Medicare Home Oxygen
Refining Payment Methodology Has Potential to Lower Program and Beneficiary Spending Gao ID: GAO-11-56 January 21, 2011Studies have found that Medicare payment rates for home oxygen exceeded other payers' rates. Congress has reduced home oxygen payment rates, capped rental payments after 36 months, and directed the Centers for Medicare & Medicaid Services (CMS), which administers Medicare, to use competitive bidding. GAO was asked to examine Medicare home oxygen payment policy. GAO describes how Medicare pays for home oxygen; the effect on Medicare's payments of using other methodologies and rates; and changes in beneficiary access. GAO reviewed federal laws and regulations, industry-reported costs, Medicare claims data and payment data from selected private insurers, the Department of Veterans Affairs (VA), and CMS's competitive bidding program.
For beneficiaries who qualify for home oxygen benefits, Medicare pays suppliers a monthly rate that covers rental of a stationary, home-based unit and all related services and supplies; these payments were substantially higher than estimated suppliers' costs. Medicare pays a separate rate for rental of a portable unit if one is supplied. Medicare combines, or bundles, payment for stationary equipment with payment for oxygen refills, which are required only for certain equipment types. Thus, when a supplier furnishes oxygen equipment that does not require refills, it may still receive payment for them. As of January 1, 2006, Medicare capped suppliers' rental payments for home oxygen equipment after 36 months of continuous use by a beneficiary. At that point, the supplier may experience diminished payments and more coverage requirements. In some cases, suppliers may have to subcontract with another supplier if a beneficiary moves out of the supplier's service area. The eight private insurers GAO interviewed used payment methodologies similar to Medicare's, but seven did not use a rental cap. If Medicare had used the methodologies and payment rates of the lowest-paying private insurer, it could have saved about $670 million of the estimated $2.15 billion it spent on home oxygen in 2009. Using the VA's payment methodology, savings could have been approximately $410 million to $810 million. Basing Medicare's national rates on data from CMS's competitive bidding program 2011 rates could have saved $700 million. Since beneficiaries pay 20 percent of the payment, lower rates could have reduced beneficiary spending. Utilization trends show overall beneficiary access to home oxygen has not diminished, despite reductions in payment rates and in the number of suppliers from 2001 through 2008. In that period, the proportion of Medicare Part B beneficiaries using home oxygen rose from less than 3 percent to almost 5 percent. But the relative mix of equipment changed--use of more service-intensive portable equipment decreased and use of only stationary oxygen concentrators increased. Medicare's rental payment for stationary concentrators, which includes payment for portable oxygen refills although they are not provided to about one-third of home oxygen beneficiaries, may discourage provision of portable equipment. The equipment might not always be accessible to beneficiaries who would benefit from using it as well as a stationary concentrator. Although the majority of home oxygen suppliers GAO spoke with said they were reluctant to or would not accept new beneficiaries who were approaching the 36-month cap, according to CMS, the agency has ensured that all beneficiaries who relocated found suppliers. Further, CMS stated that if in the future access to home oxygen becomes a problem after a beneficiary relocates; it may consider requiring the supplier that provides home oxygen for month 18 or later to provide oxygen for the remainder of the rental period or make arrangements with another supplier to do so. Congress should consider reducing home oxygen payment rates. GAO recommends that CMS remove payment for portable oxygen refills from the payment for stationary equipment. The Department of Health and Human Services (HHS) commented that payments for home oxygen are "excessive," but disagreed with the recommendation because HHS believed it would not yield immediate savings. GAO's recommendation was not intended to generate savings but to help ensure beneficiary access to oxygen.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: James C. Cosgrove Team: Government Accountability Office: Health Care Phone: (202) 512-7029GAO-11-56, Medicare Home Oxygen: Refining Payment Methodology Has Potential to Lower Program and Beneficiary Spending
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United States Government Accountability Office:
GAO:
Report to Congressional Requesters:
January 2011:
Medicare Home Oxygen:
Refining Payment Methodology Has Potential to Lower Program and
Beneficiary Spending:
GAO-11-56:
GAO Highlights:
Highlights of GAO-11-56, a report to congressional requesters.
Why GAO Did This Study:
Studies have found that Medicare payment rates for home oxygen
exceeded other payers‘ rates. Congress has reduced home oxygen payment
rates, capped rental payments after 36 months, and directed the
Centers for Medicare & Medicaid Services (CMS), which administers
Medicare, to use competitive bidding. GAO was asked to examine
Medicare home oxygen payment policy. GAO describes how Medicare pays
for home oxygen; the effect on Medicare‘s payments of using other
methodologies and rates; and changes in beneficiary access. GAO
reviewed federal laws and regulations, industry-reported costs,
Medicare claims data and payment data from selected private insurers,
the Department of Veterans Affairs (VA), and CMS‘s competitive bidding
program.
What GAO Found:
For beneficiaries who qualify for home oxygen benefits, Medicare pays
suppliers a monthly rate that covers rental of a stationary, home-
based unit and all related services and supplies; these payments were
substantially higher than estimated suppliers‘ costs. Medicare pays a
separate rate for rental of a portable unit if one is supplied.
Medicare combines, or bundles, payment for stationary equipment with
payment for oxygen refills, which are required only for certain
equipment types. Thus, when a supplier furnishes oxygen equipment that
does not require refills, it may still receive payment for them. As of
January 1, 2006, Medicare capped suppliers‘ rental payments for home
oxygen equipment after 36 months of continuous use by a beneficiary.
At that point, the supplier may experience diminished payments and
more coverage requirements. In some cases, suppliers may have to
subcontract with another supplier if a beneficiary moves out of the
supplier‘s service area.
The eight private insurers GAO interviewed used payment methodologies
similar to Medicare‘s, but seven did not use a rental cap. If Medicare
had used the methodologies and payment rates of the lowest-paying
private insurer, it could have saved about $670 million of the
estimated $2.15 billion it spent on home oxygen in 2009. Using the VA‘
s payment methodology, savings could have been approximately $410
million to $810 million. Basing Medicare‘s national rates on data from
CMS‘s competitive bidding program 2011 rates could have saved $700
million. Since beneficiaries pay 20 percent of the payment, lower
rates could have reduced beneficiary spending.
Utilization trends show overall beneficiary access to home oxygen has
not diminished, despite reductions in payment rates and in the number
of suppliers from 2001 through 2008. In that period, the proportion of
Medicare Part B beneficiaries using home oxygen rose from less than 3
percent to almost 5 percent. But the relative mix of equipment changed”
use of more service-intensive portable equipment decreased and use of
only stationary oxygen concentrators increased. Medicare‘s rental
payment for stationary concentrators, which includes payment for
portable oxygen refills although they are not provided to about one-
third of home oxygen beneficiaries, may discourage provision of
portable equipment. The equipment might not always be accessible to
beneficiaries who would benefit from using it as well as a stationary
concentrator. Although the majority of home oxygen suppliers GAO spoke
with said they were reluctant to or would not accept new beneficiaries
who were approaching the 36-month cap, according to CMS, the agency
has ensured that all beneficiaries who relocated found suppliers.
Further, CMS stated that if in the future access to home oxygen
becomes a problem after a beneficiary relocates; it may consider
requiring the supplier that provides home oxygen for month 18 or later
to provide oxygen for the remainder of the rental period or make
arrangements with another supplier to do so.
What GAO Recommends:
Congress should consider reducing home oxygen payment rates. GAO
recommends that CMS remove payment for portable oxygen refills from
the payment for stationary equipment.
The Department of Health and Human Services (HHS) commented that
payments for home oxygen are ’excessive,“ but disagreed with the
recommendation because HHS believed it would not yield immediate
savings. GAO‘s recommendation was not intended to generate savings but
to help ensure beneficiary access to oxygen.
View [hyperlink, http://www.gao.gov/products/GAO-11-56] or key
components. For more information, contact James C. Cosgrove at (202)
512-7114 or cosgrovej@gao.gov.
[End of section]
Contents:
Letter:
Scope and Methodology:
Background:
Medicare's Payment for Home Oxygen Overcompensates Suppliers for Most
Frequently Used Equipment Type:
Using Other Payment Methodologies and Rates Could Lower Medicare Home
Oxygen Spending:
Utilization Trends Indicate That Overall Access to Medicare Home
Oxygen Has Not Diminished, but Some Beneficiaries May Face Access
Challenges:
Conclusions:
Matter for Congressional Consideration:
Recommendation for Executive Action:
Agency and Industry Comments and Our Evaluation:
Appendix I: Methodology:
Appendix II: Adjustments to Data in Industry-Funded Report:
Appendix III: Comments from the Department of Health and Human
Services:
Appendix IV: GAO Contact and Staff Acknowledgments:
Table:
Table 1: Home Oxygen Equipment Covered by Medicare, and Percentage of
Beneficiaries Using Each Type of Equipment:
Figures:
Figure 1: Medicare Payment for Home Oxygen Equipment and Services
before and after the 36-Month Rental Cap, 2009:
Figure 2: Estimated Suppliers' Monthly Costs per Beneficiary for
Equipment and Covered Services, and Medicare's Average Monthly Payment
for Selected Combinations of Home Oxygen Equipment, 2009:
Figure 3: Estimated 2009 Medicare Expenditures If Other Payment
Methodologies Were Applied Nationwide:
Figure 4: Percentage of Medicare Part B Beneficiaries Using Home
Oxygen, 2001 through 2008:
Figure 5: Percentage of Medicare Home Oxygen Beneficiaries Using
Stationary Equipment Only and Portable Equipment:
Abbreviations:
AAHomecare: American Association for Homecare:
BBA: Balanced Budget Act of 1997:
BLS: Bureau of Labor Statistics:
CMS: Centers for Medicare & Medicaid Services:
COPD: chronic obstructive pulmonary disease:
CPI-U: Consumer Price Index for All Urban Consumers:
CQRC: Council for Quality Respiratory Care:
DME: durable medical equipment:
DRA: Deficit Reduction Act of 2005:
GPO: group purchasing organization:
HCFA: Health Care Financing Administration:
HCPCS: Healthcare Common Procedure Coding System:
HHS: Department of Health and Human Services:
IRS: Internal Revenue Service:
MIPPA: Medicare Improvements for Patients and Providers Act of 2008:
MMA: Medicare Prescription Drug, Improvement, and Modernization Act of
2003:
NAIMES: National Association of Independent Medical Equipment
Suppliers:
OGPE: oxygen-generating portable equipment:
OIG: Office of Inspector General:
VA: Department of Veterans Affairs:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
January 21, 2011:
Congressional Requesters:
Questions about the appropriateness of Medicare payment rates for home
oxygen date back for more than a decade.[Footnote 1] In 1997 we
reported that Medicare home oxygen payment rates were significantly
higher than another federal payer's rates.[Footnote 2] The Department
of Health and Human Services (HHS) Office of Inspector General (OIG)
echoed this message in 2005, and in 2006 it also reported that
Medicare significantly overpaid for the cost of the most commonly
supplied type of home oxygen equipment.[Footnote 3] For beneficiaries
who qualify for home oxygen, Medicare pays suppliers a monthly rate
that covers rental of a stationary, home-based unit and all related
services and supplies, such as delivery of oxygen content refills and
maintenance of equipment.[Footnote 4] Medicare also pays a separate
rate for rental of a portable unit if one is supplied to the
beneficiary. We estimated that Medicare expenditures for home oxygen
totaled $2.15 billion in 2009.[Footnote 5]
Payment rates that are too high not only affect federal government
spending but also increase costs for beneficiaries, who are
responsible for 20 percent of the payment.[Footnote 6] Congress has
reduced or limited payment rates for home oxygen several times since
1998 and in 2006 instituted a cap that eliminates rental payments to
suppliers after 36 months of a beneficiary's continuous use of
equipment for the duration of its reasonable useful lifetime. In
addition, Congress directed the Secretary of Health and Human Services
to begin implementing a competitive bidding program for suppliers of
certain durable medical equipment (DME), including home oxygen.
Industry groups claim that the OIG's 2006 analysis of the cost to
supply home oxygen did not sufficiently account for the level of
services suppliers deliver to beneficiaries. In addition, industry
groups have raised objections to the 36-month rental cap because it
both reduces suppliers' payments and requires them to provide services
for as long as 24 months after the cap, even when a beneficiary
relocates outside a supplier's service area.[Footnote 7] These groups
have also urged Congress to repeal requirements for competitive
bidding, contending that it would force some suppliers out of
business.[Footnote 8]
You asked us to examine how Medicare pays for home oxygen and make
recommendations for improving home oxygen payment policies. In this
report, we (1) describe Medicare's payment methodology and rates for
home oxygen and compare payments with estimated suppliers' costs, (2)
compare Medicare's payment methodology and rates with those of other
payers and examine how Medicare's use of other payers' methodologies
and rates could affect its overall home oxygen spending, and (3)
examine changes in Medicare beneficiaries' access to home oxygen.
Scope and Methodology:
To obtain contextual information about the home oxygen industry, we
interviewed representatives from two industry associations
representing suppliers; one association for respiratory care
therapists; and an official from the HHS OIG. We also interviewed
samples of private insurers and home oxygen suppliers of varying sizes
about payment rates and operating practices, respectively; these were
not statistically representative samples and information cannot be
generalized to all insurers or suppliers.
To describe Medicare's payment methodology and rates for home oxygen,
we reviewed relevant federal statutes, regulations, and guidance and
discussed certain payment policies with Centers for Medicare &
Medicaid Services (CMS) officials. To estimate suppliers' costs to
provide home oxygen to Medicare beneficiaries--which generally include
equipment acquisition; provision of required services such as
equipment delivery and maintenance; and overhead--we obtained
information from home oxygen equipment manufacturers, the Department
of Veterans Affairs (VA), a group purchasing organization (GPO) in the
DME industry, a 2006 HHS OIG report,[Footnote 9] and a 2006 industry-
funded report by Morrison Informatics, Inc.[Footnote 10] The Morrison
report stated that its cost data came from a survey of 74 home oxygen
suppliers representing over 600,000 Medicare beneficiaries. We
adjusted suppliers' equipment acquisition costs from the Morrison
report for certain equipment types on the basis of more current prices
we obtained from manufacturers, the VA, and a GPO. Where we adjusted
suppliers' equipment acquisition costs, we used a range to reflect
differences in manufacturers' prices and varying levels of volume
discounts offered to suppliers. Because we could not measure directly
the cost to suppliers for services and overhead, we generally relied
on the self-reported data in the Morrison report for these costs.
[Footnote 11] We compared certain service costs from the Morrison
report with information we collected during our review, such as
manufacturers' recommended service intervals for home oxygen
equipment, and adjusted the associated cost data when information was
sufficient to warrant a change. We excluded costs associated with
respiratory therapists' services as these costs are not covered under
Medicare's DME benefit.[Footnote 12] These adjusted costs generally
represent average costs as reported by suppliers and may overstate
costs, particularly for the most efficient suppliers. We used a
conservative approach to adjust cost data, making adjustments only in
cases where we were able to collect sufficient information to justify
an adjustment. For instance, in several cases we noted assumptions
from the Morrison report that appeared to inappropriately increase
suppliers' costs, but we were unable to collect sufficient information
to justify an adjustment. We also adjusted Morrison report cost data
subject to inflation, such as monthly overhead costs, to present them
in 2009 dollars, despite the fact that suppliers may have become more
efficient since 2006. Although we could not independently verify all
components of reported costs, we determined these adjusted data were
sufficiently reliable for our purposes.[Footnote 13] To calculate
suppliers' overall average cost for each beneficiary, we weighted the
adjusted costs for equipment and covered services by the proportion of
beneficiaries who used each type of equipment in 2008: portable,
stationary, and new portable equipment that does not require delivery
of oxygen refills. Together, select combinations of these equipment
types were used by approximately 94 percent of home oxygen
beneficiaries.[Footnote 14]
To compare home oxygen payment methodology and rates for Medicare with
those of other payers, we collected information for private insurers,
the VA, and the round 1 rebid of Medicare's competitive bidding
program. We applied the methodologies and rates of these payers to
estimated 2009 Medicare home oxygen utilization to estimate what
Medicare might have spent using the methods and rates of these other
payers. We judgmentally selected eight private insurers. To do so, we
contacted six of the eight largest private health insurance plans as
identified by the Mossavar-Rahmani Center for Business &
Government;[Footnote 15] four of the six were willing to share
information about their home oxygen payment methodologies and rates.
To ensure that our analysis was not limited to large national plans,
we sought information from six regional insurers. We obtained
information from four of the six regional insurers. We then applied
all eight insurers' payment rates to estimated Medicare 2009
utilization to estimate what Medicare expenditures would have been
using the private insurers' methodologies and rates.[Footnote 16] To
estimate 2009 Medicare home oxygen utilization, we first used
available Medicare home oxygen claims for 2009, which we used to
estimate total expenditures for the entire year. To account for the
share of utilization associated with beneficiaries who were subject to
the rental cap, for whom suppliers could not bill for equipment
rental, we estimated the percentage of months that Medicare
beneficiaries would be subject to the cap.[Footnote 17]
We obtained information from the VA on its payment methodology and
2009 rates; we applied the estimate of Medicare utilization for 2009
to estimate what Medicare would have paid if it had used VA average
payment amounts. A previous GAO comparison of Medicare and VA payment
rates found that suppliers' administrative costs for billing Medicare
were higher than those for billing the VA and that the more
predictable volume of patients associated with the VA's contracts--
which frequently give winning bidders the right to be the sole
supplier for home oxygen beneficiaries in a given region or for a
medical center--enabled suppliers to take advantage of economies of
scale in the provision of home oxygen.[Footnote 18] That report
concluded that a 30 percent adjustment reflected the higher costs for
suppliers of Medicare home oxygen beneficiaries, and for our current
work we used this adjustment for the estimate of Medicare
expenditures, adjusting VA rates upward by 30 percent.[Footnote 19] We
then applied these adjusted VA payment rates to our estimate of
Medicare's 2009 utilization to estimate what Medicare expenditures
would have been if it had used the VA's rates, both with and without
the 30 percent upward adjustment. We also estimated what Medicare
would have spent for home oxygen services using the round 1 rebid
payment rates from its competitive bidding program.
To examine changes in Medicare beneficiaries' access to home oxygen,
we used the change in share of Medicare Part B beneficiaries using
home oxygen from 2001 through 2008 as a proxy for access; however, we
did not examine the appropriateness of home oxygen for the patients
who received it.[Footnote 20] We also examined the number of home
oxygen suppliers to determine whether the number of suppliers changed
over the period and also examined trends in the types of home oxygen
equipment used by beneficiaries each year for 2001 through 2008. To
assess the magnitude of the potential access problems faced by
beneficiaries who move outside their supplier's service area in the
months leading up to the 36-month rental cap, we examined the claims
history for beneficiaries who began using oxygen in 2003. On the basis
of our analysis of these data, we estimated the portion of home oxygen
beneficiaries who move more than 30 miles after 24 months of
continuous home oxygen use by measuring the distance from the center
of their old and new zip codes.
We ensured the reliability of the Medicare claims data used in this
report by performing appropriate electronic data checks and by
interviewing agency officials and Medicare contractors who were
knowledgeable about the data. We found the claims data were
sufficiently reliable for the purpose of our analyses. Appendix I
contains a more complete description of our methodology and assessment
of data reliability.
We conducted this performance audit from July 2009 through January
2011 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
Background:
Supplemental oxygen helps many individuals who have difficulty
breathing as a result of conditions such as chronic obstructive
pulmonary disease (COPD).[Footnote 21] Medicare covers equipment and
supplies necessary to provide supplemental oxygen if the beneficiary
meets all of the eligibility criteria. The beneficiary must have (1)
an appropriate diagnosis, such as COPD; (2) clinical tests documenting
reduced levels of oxygen in the blood; and (3) a certificate of
medical necessity, signed by a physician, prescribing the volume of
supplemental oxygen required in liters per minute and documenting
whether the patient should receive a portable unit in addition to a
home-based stationary unit.
Home Oxygen Payment Legislation:
Before 1989, Medicare paid for home oxygen using the customary,
prevailing, and reasonable charge methodology that governed DME
reimbursement at the time. A 1987 OIG report suggested this
methodology may not accurately reflect the acquisition costs of oxygen
equipment and thus may overpay suppliers.[Footnote 22] In 1989, the
Health Care Financing Administration (HCFA)--later renamed CMS--
implemented a fee schedule for home oxygen based on the average
payment that Medicare made in each state in 1986.
After additional concerns were raised about Medicare home oxygen
payment rates, Congress took action several times beginning in 1997 to
reduce or limit these rates.
* The Balanced Budget Act of 1997 (BBA) reduced home oxygen rental
payment rates by approximately 30 percent and eliminated annual
payment rate updates through 2002.[Footnote 23] The BBA also required
CMS to test competitive bidding for selected DME, including home
oxygen equipment, through demonstration projects.[Footnote 24] The
demonstrations were conducted from 1999 to 2002 and showed that
competitive bidding would save Medicare money.
* The Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (MMA) based home oxygen payment rates on the median rate paid
by private insurers participating in the Federal Employees Health
Benefits Program, effectively reducing payments by 8 to 9 percent
depending on the type of oxygen equipment. The MMA froze payment rates
(from 2004 through 2008) and authorized competitive bidding for
certain DME, including home oxygen equipment. The MMA also required
that CMS establish and implement quality standards for DME
suppliers.[Footnote 25] CMS was required to phase in the competitive
bidding program in 2007 in 10 bidding areas.[Footnote 26] The program
would be expanded in future rounds. Round 1 of the competitive bidding
program began in May 2007.[Footnote 27]
* Effective January 1, 2006, the Deficit Reduction Act of 2005 (DRA)
limited rental payments to suppliers of home oxygen equipment to a
period of 36 months of continuous use, after which ownership would be
transferred to the beneficiary.[Footnote 28]
* The Medicare Improvements for Patients and Providers Act of 2008
(MIPPA) repealed the transfer of ownership to beneficiaries but
continued the 36-month rental cap.[Footnote 29] Under MIPPA, after the
cap takes effect the supplier must continue to furnish home oxygen
equipment during any period of medical need for the remainder of the
reasonable useful lifetime of the equipment.[Footnote 30] Therefore,
for up to 24 months after the rental cap, suppliers must continue to
provide home oxygen equipment and services and to ensure equipment is
in good working order, but they do not receive additional rental
payments.[Footnote 31] Effective June 30, 2008, MIPPA delayed the
competitive bidding program, terminated the contracts awarded by CMS
to suppliers in round 1, and required CMS to repeat the competition in
2009--referred to as the competitive bidding program round 1 rebid.
[Footnote 32] Beginning January 1, 2009, MIPPA also required a 9.5
percent cut in payment to home oxygen suppliers nationwide to offset
the cost of delaying competitive bidding.[Footnote 33]
Home Oxygen Equipment and Services:
Patients can obtain supplemental oxygen through three methods, or
modalities: (1) oxygen concentrators, which are electrically powered
machines that extract oxygen from the air; (2) liquid oxygen systems,
which store oxygen in large reservoirs at a very low temperature; and
(3) compressed gaseous systems, which administer compressed oxygen
directly from cylinders. If the modality is not specified by the
physician, the supplier may choose the modality used to provide oxygen
to the beneficiary. Each modality can provide oxygen with stationary
equipment or portable equipment. Liquid oxygen and compressed gaseous
systems (both stationary and portable) require ongoing delivery of
oxygen refills by suppliers.
Approximately 99 percent of all home oxygen beneficiaries have
stationary units, and approximately two-thirds of beneficiaries have
portable units as well. Over 90 percent of home oxygen beneficiaries
use oxygen concentrators. However, liquid oxygen systems may be more
appropriate for patients requiring a high-liter flow. Oxygen-
generating portable equipment (OGPE) is a new, alternative portable
oxygen technology that consists of portable oxygen concentrators and
transfilling equipment.[Footnote 34] Unlike traditional portable
equipment, OGPE does not require ongoing delivery of oxygen
refills.[Footnote 35] Effective January 1, 2007, CMS established a
separate payment class for OGPE. (See table 1.)
Table 1: Home Oxygen Equipment Covered by Medicare, and Percentage of
Beneficiaries Using Each Type of Equipment:
Equipment: Stationary;
Modality: Equipment: Oxygen concentrator;
Percentage of Medicare home oxygen beneficiaries, 2008[A]: 94%;
Requires ongoing delivery of oxygen refills: No.
Equipment: Stationary;
Modality: Equipment: Liquid system;
Percentage of Medicare home oxygen beneficiaries, 2008[A]: 4%;
Requires ongoing delivery of oxygen refills: Yes.
Equipment: Stationary;
Modality: Gaseous system;
Percentage of Medicare home oxygen beneficiaries, 2008[A]: less than
1%;
Requires ongoing delivery of oxygen refills: Yes.
Equipment: Portable, traditional;
Modality: Liquid system;
Percentage of Medicare home oxygen beneficiaries, 2008[A]: 7%;
Requires ongoing delivery of oxygen refills: Yes.
Equipment: Portable, traditional;
Modality: Gaseous system;
Percentage of Medicare home oxygen beneficiaries, 2008[A]: 56%;
Requires ongoing delivery of oxygen refills: Yes.
Equipment: Portable, OGPE;
Modality: Portable oxygen concentrator;
Percentage of Medicare home oxygen beneficiaries, 2008[A]: 1%;
Requires ongoing delivery of oxygen refills: No.
Equipment: Portable, OGPE;
Modality: Transfilling equipment[B];
Percentage of Medicare home oxygen beneficiaries, 2008[A]: 4%;
Requires ongoing delivery of oxygen refills: No.
Source: GAO analysis of 2008 Medicare claims data and payment policies
for home oxygen equipment.
[A] We used 2008 utilization data because complete Medicare claims
from 2009 were not available at the time of our review. The total does
not add to 100 percent because many beneficiaries use both stationary
and portable oxygen equipment.
[B] Transfilling equipment is not technically a modality. It is a
feature of a stationary oxygen concentrator that allows beneficiaries
to fill their own portable gaseous cylinders in the home. This feature
may be integrated into the stationary concentrator or it may be a
separate component.
[End of table]
The size and type of businesses that supply home oxygen to Medicare
beneficiaries vary. Suppliers range from small entities, with one or
two employees, to large publicly traded corporations and may
specialize in home oxygen and other respiratory services or supply
other types of medical equipment, such as wheelchairs, walkers, and
hospital beds.
Medicare's Payment for Home Oxygen Overcompensates Suppliers for Most
Frequently Used Equipment Type:
Medicare's payment for home oxygen overcompensates suppliers for
providing stationary oxygen concentrators--the most frequently used
equipment type. Available data indicated that Medicare's payments for
stationary concentrators were high relative to the estimated cost of
this equipment and the minimal servicing it requires. Medicare's
overall payments for home oxygen also exceeded estimated suppliers'
costs, largely as a result of payment rates for stationary
concentrators.
Medicare Bundles Payment for Refills with Rental Payment for
Stationary Equipment and Caps Payment for Equipment after 36 Months:
For beneficiaries who qualify for home oxygen, Medicare pays suppliers
a monthly rate that covers rental of a stationary, home-based unit and
all related services and supplies. Medicare also pays a separate rate
for rental of a portable unit if one is supplied to the beneficiary.
In 2009, Medicare's monthly payment rate to suppliers was $176 for
stationary equipment. The payment rate for stationary equipment is
combined, or bundled, to cover use of the equipment, supplies such as
tubing, and services such as equipment delivery, setup, periodic
maintenance, and patient education. This rate also covers oxygen
refills for both stationary and portable equipment, although
stationary concentrators--the most frequently used type of stationary
equipment--do not require refills and approximately one-third of home
oxygen beneficiaries do not use portable equipment. Medicare makes an
additional monthly rental payment (referred to as an add-on payment)
to suppliers that furnish medically necessary portable oxygen; this
payment covers the cost of equipment only. In 2009, Medicare's add-on
rate was $29 for traditional portable equipment and $52 for OGPE.
[Footnote 36]
Medicare began capping rental payments for home oxygen equipment after
36 months of continuous use by a beneficiary as of January 1, 2009.
[Footnote 37] For months 37 through 60 of continuous home oxygen use,
suppliers are required to continue to furnish, maintain, and service
oxygen and oxygen equipment, but they do not receive additional rental
payments for equipment.[Footnote 38] For the 24 months after the cap
is reached, Medicare pays suppliers separately for two services: (1) a
routine maintenance payment of $30, on average, every 6 months for
stationary oxygen concentrators and OPGE;[Footnote 39] and (2) a
monthly payment of $77 for equipment requiring delivery of oxygen
refills, namely liquid and gaseous equipment.[Footnote 40] Thus, for
the beneficiaries who reached the 36-month rental cap in 2009, monthly
payments to suppliers decreased from $176 for stationary concentrators
and $52 for OGPE (neither of which needs oxygen refills) to
approximately $5 for each, on average. Payments for traditional
portable equipment (which requires refills) made in months 37 through
60 increased from $29 to $77. (See figure 1.) Suppliers are required
to continue providing home oxygen after the beneficiary has used
oxygen rental equipment continuously for 36 months, even if the
beneficiary relocates outside the supplier's service area. This may
require suppliers to subcontract with another supplier in the
beneficiary's new location. Small or regional suppliers may have more
difficulty entering into such arrangements as they may lack the
expertise or resources. However, if a beneficiary relocates prior to
reaching the 36-month rental cap, it is the beneficiary's
responsibility to find another supplier.
Figure 1: Medicare Payment for Home Oxygen Equipment and Services
before and after the 36-Month Rental Cap, 2009:
[Refer to PDF for image: illustrated bar graph]
Stationary equipment:
Stationary oxygen concentrator (Maintenance):
60-month reasonable useful lifetime of equipment:
36-month rental period: $176;
Rental cap in effect: $5[A].
Liquid system and gaseous system (Oxygen contents):
60-month reasonable useful lifetime of equipment:
36-month rental period: $176;
Rental cap in effect: $77[B].
Portable equipment – traditional:
Liquid system and gaseous system (Oxygen contents):
60-month reasonable useful lifetime of equipment:
36-month rental period: $29;
Rental cap in effect: $77[B].
Portable equipment – OGPE:
Portable oxygen concentrator and transfilling equipment[C]
(Maintenance):
60-month reasonable useful lifetime of equipment:
36-month rental period: $52;
Rental cap in effect: $5[A].
Maintenance: Medicare continues to pay for maintenance when the rental
cap is in effect.
Oxygen contents: Medicare continues to pay for oxygen contents when
the rental cap is in effect.
Source: GAO analysis of CMS data.
[A] The average monthly payment for maintenance after the 36-month
rental cap was calculated by dividing the average maintenance payment
in 2009 ($30) by 6, since Medicare allows payment for maintenance only
once every 6 months after the rental cap.
[B] Suppliers are responsible for providing all oxygen refills the
patient needs in 1 month, so, if necessary, the supplier must make
multiple deliveries in 1 month to provide oxygen, but can only bill
monthly. A maximum of 3 months of oxygen refills can be delivered at
one time; however, suppliers should have proof for each actual
delivery of refills. In all cases, separate payment for oxygen refills
(stationary and portable) ends in the event that a beneficiary
receives replacement stationary oxygen equipment, and a new 36-month
stationary oxygen equipment payment period begins.
[C] Transfilling equipment describes a feature of a stationary oxygen
concentrator that allows beneficiaries to fill their own portable
gaseous cylinders in the home. This feature may be integrated into the
stationary concentrator or it may be a separate component.
[End of figure]
Because Medicare's home oxygen payment cycle and application of the
rental cap are determined by the length of time a single beneficiary
uses a piece of equipment rather than by the equipment's chronological
age, if one beneficiary uses a stationary concentrator for 36 months
and then no longer needs home oxygen, the supplier can transfer the
equipment to another beneficiary, and Medicare's count of months for
the equipment's reasonable useful life restarts. Based on our analysis
of historical claims, less than 25 percent of beneficiaries reach the
36-month rental cap.[Footnote 41] Thus, in the majority of cases, home
oxygen equipment is returned to suppliers before the end of the 36-
month rental period, enabling suppliers to furnish the equipment to
other beneficiaries and restart the payment cycle.[Footnote 42] After
60 months of home oxygen use, if the supplier exchanges the equipment,
a new 36-month rental period begins.
Medicare's Payment Rates Are Not Aligned with the Costs of Providing
Most Frequently Used Types of Equipment:
Based on analysis of available data, Medicare's payment rates for the
most frequently used types of home oxygen equipment--namely,
stationary oxygen concentrators and traditional portable equipment--
are not aligned with the distinct costs of providing each type of
equipment. We found that Medicare's rates for stationary concentrators
substantially exceeded estimated suppliers' costs, while the add-on
rate for traditional portable equipment, in isolation, was below
estimated costs. Similarly, Medicare's add-on rate for OGPE, a less
frequently used type of portable equipment, was generally low compared
to estimated suppliers' costs. Although Medicare's add-on rates were
not designed to cover the entire cost of providing portable equipment,
we compared costs and these rates in isolation for illustration
purposes. Cost estimates for these equipment types were based on
adjusted data from a 2006 industry-funded report. (Appendix II
describes this analysis.)[Footnote 43]
It is difficult to estimate with certainty the costs of providing home
oxygen since these costs may vary depending on suppliers' size and the
range of services provided. According to one major manufacturer,
suppliers that purchase large quantities of equipment receive
discounts of up to 40 percent off the price offered to companies
making smaller purchases. Some suppliers may also provide more
services than Medicare covers, in part as a means of competing for
home oxygen beneficiaries, which in turn increases their costs.
[Footnote 44] For example, Medicare does not pay for respiratory care
therapist services under its DME benefit.[Footnote 45] However, one
large supplier reported using a service-focused business model,
providing periodic clinical assessments by respiratory care
therapists,[Footnote 46] while a small supplier we contacted did not
provide such additional services.
Following are Medicare's payment rates for three equipment types,
compared with the range of estimated suppliers' costs. These estimates
were generally based on average costs as reported by suppliers in an
industry-funded report and may overstate costs, particularly for the
most efficient suppliers. We used a conservative approach to adjust
cost data, making adjustments only in cases where we were able to
collect information precise enough to justify a specific adjustment.
Costs Associated with Stationary Oxygen Concentrators. Medicare's
average monthly payment of $159 for providing a stationary oxygen
concentrator--the most frequently used type of equipment--was
substantially higher than estimated monthly suppliers' costs of $99 to
$108.[Footnote 47] This adjusted cost estimate covers equipment
acquisition (stationary oxygen concentrator and backup unit);[Footnote
48] provision of covered services such as equipment delivery, patient
education, scheduled and unscheduled maintenance; and overhead costs.
[Footnote 49] Based on interviews with major manufacturers of home
oxygen equipment, recommended service intervals for scheduled
maintenance of stationary concentrators range from once every 6 months
to once every 3 years or between patients, depending on the model.
[Footnote 50]
Costs Associated with Traditional Portable Equipment. On the basis of
industry-supplied data, we estimated that suppliers incur an
additional $42 to $83 per month to provide traditional portable
equipment in conjunction with a stationary concentrator. In 2009,
Medicare's average monthly payment for traditional portable equipment
was approximately $33.[Footnote 51] The adjusted estimate covers the
acquisition cost of portable equipment as well as the additional cost
of delivering oxygen refills, including technician salaries,
transportation costs, and the cost of the oxygen.[Footnote 52] The
cost of providing traditional portable equipment in part depends on
how often a supplier delivers oxygen refills. Suppliers can reduce
these costs by providing more refills each visit, which reduces the
number of deliveries that are necessary.[Footnote 53]
Costs Associated with OGPE. On the basis of industry-supplied data, we
estimated that suppliers incur an additional $45 to $67 per month to
provide OGPE in conjunction with a stationary concentrator.[Footnote
54] In 2009, Medicare's average monthly payment for OGPE was
approximately $47. Although OGPE is significantly more expensive than
traditional portable equipment, one major manufacturer reported that
the increased costs could be offset in as few as 9 to 10 months due to
decreased servicing costs, since OGPE does not require delivery of
oxygen refills. While the share of beneficiaries using OGPE is
growing, the majority continue to use traditional portable equipment.
In 2008, approximately 5 percent of home oxygen beneficiaries used
OGPE in addition to their stationary concentrators. Home oxygen
suppliers we interviewed told us that they do not provide OGPE or
provide it on a limited basis because of the cost; Medicare's payment
rates; home oxygen patients' reports that they are comfortable with
their current equipment; and suppliers' preference for traditional
portable equipment because ongoing deliveries support a service-based
business model. On the basis of our cost estimates, OGPE--which does
not require oxygen refills--could be a cost-effective alternative to
traditional portable equipment for suppliers that make frequent
deliveries to provide oxygen refills for liquid or gaseous systems.
Overall Medicare Payments for Home Oxygen Exceeded Estimated
Suppliers' Costs:
On the basis of industry-supplied data, we estimated that suppliers'
average monthly costs to provide home oxygen equipment and covered
services in 2009 ranged from $126 to $161 per beneficiary.[Footnote
55] Medicare's average monthly payment per beneficiary in 2009 was
approximately $181--up to 44 percent higher than suppliers' overall
costs.[Footnote 56] Although some of the misalignment between
Medicare's payment and estimated suppliers' costs for individual
equipment types was corrected when comparing costs and payments for
combinations of home oxygen equipment used by beneficiaries--such as a
stationary concentrator with traditional portable equipment--
Medicare's overall average payments remained high compared to
suppliers' overall costs. This largely results from Medicare's payment
rates for stationary concentrators. In 2008, nearly one-third of home
oxygen beneficiaries used only stationary concentrators without an
accompanying portable unit (see figure 2). For these beneficiaries,
suppliers received a bundled payment that included an amount for
oxygen refills, even though suppliers did not provide refills.
Bundling payment for refills with payment for stationary concentrators
also burdens the home oxygen beneficiaries who use only stationary
concentrators, as they pay 20 percent coinsurance on the bundled rate.
For instance, beneficiaries who use only a stationary concentrator for
36 months will pay over $1,200 in coinsurance, based on Medicare's
2009 payment rate. If Medicare reduced payment for stationary
concentrators to $110 per month, these beneficiaries would pay nearly
$500 less in coinsurance over the 36-month period.
Figure 2: Estimated Suppliers' Monthly Costs per Beneficiary for
Equipment and Covered Services, and Medicare's Average Monthly Payment
for Selected Combinations of Home Oxygen Equipment, 2009:
[Refer to PDF for image: vertical bar graph]
Stationary concentrator only (33 percent)[A]:
Adjusted cost estimate range: $99-$108;
Average Medicare payment[C]: $159.
Stationary concentrator with traditional portable equipment (57
percent)[A]:
Adjusted cost estimate range: $141-$191;
Average Medicare payment[C]: $192.
Stationary concentrator with OGPE (5 percent)[A]:
Adjusted cost estimate range: $144-$176;
Average Medicare payment[C]: $206.
Overall monthly average(94 percent)[A,B]:
Adjusted cost estimate range: $126-$161;
Average Medicare payment[C]: $181.
Source: GAO analysis of industry and CMS data.
Notes: Cost estimates are based on GAO analysis of Morrison
Informatics, Inc., A Comprehensive Cost Analysis of Medicare Home
Oxygen Therapy for the American Association for Homecare and Medicare
claims data. Estimates were generally based on average costs as
presented by suppliers in the Morrison report and may overstate costs,
particularly for the most efficient suppliers.
[A] The percentage in parentheses indicates the share of Medicare home
oxygen beneficiaries who used the selected combination of home oxygen
equipment in 2008. We used 2008 utilization data because complete
Medicare claims from 2009 were not available at the time of our review.
[B] We weighted overall monthly costs and payments by the percentage
of beneficiaries who used each equipment type in 2008. The overall
percentage does not equal 95 percent due to rounding. In 2008,
approximately 4.4 percent of home oxygen beneficiaries used stationary
liquid equipment, and approximately 1.4 percent used only portable
equipment. We did not generate cost estimates for beneficiaries using
these equipment types.
[C] The average 2009 Medicare payment accounts for the approximate
proportion of Medicare beneficiaries affected by the rental cap for
each equipment type, and adjusts payment amounts accordingly. These
payment amounts are projected based on analysis of available Medicare
claims data.
[End of figure]
Using Other Payment Methodologies and Rates Could Lower Medicare Home
Oxygen Spending:
Most payers we interviewed did not cap rental payments for home oxygen
equipment, and some national payers paid less than Medicare,
suggesting that Medicare could spend less, even without a rental cap.
The experience of the VA and round 1 of Medicare's competitive bidding
program suggest that setting rates through competitive bidding could
also lower spending.
Private Insurers' Payment Methodologies Were Generally Similar to
Medicare's:
The eight private insurers we spoke with--four national and four
regional--used payment methodologies for home oxygen similar to
Medicare's, except that seven of the eight did not use a rental cap.
Like Medicare, they generally rented equipment and bundled payments
for maintenance and oxygen refills with equipment rentals. Four of the
eight insurers paid home oxygen suppliers using only a fee schedule--
meaning payment rates did not vary by supplier--and three of these did
not vary the payment by modality. For the four private insurers that
did not use a fee schedule, payment rates varied depending on the
supplier contract.
Competitive Bidding in the VA and Medicare Has Produced Lower Payment
Rates:
The VA's home oxygen payment methodology differs from Medicare's in
important ways--its use of decentralized competitive bidding and the
fact that it does not use a rental cap. VA's use of decentralized
competitive bidding means that each VA region or medical center
conducts competitive bidding for its specific geographic area. The
VA's competitive bidding process frequently awards exclusive
contracts, which give suppliers a guaranteed pool of beneficiaries,
which makes volume more predictable. With decentralized competitive
bidding, VA contracts vary in both covered services and payment rates;
however, the VA's average rates are considerably lower than
Medicare's, even after accounting for additional services, services
that are paid separately under the VA system, and Medicare's rental
cap, which the VA does not use.[Footnote 57]
In contrast with the VA's frequently exclusive contracts, Medicare's
new competitive bidding program must award several contracts in the
same geographic area. Medicare's approach provides beneficiaries with
a choice of suppliers and still produces rates considerably lower than
Medicare's current rates.
Some Other Methodologies and Payment Rates Could Have Lowered Medicare
Spending in 2009:
In 2009, the first year payments were capped, we estimated that
Medicare's Part B spending for home oxygen was about $2.15 billion--
down from $2.96 billion in 2008.[Footnote 58] (For a more detailed
discussion of our estimate for 2009 expenditures, see appendix I.)
Using private insurers' methodologies and payment rates, we estimated
that Medicare home oxygen spending for 2009 would have ranged from
$1.48 billion to $2.90 billion. The lower end of the range represents
the methodologies and rates of two of the four national insurers--
those that are most similar to Medicare in size and volume of
business. If Medicare used the methodology and rates of the lowest-
paying insurer, it could have saved up to $670 million, or about 31
percent, annually.
Further, applying average VA payment rates (obtained through
competitive bidding) to estimated Medicare utilization rates,
Medicare's spending could have been lower--approximately $1.34
billion, which is a savings of approximately $810 million, or about 38
percent. Previous comparisons of VA and Medicare home oxygen
expenditures by HCFA and us assumed that suppliers' administrative
costs were generally lower when providing home oxygen to VA patients
than to Medicare beneficiaries.[Footnote 59] The VA's frequently
exclusive contracts make volume more predictable as well as allow
suppliers economies of scale in the provision of home oxygen. As a
result of higher administrative costs and the lack of exclusive
contracts, the HCFA and GAO analyses increased VA payments by 30
percent to account for the differences and found Medicare's payment
rates in the mid-1990s were still well above those of the VA. Although
this assumption is more than a decade old, industry representatives
told us that the costs of serving VA patients are still below those of
Medicare due to differences in administrative costs. Using this same
assumption of a 30 percent differential, our estimate of Medicare
spending for 2009 using VA payment methods was just under $1.74
billion, which is below estimated Medicare expenditures and could have
resulted in savings of approximately $410 million.
If the round 1 rebid rates were applied to Medicare's 2009 nationwide
billed utilization, Medicare spending for home oxygen would have been
$1.45 billion, which could have resulted in savings of approximately
$700 million, or about 33 percent.[Footnote 60] The actual effect of
competitive bidding may vary from these estimates since rates for
other areas may be different and competitive bidding may not be
implemented in all areas.
Figure 3 shows what Medicare could have spent using other payers'
methodologies.
Figure 3: Estimated 2009 Medicare Expenditures If Other Payment
Methodologies Were Applied Nationwide:
[Refer to PDF for image: combined vertical bar and line graph]
2009 Medicare expenditures: $2.15 billion.
Estimated Expenditures:
Regional private insurers: $2.90 billion;
Regional private insurers: $2.30 billion;
National private insurers: $2.17 billion;
Regional private insurers: $2.08 billion;
Regional private insurers: $2.05 billion;
National private insurers: $2.03 billion;
National private insurers: $1.74 billion;
National private insurers: $1.48 billion;
VA: $1.34 billion;
VA 30 percent adjustment: $401 million;
VA total: $1.75 billion;
Medicare competitive bidding program: $1.45 billion.
Sources: GAO analysis of data provided by private insurers, the VA,
and CMS.
Note: 2009 Medicare expenditures were estimated from partial-year
data. The bars depict estimates of what Medicare would have spent in
2009 if it had adopted the alternative payment rates and
methodologies. Expenditure estimates are based on estimated 2009
Medicare utilization and payment methodology and rate information
provided by private insurers, the VA, and CMS. Estimates for the
competitive bidding program are based on average rates across the
round 1 competitive bidding areas and assume these rates were
implemented nationwide.
[End of figure]
Utilization Trends Indicate That Overall Access to Medicare Home
Oxygen Has Not Diminished, but Some Beneficiaries May Face Access
Challenges:
The increase in utilization of Medicare home oxygen for 2001 through
2008 suggests that overall beneficiary access has not diminished,
although some beneficiaries may face access challenges. A decrease in
the use of portable equipment and liquid oxygen systems, and a
corresponding increase in the use of only stationary oxygen
concentrators during the period, may indicate that Medicare's payment
system encourages the provision of stationary concentrators, and
discourages provision of other types of equipment. Additionally, CMS
may consider future changes if beneficiaries who relocate before
reaching the cap have problems accessing oxygen.
Home Oxygen Utilization Grew Even as Payment Rates Decreased:
The proportion of Medicare Part B beneficiaries receiving home oxygen
increased steadily from nearly 3 percent to 4.8 percent from 2001
through 2008. During the same period, Medicare payment rates for home
oxygen were cut twice as a result of the MMA and the DRA. The increase
in utilization despite two payment reductions suggests that overall
access to home oxygen has not diminished.[Footnote 61] (figure 4 shows
the percentage of Part B beneficiaries using home oxygen during the
2001 through 2008 period, and the effective dates of the payment
decreases resulting from the MMA and DRA.)
Figure 4: Percentage of Medicare Part B Beneficiaries Using Home
Oxygen, 2001 through 2008:
[Refer to PDF for image: line graph]
Year: 2001: 2.99%.
Year: 2002: 3.24%.
Year: 2003: 3.51%.
Year: 2004: 3.71%.
Year: 2005: 3.96%;
April 2005: MMA payment reductions implemented.
Year: 2006: 4.19%;
January 2006: DRA rental cap implemented.
Year: 2007: 4.57%.
Year: 2008: 4.8%.
Source: GAO analysis of CMS data.
Note: The MMA, enacted in 2003, resulted in the reduction of home
oxygen payment rates by approximately 8.6 percent for stationary
equipment and 8.1 percent for portable equipment effective April 2005,
and authorized competitive bidding for certain DME, including home
oxygen. The DRA, enacted in 2005, capped rental payments for home
oxygen equipment and granted beneficiary ownership of the equipment
after 36 months of continuous use, effective January 1, 2006. The
transfer of ownership requirement was repealed effective January 1,
2009, but the rental cap remained. Payments for beneficiaries with 36
months of continuous use were capped beginning January 1, 2009.
[End of figure]
While the share of Medicare beneficiaries utilizing home oxygen
increased during the 2001 through 2008 period, the number of home
oxygen suppliers increased nearly 9 percent between 2001 and 2005, and
then decreased approximately the same percentage between 2005 and
2008, resulting in an overall decrease between 2001 and 2008.[Footnote
62] It is not clear whether the overall decrease in the number of
suppliers during this period was due to consolidation in the industry,
reductions in Medicare payment rates, or other factors.
Decreased Utilization of Portable Equipment and Liquid Oxygen Systems
during 2001 through 2008 May Indicate Access Issues for Certain
Beneficiaries:
The relative mix of equipment used by home oxygen beneficiaries
changed from 2001 through 2008. The percentage of home oxygen
beneficiaries using portable equipment decreased from approximately 80
percent to approximately 66 percent during that period, which may
indicate access issues for beneficiaries who require portable
equipment.[Footnote 63] Beneficiaries who only used stationary
equipment experienced a corresponding increase, approximately 14
percentage points, from nearly 20 percent to nearly 34 percent from
2001 through 2008.[Footnote 64] (See figure 5.) The vast majority of
the beneficiaries who only used stationary equipment used a stationary
oxygen concentrator.
Figure 5: Percentage of Medicare Home Oxygen Beneficiaries Using
Stationary Equipment Only and Portable Equipment:
[Refer to PDF for image: multiple line graph]
Year: 2001;
Portable[A]: 80%;
Stationary only: 20%.
Year: 2002;
Portable[A]: 79.2%;
Stationary only: 20.8%.
Year: 2003;
Portable[A]: 77.5%;
Stationary only: 22.5%.
Year: 2004;
Portable[A]: 76%;
Stationary only: 24%.
Year: 2005;
Portable[A]: 73.7%;
Stationary only: 26.3%.
Year: 2006;
Portable[A]: 70.4%; %.
Year: 2007;
Portable[A]: 67.8%;
Stationary only: 32.2%.
Year: 2008;
Portable[A]: 66.4%;
Stationary only: 33.6%.
Source: GAO analysis of CMS data.
[A] The percentage of beneficiaries using portable equipment includes
beneficiaries using portable equipment only and beneficiaries using
portable equipment in addition to stationary equipment.
[End of figure]
Certain components of Medicare's payment structure could have affected
the relative mix of equipment used. Medicare's bundled payment for
stationary equipment and portable oxygen refills acts as a
disincentive for suppliers to provide portable equipment because
portable refills are paid for whether portable equipment is provided
or not. Therefore, suppliers' returns are higher when they provide
only a stationary concentrator.
In addition, Medicare's payment structure may have contributed to an
overall decline in the percentage of home oxygen beneficiaries using
liquid oxygen systems, both portable and stationary, during the period
2001 through 2008. Medicare's stationary equipment and portable
equipment payment rates are the same regardless of modality.[Footnote
65] According to a major manufacturer of home oxygen equipment, liquid
oxygen evaporates at a high rate, which requires suppliers to make
more frequent deliveries, and suppliers need to use specially equipped
trucks for these deliveries. Medicare payment changes became effective
in 2005 and 2006 in response to the MMA and DRA, respectively.
Medicare's modality-neutral payment rates may encourage suppliers to
provide more cost-effective modalities--concentrators or gaseous
systems--which may affect access to liquid oxygen.
CMS May Consider Future Changes if Beneficiaries Who Relocate Have
Problems Accessing Oxygen:
The majority of the suppliers we spoke with told us they were
reluctant to or would not accept new beneficiaries who were
approaching the 36-month rental cap, when the beneficiary is
responsible for finding a new supplier if they relocate.[Footnote 66]
According to one supplier association, suppliers do not want to accept
these beneficiaries because they will not be able to bill Medicare for
their services for many more months. One large national supplier told
us that it had established a threshold, based on the number of
continuous home oxygen rental months Medicare had already paid, to
determine whether it would accept a new home oxygen beneficiary.
Our analysis of Medicare claims suggests that only a small percentage
of beneficiaries relocate outside their supplier's service area in the
months leading up to the cap. According to several suppliers, the
maximum distance they travel to service an oxygen patient ranges from
35 to 150 miles. Based on our analysis of Medicare claims from 2003
through 2008, less than 2 percent of beneficiaries relocated 30 or
more miles away after 24 months of continuous service.[Footnote 67]
CMS received 354 inquiries to its 1-800-MEDICARE service center in
2009 about home oxygen, including 36 inquiries from beneficiaries who
relocated and 20 inquiries from beneficiaries who had trouble locating
a supplier.[Footnote 68] According to CMS, caseworkers were able to
locate suppliers within a matter of days to serve every beneficiary
who indicated having trouble finding a supplier.[Footnote 69] CMS
stated that if in the future access to home oxygen becomes a problem
after a beneficiary relocates, it may consider taking action such as
requiring the supplier that provides home oxygen for month 18 or later
to provide oxygen for the remainder of the rental period or make
arrangements with another supplier to do so.
Conclusions:
Congress has reduced or limited Medicare payment rates for home oxygen
several times since 1998, but rates remain higher than those of some
other national payers we reviewed and were not aligned with the costs
of providing the most frequently used types of home oxygen equipment.
Rates for stationary concentrators in particular were substantially
higher than estimated suppliers' costs for this equipment and the
minimal servicing it requires. A contributor to the misalignment
between suppliers' costs and Medicare's payments is the bundling of
the payment for oxygen refills in the stationary equipment rate.
Including payment for oxygen refills in the stationary equipment rate
discourages suppliers from providing portable equipment because their
returns are higher when they provide only a stationary concentrator.
From 2001 through 2008, suppliers realized a financial benefit by
providing only stationary concentrators, as beneficiaries who used
only stationary concentrators increased and those using portable
equipment decreased by approximately the same amount--14 percent--over
the period. If Medicare continues to pay for oxygen refills as part of
the stationary oxygen payment, beneficiaries who would benefit from
using portable equipment in addition to a stationary concentrator may
not have access to it. Furthermore, paying for oxygen refills when
they are not needed increases both Medicare and beneficiary payments
unnecessarily.
Based on the experiences of the VA and CMS, the use of competitive
bidding holds promise as a way to contain costs for Medicare home
oxygen. Payment rates from the competitive bidding program would have
resulted in significant savings if they were implemented nationwide.
However, Medicare's current payment structure--covering oxygen refills
in the stationary equipment rate--could distort the benefits of a
nationwide competitive bidding program because it would continue to
overcompensate suppliers providing certain stationary equipment and
give them less incentive to provide portable equipment.
Matter for Congressional Consideration:
Congress should consider reducing home oxygen payment rates to better
align them with home oxygen suppliers' costs.
Recommendation for Executive Action:
To establish rates that more accurately reflect the distinct costs of
providing each type of home oxygen equipment, we recommend that the
Administrator of CMS restructure Medicare's home oxygen payment
methodology. This should include removing the payment for portable
oxygen refills from that for stationary equipment and paying for
refills only for the equipment types that require them.
Agency and Industry Comments and Our Evaluation:
We received comments on a draft of this report from HHS, on behalf of
CMS, and from representatives of three industry organizations. We also
received a technical comment from the VA, which we incorporated in the
report. HHS's comments are included as appendix III.
Comments from HHS:
In its comments, HHS concurred with GAO's general view with respect to
improving the accuracy of Medicare's oxygen payments, and stated that
Medicare payments for home oxygen "are excessive." However, HHS
disagreed with our recommendation that the payment for portable oxygen
refills should be removed from the stationary equipment payment rate.
HHS pointed out that because a change in payment methodology would
need to be budget neutral, overall expenditures for home oxygen would
not change and the new methodology would likely delay savings from
competitive bidding.
We recognize that this recommendation would only change relative
payment rates for stationary and portable equipment; the
recommendation was not intended to generate savings but to manage
resources to help ensure that beneficiaries who need oxygen have
access to it. It is also consistent with HHS's view that payments
should more accurately reflect the items and services provided.
Consequently, there is a compelling reason for CMS to implement the
recommendation: the current methodology--including payment for
portable oxygen refills in the stationary rate whether or not the
beneficiary uses portable oxygen--enables suppliers to gain
financially when they only provide stationary equipment and thus
beneficiaries' access to portable oxygen can be limited. We do not
believe, and HHS did not provide evidence, that our recommendation
would delay savings from competitive bidding.
HHS also expressed concern about using self-reported industry data to
estimate suppliers' costs for providing home oxygen. As noted in the
report's methodology section, we adjusted the costs reported in the
Morrison report where we had sufficient information from other sources
to warrant a change. Although we could not independently verify all
components of the costs reported in the Morrison report, we determined
these adjusted data were sufficiently reliable for our purposes. In
addition, we noted in the report the limitations of these data,
including the fact that they are self-reported, represent averages,
and efficient suppliers might have lower costs.
In addition, HHS stated that it was concerned about the assumptions
made in comparing the Medicare payment methodology and rates with
those of other payers such as the VA and private insurers. HHS's
comments were not specific enough to permit a direct response;
however, we have expanded the description of our methodology to help
better explain the use of these data.
Comments from Industry Representatives:
Representatives of three industry organizations reviewed and provided
comments on the draft report: the American Association for Homecare
(AAHomecare), the National Association of Independent Medical
Equipment Suppliers (NAIMES), and the Council for Quality Respiratory
Care (CQRC). Their comments focused on four areas: our use of the
Morrison report to estimate home oxygen suppliers' costs; the
methodologies and rates used by other payers, such as the VA and
private insurers; changes in beneficiary access to home oxygen; and
Medicare's payment rates for home oxygen.
Estimated Suppliers' Costs:
Representatives from all three organizations commented that suppliers'
costs have changed since the Morrison report was published in 2006.
For example, AAHomecare representatives pointed out that Medicare now
requires suppliers to be accredited and maintain surety bonds, and
that some suppliers have incurred additional costs to comply with
Medicare's quality standards.[Footnote 70] The estimate of suppliers'
overhead costs in the Morrison report included an accreditation
component, but because overhead costs were collected by Morrison
Informatics on an aggregate basis, we could not independently verify
or update costs associated with accreditation without additional
information. While it is possible that some suppliers may have
incurred additional costs to meet new accreditation and surety bond
requirements, AAHomecare representatives had previously told us that
the majority of suppliers were already meeting quality standards for
Medicare accreditation before the requirements took effect. Although
suppliers were not required to have a surety bond at the time of the
Morrison report, we determined that the average annual bond cost was
not large enough to warrant a separate increase in overhead costs
beyond the inflation adjustment. Furthermore, as we noted in response
to HHS's comments, the averages in the Morrison report may not
represent the costs of the most efficient suppliers.
Representatives of AAHomecare and CQRC said that several states
require that home oxygen be provided by a licensed respiratory
therapist. We did not include costs associated with respiratory
therapists because CMS does not include a professional component in
its home oxygen benefit. We note that other health care providers,
such as nursing homes, also must meet specific state requirements
without the expectation of additional Medicare reimbursement.
Methodologies and Rates Used by Other Payers:
Representatives of all three organizations commented on our comparison
of Medicare expenditures with those methodologies and rates used by
other payers. Representatives of AAHomecare and NAIMES said they
believed the 30 percent differential used to adjust VA payment rates,
which was based on a 1997 GAO report, should be higher. AAHomecare
representatives attributed this to Medicare's additional
administrative requirements, such as increased audit activity.
However, the evidence they provided was anecdotal and thus not
amenable to a quantitative adjustment to our estimate.
CQRC representatives took issue with our focus on the lowest-paying
private insurers and suggested the midpoint of the range of insurer
payments was very close to Medicare's estimated 2009 home oxygen
expenditures. One representative also stated that some private
insurers were able to pay low rates because Medicare--as a dominant
payer in the home oxygen market--covers the fixed costs incurred by
suppliers, enabling private insurers to cover only the incremental
cost of adding an additional home oxygen patient. In the draft report
we focused on rates paid by the two lowest-paying insurers of the four
national insurers we reviewed because they are most similar to
Medicare in size and volume. Further, since Medicare is a large payer
in the home oxygen market, it would be expected to pay rates similar
to other large payers in the industry.
Changes in Beneficiary Access to Home Oxygen:
In response to our finding that portable equipment use has declined,
representatives from the three organizations noted that suppliers
cannot influence the provision of portable equipment because a
physician must prescribe portable equipment in order for it to be
covered by Medicare. During the course of our research, members of the
industry told us that suppliers can influence the physician's decision
to prescribe portable equipment. For example, if a supplier has
evidence that a patient is not using the portable equipment, the
supplier can ask the physician to revise the prescription.
Representatives of NAIMES and CQRC commented that the decrease in use
of portable equipment might instead be due to earlier diagnosis of
respiratory conditions, because beneficiaries who are diagnosed
earlier may be less likely to need portable equipment. In addition,
representatives from AAHomecare noted that the 36-month rental cap
creates a burden for beneficiaries nearing the cap who would like to
relocate or are unhappy with their current supplier.
The draft report we sent to HHS for comment contained a matter for
congressional consideration that the Congress consider eliminating the
rental cap to reduce potential access problems. The matter was
predicated on information we received from CMS and from suppliers at
the time we did our audit work that some beneficiaries who relocate
outside their service area may experience an access issue in those
cases where a willing supplier cannot be found. However, subsequent to
our sending the draft to HHS for comment, CMS reported that it
analyzed complaint data from beneficiaries from January 2009 to
September 2010 and found that in the limited situations where
beneficiaries receiving oxygen equipment for less than 36 months
relocated during that time and initially had trouble locating an
oxygen supplier in their new location, CMS was able to locate
suppliers to serve each and every beneficiary, usually within a matter
of days. CMS now reports that beneficiaries who relocated had access
to oxygen and if, in the future, beneficiaries' access to oxygen
becomes a problem as a result of relocation, it may consider requiring
the supplier that provides home oxygen for month 18 or later to
provide oxygen for the remainder of the rental period or make
arrangements with another supplier to do so. In light of CMS's
analysis and statements regarding future action, we removed the matter
for congressional consideration from the report.
Medicare's Payment Rates for Home Oxygen:
Representatives from all three organizations stated that Medicare's
higher payment rate for stationary equipment subsidizes suppliers'
costs for providing portable equipment. In addition, CQRC
representatives believed the estimate of the average Medicare payment
for home oxygen is too high. They suggested we reexamine this estimate
and the share of beneficiaries subject to the rental cap, which we
used to calculate Medicare's average payment rate. Our estimate of
this share is based on an analysis of the claims history from a cohort
of beneficiaries. We reviewed the estimate and determined it should
not be changed but we have expanded the description of our method in
the text. In the report we recommend that the Administrator of CMS
restructure Medicare's home oxygen payment methodology to establish
rates that more accurately reflect the distinct costs of providing
each type of home oxygen equipment.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies of this report
to the Secretary of Health and Human Services, the Secretary of
Veterans Affairs, and interested congressional committees. The report
also will be available at no charge on GAO's Web site at [hyperlink,
http://www.gao.gov].
If you or your staffs have any questions about this report, please
contact me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff members who made major
contributions to this report are listed in appendix IV.
Signed by:
James C. Cosgrove:
Director, Health Care:
List of Requesters:
The Honorable Henry A. Waxman:
Ranking Member:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Frank Pallone, Jr.
Ranking Member:
Subcommittee on Health:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Pete Stark:
Ranking Member:
Subcommittee on Health:
Committee on Ways and Means:
House of Representatives:
The Honorable John D. Dingell:
The Honorable Charles B. Rangel:
House of Representatives:
[End of section]
Appendix I: Methodology:
This appendix describes our methodology for addressing the three
objectives: (1) describe Medicare's payment methodology and rates for
home oxygen and compare payments with estimated suppliers' costs, (2)
compare Medicare's payment methodology and rates with other payers'
methodologies and rates and examine how Medicare's use of these
methodologies and rates could affect its overall home oxygen spending,
and (3) examine changes in Medicare beneficiaries' access to home
oxygen. We obtained contextual information about the home oxygen
industry by interviewing representatives from the American Association
for Homecare (AAHomecare), the National Association of Independent
Medical Equipment Suppliers, the American Association for Respiratory
Care, and the Department of Health and Human Services (HHS) Office of
Inspector General (OIG). We also interviewed five home oxygen
suppliers of varying sizes to gain additional information on the types
of equipment and services provided to Medicare beneficiaries, and how
operations vary for different suppliers of different sizes. Because
this was not a statistically representative sample of suppliers,
information cannot be generalized to all home oxygen suppliers.
Medicare Payment Methodology and Rates, and Payments Compared with
Estimated Suppliers' Costs:
To describe Medicare's payment methodology and rates for home oxygen,
we reviewed relevant federal statutes, regulations and guidance, and
discussed certain payment policies with Centers for Medicare &
Medicaid Services (CMS) officials.
To estimate suppliers' costs--which generally include equipment
acquisition; provision of required services, such as equipment
delivery and maintenance; and overhead--to provide home oxygen to
Medicare beneficiaries, we obtained information from a 2006 industry-
funded report by Morrison Informatics, Inc. This report offered the
most recent information available on suppliers' costs at the time of
our analysis. We supplemented this information and adjusted it, as
needed, with information from other sources to provide more current
and reliable data.[Footnote 71] (See appendix II for detailed
information about these sources and the adjustments made to the
Morrison report data.)
Medicare's Home Oxygen Payments Compared with Other Payers'
Methodologies and Rates:
To compare Medicare's home oxygen payment methodology and rates with
those of other payers, we estimated Medicare home oxygen utilization
and expenditures for 2009 and applied the rates and methodologies of
private insurers, the Department of Veterans Affairs (VA), and round 1
of Medicare's competitive bidding program to Medicare's utilization to
estimate what Medicare's expenditures would have been using the
methodologies and rates of other payers.
Estimate of Medicare's 2009 Expenditures:
We used available Medicare home oxygen claims for 2009 to estimate
total Medicare expenditures for that year. Because complete home
oxygen-related claims for 2009 were not available at the time we did
our work, we used claims for January through September that were
approved for payment by Medicare no later than December 31 of that
year. We also obtained home oxygen-related claims for January through
September 2008 that were approved for payment by December 31 of that
year. For these claims, we compared the total number of home oxygen
Healthcare Common Procedure Coding System (HCPCS) codes billed with
the number of these codes billed for all of 2008 and determined the
year-end total was approximately 37 percent higher than the partial-
year total. We then increased the number of home oxygen HCPCS codes
for January through September 2009 by approximately 37 percent to
estimate the 2009 total. Because monthly rental payments were not
capped until January 2009, the first maintenance codes could not be
billed until the second half of 2009, and because our data covered
only the first 9 months of 2009, we doubled the quantity of
maintenance codes in the available claims to estimate a full year of
2009 maintenance codes billed. We then estimated expenditures for each
HCPCS code by multiplying the number of codes by the average payment
amount.
To compare payments under alternative methodologies, we also needed an
estimate of Medicare's home oxygen utilization rates in 2009. Even
after adjusting partial year 2009 data to estimate full-year data, we
did not have complete information on utilization in 2009 because
Medicare does not make payments for equipment after the rental cap is
reached. We used claims for 2003 through 2008 to estimate the
percentage of months for which beneficiaries had used the equipment
more than 36 months but less than 61 months.[Footnote 72] This
estimate was 9.3 percent for portable equipment and 10.1 percent for
stationary equipment. We used these estimates to simulate the share of
utilization that was subject to the rental cap. The supplier is under
no obligation to continue furnishing the same equipment after 60
months and thus our simulation assumes that beneficiaries received new
equipment after 60 months and payments to suppliers resume.
Using the utilization data, we also estimated average Medicare
payments for each month suppliers provided oxygen rental equipment to
beneficiaries in 2009. We determined an average payment amount by
using our estimates of the number of billed rental months, the payment
amounts for billed rental months, the estimated number of rental
months subject to the cap, and the payment amounts--for oxygen content
refills or maintenance services--for capped months. The estimates
assumed suppliers billed for every oxygen content refill delivery or
service for which they were eligible during months of capped rental.
We computed an average payment per beneficiary per month by taking a
weighted average payment amount of various equipment combinations
(e.g., a stationary concentrator plus a portable gaseous system, or a
stationary concentrator by itself) used by beneficiaries. Although
these equipment combinations excluded liquid oxygen equipment and some
rarely used equipment combinations for stationary and portable
equipment, they still accounted for 94 percent of beneficiaries.
Comparison of Medicare Methodology and Rates with Those of Other
Payers:
We judgmentally selected eight private insurers. We contacted six of
the eight largest national private health insurance plans as
identified by the Mossavar-Rahmani Center for Business & Government.
[Footnote 73] Four of the six were willing to share information about
their home oxygen payment methodologies and rates. To ensure that our
analysis was not limited to national plans, we sought information from
six regional insurers and obtained information from four of these.
[Footnote 74] We applied the eight insurers' payment rates to our
estimate of Medicare's 2009 utilization to estimate what Medicare's
expenditures would have been using private insurers' methodologies and
rates and then compared these estimates with estimated Medicare 2009
expenditures for home oxygen. Seven of the eight private insurers did
not use a rental cap; the private insurer that used a rental cap told
us that the cap (combined with maintenance payments after the cap)
reduced its expenditures by approximately 4 percent, so we reduced our
estimate of Medicare expenditures using payment rates and
methodologies of that insurer by 4 percent.
We also obtained information from the VA on its payment methodology
and its 2009 average payment rates. We used this information to
estimate what Medicare payment rates would have been if it used VA
average payment amounts. We adjusted VA's rates to account for
differences in methodology, such as when the VA paid separately for
certain services that Medicare bundled with payments for equipment
purchases. Additionally, a previous GAO comparison of Medicare and VA
payment rates found that suppliers' administrative costs for billing
Medicare were higher than those for billing the VA and that the more
predictable volume of patients associated with the VA's contracts,
which are frequently exclusive, allowed suppliers to take advantage of
economies of scale in the provision of home oxygen and save on
expenses, since they did not need to market themselves to individual
veterans.[Footnote 75] In the earlier report, GAO increased its
estimate of VA payment rates by 30 percent, and our analysis of VA and
Medicare payment policies suggested the justification for the earlier
adjustment still held. Our estimates of what Medicare expenditures
would have been using VA payment rates and methodologies were made
both with and without the additional 30 percent upward adjustment.
To estimate what Medicare would have spent for home oxygen services
using payment rates from its competitive bidding program for DME, we
used the rates that resulted from the round 1 rebid process. The
rates, which will take effect January 1, 2011, are for nine areas of
the country. In our analysis, we assumed that the rental cap would
apply with competitive bidding rates and we applied those rates to our
2009 nationwide estimate of billed utilization.
Beneficiary Access to Home Oxygen:
To examine changes in Medicare beneficiaries' access to home oxygen,
we used the change in the share of Medicare Part B beneficiaries using
home oxygen from 2001 through 2008 as a proxy for access. We did not
examine the appropriateness of home oxygen for the patients who
received it.[Footnote 76] Using complete Medicare claims data from
2001 through 2008, we determined the number of beneficiaries with home
oxygen-related HCPCS codes and divided it by the total number of Part
B beneficiaries--from the CMS Denominator File--to determine the share
of home oxygen beneficiaries for each year.[Footnote 77] We also
determined this share by state for 2008. To examine access to
different types of home oxygen equipment for 2001 through 2008, we
examined oxygen-related HCPCS codes to determine the types of
equipment used by unique beneficiaries for each year. To determine
whether the change in access to equipment type varied by age, we
matched claims data with Medicare enrollment information and compared
utilization by beneficiaries under 65 years and beneficiaries 65 years
and older.
To determine the number of suppliers of home oxygen equipment and
services, we counted the unique supplier numbers on approved Medicare
claims containing home oxygen-related HCPCS codes from 2001 through
2008 and determined the change in the number of suppliers over the
period. We also determined the number of suppliers by state for 2008.
To determine the change in the number of suppliers billing Medicare
from 2008 to 2009, we compared, by month, the number of unique
suppliers who billed Medicare each month. For this comparison, we used
data through September of each year for claims processed through
December 31.
To assess the magnitude of the potential access problems faced by
beneficiaries who move outside their supplier's service area in the
months leading up to the 36-month rental cap, we examined the claims
history for beneficiaries who began using oxygen in 2003. On the basis
of our analysis of these data, we estimated the portion of home oxygen
beneficiaries who move more than 30 miles after 24 months of
continuous home oxygen use by measuring the distance from the center
of both their old and new zip codes. The data related to beneficiary
inquiries about home oxygen was provided by CMS.
We ensured the reliability of the Medicare claims data used in this
report by performing appropriate electronic data checks and by
interviewing agency officials and Medicare contractors who were
knowledgeable about the data. The utilization and cost information in
the claims data we used are generally considered to be reliable, as
they are used by the Medicare program as a record of payments to
health care providers and are monitored by both CMS and the Medicare
Administrative Contractors--contractors that process, review, and pay
claims for Medicare-covered services. We found the claims data were
sufficiently reliable for the purpose of our analyses.
We conducted this performance audit from July 2009 through January
2011 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Adjustments to Data in Industry-Funded Report:
To estimate suppliers' costs to provide home oxygen to Medicare
beneficiaries, we used information from a 2006 industry-funded report
by Morrison Informatics, Inc., A Comprehensive Cost Analysis of
Medicare Home Oxygen Therapy,[Footnote 78] and adjusted certain cost
components in the report based on information we obtained from other
sources, including selected manufacturers of home oxygen equipment,
the Department of Veterans Affairs (VA), a group purchasing
organization (GPO)[Footnote 79] in the durable medical equipment (DME)
industry, and the Department of Health and Human Services (HHS) Office
of Inspector General (OIG). We adjusted the data in the Morrison
report for several reasons.
* The report presented costs that were for services Medicare does not
cover under its DME benefit or for services that were in addition to
those required by Medicare's quality standards.
* The report presented suppliers' overall costs of providing home
oxygen, but we were asked to estimate costs associated with different
types of home oxygen equipment.
* The data were collected in 2006, and the mix of equipment used by
Medicare beneficiaries has changed since that time. The number of
beneficiaries using stationary oxygen concentrators and oxygen
generating portable equipment (OGPE) increased from 2006 to 2008,
while the number of beneficiaries using traditional portable equipment
decreased during this time period.
* The Morrison data were self-reported by suppliers and may not have
been reported consistently.
Adjustments by Cost Category:
The Morrison report was commissioned by the American Association for
Homecare to assess suppliers' costs in the following seven categories:
(1) home oxygen equipment acquisition; (2) customer service and
patient intake; (3) equipment preparation, delivery, and return; (4)
routine delivery of disposable supplies, oxygen refills, and scheduled
maintenance; (5) unscheduled maintenance and repairs; (6) cost of
patient assessment; and (7) overhead costs. Morrison collected
detailed information on over 50 cost components associated with these
major categories, with the exception of overhead costs, which were
collected on an aggregate basis.[Footnote 80] The report stated that
these costs came from a survey of 74 home oxygen suppliers
representing over 600,000 Medicare beneficiaries. We adjusted cost
components reported by Morrison to estimate suppliers' 2009 monthly
costs for (1) stationary oxygen concentrators, (2) traditional
portable equipment, and (3) OGPE. Together, select combinations of
these equipment types were used by approximately 94 percent of
Medicare home oxygen beneficiaries. The following describes the
adjustments we made within the seven major cost categories presented
in the Morrison report.
Home Oxygen Equipment Acquisition. To estimate suppliers' 2009
equipment acquisition costs for stationary concentrators, we collected
acquisition prices through interviews with three of the five major
U.S. home oxygen equipment manufacturers and one smaller manufacturer.
[Footnote 81] We also obtained prices paid by the VA for stationary
concentrators through contracts between a VA medical center and two
major manufacturers. Using these prices as a proxy for suppliers'
acquisition costs, we estimated that stationary concentrators
generally cost suppliers from $400 to $625, depending on the model and
quantity purchased.[Footnote 82] We adjusted the average acquisition
cost of a stationary system from the Morrison report, using the range
we developed, to present a figure that is more current and represents
stationary concentrators only.[Footnote 83] To estimate suppliers'
average acquisition costs for the backup units that may be provided
with stationary concentrators,[Footnote 84] we updated the cost
presented in the Morrison report from $152 to $164 based on the
percentage change in the Consumer Price Index for all Urban Consumers
(CPI-U) from December 2006 to December 2009.
We were unable to collect sufficient information from other sources to
generate a cost estimate for traditional portable equipment.
Therefore, we updated the average cost of a portable system as
presented in the Morrison report from $471 to $508 based on the CPI-U.
[Footnote 85] We also used the Morrison report's average monthly cost
estimate for oxygen refills for liquid and gaseous systems, and
increased this amount from $18 to $19 based on the CPI-U.
For OGPE, we collected 2009 acquisition prices through interviews with
four of the five major U.S. home oxygen equipment manufacturers and
one smaller manufacturer. We also obtained prices negotiated by a GPO
for one major manufacturer's OGPE. Using these prices as a proxy for
suppliers' acquisition costs, we estimated that OGPE generally costs
suppliers from $2,000 to $3,000, depending on the model and the
quantity purchased by the supplier. The Morrison report did not
collect cost information specifically related to OGPE, as this new
technology was rarely used by Medicare's home oxygen beneficiaries at
the time of its survey.[Footnote 86]
Customer Service and Patient Intake. To present intake and customer
service costs in 2009 dollars we adjusted the average hourly wage rate
for a customer service representative from $14 to $15 using the Bureau
of Labor Statistics's (BLS) Employment Cost Index. We made no other
adjustments in this cost category.
Equipment Preparation, Delivery, and Return. To present equipment
preparation, delivery, and return costs in 2009 dollars, we adjusted
the average hourly wage rates for equipment and service technicians
from $14 to $15 using BLS's Employment Cost Index. To account for
changes in transportation costs, we compared the average vehicle cost
per mile from the Morrison report to the Internal Revenue Service's
(IRS) 2009 standard mileage rate for business miles driven.[Footnote
87] We made no other adjustments in this cost category.
Routine Delivery of Disposable Supplies, Oxygen Refills, and Scheduled
Maintenance. To estimate suppliers' costs related to scheduled
maintenance of equipment, we adjusted Morrison report data for the
annual number of supplier visits to beneficiaries for scheduled
preventive equipment maintenance visits. We based our adjustment on
manufacturers' recommendations for servicing equipment, which ranged
from every 6 months to every 36 months; Medicare's quality standards,
which recommend that oxygen equipment be serviced in accordance with
the manufacturer's recommendations or at least once per year;[Footnote
88] and a 2006 HHS OIG report, which found that suppliers performed
excessive preventive maintenance for stationary oxygen concentrators.
[Footnote 89] In its November 2008 final rule, CMS stated that
suppliers providing older equipment may need to service it more often,
but Medicare should not be responsible for any additional servicing or
repair required for used equipment. On the basis of the information we
obtained, we adjusted the average number of annual scheduled visits
for preventive maintenance as presented in the Morrison report from
4.9 to a range of 1 to 2 times per year. In addition, we updated the
Morrison report's average monthly cost of disposable and maintenance
supplies from $10 to $12 using the CPI-U.[Footnote 90]
To estimate suppliers' service costs associated with ongoing
deliveries of oxygen refills, we used a range of visits per year to
account for variation in suppliers' delivery practices. We based the
low estimate of annual visits on the HHS OIG report, which found that
suppliers deliver portable refills once every 3 months.[Footnote 91]
Medicare's billing policy also states that suppliers may deliver up to
3 months of oxygen refills at one time. For the high estimate we used
the Morrison report figure of 19 visits per year. For labor and
transportation costs associated with routine delivery and scheduled
maintenance, we used the adjusted 2009 average wage rate for service
technicians as described above.
Unscheduled Maintenance and Repairs. For labor and transportation
costs associated with unscheduled maintenance and repairs, we used the
adjusted 2009 average wage rate for service technicians as described
above. We made no other adjustments in this cost category.
Patient Assessment. We excluded Morrison report data associated with
patient assessment because Medicare does not cover respiratory
therapists' services under its DME benefit.[Footnote 92]
Overhead costs. To estimate home oxygen suppliers' 2009 overhead
costs, we adjusted the estimated average monthly cost presented in the
Morrison report from $42 to $45 using the CPI-U. We made no other
adjustments in this cost category.
Estimating Suppliers' Unique Costs by Equipment Type:
We recategorized the adjusted Morrison costs to estimate the distinct
costs incurred by suppliers to provide stationary oxygen
concentrators, traditional portable equipment, and OGPE. To do this,
we allocated equipment-specific service costs to the appropriate
equipment type. For example, since traditional portable equipment
requires delivery of oxygen refills, we allocated such delivery costs
to this equipment type, and we excluded costs associated with delivery
of refills from the adjusted estimates for stationary concentrators
and OGPE, since these equipment types do not require refills. We
attributed costs that were not easily split between equipment types,
such as patient intake, delivery and return of equipment, unscheduled
maintenance and repairs, and overhead, to the cost of providing a
stationary concentrator, since nearly all Medicare home oxygen
beneficiaries use stationary equipment. Therefore, the adjusted cost
estimates for traditional portable equipment and OGPE represent the
additional costs incurred by suppliers to provide these equipment
types in conjunction with a stationary concentrator, not the total
cost of providing these equipment types in isolation.
Estimating Suppliers' 2009 Overall Monthly Costs for Home Oxygen:
To estimate suppliers' overall average monthly costs to provide home
oxygen, we used the adjusted 2009 monthly cost estimates for
stationary oxygen concentrators, traditional portable equipment, and
OGPE and weighted them by the proportion of beneficiaries who used a
combination of these equipment types in 2008.[Footnote 93] More
specifically, we examined costs for beneficiaries using the following
combinations of home oxygen equipment: (1) stationary concentrators
only; (2) stationary concentrators with traditional portable
equipment; and (3) stationary concentrators with OGPE. Together, these
equipment combinations were used by approximately 94 percent of home
oxygen beneficiaries. We did not generate separate cost estimates for
the remaining 6 percent of home oxygen beneficiaries--approximately
4.4 percent of these used stationary liquid equipment and 1.4 percent
used only portable equipment. Liquid oxygen is considered an expensive
modality to provide because the equipment is expensive; and specially
equipped delivery trucks must be used, various regulatory requirements
must be met, and a patient's supply must be replenished regularly. As
a result, incorporating suppliers' cost estimates for the 4.4 percent
of beneficiaries using stationary liquid equipment could have slightly
increased the overall cost estimate. However, other adjustments to the
Morrison report that could have lowered costs may have been warranted
but were not made, and we therefore believe our overall approach
resulted in a reliable cost estimate.
Adjustments Not Made:
We adjusted Morrison report costs only in cases where we were able to
collect information precise enough to justify a specific adjustment.
In certain cases, we noted assumptions that did not appear appropriate
or found other shortcomings, but we did not have the information
necessary to make an adjustment. The following are examples of such
cases:
* Unlike other major cost categories, overhead costs were collected by
Morrison on an aggregate basis. The Morrison report stated that
overhead costs contributed to a large proportion of overall costs and
that further analysis of the components would be necessary to better
understand the nature of these expenses. We could not independently
verify these costs without additional information on the individual
components of overhead costs.
* The Morrison report calculated round-trip mileage for each visit to
a beneficiary's home for delivery of supplies and oxygen refills and
scheduled preventive maintenance, allowing 23 miles, or 46 minutes, of
travel for visits to beneficiaries' homes. However, most suppliers we
interviewed told us that suppliers conduct these activities on a
scheduled route, meaning that multiple beneficiaries receive services
during each round-trip visit. In addition, several suppliers we
interviewed reported taking steps to become more efficient in their
deliveries due to factors such as rising fuel costs and decreasing
reimbursements. Despite our concerns about using round-trip mileage to
calculate costs associated with such visits, we determined that we did
not have sufficient information to make an adjustment.
* The Morrison report presents an estimated length of time for
suppliers to perform tasks associated with different services, such as
average times to clean and load equipment for delivery; refill gaseous
and liquid systems; and perform scheduled maintenance. We did not
independently verify the length of time it took to perform such tasks.
For instance, the report presented an average of nearly 30 minutes to
perform scheduled maintenance, not including travel time to the
beneficiary's home. Although an HHS OIG report found that routine
maintenance tasks for concentrators, such as checking filters and
oxygen concentration, can be performed in less than 5 minutes, we did
not adjust this estimate since Medicare pays for 30 minutes of labor
for maintenance and service visits after the 36-month rental cap.
[End of section]
Appendix III: Comments from the Department of Health and Human
Services:
Department Of Health & Human Services:
Office Of The Secretary:
Assistant Secretary for Legislation:
Washington, DC 20201:
October 1, 2010:
James C. Cosgrove:
Director, Health Care:
U.S. Government Accountability Office:
441 G Street N.W.
Washington, DC 20548:
Dear Mr. Cosgrove:
Attached are comments on the U.S. Government Accountability Office's
(GAO) report entitled: "Medicare Home Oxygen: Refining Payment
Methodology Has Potential to Lower Program and Beneficiary Spending"
(GAO-10-882).
The Department appreciates the opportunity to review this report
before its publication.
Sincerely,
Signed by:
Jim R. Esquea:
Assistant Secretary for Legislation:
Attachment:
[End of letter]
General Comments Of The Department Of Health And Human Services (HHS)
On The Government Accountability Office'S (GAO) Draft Report Entitled,
"Medicare Home Oxygen: Refining Payment Methodology Has Potential To
Lower Program And Beneficiary Spending" (GA0-10-882):
The Department appreciates the opportunity to review and comment on
this draft report. The report examines Medicare payment policies for
oxygen and oxygen equipment by--(1) Comparing Medicare's payments with
estimated supplier costs; (2) Comparing Medicare's payment methodology
and rates with other payers' methodologies and rates and examining how
Medicare's use of these methodologies and rates could affect its
overall home oxygen spending; and (3) Examining changes in Medicare
beneficiary access to home oxygen as a result of the 36-month cap on
payments for oxygen equipment mandated by section 1834(a)(5)(F) of the
Social Security Act (the Act).
The Centers for Medicare & Medicaid Services (CMS) is committed to
ensuring access to oxygen and oxygen equipment under the Medicare
program and remains concerned with the accuracy of payment for these
items. CMS appreciates the efforts of the GAO to examine these issues
in its report. While we concur with the GAO's general view with
respect to improving the accuracy of Medicare's oxygen payments, the
report's specific recommendation for executive action does not advance
that goal within the current statutory framework as discussed below.
We also have concerns with certain aspects of the report that are
based on self reported supplier data and an industry funded study that
reflects serious design flaws.
GAO Recommendation:
To establish rates that more accurately reflect the distinct cost of
providing each type of home oxygen equipment, we recommend that the
Administrator of CMS restructure Medicare's home oxygen payment
methodology. This should include removing the payment for oxygen
refills from that for stationary equipment and paying for refills only
for the equipment types that require them.
CMS Response:
Medicare currently makes payments for oxygen under a modality neutral
payment method. For stationary oxygen, the cost of refills is captured
within that payment. While some patients may require more refills and
others require fewer, on average this payment method is intended to
provide an appropriate monthly payment amount to suppliers for
furnishing services to their patients.
While CMS concurs with the GAO's more general finding that current
payments for oxygen are excessive and should more accurately reflect
the items and services provided, we do not concur with this specific
recommendation because it does not advance, and may actually run
counter to, this goal. Use of our authority at section 1834(a)(9)(D)
of the Act to create separate classes for different oxygen equipment
modalities (i.e., those that require refills and those that do not)
would need to be done in a way that ensures annual budget neutrality.
Therefore, overall expenditures for oxygen and oxygen equipment would
be no different under the new classes as they would be under the
current modality neutral classes. This change would therefore result
in no immediate savings and would likely delay savings that would be
achieved in the near future through implementation of competitive
bidding. Competitive bidding programs for oxygen and oxygen equipment
are currently being phased in for the current classes of oxygen and
oxygen equipment and savings under these programs will be achieved for
the combination of oxygen and oxygen equipment furnished to Medicare
beneficiaries.
Although CMS agrees with the general conclusion of the report that
Medicare rates for oxygen are excessive, CMS is concerned with the
self reported industry data that is relied on in estimating suppliers'
costs of furnishing oxygen and oxygen equipment in this report and the
assumptions made in comparing the Medicare payment methodology and
rates with that of other payers such as the Veterans Administration
and private payers.
The CMS would like to thank the GAO for its efforts and insight on
this report. This report provides valuable information regarding the
cost of oxygen equipment and helps verify that payment reforms such as
competitive bidding are needed to address excessive Medicare
payments for oxygen and oxygen equipment. We look forward to working
with the GAO further on these issues.
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
James C. Cosgrove, (202) 512-7114 or cosgrovej@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Phyllis Thorburn, Assistant
Director; Todd Anderson; Ba Lin; Richard Lipinski; Elizabeth T.
Morrison; Aubrey Winterbottom; and Rachael Wojnowicz made key
contributions to this report.
[End of section]
Footnotes:
[1] Unless otherwise indicated, when we refer to home oxygen we are
referring to the provision of home oxygen, including equipment,
supplies, and covered services.
[2] GAO, Medicare: Comparison of Medicare and VA Payment Rates for
Home Oxygen, [hyperlink, http://www.gao.gov/products/GAO/HEHS-97-120R]
(Washington, D.C.: May 15, 1997).
[3] HHS OIG, Medicare and FEHB Payment Rates for Home Oxygen
Equipment, OEI-09-03-00160 (Revised) (San Francisco, Calif.: March
2005); and HHS OIG, Medicare Home Oxygen Equipment: Cost and
Servicing, OEI-09-04-00420 (San Francisco, Calif.: September 2006).
[4] Medicare Part B covers a broad range of medical services,
including physician, laboratory, hospital outpatient, and durable
medical equipment (DME). Home oxygen equipment is covered under the
Part B DME benefit. The Centers for Medicare & Medicaid Services
(CMS)--the agency within HHS that administers the Medicare program--
defines DME as equipment that (1) can withstand repeated use, (2) is
primarily and customarily used to serve a medical purpose, (3)
generally is not useful to an individual in the absence of an illness
or injury, and (4) is appropriate for use in the home. See 42 CFR §
414.202
[5] Expenditures are the sum of total allowed charges for home oxygen.
[6] Beneficiaries are also responsible for an annual deductible for
Part B services, which include home oxygen equipment and services. The
deductible was $135 per year in 2008 and 2009.
[7] If a beneficiary relocates outside his or her current supplier's
service area after reaching the 36-month rental cap, the existing
supplier must arrange for the beneficiary to continue receiving home
oxygen in the new location. This requirement does not apply if a
beneficiary relocates prior reaching to the rental cap.
[8] H.R. 3790, introduced in the House of Representatives in the 111th
Congress, would have repealed Medicare's DME competitive bidding
program, however, the bill did not pass. A previous GAO report
examined whether beneficiary access to certain types of home oxygen
equipment was affected by the home oxygen payment rate reductions
mandated by the Balanced Budget Act of 1997. Although GAO did not
discover access problems, GAO recommended that CMS continue to monitor
potential access issues. See GAO, Medicare: Access to Home Oxygen
Largely Unchanged; Closer HCFA Monitoring Needed, [hyperlink,
http://www.gao.gov/products/GAO/HEHS-99-56] (Washington, D.C.: Apr. 5,
1999).
[9] HHS OIG, Medicare Home Oxygen Equipment: Cost and Servicing.
[10] Morrison Informatics, Inc., A Comprehensive Cost Analysis of
Medicare Home Oxygen Therapy (Mechanicsburg, Pa.: June 27, 2006).
[11] When we were unable to collect more current information, we used
the cost data presented in the Morrison report and adjusted these
figures to present them in 2009 dollars.
[12] These exclusions were based on Section 240.2 of the Medicare
National Coverage Determinations Manual.
[13] The Morrison report offered the most recent information available
on suppliers' costs at the time of our analysis. The authors of this
report did not respond to our attempts to contact them.
[14] In 2008, approximately 4.4 percent of home oxygen beneficiaries
used stationary liquid equipment and approximately 1.4 percent used
only portable equipment. We did not generate separate cost estimates
for beneficiaries using these types of equipment.
[15] Mossavar-Rahmani Center for Business & Government, John F.
Kennedy School of Government, Harvard University, Health Care Delivery
Covered Lives--Summary of Findings (Cambridge, Mass.: Mar. 11, 2007).
Two insurers on the Kennedy School list had merged and another is
divided among many entities that operate at the local level.
[16] We used this method for seven of the eight insurers. For the
method used for the eighth insurer, see appendix I.
[17] The Medicare rental cap prohibited payment to suppliers for
equipment rentals after the 36TH month for the duration of the
reasonable life of the equipment, which can not be less than 60
months. If the beneficiary still requires oxygen in month 61, payments
resume if the supplier replaces the equipment (replacement equipment
need not be new). On the basis of an examination of the claims history
of beneficiaries who began using home oxygen in 2003, we estimated
that 9.3 percent of portable equipment users and 10.1 percent of
stationary equipment users in 2009 would have rented equipment for
more than 36 months and less than 61 months and thus be subject to the
cap.
[18] In many cases, the VA employs a competitive bidding process that
awards exclusive contracts in specific VA regions or medical centers.
In some cases, the VA awards contracts to multiple suppliers and each
contractor is guaranteed a minimum amount.
[19] GAO, Medicare: Home Oxygen Program Warrants Continued HCFA
Attention, [hyperlink, http://www.gao.gov/products/GAO/HEHS-98-17]
(Washington, D.C.: Nov. 7, 1997).
[20] Medicare beneficiaries must be reevaluated and recertified within
3 months or 1 year of continuous home oxygen use, depending on the
level of oxygen in the blood at the time of the initial certification.
Once recertification establishes a continued need for supplemental
oxygen, subsequent recertifications are not routinely required.
However, some evidence suggests that home oxygen patients,
particularly those who receive supplemental oxygen to treat an acute
illness, such as pneumonia, should be evaluated more frequently to
avoid payment for oxygen that is not medically necessary
("Implementation of an Oxygen Therapy Clinic to Manage Users of Long-
term Oxygen Therapy," CHEST Journal [November 2002], pp. 1661-67). For
example, the VA reevaluates its beneficiaries after 6 months of home
oxygen use, and then annually.
[21] COPD refers to a group of lung diseases that block airflow and
make it increasingly difficult to breathe. Emphysema and chronic
bronchitis are the two main conditions that make up COPD.
[22] HHS OIG, Medicare Reimbursement for At-Home Oxygen Care, OAI-04-
87-00017 (December 1987).
[23] Pub. L. No. 105-33, §§ 4551, 4552, 111 Stat. 251, 457, 459. The
BBA reduced home oxygen payment rates to 75 percent of the 1997 rate
for 1998, and 70 percent of the 1997 rate for each subsequent year.
[24] Pub. L. No. 105-33, § 4319, 111 Stat. 392.
[25] Pub. L. No. 108-173, § 302, 117 Stat. 2066, 2223. CMS authorized
independent accreditation organizations to certify that suppliers
adhere to the quality standards. Home oxygen suppliers were required
to become accredited by October 1, 2009, in order to receive payment
from Medicare.
[26] The 10 competitive bidding areas, selected from the largest
metropolitan statistical areas, were Charlotte (Charlotte-Gastonia-
Concord, North Carolina and South Carolina); Cincinnati (Cincinnati-
Middletown, Ohio, Kentucky, and Indiana); Cleveland (Cleveland-Elyria-
Mentor, Ohio); Dallas (Dallas-Fort Worth-Arlington, Texas); Kansas
City (Kansas City, Missouri and Kansas); Miami (Miami-Fort Lauderdale-
Miami Beach, Florida); Orlando (Orlando-Kissimmee, Florida);
Pittsburgh (Pittsburgh, Pennsylvania); Riverside (Riverside-San
Bernardino-Ontario, California); and San Juan (San Juan-Caguas-
Guaynabo, Puerto Rico).
[27] In May 2008, CMS announced the final winning suppliers. Contracts
with winning suppliers were to take effect July 1, 2008.
[28] Pub. L. No. 109-171, § 5101, 120 Stat. 4, 37.
[29] Pub. L. No. 110-275, § 144, 122 Stat. 2494, 2544.
[30] The reasonable useful lifetime of home oxygen equipment--at least
60 months--is not based on the chronological age of the equipment. It
begins when the supplier first delivers equipment to the beneficiary,
meaning suppliers can provide beneficiaries with used equipment.
[31] While equipment is subject to the rental cap, Medicare pays
suppliers separately for two services: (1) routine maintenance and (2)
delivery of oxygen refills.
[32] The nine competitive bidding areas selected for the round 1 rebid
were the same areas selected for the initial round 1 bid in 2007,
except that Puerto Rico was excluded from the rebid. The rebid
occurred from October through December 2009 and the new payment rates
were released in July 2010. CMS projects the new rates, effective in
the nine competitive bidding areas January 1, 2011, will result in
average savings of 32 percent compared to the 2010 payment rates for
the DME included in the program.
[33] Pub. L. No. 110-275, § 154, 122 Stat. 2560.
[34] Transfilling equipment describes a feature of a stationary oxygen
concentrator that allows beneficiaries to fill their own portable
gaseous cylinders in the home. This feature may be integrated into the
stationary concentrator or it may be a separate component.
[35] We refer to portable liquid and gaseous systems throughout the
report as "traditional portable equipment" in order to differentiate
them from OGPE.
[36] OGPE is a type of portable equipment.
[37] Effective January 1, 2006, the DRA limited rental payments for
home oxygen equipment to a period of 36 months of continuous use.
Therefore, beneficiaries using home oxygen on a continuous basis since
January 1, 2006, reached the 36-month rental cap on January 1, 2009.
[38] The reasonable useful life of home oxygen equipment is at least
60 months.
[39] In 2009, Medicare's maintenance payment for oxygen equipment
after the 36-month rental cap was reached varied by state, ranging
from $27 to $51 every 6 months. The average amount for all states
based on claims completed before December 31, 2009, was $30 every 6
months. For equipment furnished on or after July 1, 2010, Medicare
established a single maintenance payment amount of $66.
[40] Because Medicare bundles payment for oxygen refills and
maintenance into the monthly rental fee for stationary equipment,
separate payment for oxygen refills and maintenance is made only after
a beneficiary reaches the 36-month rental cap, when equipment rental
payments stop. Furthermore, separate payments for oxygen refills and
maintenance end in the event that a beneficiary receives replacement
stationary oxygen equipment, and a new 36-month payment period begins.
[41] This figure is based on a 5-year analysis of Medicare claims for
home oxygen beneficiaries who began using stationary equipment in
2003. Nearly all Medicare home oxygen beneficiaries used stationary
equipment.
[42] A 2006 HHS OIG study reported that suppliers provided used
equipment to 73 percent of sampled beneficiaries (OEI-09-04-00420).
[43] Morrison Informatics, Inc., A Comprehensive Cost Analysis of
Medicare Home Oxygen Therapy.
[44] Industry group representatives told us that some suppliers
compete on the basis of services, not costs, because Medicare
generally pays fixed rates for home oxygen equipment. We excluded
costs for services not required by Medicare in the adjusted cost
estimates.
[45] According to the Medicare National Coverage Determinations
Manual, the DME benefit provides coverage of home use of oxygen and
oxygen equipment, but does not include a professional component in the
delivery of such services.
[46] This company's quarterly report to the U.S. Securities and
Exchange Commission for the period ending September 30, 2009, noted
that the company's respiratory therapists generally provide
nonreimbursable and discretionary clinical follow-up with the
customer. This report also stated that respiratory therapists enhance
the company's business relative to its competitors that do not employ
these personnel.
[47] In 2009, Medicare paid a monthly rate of $176 through the first
36 months and approximately $5 per month after the 36-month rental
cap. The average payment amount accounts for the 36-month rental cap
by adjusting payment amounts according to the approximate number of
beneficiaries affected by the cap at a given point in time.
[48] Since oxygen concentrators are electrically operated, suppliers
may provide backup tanks for use in the event of a power failure.
[49] On average, approximately 17 percent of adjusted costs were
equipment-related; 40 percent were service-related; and 43 percent
were for overhead. Since nearly all beneficiaries use stationary
equipment, we attributed costs that were not easily split between
different equipment types, such as equipment delivery, scheduled and
unscheduled maintenance, and overhead, to the cost of providing a
stationary concentrator.
[50] Medicare's quality standards incorporate guidelines of the
American Association of Respiratory Care, recommending that oxygen
equipment be serviced in accordance with manufacturer's
recommendations or at least once per year.
[51] This payment rate was not designed to cover the entire cost of
providing portable equipment, since delivery of oxygen refills is
covered under the stationary rate for the first 36 months of
continuous use.
[52] On average, approximately 49 percent of costs were equipment-
related and 51 percent were service-related. Since certain services
and overhead costs are included in the cost of providing a stationary
concentrator, this estimate does not represent the total monthly cost
of providing traditional portable equipment in isolation. According to
Medicare claims data, less than 2 percent of home oxygen beneficiaries
used traditional portable equipment without an accompanying home-based
stationary unit in 2008.
[53] Suppliers may deliver up to 3 months' worth of oxygen refills at
one time.
[54] Since certain services and overhead costs are included in the
cost of providing a stationary concentrator, this estimate does not
represent the total monthly cost of providing OGPE in isolation.
According to Medicare claims data, less than 0.1 percent of home
oxygen beneficiaries used OGPE without an accompanying home-based
stationary unit in 2008.
[55] This cost estimate is weighted based on the number of home oxygen
beneficiaries who used each equipment type--stationary concentrator;
traditional portable; and OGPE--in 2008. We used 2008 Medicare claims
data to estimate utilization for each equipment type because complete
Medicare claims from 2009 were not available at the time of our review.
[56] This payment estimate is weighted based on the number of home
oxygen beneficiaries who used each equipment type in 2008. It also
accounts for the approximate proportion of Medicare beneficiaries
affected by the rental cap for each equipment type, and adjusts
payment amounts accordingly.
[57] For example, some VA contracts include the services of a
respiratory therapist, which Medicare does not cover.
[58] In addition to the rental cap, payment rates were reduced 9.5
percent as a result of the postponement in competitive bidding, and
rates for stationary equipment were reduced an additional 2.53 percent
as a result of a budget-neutrality adjustment in 2009. See 42 U.S.C. §
1395m(a)(9)(D)(ii).
[59] Medicare Program; Special Payment Limits for Home Oxygen, 62 Fed.
Reg. 38100 (July 16, 1997); [hyperlink,
http://www.gao.gov/products/GAO/HEHS-97-120R].
[60] This is in addition to the 9.5 percent reduction in payments to
offset the postponed implementation of competitive bidding. Consistent
with law, the rates for round 1 of Medicare's competitive bidding
program could not exceed the Medicare fee schedule rates.
[61] The share of Part B beneficiaries receiving home oxygen in 2008
ranged from 1.6 percent of beneficiaries in Puerto Rico to nearly 14
percent in Wyoming. The states with the largest share of Part B
beneficiaries receiving home oxygen in 2008 were Colorado, Nevada, New
Mexico, Utah, and Wyoming. These five states have the highest average
elevations in the United States, which can affect an individual's
oxygen needs.
[62] Data from the first 9 months of 2009 suggest that the number of
suppliers continued to decline. The average number of beneficiaries
per supplier by state in 2008 ranged from 15 beneficiaries per
supplier in Puerto Rico to 1,175 beneficiaries per supplier in the
District of Columbia. There was one home oxygen supplier in the
District of Columbia in 2008. New Hampshire had the second largest
ratio of beneficiaries to supplier in 2008 at 328 beneficiaries per
supplier.
[63] The percentage of home oxygen beneficiaries using portable
equipment includes beneficiaries using portable equipment only and
beneficiaries using portable equipment in addition to stationary
equipment.
[64] The age distribution of Medicare home oxygen beneficiaries
between 2001 and 2008 was relatively stable, and equipment utilization
trends--that is, an increase or decrease in utilization--were similar
for beneficiaries under 65 years and 65 years and over. However, a
change in the mobility of this population could have affected the type
of equipment they used. Around 2004, increased numbers of
beneficiaries began enrolling in Part C--Medicare Advantage--
Medicare's private health plan option. Sicker, and therefore
potentially less mobile, beneficiaries may have been less likely to
elect Medicare Advantage, thereby raising the proportion of Part B
beneficiaries using stationary equipment only. CMS estimates that Part
C enrollees are healthier than those in the traditional fee-for-
service program.
[65] OGPE is an exception. Medicare's payment rate for OGPE is higher
than the rate for traditional portable equipment.
[66] Suppliers are required to continue providing home oxygen after
the beneficiary reaches 36 months' use of rental equipment, even if
the beneficiary relocates outside the supplier's service area. This
may require suppliers to subcontract with another supplier in the
beneficiary's new location.
[67] We used 30 miles for our analysis to provide a liberal estimate
of the number of beneficiaries who relocate outside their supplier's
service area. Our analysis does not include beneficiaries who
temporarily relocate, since these beneficiaries are generally unlikely
to change their address on record with CMS.
[68] CMS categorized the other inquiries as follows: Medicare oxygen
coverage (93), supplier going out of business (17), supplier
uncooperative (137), billing issues (45), beneficiary/supplier
switching equipment (4), and miscellaneous (2).
[69] Medicare Program Payment Policies Under the Physician Fee
Schedule and Other Revisions to Part B for CY 2011; Final Rule With
Comment Period, 75 Fed. Reg. 73170, 73580-73581 (Nov. 29, 2010).
[70] See 71 Fed. Reg. 48354 (Aug. 18, 2006) (accreditation requirement
codified at 42 C.F.R. § 424.57(c)(22) and effective Oct. 2, 2006); 74
Fed. Reg. 166 (Jan. 2, 2009) (surety bond requirement codified at 42
C.F.R. § 424.57(c)(26) and effective May 4, 2009).
[71] Morrison Informatics, Inc., A Comprehensive Cost Analysis of
Medicare Home Oxygen Therapy (Mechanicsburg, Pa.: June 27, 2006). The
Morrison report was commissioned by AAHomecare to determine suppliers'
costs to provide home oxygen to Medicare beneficiaries. The report
stated that these costs came from a survey of 74 home oxygen suppliers
representing over 600,000 Medicare beneficiaries.
[72] The cap applies to beneficiaries who have had 36 months of
continuous use of home oxygen. We used CMS's method for determining a
period of continuous use: For beneficiaries with rental use up to 36
months (i.e., before the cap), utilization is continuous if any
interruptions lasted no more than 60 consecutive days plus the days
remaining in the rental month in which the interruption began. For
beneficiaries with rental use of more than 36 months (i.e., after the
cap), utilization is continuous regardless of the length of any
interruption.
[73] Mossavar-Rahmani Center for Business & Government, John F.
Kennedy School of Government, Harvard University, Health Care Delivery
Covered Lives--Summary of Findings (Cambridge, Mass.: Mar. 11, 2007).
Two insurers on the Kennedy School list had merged and another is
divided among many entities that operate at the local level.
[74] An insurer was considered regional if all or nearly all of its
2008 premiums were associated with one state.
[75] GAO, Medicare: Home Oxygen Program Warrants Continued HCFA
Attention, [hyperlink, http://www.gao.gov/products/GAO/HEHS-98-17]
(Washington, D.C.: Nov. 7, 1997).
[76] Medicare beneficiaries must be reevaluated and recertified within
3 months or 1 year of continuous home oxygen use, depending on the
level of oxygen in the blood at the time of the initial certification.
Once recertification establishes a continued need for supplemental
oxygen, subsequent recertifications are not routinely required.
However, some evidence suggests that home oxygen patients,
particularly those who receive supplemental oxygen to treat an acute
illness, such as pneumonia, should be evaluated more frequently to
avoid payment for oxygen that is not medically necessary
("Implementation of an Oxygen Therapy Clinic to Manage Users of Long-
term Oxygen Therapy," CHEST Journal [November 2002], pp. 1661-67). For
example, the VA reevaluates its beneficiaries after 6 months of home
oxygen use, and then annually.
[77] The Denominator File contains data on all Medicare beneficiaries
enrolled, or entitled, or both, in a given year.
[78] Morrison Informatics, Inc., A Comprehensive Cost Analysis of
Medicare Home Oxygen Therapy (Mechanicsburg, Pa.: June 27, 2006). We
attempted to contact Morrison Informatics, Inc., to ask follow-up
questions about the report and the associated survey instrument, both
through information from the company's Web site [hyperlink,
http://www.informaticinc.com/] and contact information provided by
AAHomecare. The authors of the report did not respond to our attempts
to contact them.
[79] A GPO is an entity that helps health care providers realize
savings and efficiencies by aggregating purchasing volume and using
that leverage to negotiate discounts with manufacturers, distributors,
and other vendors.
[80] The Morrison report noted that overhead costs contributed to a
large proportion of overall costs and that further analysis of the
components would be necessary to better understand the nature of these
expenses.
[81] On the basis of information provided by representatives of four
manufacturers of home oxygen equipment, we determined that there were
five major manufacturers of this equipment in the U.S. market at the
time of our study. We interviewed four of the five major U.S. home
oxygen equipment manufacturers and two smaller manufacturers.
[82] Higher-capacity units, such as 8-and 10-liter stationary oxygen
concentrators, are more expensive than the standard 5-liter units.
However, based on our analysis of Medicare claims data from 2008, less
than 0.5 percent of beneficiaries had a prescribed oxygen flow of more
than 4 liters per minute.
[83] The Morrison report combined suppliers' acquisition costs for
stationary oxygen concentrators and stationary liquid systems.
[84] Since stationary oxygen concentrators are electrically operated,
suppliers may provide backup units for use in the event of a power
failure.
[85] According to the survey instrument distributed to suppliers by
Morrison Informatics, Inc., this estimate includes the average cost of
gaseous cylinders and liquid portable units, weighted by the number of
portable customers on each system. Suppliers were asked to provide
costs for multiple cylinders if used. This estimate also includes the
cost of ancillary supplies such as stands, regulators, and oxygen-
conserving devices.
[86] OGPE was used by less than 1 percent of beneficiaries in 2006.
[87] The IRS's 2009 standard mileage rate of 55 cents per mile for
business miles driven was comparable to the average vehicle cost
presented in the Morrison report. Therefore, we did not adjust this
cost component.
[88] Medicare's DME Quality Standards indicate that suppliers should
comply with the current version of the American Association for
Respiratory Care Practice Guidelines for Oxygen Therapy in the Home or
Extended Care Facility. Section 11.2 of these guidelines indicates
that oxygen equipment should be serviced and maintained in accordance
with the manufacturer specifications or no less than once per year.
[89] HHS OIG, Medicare Home Oxygen Equipment: Cost and Servicing, OEI-
09-04-00420 (San Francisco, Calif.: September 2006).
[90] Disposable supplies include accessories such as tubing, which
attaches to the oxygen equipment and is available in different lengths
to enable mobility within the home, and nasal cannulas, which connect
to the tubing to deliver oxygen through the nostrils. Maintenance
supplies include different types of filters that should be cleaned or
replaced as part of preventive maintenance for oxygen concentrators.
[91] HHS OIG, Medicare Home Oxygen Equipment: Cost and Servicing. The
OIG report also found that 65 percent of beneficiaries received two or
fewer cylinders from their suppliers in the first year of rental.
[92] Medicare National Coverage Determinations Manual, § 240.2 F. The
DME benefit provides coverage of home use of oxygen and oxygen
equipment, but does not include a professional component, namely,
those of respiratory therapists, in the delivery of such services.
[93] We used 2008 Medicare claims data to estimate utilization for
each equipment type because complete Medicare claims from 2009 were
not available at the time of our review.
[End of section]
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