Oxygen companies say payment cuts would leave industry gasping for air

Companies that provide oxygen to Medicare beneficiaries are intensifying their efforts to convince Congress that changes in payment policy threaten to drive them into the ground.

The firms, represented by a coalition called the Council for Quality Respiratory Care, face an uphill climb. Medicare payments to these companies have been declining steadily for years, the Bush administration has called for further cuts and Congress has proved less than sympathetic in recent years.

{mosads}The executives will be armed during their visits with data commissioned by the coalition that show Medicare payments for oxygen benefits declining by almost half between 1997 and 2010. The industry is still adjusting to a series of substantial changes made to their payments over those years and some that have yet to kick in, the companies maintain.

“People are just starting to see the magnitude of what they legislated,” said Peter Kelly, the chief executive of Novato, Calif.-based Pacific Pulmonary Services and chairman of the coalition.

The industry is trying to make up for lost time, executives say, because it waited too long to get organized in Washington and provide lawmakers and staff with persuasive evidence that taxpayer money is being well spent.

But Congress is skeptical. Last year, federal auditors reported that Medicare spends $7,215 to rent oxygen equipment for a beneficiary for 36 months. The actual cost of the equipment, however, is just $587, according to the Office of Inspector General (OIG) at the Department of Health and Human Services.

Senate Finance Committee ranking member Chuck Grassley (R-Iowa) seized on the report to justify substantial reductions in Medicare spending on home oxygen benefits.

The oxygen companies are still trying to make headway convincing key lawmakers that the government funds are being spent on something of value.

“We can demonstrate it. We can’t prove it, similar to all medicine,” Kelly said.

Patients who receive oxygen equipment for use at home are less likely to need to visit the hospital, and those who do require hospital care stay for fewer days, Kelly said.

Congress is eager to find areas in Medicare to reduce costs, Kelly acknowledged, but he questioned why companies like his would be targeted. “It’s a small industry. … The potential savings are small,” he said. “Oxygen is not the problem.”

In many ways, the efforts of the oxygen industry mirror those being undertaken by healthcare providers of all stripes — from insurance companies to drug makers to hospitals — that rely on revenue from Medicare and Medicaid.

But the oxygen companies are handicapped by the comparatively small stature of their industry and their relatively recent entry into the world of aggressive government relations.

Unlike other sectors, however, the oxygen firms are not venturing to ask Congress for more money but only for a reprieve from additional reductions.

“Our immediate work on the Hill is to prevent further erosion,” said Chris Kane, the vice president of government affairs for Pacific Pulmonary. Other members of the coalition include American HomePatient, Invacare, Lincare and Sunrise Medical.

These companies are members of a trade group, known as the American Association for Homecare (AAHomecare), but branched out last fall to form their coalition.

“This industry has been very active in the last four years in a very unorganized and unfocused way,” Kane said. “Had we been doing this well 10 years ago … we wouldn’t be finding ourselves in this place.”

As part of their more concerted effort, the oxygen firms contracted the consulting firm Avalere Health to provide them with ammunition — in the form of hard numbers — to support their arguments that they do more than just sell oxygen equipment.

Avalere conducted the analysis that concludes payments, adjusted for inflation, will be just over 50 percent of what they were in 1997. The firm also is developing a set of recommendations for restructuring the Medicare payment system.

Kane said that, for many lawmakers and aides, the OIG report amounts to the beginning and end of the conversation. The challenge to the oxygen firms this year, Kelly said, is to convince Congress that 10 years of changes to their payments are having a profound effect on the industry before making further modifications.

An AAHomecare analysis issued last year concluded that equipment constitutes only 28 percent of a company’s costs in providing the oxygen benefit.

Moreover, the industry needs to convince Congress that the effects of major policy changes that have yet to take place should not be overlooked.

In 2006, Congress approved language in the Deficit Reduction Act that limits Medicare rental payments for oxygen equipment to 36 months. That policy does not take effect until 2009. President Bush’s budget for next year calls for the rental period being shortened to 13 months.

In addition, the Centers for Medicare and Medicaid Services is rolling out a competitive bidding program next year that will require many of the oxygen firms, for the first time, to bid to participate in Medicare. Payment rates under this system will be linked to the median bid, Kelly said.