we can get HR 3559 passed.”

Toward that end, Bluegrass Oxygen has waged an education campaign targeting patients, the aim of which is to encourage their calls and letters to congressmen and senators. “We’ve communicated this through mailings and in-home contacts with our patients and their adult sons and daughters,” says Marnhout.

MAKING PROVISIONS
When it comes to directly pleading the industry’s case before the lawmakers in Washington, Marnhout is no slacker—he rolls up his shirt sleeves and pitches in often. For example, he was involved in AAHomecare’s recent fly-in to the District of Columbia. “We were able to swing at least one congressman our way, and made progress toward gaining the support of several others on the Home Oxygen Patient Protection Act [HR 5513 and S 3814]—the repeal of the 36-month oxygen cap,” he recounts. “A lot of legislators have now been educated to understand that we do a lot more than simply deliver equipment. They are beginning to recognize, as we’ve been saying for some time now, that what’s going to happen as a result of the oxygen cap is more patients will end up in emergency rooms more often. Those patients are not going to be given the level of care from oxygen providers that they received in the past—and that they still very much need.

“We’ve made the case that it costs Medicare more than $3,600 for just 1 day in the hospital, but less than $2,800 for us to take care of an oxygen patient for 1 entire year,” Marnhout adds. “This comparison is helping lawmakers understand that the oxygen cap is not cost-effective and makes little economic sense. But more fundamentally, our message is that many patients will end up owning the oxygen equipment we’ve been renting to them, which may result in equipment no longer receiving adequate servicing as in the past—and that could place them at unacceptably greater risk of life-threatening equipment failures.”

At Medtrade Atlanta this past September, Invacare CEO Mal Mixon gave a presentation in which he lambasted the federal Office of Inspector General’s recently released oxygen report, branding it “biased, flawed, and stupid.” Marnhout concurs with the sentiments expressed—although he thinks calling the OIG report “stupid” may have been a poor choice of word. “I think I would have used ‘uninformed,’” he says. “Even so, Mal can’t be faulted. His company deserves a lot of credit. They’re very proactive. They helped derail the bill for the 13-month oxygen cap.”

There is, of course, no guarantee that the existing 36-month cap will be repealed. But Marnhout is ready if the policy holds. “We’ve been laying the groundwork to diversify our product offerings into other lines not yet impacted by caps and cuts, such as beds, power wheelchairs, and infusion,” he reveals. “We think the biggest growth opportunities for us are going to be in sleep. It’s a market that has barely been tapped—and products that will revolutionize the sleep market for home care providers are going to become FDA-approved and available at some point in the next year or so.”

The More Things Change
Bluegrass Oxygen benefits from the goodwill generated by its charitable endeavors. One such philanthropic activity involves indirect support of the Appalachian Outreach Program in eastern Kentucky. “I serve on the board of the St Joseph’s Hospital Foundation and am chairman of a charity golf tournament we hold every year to raise funds for it,” says Marnhout. “This last year, we had 276 players and raised $120,000. That brought the total we’ve raised with this tournament over the last 5 years to $600,000. A big part of this year’s proceeds went to the Appalachian Outreach Program, a mobile clinic that provides free inoculations and other health services for the less fortunate.”

When Marnhout got started, reimbursement for oxygen was generous by today’s standards. “You could expect Medicare to pay over $300 for an oxygen concentrator—private insurers would give you $400,” he recalls.

Payouts like those are long gone, but provider interest in obtaining the biggest bang for the buck on equipment is no less keen now than in the past. Marnhout buys his oxygen concentrators and sleep apnea products almost exclusively from a company that “has shown good sensitivity on product pricing in response to reimbursement cuts.”

Another big change seen by Marnhout is automation. A mere decade ago, reams of paper and boxes of pencils were about all one really needed to administer an oxygen company. “Computers? What are those?” Marnhout playfully remembers thinking at the time. “Today, completely different story. You cannot operate without computers and good management software because of the efficiencies those make possible. We are now paperless. Everything—claims billing, reporting, you name it—is electronic. I even have a full-time information technologist to keep it all running smoothly.”

Bluegrass Oxygen was a well-run ship long before its digital conversion, which explains why major national companies kept giving it the eye. One even proposed an acquisition, but Marnhout declined to sell. “I was not too enthused by the business model they wanted,” he says. “Too many people who were dependent on Bluegrass Oxygen—employees, patients, and referral sources—would have been given the short end of the stick. I did not want to see that happen, so I decided I’m in this for the long haul.”

Rich Smith is a contributing writer for Dealer/Provider.