Special Focus on Portable Oxygen

While respiratory providers typically focus on Medicare's 36-month rental, there is also a short-term rental market. Entering either requires solid planning.

While respiratory providers typically focus on Medicare’s 36-month rental, there is also a short-term rental market for oxygen equipment. Entering either business requires solid planning.

As respiratory providers know, the oxygen business splits into two main categories: One is called rental, but that really describes the payment arrangement in which Medicare pays a provider a monthly fee for three years to provide equipment for long-term oxygen therapy (LTOT) patients. After the 36 months, the patient owns the device, but the provider must continue to provide warranty protections and service for another two years. The other model is true rental, in which companies – usually specialized providers – offer true equipment rental and support for patients with short-term needs.

The first group is long-term oxygen therapy patients, primarily chronic pulmonary (COPD) patients. They are likely to use oxygen supplements an average of 15 hours a day. Much of that is at home, where they may use a tank system as a primary source but portable oxygen concentrators (POCs) are expanding patient horizons with devices that are compact, lightweight and less intrusive.

The second group overlaps the first: it might be a home oxygen patient who just needs a POC or other arrangement for an event or trip, or as support for another treatment.

“Short-term POC patients are hospice patients who want to go to a wedding or graduation, someone who is traveling across the country,” says Elliott Campbell, senior vice president of Trace Medical. The company’s main business is ventilators, but, “We were getting people who say, ‘I need a POC, but I don’t need it for long.’” Campbell says. That launched Trace’s POC rental business, “for people where it does not make sense to buy.”

For those patients, companies such as Trace and VGM Freedom Link work with DMEs to give patients the service they need, without encumbering the DME with long-term oxygen support obligations. In this scenario, the DME is mainly a middleman providing a referral as a service, a facilitator cultivating the broader customer relationship.

“When we get a call directly from a patient, we refer them to a DME. We rent [equipment] to the DME and they rent it to the patient. Trace does not deal with patient billing,” Campbell says. Trace has a relationship with an authorized service center that does all of the maintenance, repair and service on equipment the company rents. True rental is also largely a cash business with few, if any, reimbursement options.

Either way, oxygen is a drug, so providers need the correct licensing to provide it. That means providers need to have the right resources and knowledge.

“To sell POCs retail, there are several basic infrastructure requirements including state licenses and the ability to retrieve and store a prescription in a compliant manner,” says Nick Jacobs, senior director of respiratory at Invacare Corp. “I would not say that certain DME retailers have inherent capabilities that make them better suited to provide oxygen services; however, some are better at it than others. This ultimately comes down to whether the retailer views the sale as a transaction or something more than that. And it’s about business model and choice more than anything.”

Once the legal hurdles are cleared, financial and operational considerations kick in. “There are some decisions that need to be made about the business model,” Jacobs says “Are you going to provide the high-touch, in-store retail experience, sell solely online, or both? The answer to this question – and others about how the retailer is going to compete in the market – will dictate what else is needed in terms of financial commitments, space, and personnel.”

Seasoned home oxygen providers know they must not only provide the device, but supply and service tanks and other equipment. POCs can reduce some of that cost, but there’s no shortcut to a successful business or care model.

For many LTOT patients, a POC is a backup and may not eliminate deliveries. “When we place a POC, we don’t take the tank out of the home,” says Caleb Umstead, education director at First Class Medical. “When we do a non-assigned claim, we set them up with a concentrator and tank. If they come back for a POC, our script for that is ‘you need a backup.’”

The cost of stocking and offering rental oxygen equipment adds up fast in the equipment itself, space for it and, unless you are doing retail sales, the time to payoff. Even filling specific patient orders can be a cash-intensive proposition for an item that takes 36 months to pay off. A deep dive into oxygen might require outside funding unless your business is very well capitalized.

“The only ones who can really play there is the big guys,” says Umstead, who acknowledges the competitive pressure his own and other online retailers put on brick-and-mortar DMEs. “You want to showcase that you have POCs, but cash flow is king. If you go out and start getting a bunch of referrals for it, you can’t sustain it unless you have cash flow... If you sign up 10 patients, that’s $15,000 that you might not get back for 24 months.”

Once you have the licenses, capital, space and staff to offer oxygen, you have to bring in the business and choose what to stock. Some DMEs may choose to handle oxygen strictly by filling one customer order at a time.

This article originally appeared in the September 2018 issue of HME Business.

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