oversight

Medicare: Access to Home Oxygen Largely Unchanged; Closer HCFA Monitoring Needed

Published by the Government Accountability Office on 1999-04-05.

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

                 United States General Accounting Office

GAO              Report to Congressional Committees




April 1999
                 MEDICARE
                 Access to Home
                 Oxygen Largely
                 Unchanged; Closer
                 HCFA Monitoring
                 Needed




GAO/HEHS-99-56
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division

      B-280839

      April 5, 1999

      The Honorable William V. Roth, Jr.
      Chairman
      The Honorable Daniel Patrick Moynihan
      Ranking Minority Member
      Committee on Finance
      United States Senate

      The Honorable Thomas J. Bliley, Jr.
      Chairman
      The Honorable John D. Dingell
      Ranking Minority Member
      Committee on Commerce
      House of Representatives

      The Honorable Bill Archer
      Chairman
      The Honorable Charles B. Rangel
      Ranking Minority Member
      Committee on Ways and Means
      House of Representatives

      During the first 3 months of 1998, about 550,000 Medicare beneficiaries
      received supplemental oxygen at home for which Medicare paid about
      $385 million.1 Medicare pays suppliers a fixed monthly fee that covers a
      stationary, home-based oxygen unit and all related services and supplies,
      such as tank refills. There is a separate fixed monthly fee for a portable
      unit, if one is prescribed.2 Medicare’s oxygen payment method is called
      “modality neutral” because the payment rate is the same regardless of the
      type of oxygen delivery system prescribed—compressed gas, liquid
      oxygen, or oxygen concentrator.

      In 1997, we reported that Medicare’s payment rates for home oxygen
      exceeded those paid by the Department of Veterans Affairs (VA) by almost
      38 percent, even after accounting for differences between the two




      1
       Medicare pays 80 percent of the fee schedule allowance, and Medicare patients are responsible for the
      remaining 20 percent, which frequently is covered by secondary insurance or some state Medicaid
      programs. In this report, we refer to the Medicare fee schedule allowance as the “Medicare payment.”
      2
       Supplies and services for portable units are covered by the monthly fee for the stationary unit.



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programs.3 Subsequently, the Balanced Budget Act of 19974 (BBA) reduced
Medicare rates by 25 percent effective January 1, 1998, and by an
additional 5 percent effective January 1, 1999.5 The BBA also (1) required
the Secretary of Health and Human Services (HHS) to arrange for peer
review organizations (PRO)6 to evaluate access to and quality of home
oxygen equipment; (2) gave HHS the authority to restructure the
modality-neutral payment, if warranted; and (3) required HHS to establish
service standards for home oxygen suppliers as soon as practicable. The
BBA also required that HHS include home oxygen in at least one of the
competitive bidding demonstration projects being planned by HCFA.7 These
projects are designed to determine if an alternative approach to the
current method of establishing Medicare payment rates can reduce
Medicare spending while maintaining access and quality of care.

In a November 1997 report, we made several recommendations to the
Health Care Financing Administration (HCFA)—the HHS agency responsible
for administering the Medicare program—regarding implementation of the
BBA provisions.8 For example, we recommended that HCFA monitor trends
in Medicare beneficiaries’ use of the various types of home oxygen
equipment and educate prescribing physicians about their right to specify
the most appropriate home oxygen system for their patients.

This report responds to a BBA requirement that we study and report on
Medicare beneficiaries’ access to home oxygen equipment within 18
months of the enactment of the BBA. The report includes our evaluation of
(1) changes in access to home oxygen for Medicare patients since the
January 1, 1998, payment reduction and (2) actions taken by HCFA to fulfill


3
 Medicare: Comparison of Medicare and VA Payment Rates for Home Oxygen (GAO/HEHS-97-120R,
May 15, 1997) and Medicare: Comparative Information on Medicare and VA Patients, Services, and
Payment Rates for Home Oxygen (GAO/HEHS-97-151R, June 6, 1997).
4
 P.L. 105-33, sec. 4552.
5
 Some representatives of home oxygen suppliers cautioned that lower Medicare rates could lead to
higher prices for VA. They said that firms bidding on VA contracts were seeking to cover only their
marginal costs while relying on Medicare to cover their fixed costs. However, VA officials informed us
that the Medicare payment reductions have not had an impact on VA’s home oxygen costs. In fact, one
VA medical center’s costs for a contract that was rebid in the spring of 1998 decreased after the
January 1998 cut in Medicare rates; this medical center obtained rates 30 percent lower than in its
previous contract.
6
 PROs are entities that HCFA contracts with to provide beneficiary protection and education activities.
Nationally, there are 53 such organizations promoting the quality, effectiveness, efficiency, and
economy of health care services for Medicare beneficiaries.
7
 P.L. 105-33, sec. 4319 (a), (d): 42 U.S.C. 1395w-3 (a), (d).
8
 Medicare: Home Oxygen Program Warrants Continued HCFA Attention (GAO/HEHS-98-17, Nov. 7,
1997).


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                   the BBA requirements and respond to our November 1997
                   recommendations.9

                   We performed our work between August and December 1998, reviewing
                   summarized claims data for home oxygen equipment provided to Medicare
                   patients through June 1998.10 Therefore, our analysis does not reflect any
                   impact on access from the January 1999 Medicare payment reduction and
                   may not reflect the full impact of the January 1998 reduction. We intend to
                   continue monitoring Medicare beneficiaries’ access to home oxygen.

                   To prepare this report, we reviewed Medicare regulations and payment
                   policies and obtained information from HCFA officials, home oxygen
                   suppliers and their representatives, manufacturers of home oxygen
                   equipment, hospital discharge planners, respiratory therapists, physicians,
                   and patient advocacy groups. To determine the effects of payment cuts on
                   access to home oxygen in rural areas, we visited discharge planners,
                   respiratory therapists, physicians, and suppliers in two states with large
                   areas of low population density—New Mexico and South Dakota. Further,
                   we analyzed utilization rates of different types of oxygen equipment using
                   national Medicare claims data maintained by HCFA and its statistical
                   analysis contractor. We conducted our work in accordance with generally
                   accepted government auditing standards, with one exception: we did not
                   evaluate the internal and data processing controls over the Medicare
                   claims databases.


                   Preliminary indications are that access to home oxygen equipment
Results in Brief   remains substantially unchanged, despite the 25-percent reduction in
                   Medicare payment rates that took effect in January 1998. The number of
                   Medicare beneficiaries using home oxygen equipment has been increasing
                   steadily since 1996, and this trend appears to have continued in 1998.
                   While Medicare claims for the first 6 months of 1998 showed a decrease in
                   the proportion of Medicare patients using the more costly stationary liquid
                   oxygen systems, this decline was consistent with the trend since 1995.
                   Hospital discharge planners and suppliers we talked with said that even
                   Medicare beneficiaries who are expensive or difficult to serve are able to
                   get the appropriate systems for their needs. Further, suppliers accepted
                   the Medicare allowance as full payment for over 99 percent of the


                   9
                    This analysis pertains only to access to home oxygen equipment and services by Medicare
                   beneficiaries in the Medicare fee-for-service program.
                   10
                     Medicare claims are usually filed and processed within 3 months of the service date; therefore, we
                   included in our analysis claims filed through Sept. 1998 for services provided through June 1998.



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                 Medicare home oxygen claims filed for the first half of 1998. Although
                 these indicators do not reveal access problems caused by the payment
                 reductions, issues such as sufficiency of portable tank refills and
                 equipment maintenance could still arise.

                 HCFA  has responded to only one BBA requirement. As required by the BBA,
                 HCFA  has contracted with a PRO for an evaluation of access to, and quality
                 of, home oxygen equipment. Results from this evaluation are not expected
                 before the year 2000. Meanwhile, HCFA has not implemented an interim
                 process to monitor changes in access for Medicare beneficiaries—a
                 process that could alert the agency to problems as they arise. Although not
                 required by the BBA, such monitoring is important because of the
                 life-sustaining nature of the home oxygen benefit. Until HCFA gathers more
                 in-depth information on access and the impact of the payment reductions,
                 HCFA cannot assess the need to restructure the modality-neutral payment.
                 Finally, HCFA has not yet implemented provisions of the BBA that require
                 service standards for Medicare home oxygen suppliers to be established as
                 soon as practicable. Service standards would define what Medicare is
                 paying for in the home oxygen benefit and what beneficiaries should
                 expect from suppliers.


                 Many individuals suffering from advanced chronic obstructive pulmonary
Background       disease or other respiratory and cardiac conditions are unable to meet
                 their bodies’ oxygen needs through normal breathing. Supplemental
                 oxygen has been shown to assist many of these patients and is considered
                 a life-sustaining therapy. Physicians prescribe the volume of supplemental
                 oxygen required in liters per minute, or liter flow. Medicare covers
                 supplies and equipment necessary to provide supplemental oxygen if the
                 beneficiary has (1) an appropriate diagnosis, such as chronic obstructive
                 pulmonary disease; (2) reduced levels of oxygen in the blood, as
                 documented with clinical tests; and (3) a physician’s certificate of medical
                 necessity that documents that supplemental oxygen is required.

                 There are three methods, or modalities, for the delivery of supplemental
                 oxygen:

             •   oxygen concentrators, which are electrically operated machines about the
                 size of a dehumidifier that extract oxygen from room air;
             •   liquid oxygen systems, which consist of both large stationary reservoirs
                 and portable units; and




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•   compressed gas systems, which use tanks of various sizes, from large
    stationary cylinders to small portable cylinders.

    For most patients, each of the three modalities is equally effective for use
    as a stationary unit, and clinicians indicated that concentrators can meet
    the stationary oxygen needs of most patients.11 Oxygen concentrators
    account for about 89 percent of the stationary systems used by Medicare
    patients.12 Liquid oxygen systems account for about 11 percent of the
    stationary systems used by Medicare patients. Liquid oxygen systems are
    preferred by many pulmonologists and respiratory therapists for the less
    than 2 percent of patients who need a high liter flow—defined by Medicare
    as 4 or more liters of oxygen per minute. Liquid systems are also
    sometimes preferred by highly mobile patients because patients can refill
    lightweight portable liquid units directly from their home stationary
    reservoirs. Liquid oxygen is usually the most expensive modality for many
    reasons, including the cost of equipment and the need to use specially
    equipped delivery trucks, adhere to various regulatory requirements, and
    replenish a patient’s supply on a regular basis. Compressed gas accounts
    for less than 1 percent of the stationary systems used by Medicare
    patients.

    In addition to a stationary unit for use in the home, about 79 percent of
    Medicare home oxygen patients have portable units that allow them to
    perform activities away from their stationary unit and outside the home.
    The most common portable unit is a compressed gas E tank set on a small
    cart that can be pulled by the user.13 Pulmonologists and respiratory
    therapists advise that patients using supplemental oxygen get as much
    exercise as possible and believe that lightweight portable equipment can
    facilitate this activity. Such equipment options for active individuals
    include portable liquid oxygen units and lightweight gas cylinders, which
    can be carried in a backpack or shoulder bag.

    A recent technological improvement in the provision of oxygen is the use
    of conserving devices, which are more efficient in delivering oxygen and

    11
      Stationary units usually come with about 50 feet of tubing to allow some mobility within the home.
    12
     Since oxygen concentrators are electrically operated, backup tanks are needed in the event of a
    power failure.
    13
      While E tanks are considered portable by the National Association for Medical Direction of
    Respiratory Care, the Association does not believe that they meet the needs of patients whose activity
    levels require less cumbersome equipment. For these patients, the Association advocates the
    availability of “ambulatory” equipment, defined as weighing less than 10 pounds and able to support at
    least 4 hours of activity at a flow rate of 2 liters per minute. Most lightweight gas cylinders and liquid
    oxygen units meet this definition.



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therefore maximize the time a lightweight gas cylinder can last.14 Without
a conserving device, very small tanks only last between 1 and 2 hours at a
flow rate of 2 liters per minute, making them impracticable for all but
short trips away from home. However, not all patients who need
lightweight equipment can use conserving devices. Pulmonary clinicians
recommend that all patients be tested to ensure they are proper
candidates for this technology, since some patients cannot maintain
adequate blood oxygen levels when using conserving devices.

In 1997, the monthly fee schedule allowance for a stationary oxygen
system was about $300, and in 1998 the allowance was reduced to about
$225.15 Medicare pays 80 percent of the allowance, and the patient is
responsible for the remaining 20 percent. The Medicare oxygen allowance
covers use of the equipment; all refills of gas or liquid oxygen; supplies
such as tubing; and services such as equipment delivery and setup, training
for patients and caregivers, periodic maintenance, and repairs. The
Medicare monthly allowance for a portable unit was about $48 in 1997 and
$36 in 1998.16 Medicare does not pay an additional allowance for a
conserving device, but these devices can lower suppliers’ costs by
reducing the frequency of deliveries to their patients.

Regardless of the type of oxygen system supplied to a patient, Medicare
pays a fixed monthly rate. This type of payment system is intended to give
suppliers a financial incentive to lower their costs because they can keep
the difference between their Medicare payments and their costs. Suppliers
can reduce their costs in various ways, including streamlining operations
or utilizing new technology to become more efficient, switching patients to
less expensive modalities, and reducing the number or type of patient
support services. Some of these approaches can reduce costs while

14
  Conserving devices reduce the amount of oxygen that is supplied when the patient is not inhaling.
There are three main types: (1) reservoirs that allow oxygen to pool until inhaled by the patient,
(2) devices that provide oxygen in measured doses at periodic intervals, and (3) devices that sense
when a patient breathes in and deliver a dose of oxygen on demand.
15
 The monthly Medicare allowance for oxygen varies by state subject to a national floor and ceiling. As
of Jan. 1, 1997, the allowance ranged from a national floor of $277.84 to a national ceiling of $326.87,
with a midpoint of about $300. As of Jan. 1, 1998, the allowance ranged from $208.39 to $245.16, with a
midpoint of about $225. The Medicare allowance is increased by 50 percent for those beneficiaries
whose prescribed liter flow is over 4 liters per minute and decreased by 50 percent for patients whose
prescribed liter flow is less than 1 liter per minute. As with other durable medical equipment, the
Medicare allowance for home oxygen equipment is subject to the 5-year freeze on inflation
adjustments imposed by the BBA.
16
  The monthly allowance for a portable unit varies by state subject to a national floor and ceiling. In
1997, the fee ranged from a national floor of $43.66 to a ceiling of $51.37, with a midpoint of about $48;
in 1998, the fee ranged from $32.75 to $38.53, with a midpoint of about $36. As with other durable
medical equipment, the Medicare allowance for home oxygen equipment is subject to the 5-year freeze
on inflation adjustments imposed by the BBA.



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                      maintaining the quality and adequacy of services. Others, however, could
                      potentially compromise the effectiveness of home oxygen therapy for
                      some Medicare beneficiaries.

                      Most suppliers accept Medicare’s allowance as full payment for home
                      oxygen equipment and file claims directly with the Medicare program
                      through a process known as “assignment.” Suppliers do not have to accept
                      assignment, however, and if they do not, there is no limit to the amount
                      they can charge.17

                      The businesses that supply home oxygen to Medicare beneficiaries are
                      diverse, varying in size from small companies run by one or two
                      respiratory therapists to large publicly traded corporations with branches
                      throughout the country. Home oxygen suppliers also include hospital
                      affiliates, franchises, and nonprofit corporations. Some suppliers
                      specialize in home oxygen and other respiratory services, others provide
                      various types of medical equipment and services such as home infusion,
                      and still others are part of a full-service pharmacy. Medicare is the single
                      largest payer for home oxygen for most suppliers we met with, except
                      those who specialize in VA and other large-volume contracts. Some states
                      require that home oxygen suppliers be licensed and have respiratory
                      therapists on staff, but others do not. Many suppliers are accredited by the
                      Joint Commission for Accreditation of Healthcare Organizations, but this
                      accreditation is not required by the Medicare program.


                      Preliminary information indicates that access to home oxygen equipment
Access to Home        remains largely unchanged, despite the 25-percent Medicare payment
Oxygen Equipment Is   reduction that took effect in January 1998. Medicare claims data revealed
Substantially         little change in use patterns during the first 6 months after the
                      January 1998 payment reduction, and virtually all oxygen suppliers
Unchanged             continue to accept assignment for home oxygen. Some beneficiaries are
                      expensive or difficult to serve because they live in rural areas served by
                      few providers, require lightweight portable equipment, or require
                      high-liter-flow liquid oxygen systems. These beneficiaries are, therefore,
                      vulnerable to cutbacks by suppliers. Nevertheless, hospital discharge
                      planners we interviewed said they can still arrange appropriate home
                      oxygen equipment for most patients. In addition, we were told that, in
                      general, the limitations on the availability of certain types of equipment
                      that exist now were present before the payment reductions. Also, although

                      17
                       In contrast, physicians are subject to limits on what they can bill Medicare beneficiaries for
                      unassigned services.



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                                     there has been about a 6.5-percent decrease in the number of Medicare
                                     home oxygen suppliers, most Medicare patients can still choose from
                                     among competing firms.


Medicare Home Oxygen                 The full range of oxygen modalities continues to be available to Medicare
Use Has Changed Little               beneficiaries, according to the Medicare claims reports, although oxygen
                                     concentrators predominate as the system most commonly provided for
                                     home oxygen. As the technology of concentrators continues to improve,
                                     oxygen concentrators have been slowly replacing stationary liquid
                                     systems. This trend is observed in the aggregate data, which show that
                                     claims for liquid stationary systems declined by approximately 12 percent
                                     between the first half of 1997 and the first half of 1998. During the same
                                     period, the use of portable liquid oxygen systems declined by 11 percent,
                                     even though the use of portable systems rose overall. (See table 1.)

Table 1: Trends in Types of Oxygen
Systems Used by Medicare                                                     Percentage of Medicare oxygen users
Beneficiaries, 1995-98                                               Stationary systemsa                   Portable systems
                                     Period                       Concentrator             Liquid             Gas             Liquid
                                     Jan.-June 1995                          85.3            14.7             78.0              22.0
                                     Jan.-June 1996                          86.2            13.8             79.4              20.6
                                     Jan.-June 1997                          87.7            12.3             82.1              17.9
                                     Jan.-June 1998                          89.2            10.8             84.1              15.9
                                     a
                                     This table excludes the small number of beneficiaries who used stationary gas systems.



                                     Another indication that home oxygen access has not been impaired is that
                                     the oxygen supplier assignment rates for all modalities have remained
                                     relatively unchanged since the 1998 payment reduction. In fact, the claims
                                     data show that assignment rates for home oxygen increased slightly
                                     between the first half of 1997 and the first half of 1998, leading us to
                                     conclude that the suppliers are willing to furnish home oxygen equipment
                                     and services even at the reduced rates.

                                     Although claims data for the first half of 1998 are not final, our claims data
                                     analysis from prior periods indicates that use rates established from
                                     preliminary data closely approximate the final results. However, subtle
                                     shifts in the kinds of oxygen equipment provided are not evident in
                                     aggregate claims data. For example, claims data do not identify the types
                                     of portable tanks provided to beneficiaries. Therefore, it is not possible to
                                     determine from the claims data how many beneficiaries are receiving



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                         lightweight portable tanks and how many are using the cart-mounted E
                         tanks. Similarly, claims data do not indicate the number of refills provided
                         to patients each month, so we could not determine if the frequency of tank
                         refills has changed since the rate reduction.


Home Oxygen Equipment    Overall, we found no evidence that home oxygen patients who are more
Options Have Not Been    expensive or difficult to serve—such as those who live in rural areas, need
Affected in Most Cases   lightweight portable equipment, or require high-liter-flow systems—were
                         adversely affected by the payment cuts. In response to the substantial
                         payment reductions, suppliers could have been expected to try to reduce
                         costs, making these higher-cost patients more vulnerable to treatment
                         changes. Although we looked for indications that suppliers had refused to
                         serve these special needs patients, limited the types of equipment made
                         available, or reduced service levels, our interviews with suppliers,
                         discharge planners, patient advocates, and physicians indicated that most
                         Medicare beneficiaries continued to have access to appropriate equipment
                         options.

                         The only indication of access problems that we found occurred in
                         Anchorage, Alaska, where pulmonary clinicians stated that liquid systems
                         are no longer available on assignment to their Medicare patients.

Access in Rural Areas    Beneficiaries in rural areas have always faced restrictions on home oxygen
                         options, but their access, according to hospital discharge planners we
                         interviewed, appears unchanged. These beneficiaries are more expensive
                         to serve because they are farther from suppliers’ facilities and distances
                         between patients are greater. Suppliers who serve patients in remote areas
                         informed us that it is difficult to support the full range of equipment
                         options because of such factors as vast distances, poor road conditions,
                         and unpredictable weather but that this situation existed before the 1998
                         payment reductions. Several suppliers told us that they generally cannot
                         provide liquid oxygen to people who live 40 to 60 miles from their facility.
                         However, hospital discharge planners in New Mexico and South Dakota
                         told us that the Medicare payment reduction has not affected their ability
                         to arrange appropriate home oxygen services for their patients, even those
                         who live in the most remote parts of those states.

                         Another challenge in providing adequate options in rural areas is the
                         number of suppliers and the degree of competition for patients. A patient
                         who lives in an isolated South Dakota town may have only one or two
                         suppliers to choose from. Thus, the need to maintain market share may



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                                 not motivate suppliers in these areas to provide certain costlier equipment
                                 and services. In contrast, a representative of a major regional supplier in
                                 the Washington, D.C., area said that it had begun to evaluate patients more
                                 carefully before providing them liquid systems. Nevertheless, the supplier
                                 intended to keep liquid oxygen as an option to maintain positive
                                 relationships with referral sources, who can choose from numerous
                                 suppliers. Discharge planners in a hospital on Cape Cod, Massachusetts,
                                 told us they have not had any problems finding suppliers to take Medicare
                                 assignment on liquid oxygen for their patients because Boston and
                                 Providence are nearby, and there are many suppliers in the area. In many
                                 rural areas, the choice of home oxygen supplier is much more limited.

Access to Lightweight Portable   Although the equipment and refill needs of highly mobile patients are more
Equipment                        expensive to meet than those of relatively inactive patients, most
                                 discharge planners, pulmonary rehabilitation professionals, and suppliers
                                 we interviewed believe these patients’ needs are increasingly being met
                                 with lightweight, portable gas tanks with conserving devices. This
                                 relatively new technology can be less expensive than liquid units and, for
                                 patients who can tolerate an oxygen conserving device, still provide
                                 greater mobility than heavier gas tanks mounted on carts.

Access to High-Liter-Flow        We found no indication that patients who require a high-liter-flow system
Equipment                        have less access to the proper equipment now than before the payment
                                 reduction, except in Alaska. High-liter-flow patients are more expensive to
                                 serve than other patients because they require more frequent deliveries of
                                 gas or liquid oxygen. The Medicare payment system recognizes that
                                 suppliers’ costs are higher for these patients and allows a 50-percent
                                 increase in the payment for a stationary unit for patients who require over
                                 4 liters of oxygen per minute. Medicare does not reimburse suppliers
                                 separately for the portable unit if the high-liter-flow adjustment is paid, but
                                 many of the suppliers we met with agreed that the adjustment adequately
                                 compensated them for their added costs. Fewer than 2 percent of paid
                                 home oxygen claims were for high-liter-flow patients, which was
                                 consistent with information we received from clinicians.

                                 Though advances in technology have made oxygen concentrators more
                                 effective at delivering flow rates of up to 6 liters per minute, several
                                 pulmonologists and respiratory therapists we met with said that liquid
                                 oxygen is the preferred option for these patients. Even before the
                                 Medicare payment reductions, many suppliers were not providing liquid
                                 oxygen for high-liter-flow patients who lived far from their facilities. For
                                 these patients, suppliers sometimes provide a high-liter-flow concentrator,



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                          link two concentrators together to increase the overall liter flow,18 or
                          supply compressed gas. The hospital discharge planners and suppliers we
                          talked with said they were able to make arrangements with suppliers for
                          all patients with high-liter-flow needs.

                          In contrast to our findings looking at the country as a whole, we did
                          identify concerns about lack of access to liquid oxygen systems in the
                          Anchorage, Alaska, area. According to the Pulmonary Education and
                          Research Foundation, letters from Medicare beneficiaries, and interviews
                          with a pulmonologist and respiratory therapists in Anchorage, since the
                          Medicare payment reduction, no home oxygen suppliers there have been
                          willing to accept Medicare assignment for liquid oxygen.19 While liquid
                          oxygen systems had not generally been available in remote areas of
                          Alaska, as in the remote parts of other states, at least one supplier was
                          providing home liquid oxygen systems to patients in the Anchorage area
                          on assignment before the payment reduction. After the payment reduction,
                          the supplier replaced its liquid systems with concentrators for stationary
                          units and either E tanks or lightweight gas tanks with conserving devices
                          for portable use, depending on the patient’s activity level. For most
                          patients, this was an acceptable alternative. However, some patients
                          cannot tolerate the conserving devices or are unable to maneuver E tanks
                          on carts, especially in the snow. Respiratory therapists in Anchorage
                          informed us that some patients are now unable to leave their homes
                          without help. Because there are no suppliers willing to take Medicare
                          assignment for liquid oxygen, these patients have no other options for
                          lightweight portable systems without incurring significant out-of-pocket
                          costs.


Industry Make-Up and      The mid-1990s was a period of expansion for the home oxygen industry,
Business Practices Have   characterized by growth in the total number of home oxygen suppliers.
Changed Since the         This trend was reversed in 1998 after the lower Medicare payment rates
                          took effect, as some supply companies merged or left the marketplace.
Payment Reduction         Nevertheless, sufficient competition remained, providing most patients
                          with a choice of suppliers. In addition to industry consolidation, suppliers
                          have implemented a variety of strategies to improve the efficiency of
                          operations and reduce costs.

                          18
                            Not all the respiratory therapists we talked with approved of linking two concentrators to increase
                          the liter flow.
                          19
                            Medicare claims data show that there were about 460 Medicare patients on home oxygen in Alaska
                          during the first three months of 1998. Of these, about 30 patients were being provided liquid oxygen on
                          assignment. For the comparable period in 1997, 35 of the 490 Medicare patients on home oxygen
                          received liquid oxygen.



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                                        Overall, the number of Medicare home oxygen suppliers has declined by
                                        about 6.5 percent since the January 1998 payment reduction. The market
                                        share of the largest suppliers increased slightly from 40 percent in the first
                                        half of 1997 to 43 percent in the first half of 1998. (See table 2.) Many of
                                        the suppliers that have stopped submitting claims to Medicare for home
                                        oxygen had not previously offered the full range of home oxygen
                                        equipment options to beneficiaries but had supplied predominantly
                                        oxygen concentrators. In 1994, over 1,300 Medicare suppliers, or
                                        22 percent, received at least 98 percent of their Medicare home oxygen
                                        revenues for concentrators and focused on serving the least costly
                                        patients. By the first half of 1998, this number had fallen to just over 1,000
                                        firms.20 (See table 3.)

Table 2: Medicare Home Oxygen
Suppliers and the Market Share of the                                                                    Percentage             Percentage
Top Medicare Suppliers, 1994-98                                                   Number of         market share of         market share of
                                                                                   Medicare       top five Medicare       top 100 Medicare
                                        Perioda                                    suppliers               suppliers              suppliers
                                        July-Dec. 1994                                  6,089                       23                       38
                                        Jan.-June 1995                                  6,274                       24                       39
                                        Jan.-June 1996                                  6,515                       25                       40
                                        Jan.-June 1997                                  6,640                       24                       40
                                        Jan.-June 1998                                  6,210                       27                       43
                                        a
                                         Medicare market share is based on claims data for the first 6 months of each year, except for
                                        1994, for which market share is based on data for the last 6 months of the year. Reliable claims
                                        data are not available for the period before July 1994.



Table 3: Suppliers That Received Most
of Their Medicare Revenues for                                                  Suppliers that provided
Concentrators, 1994-98                                                                  predominantly Percentage of all Medicare
                                        Perioda                                         concentratorsb                  suppliers
                                        July-Dec. 1994                                                1,351                                  22
                                        Jan.-June 1995                                                1,384                                  22
                                        Jan.-June 1996                                                1,531                                  24
                                        Jan.-June 1997                                                1,288                                  19
                                        Jan.-June 1998                                                1,011                                  16
                                        a
                                         Number of Medicare suppliers is based on claims data for the first 6 months of each year,
                                        except for 1994, for which the number is based on data for the last 6 months of the year. Reliable
                                        claims data are not available for the period before July 1994.
                                        b
                                         These suppliers received at least 98 percent of their Medicare home oxygen revenues from
                                        payments for oxygen concentrators.


                                        20
                                         Also, we estimate that only about 10 percent of the patients served by these firms received portable
                                        units, compared with the Medicare average of almost 80 percent.



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When we asked suppliers how they have responded to the payment cuts,
many said they have developed strategies to improve efficiency and
maintain their profitability. These strategies include operational
adjustments, such as making less frequent deliveries and service visits,
purchasing more reliable equipment, reducing staff, and using fewer
credentialed respiratory therapists. According to suppliers and industry
representatives, some suppliers have reevaluated their product lines
because, prior to the payment cuts, oxygen revenues had often subsidized
less profitable medical equipment items. Other suppliers have switched
patients from liquid oxygen to less expensive systems or are screening
new patients more carefully before setting them up with a liquid unit.
These strategies have left overall access to home oxygen equipment
substantially the same, but they have changed the way that home oxygen
equipment and services are provided to Medicare beneficiaries.

Some suppliers we interviewed said they are maintaining their current
levels of service, including providing a range of equipment options and
using credentialed therapists for patient visits, for two reasons: their
internal standards of patient care and their need to remain competitive
with other suppliers. Many other suppliers said that they have reviewed
the services they provide to determine where to reduce costs. Their
strategies include more completely assessing patients’ need for liquid
oxygen, carefully planning delivery routes, calling patients in advance to
find out what supplies they need, keeping their trucks stocked with
supplies to avoid extra trips, and reducing the frequency of maintenance
visits. There is also anecdotal evidence that some suppliers, contrary to
Medicare rules, have refused to deliver portable tanks when patients need
refills or have limited their patients to a fixed number of refills per month.
We were unable to document these practices.

One supplier we talked with conducted a review of patients already on
liquid oxygen to determine who could be switched to concentrators and
portable lightweight gas systems equipped with an oxygen conserving
device. This supplier said he consulted every patient’s physician and
obtained permission to make the equipment change. Further, the patients
were tested to ensure that they were able to tolerate the new lightweight
portable equipment. Other firms stated that while they will not change the
oxygen delivery systems they are currently providing to patients, they will
provide liquid systems to new patients only if they have high-liter-flow
needs or if their ambulatory needs cannot be met with the compressed gas
systems available.




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                             B-280839




                             In a November 1997 report,21 we made several recommendations to HCFA
HCFA Is Not Doing All        about its implementation of the BBA provisions, including that it monitor
It Can to Assess and         trends in Medicare beneficiaries’ access to the various types of home
Ensure Access to             oxygen equipment; restructure the modality-neutral payment, if warranted;
                             educate prescribing physicians about their right to specify the home
Home Oxygen                  oxygen systems that best meet their patients’ needs; and establish service
                             standards for home oxygen suppliers. HCFA has made only modest
                             beginnings in addressing the BBA provisions and our recommendations.


HCFA Has Contracted for      As required by the BBA, HCFA has contracted with a PRO to evaluate access
an Evaluation of Access to   to and quality of home oxygen equipment and services provided to
Home Oxygen                  Medicare patients. The PRO plans to gather evidence from various sources,
                             including Medicare claims data on equipment use patterns, hospitalization
                             rates, and utilization of home health services by home oxygen patients. An
                             important component of this study will be a survey of beneficiaries,
                             suppliers, and physicians. Changes in supplier practices will be an
                             indicator of the impact of the payment reduction. The PRO will use this
                             information to assess whether the payment reduction has affected the
                             types of equipment and level of services provided to home oxygen
                             patients. HCFA has not decided whether this will be a one-time assessment
                             or an ongoing effort to monitor trends. Results from the PRO study are not
                             expected until January 2000.


HCFA Could Do More to        The BBA gave HHS the authority to restructure the modality-neutral payment
Determine If Changes to      system for home oxygen, but HCFA has not established an ongoing process
the Modality-Neutral         for monitoring access to determine if such a restructuring is warranted.
                             HCFA officials said they will use the results of the PRO study and the
Payment System Are           competitive bidding demonstration project to evaluate the need to
Warranted                    restructure the oxygen payment system. However, the PRO study will not
                             be completed until at least January 2000, or 2 years after the first payment
                             reduction, and neither project will provide HCFA information on access
                             problems as they develop.

                             HCFA has the ability to monitor access indicators but has not done so. For
                             example, HCFA could ask its contractors to track beneficiary complaints,
                             such as insufficient refills of portable tanks or, as occurred in Anchorage,
                             problems with access to liquid oxygen systems. Although HCFA’s claims
                             processing contractors can specially code and track beneficiary inquiries


                             21
                               GAO/HEHS-98-17, Nov. 7, 1997.



                             Page 14                           GAO/HEHS-99-56 Access to Home Oxygen Equipment
                       B-280839




                       and complaints about specific equipment and services, such as home
                       oxygen, HCFA has not asked them to do so.

                       Prescribing physicians and patients could better help HCFA identify access
                       problems if they were fully informed about the home oxygen benefit.
                       Although HCFA is able to identify both groups from claims data, HCFA has
                       not provided these groups with information about the Medicare payment
                       cuts or encouraged them to report access problems. For example, the
                       pulmonary physician and therapists at the Anchorage clinic we spoke with
                       did not know what equipment and services the Medicare home oxygen
                       benefit covers. The National Association for Medical Direction of
                       Respiratory Care believes that HCFA has done little to help educate doctors
                       about their options when prescribing home oxygen. Similarly, patients
                       may be unaware that the Medicare allowance covers all their oxygen
                       needs, including home delivery of equipment and needed refills of portable
                       tanks. In contrast, many VA Medical Centers provide brochures to home
                       oxygen patients outlining the responsibilities of both the patient and the
                       supplier.


HCFA Has Not           Despite the BBA mandate and our recommendations and those of HHS’s
Implemented Service    Office of the Inspector General, HCFA has not developed service standards
Standards for Oxygen   for oxygen suppliers beyond generic requirements for all durable medical
                       equipment suppliers. In contrast, most VA and managed care contracts
Suppliers              specifically define service requirements, such as the frequency of
                       maintenance visits and the level of patient education. Service standards
                       would define what Medicare is paying for and what beneficiaries should
                       expect from suppliers. Standards are even more important as suppliers
                       respond to reduced payment rates. One HCFA official told us that HCFA must
                       address those BBA requirements that have specific target dates, as well as
                       Year 2000 computer issues, before attending to our recommendations and
                       those of the Office of the Inspector General.

                       HCFA  has developed a set of service standards that will apply only to home
                       oxygen suppliers that participate in the competitive pricing demonstration
                       project. HCFA officials informed us that they will consider the effectiveness
                       of these standards in the development of service standards applicable to
                       all home oxygen suppliers. However, some industry representatives have
                       criticized the demonstration project standards as being too limited to
                       ensure an acceptable level of service for home oxygen patients.




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                      B-280839




                      Early evidence suggests that the reduction in Medicare payment rates for
Conclusions           home oxygen has not had a major impact on access. Generally, the access
                      problems that we found existed before the payment reductions occurred.
                      The PRO study HCFA has contracted for will provide a more in-depth look at
                      this issue.

                      Suppliers are responding in various ways to the lower payment rates.
                      Consolidation continues to occur in the home oxygen industry, leaving
                      fewer small firms that do not provide a full range of oxygen services. Most
                      companies have developed varying strategies to mitigate the impact of the
                      payment reduction, including reevaluations of operations, which have led
                      to increased operating efficiencies and changes in how suppliers provide
                      their patients with equipment and services.

                      Despite these early indications that access to home oxygen has not
                      diminished since the implementation of the payment reductions, subtle
                      access issues may not be readily apparent, and additional problems could
                      emerge as more and better information becomes available. Given the
                      importance of this benefit to some vulnerable Medicare beneficiaries,
                      especially those who live in rural areas, are highly active, or require a high
                      liter flow, HCFA needs to be vigilant in its efforts to detect any problems.
                      Beyond contracting for the PRO study, HCFA has not established an ongoing
                      method for monitoring the use of this benefit and gathering the
                      information essential to assessments of the modality-neutral payment
                      system. Nor has HCFA developed service standards for home oxygen
                      suppliers as required by the BBA. The continued absence of specific service
                      standards allows suppliers themselves to decide what services they will
                      provide home oxygen patients.


                      We recommend that the Administrator of HCFA do the following:
Recommendations
                  •   monitor complaints about and analyze trends in Medicare beneficiaries’
                      use of and access to home oxygen equipment, paying special attention to
                      patients who live in rural areas, are highly active, or require a high liter
                      flow;
                  •   on the basis of this ongoing review, as well as the results of the PRO study,
                      consider whether to modify the Medicare payment method to preserve
                      access; and
                  •   make development of service standards for home oxygen suppliers an
                      agency priority in accordance with the BBA’s requirement to develop such
                      standards.



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                      B-280839




                      We provided draft copies of this report to HCFA, representatives of the
Agency and Industry   home oxygen industry, and officials of associations representing
Comments and Our      respiratory care specialists and physicians who treat patients with chronic
Evaluation            lung disease. The reviewers suggested some technical corrections, which
                      we incorporated into the report.

                      Generally, HCFA agreed with the report’s contents and concurred with our
                      recommendations. HCFA emphasized that it has contracted for the
                      BBA-mandated PRO study, which it believes will provide an assessment of
                      access to home oxygen equipment. In the interim, HCFA said it is relying on
                      this report to alert the agency to any immediate access problems. Further,
                      HCFA believes that the payment reduction will not disrupt patient access to
                      the home oxygen benefit, given the previous excessive rates. In light of
                      efforts to address the Year 2000 computer issues confronting the agency
                      and its limited resources, HCFA felt it had adequately addressed the need to
                      monitor access to the home oxygen benefit.

                      HCFA acknowledged that it has not developed specific service standards for
                      the home oxygen benefit as required by law. However, officials stated that
                      the agency intends to publish new service standards applicable to all
                      durable medical equipment suppliers in the next few months. After that, it
                      plans to develop specific service standards for the home oxygen benefit.

                      While we acknowledge the extent of HCFA’s responsibilities, we believe
                      that waiting for the PRO study to evaluate access issues is not prudent,
                      considering the life-sustaining nature of this benefit to its users. We
                      believe that HCFA could take steps now, with a minimal expenditure of
                      resources, that could not only supplement the results of the PRO study but
                      also alert the agency to access problems before the PRO study is released.
                      HCFA stated that it will have its regional offices and contractors monitor
                      complaints regarding access to home oxygen. The full text of HCFA’s
                      comments is included as an appendix.

                      Industry representatives and directors of associations representing
                      respiratory care specialists and physicians also generally agreed with the
                      report’s contents. However, industry representatives believe that our
                      definition of access to home oxygen equipment should include not only
                      the equipment provided Medicare beneficiaries but also the types of
                      services provided them and their frequency. These industry
                      representatives are concerned that any service standards developed by
                      HCFA will be inadequate to ensure an acceptable level of care. They believe
                      that clinical studies of the effects of various services on patient outcomes



                      Page 17                         GAO/HEHS-99-56 Access to Home Oxygen Equipment
B-280839




are necessary to fully evaluate the impact of the payment reduction. They
also believe that the cost savings resulting from the payment reduction for
home oxygen could be offset by higher hospital readmissions or other
services used by oxygen users. Finally, they stated that the full impact of
the payment reduction has not yet been felt and that monitoring of access
should continue.

For the purposes of this report, we based our definition of access on the
Medicare coverage guidelines for the home oxygen benefit. HCFA has not
defined specific service standards for this benefit, and it would not be
appropriate for us to expand HCFA’s current definition of what is covered
by the home oxygen benefit. Further, while evaluating patient outcomes
was beyond the scope of this report, the PRO study will include specific
patient outcomes, such as hospital readmissions and use of home health
services, in its evaluation.


We are sending copies of this report to Ms. Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration, and appropriate
congressional committees. We will also make copies available to others
upon request.

This report was prepared by Anna Kelley, Frank Putallaz, and Suzanne
Rubins under the direction of William Reis, Assistant Director. Please call
Mr. Reis at (617) 565-7488 or me at (202) 512-7114 if you or your staff have
any questions about the information in this report.




William J. Scanlon
Director, Health Financing
  and Public Health Issues




Page 18                         GAO/HEHS-99-56 Access to Home Oxygen Equipment
Page 19   GAO/HEHS-99-56 Access to Home Oxygen Equipment
Contents



Letter                                                                                           1


Appendix                                                                                        22
Comments From the
Health Care Financing
Administration
Tables                  Table 1: Trends in Types of Oxygen Systems Used by Medicare              8
                          Beneficiaries, 1995-98
                        Table 2: Medicare Home Oxygen Suppliers and the Market Share            12
                          of the Top Medicare Suppliers, 1994-98
                        Table 3: Suppliers That Received Most of Their Medicare                 12
                          Revenues for Concentrators, 1994-98




                        Abbreviations

                        BBA       Balanced Budget Act of 1997
                        HCFA      Health Care Financing Administration
                        HHS       Department of Health and Human Services
                        PRO       peer review organization
                        VA        Department of Veterans Affairs


                        Page 20                      GAO/HEHS-99-56 Access to Home Oxygen Equipment
Page 21   GAO/HEHS-99-56 Access to Home Oxygen Equipment
Appendix

Comments From the Health Care Financing
Administration




              Page 22    GAO/HEHS-99-56 Access to Home Oxygen Equipment
Appendix
Comments From the Health Care Financing
Administration




Page 23                            GAO/HEHS-99-56 Access to Home Oxygen Equipment
           Appendix
           Comments From the Health Care Financing
           Administration




(101763)   Page 24                            GAO/HEHS-99-56 Access to Home Oxygen Equipment
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