Medicare Rule on Paying for Oxygen Vexes Patients

Amy Merrick, Wall Street Journal, 6/16/09

More than one million people rely on Medicare to pay for home-oxygen therapy. Now some patients are running into problems switching their suppliers because of complex new rules the federal insurer uses to pay for the services.

Under the new rules, which began to affect patients on Jan. 1, Medicare will pay suppliers at its prevailing rate for the first three years after a patient begins coverage. Suppliers are then required to continue providing oxygen services to patients for another two years, but at a sharply reduced payment rate. After that, patients are entitled to receive new equipment and Medicare will resume paying suppliers at the higher rate.
The changes, aimed at trimming costs for Medicare, have created problems for some patients who want to find a new source for their oxygen, perhaps because they want to move closer to family members. Some suppliers are balking at accepting new patients who are approaching, or have already reached, Medicare’s new three-year limit on full payments. That’s because the companies would have to provide oxygen services for the next two years without getting much payment.

“I can’t afford to take [new patients] for four or five months, and then not get paid anymore,” says Jim Jewell, the owner of In Home Medical, which provides oxygen to about 400 people in Washington and Oregon. Mr. Jewell says he is trying to make up for lost Medicare revenue by boosting sales of wheelchairs and other equipment. He says he has scaled back the hours of his company’s respiratory therapist to save money.

Donna Miller of Lancaster, Ohio, uses an oxygen concentrator and a CPAP machine at night to help her breathe. The 71-year-old says she is planning to move into senior housing located in another town and that she contacted a nearby supplier that she heard provides good service. But because Medicare cut the payment for her oxygen when she reached the three-year cap this year, Ms. Miller says she is still trying to work out a transition plan with the new supplier. “I don’t think it’s fair that I have to go through all this red tape,” she says.

Waste and Fraud
The rule changes are part of broader efforts by Congress and the Centers for Medicare and Medicaid Services, or CMS, which oversees the federal insurance programs, to attack what is perceived to be waste and fraud among home-oxygen suppliers and other providers of so-called “durable medical equipment,” which includes tools such as wheelchairs and walkers.

The government is planning to restrict where patients may buy or rent medical equipment, by paying for devices sold only by approved suppliers. Medicare also has stepped up its efforts to root out fraud. Last month, the U.S. Attorney General’s Office and the Department of Health and Human Services, which oversees CMS, announced they would form a new team to share data about suspicious Medicare billing patterns.

President Barack Obama is counting on big cost-savings at Medicare and Medicaid to help pay for a health-care overhaul. In a speech delivered Monday to the American Medical Association, the president spoke of the dangers of unchecked growth in the federal insurance programs.

Efforts to cut payments to suppliers of home-oxygen therapy underline how complicated and difficult it will be to control Medicare costs. A 2006 report prepared for CMS calculated that the agency was paying an excessive amount to private companies to supply oxygen equipment and services — on average about $200 a month per patient. The average cost to purchase an oxygen concentrator was $587 and the equipment required little maintenance, the report concluded. CMS says it expects to save about $220 million in the fiscal year beginning in October as a result of the new payment rules. Last year, Medicare spent $2.9 billion on home-oxygen therapy, out of the insurance program’s total budget of nearly $500 billion.

Laurence Wilson, director of CMS’s chronic-care policy group, says the agency felt it could reduce payments to suppliers after three years because the oxygen equipment should be fully paid for by that time. After that, suppliers receive minimal payments for occasional follow-up visits and other services. But the insurer won’t pay for certain services, such as repair calls that suppliers have to make when equipment breaks down. Medicare says monthly payments made in the initial three years should be sufficient to cover ongoing repairs.

“We’re looking for ways to try to pay more accurately,” Mr. Wilson says. Patients also benefit, since they pay 20% of the cost of home-oxygen therapy, he says.

Mr. Wilson says he is surprised to hear that some suppliers are refusing some new patients, because their equipment “is something that arguably Medicare’s already paid for.” Although suppliers aren’t obliged to take on new patients, Medicare says patients having trouble switching can contact the insurer for help finding a new supplier.

Suppliers Protest
Oxygen suppliers say CMS is overly focusing on the cost of equipment and isn’t accurately accounting for other expenses. A 2006 survey commissioned by the American Association for Homecare, an industry group, found that oxygen equipment and refills make up 28% of the cost of providing oxygen. The remainder comes from delivery and maintenance, training patients and other services. Including all expenses, it costs about $200 a month before taxes on an ongoing basis to provide oxygen to a patient, the survey found.

Suppliers say many of their patients have cognitive problems, making it more difficult for patients to monitor their own equipment. That means employees often make house visits to fix problems. The supply companies are required by law to have someone constantly on call for emergencies.

“The equipment is the least-expensive piece of it. Medicare doesn’t consider this,” says Wayne Stanfield, president of the National Association of Independent Medical Equipment Suppliers. The group is pressing Congress to reverse Medicare’s three-year limit on full payments.
Some patients are sympathetic to suppliers’ claims. Clarence A. Martin of Burbank, Wash., who has been on oxygen for more than five years because of chronic bronchitis and emphysema, says the company that supplies his oxygen once sent an employee out in the middle of the night to help him with his equipment during a power outage.

“They’re trying to have these people that furnish me oxygen do all this running out here and not get any reimbursement,” says the 81-year-old. “I don’t think that’s right.”

New Patient Charges
To make up for lost Medicare revenue, some suppliers have told patients they will begin charging them for services they once provided for no additional fee, such as in-home visits from a respiratory therapist.

Suppliers are scrambling to adapt to the new rules. Sam Clay, owner of Clay Home Medical in Petersburg, Va., says he struggled recently to work out arrangements for a new patient moving from North Carolina. The patient wanted to switch to his service, but Mr. Clay says he couldn’t afford to accept her because she was near the three-year limit on full Medicare payments.

Ultimately, Mr. Clay agreed to act as a subcontractor to the patient’s previous supplier to provide services that Medicare won’t pay for, such as equipment repairs. He says he will receive payment from the previous supplier on a fee-for-service basis. But he says he’s discounting his usual charges because he knows the other supplier already is taking a hit by continuing to be responsible for the patient with minimal reimbursement.

“If we were able to do what we had been doing for 20 years, the patient would have just changed their service here,” Mr. Clay says.

Write to Amy Merrick at
Printed in The Wall Street Journal, page D1

Cost of Breathing.jpg (41 KB)

2 Responses to “Medicare Rule on Paying for Oxygen Vexes Patients”

  1. Stewart Pace said:

    Jul 08, 09 at 11:34 am

    Below are my comments and question that I submitted to Congressman Artur Davis in advance of his Health Care Summit held here in Birmingham, Al on Monday night. The math is simple. Competitive bidding, the oxygen cap and other reimbursement cuts could and probably will force 50-90% of HME providers out of business, if implemented. Should this occur, home oxygen patients would have to either go to a hospital or die. If you multiply the number of Medicare home oxygen patients by the average daily hospital rate, the amount is staggering. First,there are not enough hospital beds to accomodate these patients and secondly the annualized cost to Medicare would collapse the program.

    Congressman Davis,

    First, let me thank you for visiting with me and my colleagues during our industry’s American Association for Homecare Legislative Conference on June 3rd. It was nice to finally get to meet you and personally thank you for your support of the home health care industry; and specifically the home medical equipment (HME) industry. I am respectively submitting the following question and comments in advance of the Summit for you consideration.

    Comments: Facts: Congress and CMS continually strive to either reduce reimbursement rates for home health care products and services based on erroneous data (cost to provide those services) or via an onerous program called Competitive Bidding, which in reality is not a true competitive bidding program, but a “train wreck” as noted by several Congressmen such as Pete Stark. Also Congress saw fit to place a 36 month payment cap on home oxygen; again based on bad information coming from the OIG and other governmental agencies. The reality is that Congress and CMS do not understand what is involved in operating an HME business.

    Fact: It cost approximately $7.62 per day to provide home oxygen to a Medicare recipient.

    Fact: It cost approximately $5500.00 per day to keep a Medicare patient in the hospital for one day.

    Fact: Only 28% of the cost of providing home oxygen is attributable to the equipment.

    Fact: The HME industry accounts for only 1.6% of the entire Medicare costs.

    Fact: This year; taking into account the 9.5% give back, the oxygen cap and other reductions, we in this industry have taken a 27% reimbursement cut from Medicare, which comprises about 50% of the HME business.

    I could inundate you with other facts, but suffice it to reason that considering the above, why would we want to destroy this segment of health care?

    Question: Considering that everyone with any knowledge of health care and it’s associated costs certainly realizes that treating patients at home is extremely cost effective ; why would CMS and Congress continue to reduce reimbursement to the point that will ultimately force 90% of HME providers out of business and seriously reduce Medicare recipients access to this valuable service?

    Respectively submitted,

    Stewart H. Pace

    Senior Vice President

    Med-South, Inc.

    2100 Southbridge Parkway

    Suite 650

    Birmingham, AL 35209

    Office: 205-414-7525

    Fax: 205-414-7420

  2. Jonathan S. Temple said:

    Jul 10, 09 at 5:05 pm

    Home Oxygen Providers Prevent Unnecessary Healthcare Costs to Our Healthcare System

    I recently attended a healthcare summit hosted by Representative Artur Davis of the 7th Congressional District of Alabama. The purpose of the summit was to get feedback from stakeholders that included representatives from health care, business and not for profit and government sectors on President Obama’s proposed healthcare reform bill. Many of the stakeholders echoed the fact that preventative care is a necessity and must be factored in to any healthcare bill in order to control costs. CMS (Centers for Medicare & Medicaid Services) needs to realize that the Durable Medical Equipment (DME) industry, has led the way in preventing unnecessary costs to our healthcare system by how the industry operates as a whole in regard to providing home oxygen therapy.

    Home oxygen is a very service intensive. The costs associated with providing home oxygen are quite substantial. Home Oxygen providers provide many services to Medicare beneficiaries that are not covered by Medicare nor have ever been covered by Medicare. Yet, these non-covered services save or prevent our healthcare system from bearing unnecessary costs by keeping home oxygen patients out of the hospital. CMS needs to factor in the service aspect of what home oxygen providers do as a value added service and even a cost saving measure.

    It has been proven that home oxygen is a critical life sustaining medical treatment that keeps Medicare beneficiaries at home and out of the hospital. Home oxygen is prescribed to nearly 1.5 million Medicare beneficiaries annually. Home oxygen, at the national average cost less than $8.00 per day and helps avoid costly hospital visits, at more than $4600.00 per day.

    The current CMS guidelines make virtually no payment for maintenance, service, emergency service or supplies for a period of two years after the 36 month cap is reached. CMS plans to cut this cost saving measure even more.

    Studies show that that the service aspect associated with providing a patient with home oxygen accounts for the largest part of the costs. The service aspect of providing home oxygen is the key to providing successful oxygen therapy and the prevention of unnecessary hospital or emergency room visits. Oxygen equipment is secondary to the overall picture in providing oxygen to a patient.

    Non-Covered Services

    I want to interject that the non-covered services that home oxygen providers include with their oxygen service gives many Medicare beneficiaries great peace of mind. These patients know that if an event occurs that interrupts their oxygen therapy, all they have to do is pick up the phone. How can CMS put a value on peace of mind? How can CMS over look the service aspect of what home oxygen providers do?

    Back-up tanks, Home oxygen providers often provide back-up-tanks or emergency oxygen to Medicare beneficiaries at no cost. This insures that there no interruption in the patients home oxygen therapy due to power outages. Not covered by CMS.

    Emergency service or as CMS calls it, “un-scheduled or non-routine service” is also a non-covered service the home oxygen industry provides. Medicare patients have access to their home oxygen providers 24 hours a day 7 days a week. Not covered by CMS.
    Respiratory therapist- many home oxygen providers hire therapists to provide telephone and/or in-person to their home oxygen patients. Not covered by CMS.
    Supplies- home oxygen providers supply all the disposable supplies needed to deliver effective therapy. CMS does not reimburse suppliers for these costs. Not covered by CMS.
    CMS needs to take a realistic look at home oxygen therapy
    The current CMS oxygen policy is seriously flawed and changes are necessary in order to make oxygen service more focused on patients and the service they require. The service oxygen providers include with their service saves CMS money. More cuts to oxygen reimbursement will create a massively more expensive cost shift from home care to the hospital.


    Jonathan S. Temple Sr.
    Vice President
    Crest Medical
    Birmingham, Alabama

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