Kansas Company Bids Adieu to Medicare Oxygen; Will Others Follow?

LEXANA, Kan.–When Gerald Sloan saw the new oxygen allowable
under round one of competitive bidding, he knew he was out of the
oxygen business with Medicare.

Sloan, the owner of Progressive Medical Equipment in Lenexa,
Kan., had bid on oxygen in the Kansas City CBA but was not awarded
a contract. And the new rate under competitive bidding–$149.40 in
Kansas City–sealed the deal. There would be no grandfathered
patients for his company, no subcontracting for a bid winner.

“When I saw what the allowable was for O2 … we were
$20 above the allowable. And to me, that was our bottom dollar to
do it efficiently, effectively and still make money and provide the
kind of service we are accustomed to providing for our
customers,” Sloan said. “So come July, we are going to
drop all of our Medicare [oxygen] patients. We are going to tell
them they are done with us and need to find a new
supplier.”

He is not the only provider poised to pull out of the Medicare
oxygen program. Rose Schafhauser, executive director of the Midwest
Association of Medical Equipment Services, said she has talked to
providers across the United States since CMS released the round one
contract rates in March. (See
HomeCare Monday, March 24.)

“Every single one who did not win a bid has said they do
not want to continue servicing those oxygen patients,”
Schafhauser said, adding that the providers were not interested in
hanging on to their current oxygen patients who could be
grandfathered in, or in subcontracting with another provider to
help service oxygen patients.

It isn’t just the competitive bidding rates for oxygen that are
spawning talk of pulling out of the Medicare oxygen business. It is
also the looming 36-month cap. On Jan. 1, 2009, Medicare will stop
paying rental fees for those patients using oxygen for 36 months as
of that date, and ownership of the equipment will transfer to the
Medicare beneficiary.

“It was an economic decision,” said Sloan. While
oxygen was not a huge part of Progressive Medical’s business,
“it was certainly a moneymaker for us,” he said, noting
that his decision would affect between 30 and 40 Medicare oxygen
patients. “Rather than going ahead and grandfathering these
people in and letting them cap out in January, it makes more sense
for us to pull in our equipment. Otherwise, it’d just be
gone.”

He can use that equipment. Sloan said he services other oxygen
patients for payers besides Medicare, and he also services oxygen
patients through the company’s St. Louis, Mo., branch, which is not
in round one and also isn’t among round two’s 70 MSAs. “It
makes sense for us to pull in our resources and regroup and put
them where they can make us some money,” he said.

It may have been an economic decision, but it wasn’t an easy
one. “We felt like every one of our clients was our personal
friend,” Sloan said. “They were someone we got to know
personally. But that’s not the way this business model can be done
anymore. It’s a very sad day for us and a very sad day for our
beneficiaries. But that is what the government wants.”

Tom Pontzius, president of VGM’s Nationwide Respiratory in
Waterloo, Iowa, believes other providers could, like Sloan, decide
to quit the Medicare oxygen business. “There will be a number
of providers who choose not to do anything,” he said.
“It depends on what percentage Medicare is of their business.
I think that you will find companies that do not want anything to
do with Medicare oxygen. However, we are still in a decision
process … does it make sense to subcontract and does it make
sense to grandfather?”

Pontzius said he hasn’t yet heard of too many oxygen providers
opting out of Medicare. “I believe that is yet to come out in
the wash,” he said. “I think we have a number of people
that are holding on to the hope that CMS will do something to
rectify the problems that came out surrounding the [round one] bid
submission paperwork. In addition, there are some strong
possibilities with regard to legislation that I believe people are
holding out hope for. One of those things is the elimination of the
36-month cap and the other is the ‘any-willing-provider’
legislation.”

The latter, H.R. 1845, the Tanner-Hobson bill, includes a
provision that would allow any qualified provider that bid and was
not awarded a contract to continue service to Medicare patients
under the prevailing bid rates.

“We are finding more people who are looking at different
delivery models that will help them stay in business for as long as
they are able,” Pontzius said.

Sloan believes he has identified such a business model, and it
doesn’t include the Medicare oxygen business in Kansas City.
Progressive Medical is primarily a rehab company, and it was
offered that contract. Even though the rehab allowable is
“way below what we already deemed our bottom dollar,”
Sloan said he has positioned his company to remain successful.

“We have been looking at this for several years,” he
said. He and his staff have calculated how much business
Progressive Medical does with Medicare in the competitive bidding
categories. “All of the categories added up to only 11
percent of our total business,” Sloan said, “so we have
other options.

“I think we will prevail. We’re planning on it.”