How to Survive the 36-month Oxygen Rental Cap
At the beginning of this year, the 36-month rental cap forthe Medicare oxygen benefit went into effect. Under it, providers’ funding foroxygen equipment rental is capped at 36 months, even though the benefit canlast as long as five years, which is the useful lifetime of the originalequipment under CMS guidelines.
Also, under the rental cap rules, providers must continue tocare or arrange care for patients when they move or travel, even if the move isoutside the provider’s normal service area. For providers that serve largenumbers of patients that travel frequently or seasonally, this requirement cancreate a number of dilemmas, such as arranging for licensing in other states.
Moreover, patients also suffer under the rental cap, sinceit will diminish their access to new equipment innovations, and hamper theiraccess to quality respiratory care. No matter how you slice it, the cap is aterrible deal for everybody concerned.
So, while the industry might fight legislatively to end therental cap, what can providers do in the meantime in order to survive?
Know the numbers. Know the details of your oxygen business,including all cost- and care-related components. This includes the cost ofproviding service, the total cost of equipment ownership, patient lengths ofstay, and true revenue vs. cost (don’t mistake revenue for profit). Monitoringoperation metrics such as your current employee turnover rate are key inunderstanding costs, as well. The same goes for studying your patients. Whatpercentage of oxygen patients stay on past 36 months? Sixty 60 months? Untilyou know the numbers, you can’t develop a strategy to cut costs and preservemargins.
Non-delivery. Of course the business model that manyproviders are trying to evolve to is a non-delivery modality in which patientsuse portable oxygen concentrators and other self-filling respiratory devicesthat reduce the volume of regular tank delivery. Non-delivery dramatically cutsoxygen business overhead by slashing the very costly infrastructure requiredfor delivery. This includes items such as drivers, dispatch and vehicle fleets.Those vehicles entail steep maintenance and fuel costs — and gasoline pricesare yet again on the rise. Trying to trim those costs in the face of reducedreimbursement is critical for surviving the cap.
Furthermore, POCs give patients more control over theirlives. They can choose to go on battery power and hit the road. This opens up awhole new way of living for patients who might otherwise be tethered to heavieroxygen equipment. Now patients can easily run errands and travel, and thuslybecome more active, which can help improve outcomes.
Find other efficiencies. That said, while providers mightultimately seek to evolve to a non-delivery business model, they must stilldeliver tanks to the majority of their patients in the meantime. This meansproviders must find additional ways to cut costs and enhance efficiencies sothat they can maximize their margins. These savings should help them afford theinvestments needed to move to a non-delivery model.
Optimize delivery. One way to gain efficiency lies inoptimizing their oxygen delivery operations. A typical oxygen provider mightdivide its service area in regions, with drivers in each region undertakingtasks such as set-up, maintenance and service, pick-up and tank deliveries. Emergencyand unscheduled service related to any of those regions is boiled into eachdriver’s routine. If a patient needs an emergency repair in a driver’sterritory, the driver prioritizes that patient and alters the route andschedule.
Instead, implement a delivery management system that letsyou manage incoming orders, schedule them, and create efficient distributionroutes that are distributed to the drivers each morning — and then ensure thatdrivers stick to those routes. Route management systems will optimize theroutes for efficiency and fuel savings, and some include reporting systems thathelp you track drivers’ progress. Then nominate one or two drivers to addressemergency calls.
GPS. Beyond route management, you can implement GPS systemsthat combine route optimization tools with real-time monitoring of drivers inthe field. They can even track drivers’ rate of speed, which can be importantin terms of gas mileage. GPS lets providers more closely manage deliveries andquicken response to emergency service calls.
Fight the good fight. In the meantime, you still need tostand up for your business, industry and your patients by fighting to protectthe oxygen benefit. So far, there are two man initiatives in the industry, theHOPP Act, a House bill that seeks to end the 36-month cap, and a multi-pointoxygen reform policy the New Oxygen Coalition seeks to have integrated intowhatever healthcare reform takes shape in Congress. Make sure you understandthe issues and effectively lobby your Congress members on these two fronts (see“How to Lobby Congress to Help Your Industry,” page 30 to learn more.) Livingunder the cap is a daily reality, but getting rid of it is the ultimateobjective.
Points to take away:
- Understand the true cost structure of your oxygen business.
- Move to a non-delivery model using self-filling devices suchas POCs.
- While transitioning to a non-delivery model, optimize youroxygen delivery business using tools such as route management and GPS systems.
- Ensure you are participating in the fight to end the rentalcap by getting involved in industry lobbying efforts.
This article originally appeared in the July 2009 issue of HME Business.