Medicare: Access to Home Oxygen Largely Unchanged; Closer HCFA Monitoring
Needed (Letter Report, 04/05/99, GAO/HEHS-99-56).

Pursuant to a legislative requirement, GAO provided information on
Medicare beneficiaries' access to home oxygen equipment, focusing on:
(1) changes in access to home oxygen for Medicare patients since the
payment reduction mandated by the Balanced Budget Act (BBA) of 1997 took
effect; and (2) actions taken by the Health Care Financing
Administration (HCFA) to fulfill the BBA requirements and respond to
GAO's November 1997 recommendations.

GAO noted that: (1) preliminary indications are that access to home
oxygen equipment remains substantially unchanged, despite the 25-percent
reduction in Medicare payment rates that took effect in January 1998;
(2) the number of Medicare beneficiaries using home oxygen equipment has
been increasing steadily since 1996, and this trend appears to have
continued in 1998; (3) 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; (4) hospital discharge planners
and suppliers GAO talked with said that even Medicare beneficiaries who
are expensive or difficult to serve are able to get the appropriate
systems for their needs; (5) further, suppliers accepted the Medicare
allowance as full payment for over 99 percent of the Medicare home
oxygen claims filed for the first half of 1998; (6) 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; (7) HCFA has responded to only
one BBA requirement; (8) as required by the BBA, HCFA has contracted
with a peer review organization (PRO) for an evaluation of access to,
and quality of, home oxygen equipment; (9) results from this evaluation
are not expected before 2000; (10) 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; (11) although not required by the BBA, such monitoring is
important because of the life-sustaining nature of the home oxygen
benefit; (12) until HCFA gathers more in-depth information on access and
the impact of payment reductions, HCFA cannot assess the need to
restructure the modality-neutral payment; (13) 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;
and (14) service standards would define what Medicare is paying for in
the home oxygen benefit and what beneficiaries should expect from
suppliers.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-99-56
     TITLE:  Medicare: Access to Home Oxygen Largely Unchanged; Closer 
             HCFA Monitoring Needed
      DATE:  04/05/99
   SUBJECT:  Medical services rates
             Health care cost control
             Medical supplies
             Health care programs
             Medical equipment
             Respiratory diseases
IDENTIFIER:  Medicare Program
             
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Cover
================================================================ COVER


Report to Congressional Committees

April 1999

MEDICARE - ACCESS TO HOME OXYGEN
LARGELY UNCHANGED; CLOSER HCFA
MONITORING NEEDED

GAO/HEHS-99-56

Access to Home Oxygen Equipment

(101763)


Abbreviations
=============================================================== ABBREV

  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

Letter
=============================================================== LETTER


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 programs.\3

Subsequently, the Balanced Budget Act of 1997\4 (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 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. 


--------------------
\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. 

\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).



\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. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Preliminary indications are that access to home oxygen equipment
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
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. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Many individuals suffering from advanced chronic obstructive
pulmonary 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

  -- 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 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
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. 


--------------------
\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. 

\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. 

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


   ACCESS TO HOME OXYGEN EQUIPMENT
   IS SUBSTANTIALLY UNCHANGED
------------------------------------------------------------ Letter :3

Preliminary information indicates that access to home oxygen
equipment remains largely unchanged, despite the 25-percent Medicare
payment reduction that took effect in January 1998.  Medicare claims
data revealed little change in use patterns during the first 6 months
after the January 1998 payment reduction, and virtually all oxygen
suppliers 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
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 USE HAS
      CHANGED LITTLE
---------------------------------------------------------- Letter :3.1

The full range of oxygen modalities continues to be available to
Medicare 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 Beneficiaries, 1995-98

                   Percentage of Medicare oxygen users
                ------------------------------------------
                Stationary systems\a    Portable systems
                --------------------  --------------------
                Concentrat
Period                  or    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 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
      OPTIONS HAVE NOT BEEN
      AFFECTED IN MOST CASES
---------------------------------------------------------- Letter :3.2

Overall, we found no evidence that home oxygen patients who are more
expensive or difficult to serve--such as those who live in rural
areas, need 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
-------------------------------------------------------- Letter :3.2.1

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 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 EQUIPMENT
-------------------------------------------------------- Letter :3.2.2

Although the equipment and refill needs of highly mobile patients are
more 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
         EQUIPMENT
-------------------------------------------------------- Letter :3.2.3

We found no indication that patients who require a high-liter-flow
system 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, 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. 


--------------------
\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. 


      INDUSTRY MAKE-UP AND
      BUSINESS PRACTICES HAVE
      CHANGED SINCE THE PAYMENT
      REDUCTION
---------------------------------------------------------- Letter :3.3

The mid-1990s was a period of expansion for the home oxygen industry,
characterized by growth in the total number of home oxygen suppliers. 
This trend was reversed in 1998 after the lower Medicare payment
rates took effect, as some supply companies merged or left the
marketplace.  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. 

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 Top Medicare
                     Suppliers, 1994-98

                                  Percentage    Percentage
                                market share  market share
                     Number of   of top five    of top 100
                      Medicare      Medicare      Medicare
Period\a             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 Concentrators,
                          1994-98

                        Suppliers that
                              provided
                         predominantly   Percentage of all
Period\a               concentrators\b  Medicare 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. 

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. 


--------------------
\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. 


   HCFA IS NOT DOING ALL IT CAN TO
   ASSESS AND ENSURE ACCESS TO
   HOME OXYGEN
------------------------------------------------------------ Letter :4

In a November 1997 report,\21 we made several recommendations to HCFA
about its implementation of the BBA provisions, including that it
monitor trends in Medicare beneficiaries' access to the various types
of home oxygen equipment; restructure the modality-neutral payment,
if warranted; educate prescribing physicians about their right to
specify the home 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. 


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


      HCFA HAS CONTRACTED FOR AN
      EVALUATION OF ACCESS TO HOME
      OXYGEN
---------------------------------------------------------- Letter :4.1

As required by the BBA, HCFA has contracted with a PRO to evaluate
access to and quality of home oxygen equipment and services provided
to 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
      DETERMINE IF CHANGES TO THE
      MODALITY-NEUTRAL PAYMENT
      SYSTEM ARE WARRANTED
---------------------------------------------------------- Letter :4.2

The BBA gave HHS the authority to restructure the modality-neutral
payment system for home oxygen, but HCFA has not established an
ongoing process 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 competitive bidding demonstration
project to evaluate the need to 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 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 IMPLEMENTED
      SERVICE STANDARDS FOR OXYGEN
      SUPPLIERS
---------------------------------------------------------- Letter :4.3

Despite the BBA mandate and our recommendations and those of HHS's
Office of the Inspector General, HCFA has not developed service
standards for oxygen suppliers beyond generic requirements for all
durable medical equipment suppliers.  In contrast, most VA and
managed care contracts 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. 


   CONCLUSIONS
------------------------------------------------------------ Letter :5

Early evidence suggests that the reduction in Medicare payment rates
for 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. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :6

We recommend that the Administrator of HCFA do the following: 

  -- 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. 


   AGENCY AND INDUSTRY COMMENTS
   AND OUR EVALUATION
------------------------------------------------------------ Letter :7

We provided draft copies of this report to HCFA, representatives of
the home oxygen industry, and officials of associations representing
respiratory care specialists and physicians who treat patients with
chronic 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 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. 


---------------------------------------------------------- Letter :7.1

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




(See figure in printed edition.)Appendix
COMMENTS FROM THE HEALTH CARE
FINANCING ADMINISTRATION
============================================================== Letter 



(See figure in printed edition.)



(See figure in printed edition.)


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