Medicare Home Oxygen:

Refining Payment Methodology Has Potential to Lower Program and Beneficiary Spending

GAO-11-56: Published: Jan 21, 2011. Publicly Released: Feb 14, 2011.

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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.

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.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Congress, through the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, required the Centers for Medicare & Medicaid Services (CMS) to phase in a competitive bidding program (CBP) for durable medical equipment (DME) and medical supplies, including home oxygen supplies and equipment. In accordance with applicable requirements, CMS began operating the CBP in nine competitive bidding areas in January 2011 for certain DME items, including home oxygen supplies and equipment, and expanded the program to 100 competitive bidding areas in 91 metropolitan statistical areas for contracts effective in July 2013. The program's competitively determined payments to CBP contractors must be equal to or lower than the Medicare fee-for-service schedule amounts for the same DME items. While CMS did not adjust payments for oxygen supplies and equipment outside the competitive bidding areas, Congress, through the Patient Protection and Affordable Care Act (PPACA), established a requirement that CMS use information on payments determined under the CBP to adjust Medicare payment amounts for DME in areas that are not covered under the CBP on or after January 1, 2016. Moreover, to better align home oxygen payment rates with the costs of supplying home oxygen outside the competitive bidding areas, PPACA requires CMS to establish a methodology that accounts for costs when comparing CBP payment rates to DME rates outside the competitive bidding areas. As a result of the CBP, CMS announced that Medicare payments for oxygen supplies and equipment have been reduced in competitive bidding areas.

    Matter: Congress may wish to consider reducing home oxygen payment rates to better align them with home oxygen suppliers' costs.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: Although CMS still includes payment for portable oxygen refills in Medicare's payment for stationary oxygen equipment, since we issued our report, CMS has made changes to Medicare's payment rates for home oxygen equipment to more accurately compensate suppliers for providing the various types of equipment. For example, CMS's Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive Bidding Program has significantly reduced payment rates for most types of home oxygen equipment. There is also much less disparity between the payment rates for stationary oxygen equipment and portable oxygen equipment today. Over time, Medicare's payment rate for stationary equipment has decreased more than its payment rates for portable equipment due both to competitive bidding and the fact that CMS has been reducing the stationary payment rate to offset increases in other payment rates or the creation of new payment rates. Additionally, there have been changes over time in the types of home oxygen equipment that Medicare beneficiaries use. When we issued our report, a very small percentage of beneficiaries used oxygen generating portable equipment (a type of portable equipment that does not require refills). Since that time, due to advances in technology and changes in Medicare's payment rate for this equipment, more beneficiaries are using it. Due to these changes, this recommendation is no longer relevant.

    Recommendation: To establish rates that more accurately reflect the distinct costs of providing each type of home oxygen equipment, the Administrator of CMS should 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 Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services


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