oversight

Medicare: Comparison of Medicare and VA Payment Rates for Home Oxygen

Published by the Government Accountability Office on 1997-05-15.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

GAO   United States
      General Accounting
      Washington,
                            Offke
                    D.C. 20548

      Health,   Education   and Human Services Division

      ES-272723

      May 15, 1997
      The Honorable William V. Roth, Jr.
      Chairman, Committee on Finance
      United States Senate
      Subject: Medicare: Commuison of Medicare and VA Pavment Rates for
               Home Oxvgen
      Dear Mr. Chairman:
      In fiscal year 1996, almost 480,000Medicare beneficiaries received home
      oxygen at a cost of about $1.7 billion. Studies within the Department of Health
      and Human Services (HHS) and 1egisIationintroduced previously in the
      Congress proposed reductions in the Medicare payment levels for home
      oxygen, but to date no rate reductions have been implemented through the
      regulatory processes of HHS’ Health Care Financing Administration (HCFA) or
      %xough legislation. Therefore, you asked that we review the appropriateness
      of the payment rates and policies for Medicare’s home oxygen benefit.

       On March 25, 1997, we met with your office to discuss our ongoing review of
      Medicare payment rates and policies. Since the Committee may shortly
       consider legislation on Medicare payment rates, your office requested that,
      pending completion of our full report, we provide you with our preliminary
       analysis comparing the rates paid for oxygen by Medicare with the rates paid
      by the Department of Veterans Affairs (VA). This letter provides that analysis
      and also includes background on the Medicare home oxygen benefit, a
      discussion of why we chose the VA payment rates for comparison with
      Medicare’s rates, and an explanation of how we adjusted the VA rates to take
      into account differences between the VA and Medicare programs.
      RESULTSIN BRIEF

      Medicare’s fee schedule allowances for home oxygen are significantly higher
      than the rates paid by VA, which uses competitive contracting arrangements.




                                  GAOMEHS-97-120R          Medicare   Payments   for Oxygen


                                    /..T         c;   83
B-272723
As shown in table 1, Medicare’s monthly rate, including allowances for portable
units, was about $320 for each home oxygen patient for the first quarter of
fiscal year 1996. During that same period, VA paid about $155 per month for
each patient, according to our analysis of a3.loxygen supplies, services, and
portable units provided to a nationwide sample of 5,000 VA patients.

We analyzed differences between the Medicare and VA oxygen programs that
could make servicing a Medicare patient more costly than servicing a VA
patient. Our analysis included consideration of the administrative burden
associated with Iiling Medicare claims. On the basis of this analysis, we
concluded that adding a 30-percent adjustment to VA’s payment rates
adequately reflects the higher costs suppliers incur when servicing Medicare
beneficiaries.

The VA payment rate, after the 30-percent adjustment, was about $200 per
month, or $120 less than Medicare. Jf Medicare had paid oxygen suppliers at
the adjusted VA rates, the Medicare program would have saved over $500
million in fiscal year 1996.

Table 1: Comnarison of Medicare and VA Pavment Rates for Home Oxvnen
Supnlies and Services (F’irst Quarter, F’iscal Year 1996) .

                                           Monthly payment per patient
  Medicare
     Basic fee schedule allowancea                                     $285
     Additional allowance for                                            35
     portable unitb
     Total Medicare allowance                                          $320
     Department   of Veterans    Affairs
     Average monthly payment”                                            155
     Plus adjustments for                                                45
     comparability with Medicared
     Total adjusted VA payment                                         $200
     Difference  between Medicare                                      $120
     and adjusted VA rates



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@TheMedicare basic monthly fee schedule allowance for oxygen varies by state.
During the first quarter of fiscal year 1996, the fee was subject to a floor of
$262.40 and a ceiling of $308.71. This analysis uses $285, the approximate
midpoint of the floor and ceiling.

bThe Medicare monthly fee schedule allowance for a portable unit also varies
by state. During the first quarter of fiscal year 1996, the fee was subject to a
floor of $41.23 and a ceiling of $48.51. We determined that Medicare paid for
portable units for about 75 percent of oxygen patients; therefore, in this
analysis we used a per-patient allowance for portable units of $35, which is
about 75 percent of the approximate midpoint of the floor and ceiling.

“The VA payment rates are based on VA competitive contracts with oxygen
suppliers. The average monthly payment used in this analysis is a “bundled”
rate, including ah supplies, services, oxygen contents, and portable units
provided to a nationwide sample of 5,000 patients. The average VA monthly
payment for patients using oxygen concentrators was about $125, and the
average monthly payment for patients using stationary liquid systems was $315.
The combined average, weighted by the number of patients using each type of
system, was $155.

dThis is GAO’s estimate of the additional costs that a VA supplier would incur
to provide home oxygen to a Medicare patient. This estimate includes the cost
of oxygen supplies and services provided to new patients subsequently
determined not to be medically eligible; the administrative costs associated
with preparing and processing claims, including obtaining a physician’s
certificate of medical necessity; the administrative costs associated with
collecting the Medicare copayment; and the lack of a guaranteed patient pool.

BACKGROUND

Many individuals suffering from chronic obstructive pulmonary disease or
similar conditions are unable to meet their bodies’ oxygen needs through
normal breathing. Supplemental oxygen has been clinically shown to assist
many of these patients. Currently, there are three primary methods or
modalities through which these patients can obtain supplemental oxygen:

      compressed gas, which is available in various-sized tanks, from large
      stationary cylinders to small, portable cylinders;

      oxygen concentrators, which are electrically operated machines, about
      the size of a dehumidifier, that extract oxygen from room air; and

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      liquid oxygen, which is available in large stationary reservoirs and
      portable units.

Each of the three modalities is equally effective at delivering supplemental
oxygen. However, liquid oxygen is most often prescribed for patients that
require a very high liter flow. Physicians also order portable units for about ‘75
percent of their Medicare patients to enable them to perform activities away
from their stationary unit and outside the home. The most common portable
system is a gas cylinder set on a small cart that can be pulled by the patient.
Highly active patients can be equipped with a portable liquid oxygen system or
a lightweight gas cylinder. These systems may be used with an oxygen-
conserving device to increase the time a portable unit can be used before a
refill is required.

Medicare’s eligibility criteria for the home oxygen benefit are quite specific.
Patients must have an appropriate diagnosis, such as chronic obstructive
pulmonary disease, and clinical tests of arterial blood gases and oxygen
saturation levels that document the need for supplemental oxygen. Medical
experts told us that most patients that meet the Medicare eligibility criteria for
oxygen remain on oxygen for the rest of their lives. However, for some
patients the need for supplemental oxygen may be temporary, such as during
an episode of pneumonia.

Medicare pays a fixed monthly fee to cover all of a patient’s primary needs,
regardless of the type of oxygen system supplied.’ If a physician determines
that a patient also needs a portable unit, Medicare pays a supplemental, fixed
monthly fee for the portable unit. At the time of our review, the primary
Medicare fee was about $285 per month, and’ the fee for a portable unit was
about $45 per month.




‘This fee is increased by 50 percent for those beneficiaries whose prescribed
liter flow is over 4 liters per minute and decreased by 50 percent for those with
a prescribed liter flow of less than 1 liter per minute. Our analysis of cla.ims
data indicated that these modifiers were used in less than 2 percent of the
claims approved for each modality.

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SCOPE AND METHODOLOGY

In conducting our work, we reviewed the laws, regulations, and fee schedules
pertaining to Medicare’s home oxygen benefit. Our payment comparison
analysis is based on data we gathered on Medicare and VA home oxygen
payments made from October 1, 1995, through December 31, 1995. We
obtained data on Medicare home oxygen payments from each of the four
Durable Medical Equipment Regional Carriers2 and the nationwide Statistical
Analysis Durable Medical Equipment Regional Carrier3 We obtained data on
VA payments for home oxygen from invoices for a nationwide sample of about
5,000 VA patients, drawn from 46 of the 161 VA medical centers that have home
oxygen contracts. We included at least 1 medical center fcom each of VA’s 22
Veterans’ Integrated Service Networks in our sample to ensure complete
geographic coverage.

We also visited at least three oxygen suppliers in each of the areas serviced by
the four Durable Medical Equipment Regional Carriers to directly obtain the
suppliers’ views and insights. We selected these suppliers to include some who
serviced both VA and Medicare patients and some who provided liquid systems
as well as oxygen concentrators. During these visits, we reviewed a sample of
550 Medicare patient records to learn about patient services, Medicare claims
paperwork, and copayment collection. We did not attempt to evaluate the
quality of care provided to Medicare or VA patients by home oxygen suppliers,
and we did not examine the clinical outcomes for either VA or Medicare home
oxygen patients.

Our fieldwork did include discussions with HCFA and VA officials; groups
representing oxygen suppliers, respiratory therapists, and physicians; selected
state Medicaid officials; and various private insurers. We did this work and
analysis between May 1996 and April 1997 in accordance with generally
accepted government auditing standards, except that we did not examine the
internal and data processing controls of the Medicare claims databases
maintained by HCFA’s contractors.


?IThesecarriers process Medicare claims for durable medical equipment,
orthotics, prosthetics, and supplies within designated geographic areas for
HCFA.

3The Statistical Analysis Durable Medical Equipment Regional Carrier performs
a variety of statistical reporting and analysis functions relating to the Durable
Medical Equipment benefit under contract with HCFA.

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WHY WE COMPARED MEDICARE’S PAYMENT RATES WITH VA’S RATES

To evaluate the appropriateness of Medicare’s reimbursement rates for home
oxygen, we considered comparing Medicare’s rates with those paid by
Medicaid, private insurance companies, managed care plans, and VA All such
comparisons have some inherent limitations. For the reasons discussed in the
following paragraphs, we decided to use VA’s competitive contracting rates,
with some adjustments, for our rate comparisons.

We did not use Medicaid payment rates for our comparisons because each state
has wide latitude in determinin g the benefits covered and their reimbursement
rates. Also, since Medicare is the largest single payer of home oxygen benefits,
many states base their payment levels on Medicare’s fee schedule.

We found that individual private insurance companies have limited numbers of
beneficiaries receiving home oxygen benefits and have a wide range of payment
rates. Some firms simply base their fees on Medicare’s reimbursement levels
while others pay submitted charges or negotiate rates on a case-by-case basis.
We found that some private insurers pay more than Medicare and others pay
less. We were not able to identify any insurance company with a sufficiently
large number of beneficiaries on long-term home oxygen therapy to serve as
the basis for a nationwide comparison with Medicare’s rates. We also could
not identify any private insurer that had done a study to determine the
appropriate reimbursement level for home oxygen services.

Medicare managed care plans that we contacted were unwilling to provide us
information on the rates they negotiate with oxygen suppliers because they
consider that information to be proprietary. However, during our patient file
reviews at oxygen suppliers, we noted two Medicare managed care plans that
pay about $200 a month for services comparable to those provided to fee-for-
service Medicare beneficiaries. Because the availability of these data was very
limited, we could not use them for our analysis.

We concluded that the VA home oxygen program is the best available data
source for comparison with Medicare reimbursement rates. Both are federally
funded, nationwide programs with a si,gnificant patient population using home
oxygen. In fiscal year 1995, VA provided oxygen benefits to over 23,000
patients at a cost of almost $26.5 million. VA’s eligibility guidelines are the
same as Medicare’s, and clinical experts and suppliers told us that the home
oxygen service needs of the VA and Medicare patient populations are
essentially the same. We were able to obtain access to original invoices to
 gather cost data for a nationwide sample of about 5,000 VA patients.

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After excluding the relatively small number of patients using stationary
compressed gas systems from both patient groups, we found that the ratio of
stationary liquid systems to concentrators was remarkably similar among
Medicare beneficiaries and our VA patient sample. About 84 percent of the VA
patients in our study used an oxygen concentrator and 16 percent used a
stationary liquid oxygen system. Among Medicare beneficiaries nationwide, 86
percent used oxygen concentrators and 14 percent used stationary liquid
oxygen systems.

VA PAYMENTS FOR OXYGEN

VA medical centers structure their contracts with oxygen suppliers in various
ways. Many centers pay flat monthly rates that cover equipment rental, setup
visits, service visits, and supplies, and pay separately for gas and liquid refills
on the basis of patient use. Other medical centers may incur additional
charges for setup visits, for example, or for various types of supplies. Since
Medicare pays one fee for everything, we “rebundled” the costs incurred by
each VA center to compare the total per-patient cost with Medicare
reimbursement rates.

For the approximately 5,000 VA patients in our sample, we used the data from
contractor invoices submitted to each VA medical center for equipment rental,
oxygen refills, supplies, and services, including the cost of any portable systems
and contents provided to the patient. We excluded from our analysis cases in
which the VA medical center provided the supplier with the equipment to be
used and only paid the supplier a fee to maintain the VA equipment.
Furthermore, we excluded the small number of patients using only compressed
gas because we found that some VA medical centers provided compressed gas
to patients for conditions such as cluster headaches, which would not qualify
for the Medicare benefit.

To determine whether there were any significant geographic differences in
costs, we grouped each of the VA medical centers by the geographic areas
served by each of Medicare’s four Durable Medical Equipment Regional
Carriers. We found that the average weighted cost for the VA medical centers
in three of the four geographic areas was within 10 percent of the $155
nationwide average. The average weighted cost for the VA medical centers in
the fourth geographic area was 17 percent higher than the nationwide average.
This region also had the highest percentage of patients on liquid oxygen of the
four geographic areas, while the region with the lowest average cost had the
highest percentage of patients on concentrators, We concluded that the
modality mix within a region affected the average price more than geography.

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For the medical centers we reviewed, VA paid an average of about $125 per
month for a beneficiary using a concentrator system and $315 per month for
the use of a stationary liquid oxygen system. VA’s average monthly payment
for a patient on home oxygen, weighted by the number of patients on each type
of system, was $155. This payment rate includes all charges for the rental of
stationary, backup, and portable equipment; maintenance; supplies; services;
and liquid or compressed oxygen.

Before comparing the Medicare and VA payment rates, we addressed some
differences between the two programs. Those differences, and the adjustments
we made to account for them, are discussed in the following section.

DIFFERENCES BETWEEN MEDICARE AND VA

There are significant differences between the Medicare and VA programs that
may account for some of the differences between the rates VA and Medicare
pay for home oxygen. Most significantly, VA competitively procures oxygen
supplies and services. In contrast, Medicare, like a fee-for-service insurer,
simply reimburses suppliers for services provided to beneficiaries-it does not
directly contract for services with specific suppliers; therefore, it cannot
guarantee a fixed number of patients to any supplier.4 -

Other differences between the Medicare and VA programs can place a greater
administrative burden on suppliers when they service Medicare patients. For
example, VA preapproves each patient for home oxygen services, while
Medicare requires that oxygen suppliers furnish a certificate of medical
necessity completed by a physician before paying the suppliers’ claims. Also,
VA patients are not responsible for a 20-percent copayment; therefore, VA
suppliers do not have to bill VA patients for the copayment, as they do for
Medicare patients.

In our meetings with home oxygen suppliers and industry representatives, we
solicited their views and any data they could provide to quantify the differences
in costs between servicing VA and Medicare patients. One 1995 industry study

‘HCFA is currently planning a demonstration project for nonexclusive
competitive pricing for some medical supplies and services, including home
oxygen-
sYIME Industry Findings: The Health Care Financing Administration’s Initiative
on Medicare Payment for Home Oxygen,” Home Oxvgen Services Coalition,
(Washington, D.C.: Sept. 7, 1995).

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estimated that the differences are the equivalent of a 15percent differential
between the cost of serving a VA patient and a Medicare beneficiary. In other
words, the industry study estimated that the rates obtained by VA for home
oxygen should be increased by 15 percent before they are compared with
Medicare’s rates.

The following sections address each of the factors we identified that could
affect a comparison of the Medicare and VA payment rates.

VA Use of Comnetitive Contract&     and Snecific Sunnlier Reauirements

Each VA medical center is responsible for procuring its home oxygen through
competitive bidding. This competitive procurement process is a significant
factor in the difference between Medicare and VA payment rates for oxygen.
Critics of competitive bidding claim that firms will compete on the basis of
price at the expense of service and quality. However, VA central office policy
encourages the medical centers to contract with suppliers that are either
accredited by the Joint Commission on Accreditation of Healthcare
Organizations or comply with its standards. Within certain guidelines, each
center can structure its contract to reflect its own operating philosophy in
terms of financial management and patient care as well as the local market for
home oxygen.

We reviewed the contracts of the 46 VA medical centers from which we
received patient cost data. We found that the contract requirements defined
the qualifications of the bidder, the type of equipment desired-often specifying
brand name or its equivalent-and the type and frequency of service visits and
patient evaluations. Many VA contracts were quite specific regarding the
professional qualifmations of supplier staff and the frequency of patient
assessments. The local VA medical center staff can monitor vendor
compliance. In contrast, HCFA has never established standards for the home
oxygen benefit to define what services it expects suppliers to provide Medicare
patients.

The VA competitive contracting process is attractive to some suppliers because
the volume of patients it can ensure allows for economies of scale. Suppliers
have said there are other advantages associated with the local VA contract.
For example, winning a VA contract enhances a firm’s reputation and visibility
in the local market. In addition, some firms hope to retain their VA patients if
they become eligible for Medicare.




9                      GAOIHEHS-97-120R       Medicare   Payments   for Oxygen
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VA’s Preannroval Process

When a supplier under VA contract is told by the VA medical center to provide
home oxygen for a patient, the supplier knows that it will be paid for those
services. For Medicare patients, the supplier is told by the prescribing doctor
to provide oxygen services. However, it is only after the service is provided
that the supplier will know for sure whether Medicare will pay for this service.
The industry study previously noted quantifies this risk as adding 5 percent to
VA’s payment rate to make it comparable to Medicare’s payment rate.

Our analysis of Medicare claims data showed that the denial rate for this
benefit for the first quarter of fiscal year 1996 was 18.7 percent. However,
most of these denials were for administrative reasons such as duplicate claims
or missing information. The actual denial rate for medical ineligibility was 2
percent. Medicare’s criteria for eligibility are specific and clear cut, and
suppliers told us they know whether patients are going to qualify for coverage.

We concluded that the risk of medically based claims denial is not a major
factor in explaining the cost differential between the VA and Medicare.
However, because this factor represents the different ways home oxygen is
authorized in the two programs, we considered it as part of our overall
adjustment of the VA payment rates.

VA’s Less Cumbersome Administrative Process

Industry representatives stated that the administrative burden of complying
with Medicare requirements is onerous and accounts for a major portion of the
difference between VA and Medicare payment rates. One major burden they
cited is the certificate of medical necessity that must be completed by the
prescribing physician before the claim can be submitted to Medicare for
payment. Every supplier we interviewed complained about the difficulty in
quickly obtaining this document. The industry study estimated that the cost of
complying with Medicare’s administrative requirements, including documenting
patient eligibility, is equivalent to adding 4 percent to VA’s payment rate to
make it comparable to Medicare’s payment rate.

HCFA officials acknowledged the suppliers’ dilemma They realize that a
supplier provides services to patients immediately upon referral by a doctor
and that there may be a significant delay between the start of service and the
completion of the certificate of medical necessity. However, they pointed out
that the establishment of eligibility for the home oxygen benefit usually results
in continuous Medicare coverage of this benefit for the life of the patient.

 10                     GAO/EIEHS-97-120R      Medicare   Payments   for Oxygen
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HCFA officials believe that the documentation requirements for this expensive,
often lifelong benefit should be fairly stringent. Recent changes have reduced
the administrative burden by allowing many patients to receive lifetime
certification. Also, HCFA recently issued a draft revision of the certificate of
medical necessity in an attempt to simplify the form and make it easier for
doctors to complete. For example, in the revised certificate, doctors no longer
need to write out a justification for the portable unit.

Our review of patient case records showed that, while most certificates are
completed within 30 days of service setup, there is documentary support for
the suppliers’ contention that there are significant problems with this process.
We found several examples of long delays and one case in which a patient died
and the doctor refused to fill out the certificate, so the firm was not paid at all
for its services. Many suppliers we talked with had developed strategies to
facilitate the completion of certificates of medical necessity. These strategies
involved extra staff time and costs. For the records we reviewed, we found
that 64 percent of the certificates were completed within 30 days of the
supplier’s starting service, and 88 percent were completed within 90 days.

While obtaining the certificate of medical necessity represents a major start-up
cost, the impact on the difference between the monthly VA and Medicare
payment rates is less when that cost is amortized over the length of time that
the certificate is valid. For most patients, eligibility must be renewed after the
first year.’ At that time, the doctor may certify the patient for lifetime
eligibility, and the patient will never have to be recertified again. Once a
patient’s eligibility is established, Medicare billing is usually electronic and
fairly straightforward. One VA contractor we visited noted that the electronic
billing process for Medicare is far less cumbersome than submitting paper
invoices each month to the local VA medical center. This indicates that the VA
system is not entirely without processing costs, although when the medical
eligibility documentation is included, Medicare’s overall administrative burden
on suppliers is greater.

We concluded that the administrative burden for documenting medical
eligibility and obtaining Medicare reimbursement is significantly greater than
that associated with providing services under a VA medical center contract.



“Those patients whose partial pressure of oxygen in the arteries is between 56
and 59 as measured in millimeters of mercury must be recertified within 90
days in order to maintain eligibility.

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Therefore, an adjustment to the VA rate is appropriate for comparison with the
Medicare rate.

VA Does Not Reauire a Conavment

The Medicare home oxygen benefit requires that beneficiaries pay an annual
deductible and 20 percent of the al.Iowed reimbursement amount every month.
Industry representatives contend that the cost of billing and collecting this
copayment adds to the cost of providing services to Medicare beneficiaries. In
addition, they point out that a portion of the copayment owed to them may
never be collected. Under the VA program, in contrast, VA pays 100 percent of
the contract price. The industry estimate states that this accounts for 6
percent of the difference between the cost of the VA program and Medicare.

Noncollection of copayments does represent a cost differential between VA and
Medicare but can only justify a small amount of the difference in payment
rates. Our review of case records at the suppliers we visited showed that 86
percent of the Medicare beneficiaries whose records we saw either had
supplemental insurance or were covered by Medicaid.’ Of the 14 percent of
beneficiaries with neither private supplemental insurance nor Medicaid
coverage, we found that only 3 percent had financial hardship waivers in their
records. Even if suppliers were not able to collect copayments from three
times the number of patients with hardship waivers, the uncollected amount
would only represent 2 percent of the total revenue suppliers receive for
Medicare home oxygen.

POTENTIAL SAVINGS IF’ MEDICARE USED ADJUSTED VA RATES

On the basis of our anaIysis of the differences between the VA and Medicare
programs, we concluded that adding a 30-percent adjustment to VA’s payment
rates adequately reflects the higher costs suppliers incur when servicing
Medicare beneficiaries. As noted in table 1, after the 30-percent adjustment the
VA payment rate was about $200 per month, or $120 less than Mediczs. If
Medicare’s monthly allowances of $320 for oxygen had been reduced by $120,
the Medicare program would have saved over $500 million of the $1.7 billion in
fiscal year 1996 costs.




‘While some state Medicaid programs such as Oregon’s do not cover the
Medicare copayment for their clients on home oxygen, others do.

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AGENCY AND INDUSTRY COMMENTS AND OUR EVALUATION

We made draft copies of this correspondence available for review by officials
at the Health Care Financing Administration and VA, representatives of the
home oxygen industry, and officials of associations representing respiratory
care specialists and physicians that treat patients with chronic lung disease.

HCFA officials agreed with our analysis of the Medicare and VA payment rates
for home oxygen. More specifically, HCFA agreed that (1) the VA payments
are the most appropriate rates available for comparison with the Medicare fee
schedule rates and (2) the methodology we used to compare the Medicare and
VA payment rates was appropriate. Regarding our adjustments to account for
differences between the Medicare and VA programs, HCFA officials noted that
the administrative burden on oxygen suppliers associated with processing
Medicare claims may be partially offset by the VA requirement that its suppliers
adhere to the accreditation standards of the Joint Commission on Accreditation
of Healthcare Organizations-a requirement that HCFA does not impose on
Medicare home oxygen suppliers.

HCFA officials also noted that they have three initiatives under way that are
intended to bring some Medicare payment rates, including those for home
oxygen, more into line with marketplace rates. First, within a few weeks,
HCFA expects to publish a Notice of Proposed Rulemaking to adjust the
Medicare fee schedule allowances for oxygen. Second, the administration is
requesting legislative authority to streamline the regulatory process for
adjusting some Medicare payment rates, including those for oxygen, by
allowing either the Secretary of HHS or Medicare’s Durable Medical Equipment
Regional Carriers to periodically review and adjust those rates. Under the
revised process, HCFA would not have to publish a Notice of Proposed
Rulemaking in the Federal Register for comment. Finally, HCFA is planning a
competitive pricing demonstration project for various medical equipment and
supplies, including home oxygen. Specific quality standards are being
developed for use in the demonstration project.

Regarding HCFA’s initiatives, it should be noted that HHS and HCFA have been
working on the Notice of Proposed Rulemaking for at least 2 years, and even
after publication of a proposed rule, additional time will be required to obtain
comments from interested parties, address those comments, and finalize the
proposed rule. Also, HCFA has repeatedly revised its plans to conduct a
competitive pricing demonstration project, and the revisions to the plans have
caused repeated delays in the start of the project.


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VA officials stated that they were satisfied that the draft of this correspondence
accurately described the VA home oxygen program.

Representatives of the home oxygen industry and respiratory care specialists
and physicians raised questions or concerns regarding (1) the scope of our
work, (2) differences between the Medicare and VA patient populations, such
as the proportion of each group that is highly ambulatory; (3) the rates paid by
other insurers; (4) the range of VA costs per patient; (5) the effect of a
Medicare payment reduction on the willingness of oxygen suppliers to meet the
needs of patients who are highly ambulatory; and (6) the potential problems
that might arise should Medicare use competitive procurement or competitive
pricing for home oxygen. Each of these matters is addressed in the following
paragraphs.

To clarify the scope of our work, we added a statement that we did not
attempt to evaluate the quality of care provided to Medicare or VA patients by
home oxygen suppliers and that we did not examine the clinical outcomes for
either VA or Medicare home oxygen patients.

Regarding potential differences between VA and Medicare patients receiving
home oxygen, we have noted that clinical experts and suppliers told us that the
home oxygen needs of VA and Medicare patients are essentially the same. The
commenters did not provide us with any evidence that there are differences
between the two groups that would tiect their home oxygen needs.

Regarding the rates paid by private insurers, we did not include information on
those rates because we were not able to identify any insurance company with a
large number of beneficiaries on long-term home oxygen therapy that could
serve as the basis for a nationwide comparison with Medicare’s rates.

Regarding the range of VA home oxygen costs per patient, the oxygen needs,
service requirements, and costs vary among VA patients, as they do among
Medicare patients. We believe that the weighted average cost representing all
the patients in our sample is the most relevant statistic’to compare with
Medicare payment rates.

Patients who are highly ambulatory may require frequent refills of portable
oxygen equipment; consequently, they may be more expensive to service than
patients with limited mobility. The adjusted VA rate we compared with the
Medicare rate includes all the costs associated with a broad mix of VA patients,
including some who are highly ambulatory and obtain frequent gas and liquid
refills. Therefore, if adjustments to the Medicare payment rate are similarly

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based on the costs to service a broad patient mix, suppliers should still be able
to meet the needs of highly active patients.

We did not evaluate the potential use of competitive procurement or
competitive pricing for the Medicare home oxygen benefit because such an
evaluation was outside the scope of our analysis. As we noted, HCFA is
planning a demonstration project to evaluate the potential use of competitive
pricing for the Medicare home oxygen benefit.



As agreed with your office, unless you release its contents     earlier, we plan no
further distribution of this letter for 30 days. At that time   we will make copies
available to other congressional committees and Members         of Congress with an
interest in this matter, the Secretary of Health and Human      Services, and the
Secretary of Veterans Affairs.

Please call William Reis at (617) 5657488 or me at (202) 512-7114 if you or
your staE have any questions about the information in this letter. Other
contributors to this analysis were Frank Putallaz and Suzanne Rubins.

Sincerely yours,




William J. Scanlon
Director, Health F’inancing
 and Systems Issues




(108281)

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