Provider Reaction Mixed on 2005 Home Oxygen Fees

BALTIMORE–Providers who had braced for big reimbursement cuts
expressed quiet relief last week when Medicare announced it is
reducing home oxygen fees by an average of less than 9 percent.
Last year, an HHS Office of Inspector General report had
recommended cuts of up to 20 percent.

“We prepared for the worst, and we’re pleasantly surprised,”
said Rebecca Olson, sales manager for Oxygen One, Wakesha, Wis. The
independent provider had planned for severe oxygen cuts–anywhere
from 10 to 30 percent, Olson said. “I would rather [the government]
not cut [oxygen rates] at all, but realistically, if they’re going
to make the cuts, they’re at least small and not across the board,”
she added.

Based on location, however, not all providers are quite as
happy. Don White, president of Amherst, N. Y.-based Associated
Healthcare Systems, called the 12 percent average cut in New York
“pretty substantial. It’s 2 percent over what I had expected,” said
the long-time provider. “I had already made adjustments to account
for a 10 percent cut.”

MMA-Mandated Cuts
The Medicare Modernization Act requires CMS to bring oxygen
reimbursements in line with median Federal Employee Health Benefits
Plan pricing as determined by the OIG. But because the OIG analysis
was delayed by several months, CMS has been paying 2005 oxygen
claims at 2004 rates.

When the OIG issued its final report last Wednesday, CMS
immediately posted the 2005 fee schedule. The agency estimates that
the average rate reduction is 8.6 percent for stationary oxygen and
8.1 percent for portable units. Actual fee cuts, however, vary by
state. The new monthly payment amounts for the states range from
$194.48 to $200.41 for stationary oxygen and from $30.57 to $32.08
for portable equipment.

Reimbursements in states with the highest Medicare fees came
down by the highest percentage; Hawaii, for example, will be hit
with a 25 percent cut for stationary oxygen and a 28 percent cut
for portable systems, and New York and Alabama providers will take
a 12 percent cut on stationary systems and a 10 percent cut for
portables.

Cuts are lighter in states where current fees are closer to
FEHBP median pricing, and states with fees already at or below the
FEHBP median price will see no changes.

The new fees will be implemented by the DMERCs “as soon as
possible and by no later than April 8,” according to a CMS
statement. 2005 claims submitted before the fees take effect will
be paid at 2004 rates and will not be retroactively adjusted. But
claims submitted after the fees are implemented will be paid using
the new fee schedule amounts, the agency said.

“It’s difficult to take a reduction of any kind in the face of
other costs going up, such as fuel,” said Lisa Getson, executive
vice president of business development and clinical services at
Apria Healthcare, Lake Forest, Calif., one of the nation’s largest
respiratory providers. “[But] we anticipated this reduction for a
long time, [and] we’ll continue to manage our business under the
new constraints.”

“I was expecting a 15 percent cut all along,” said Jeff Wills,
COO and owner of CV Medical Solutions, Oklahoma City, and chairman
of the American Association for Homecare’s HME and Respiratory
Council, referencing OIG’s original report. But last week, Wills
found Medicare oxygen reimbursement rates in Oklahoma will not be
cut for 2005.

According to Bobby Bowden, general manager at Nare Home Medical
in Cullman, Ala., “We knew [the cuts] were coming, so it’s not like
it’s a big surprise–but it is 10 percent [in Alabama]. That’s a
lot of money for anybody. It affects everybody’s bottom line in
business, but it also affects every patient out there.

“Whether anybody likes it or not, it’s all about patient care,
and when they start cutting money, it’s going to cut patient care,”
Bowden continued. “I don’t know what it’s going to take for the
patients to start screaming nationwide.”

“We have never reduced our staff because of fee cuts, even
though fees have been cut 22 times in the 26 years I’ve been in
business,” said Jack Clark, founder and principal of MGR Homecare
in Griffin, Ga., “but when you have sustained 22 fee reductions in
two-and-a-half decades, that … has to come out of
profitability.

“This turns the industry into a ‘supplier’ industry even more,
instead of a ‘provider-of-service-and-care’ industry.”

Apples to Oranges
The OIG report released last week was a revision of an earlier
analysis that had recommended oxygen cuts between 10 and 20
percent. But after the report’s methodology was questioned–the OIG
did not consider the cost of oxygen contents, for example–CMS
requested a re-examination of the payment rates.

Last year, AAHomecare commissioned a study that found virtually
no difference in oxygen fees between FEHBP and Medicare
fee-for-service plans. The association contended that the
government’s comparison did not take into account the differences
between managed care and fee-for-service models. Instead, last
year’s report blended all types of plans together, creating an
apples-to-oranges comparison, the association said. Stakeholders
have also said the OIG’s initial report did not account for oxygen
content and administrative cost differences between federal benefit
plans and Medicare.

To compile its new analysis, the OIG used data from 56 FEHBP and
Medicare+Choice (now Medicare Advantage) plans. Examining claims
from 2002, the report pegged FEHBP median reimbursement for
stationary oxygen at 12.4 percent lower than Medicare rates, and
10.8 percent lower for portable oxygen. CMS then put those
percentages through a formula to come up with fees for each
state.

The latest report is a “significant improvement,” commented Cara
Bachenheimer, vice president, government relations, for Elyra,
Ohio-based Invacare. “It’s not quite as good as the industry’s own
analysis, but it is certainly better than [the first OIG
report].”

Joe Priest, president and CEO of Buffalo, N.Y.-based AirSep,
pointed out that the new OIG report fails to differentiate between
different kinds of federal benefit plans. “A plan that had 20
people in it got the same weight as plans with 20,000,” he said,
adding that some Medicare fees “are actually less than some fees
with FEHB rates.”

In fact, many federal health plans actually use the Medicare fee
schedule, according to Jim Walsh, president of VGM Management Ltd.
and general counsel for The VGM Group, Waterloo, Iowa. “I don’t
know how the OIG treated those plans [in the new report],” he
said.

“These reimbursement cuts for oxygen are several percentage
points lower than they would have been if AAHomecare had not
pressed the OIG and CMS on this issue,” said association President
and CEO Kay Cox. “AAHomecare made a successful case for CMS to ask
the OIG to take the unusual step of re-examining the data in the
initial OIG report on home oxygen. We still have questions about
some of the methodology used by OIG, but we are very grateful for
the level of openness and cooperation at the OIG and CMS.”

The latest report on oxygen fees is posted on the OIG Web site,
available by clicking
here.

The new oxygen rates are posted on the CMS Web site, available
by clicking
here.