New Study Shows $1.5 Billion in Cuts to Oxygen Benefit

WASHINGTON–More than $1.5 billion will be slashed off the
Medicare home care oxygen benefit by 2010, thanks to the combined
effects of legislative and regulatory cuts initiated over the past
several years, according to a new study released last week.

Totaling $710 million in 2009 and $855 million in 2010, the
funding reductions amount to an 18.8 percent reduction in the
reimbursement rate, according to “Home Oxygen Therapy/An Analysis
of Recent Medicare Payment Policy,” a data analysis conducted by
Avalere Health LLC. In addition, some 1.4 million Medicare
beneficiaries will be affected by the cuts, which average $325 per
patient, the report says.

The report was commissioned by the Council for Quality
Respiratory Care, a coalition of 11 home oxygen therapy providers
and manufacturers including Air Products, AirSep, American
HomePatient, Apria, Invacare, Lincare, Pacific Pulmonary, Praxair,
Respironics, Rotech and Sunrise Medical.

The study looked at the effects of changes to home oxygen
reimbursement from 1997 to 2010 brought about by the Balanced
Budget Act of 1997, the Medicare Modernization Act of 2003 and the
Deficit Reduction Act of 2005, including competitive bidding and
the 36-month oxygen cap. Its results provided sobering data for HME
stakeholders.

“When you consider these cuts in a historical context, the
severity is particularly significant,” said John Richardson of
Avalere Health, one of the analysis’ authors. “Not adjusted for
inflation, the average Medicare home oxygen payment by 2010 will be
almost half what it was in 1997.”

“While we knew these funding cuts were on the horizon, until now
we had no idea of their true severity since the Congressional
Budget Office, which determines costs of legislation, has never had
the correct data to determine their impact on the home oxygen
benefit,” said Peter Kelly, chairman of CQRC.

“It’s unfathomable to think that, even with these debilitating
cuts looming, there could be additional reductions with which to
contend as well, cuts that will further jeopardize vital patient
services and caregiving staff,” he added. CQRC said as many as 15
million Americans have been diagnosed with COPD.

Lisa Getson, executive vice president, government relations,
investor services and compliance, for Lake Forest, Calif.-based
Apria Healthcare, said those involved in the home oxygen sector
expected the cuts from the DRA mandate would be deep, but now they
have hard data that show just how deep.

“It is important to have a well-respected health care policy and
analytics firm such as Avalere confirm what we had suspected all
along–that the total cuts associated with the DRA for oxygen alone
would far exceed any estimates initially provided by the [CBO],”
Getson said.

“By the time both the DRA and competitive bidding’s savings are
incorporated into the system, Medicare’s daily expenditures for
oxygen will continue to decrease from Avalere’s estimated $7.62
today to the $4.50 to $5 range,” she added.

The study also examines how many patients on a state-by-state
basis will be affected by the 36-month oxygen rental cap, which
kicks in on Jan. 1, 2009.

According to the study, Medicare’s home oxygen benefit will
decrease almost 19 percent from 2008 to 2009 as a result of the
36-month capped rental policy alone. Florida will be hit
hardest–some 19,700 Medicare beneficiaries will be affected by the
cap. Texas follows with nearly 17,400 patients, and California is
third on the list with 13,900 beneficiaries.

“We estimate that the 36-month-capped rental period policy will
permanently reduce Medicare expenditures for home oxygen by
approximately $400 million to $500 million per year, beginning in
2009,” the report states.

The Avalere report provides key information that must be somehow
transmitted to policymakers, said Walt Gorski, vice president of
government affairs for the American Association for Homecare.

“The Avalere study is a critical document to help show the
impact that changes to oxygen reimbursement have had not only on
the provider community but on those who require oxygen therapy,” he
said. “What the study shows is that even if no congressional action
is taken, there will be significant cuts to oxygen payments over
the next several years. No other benefit category can make that
statement. This is important information to get before
policymakers.”

Getson agreed, noting that the study arms the industry with
“quantifiable data, rather than relying on emotional arguments.

“It should assist policymakers and their staff … to become
better educated about the value of the home oxygen benefit to the
Medicare program overall,” she said. Learning about the major
policy and reimbursement changes may also help them understand “why
patients who represent the fourth leading cause of death in the
U.S. (COPD) will be the ones most impacted by any additional
changes or reimbursement cuts,” Getson added.

CQRC’s Kelly called for Congress and the Bush administration “to
protect the benefit from any further erosion.”

To view the full analysis, click here.