Home Health & Hospice Week

OIG identifies long-awaited reductions to FEHBP levels.

Oxygen suppliers will face a series of cuts in coming years, and the first one may be steeper than expected.

Federal Employee Health Benefit Plan payment levels for five oxygen codes in 2002 were 10 to 20 percent less than Medicare payment rates, the HHS Office of Inspector General says in a report released Sept. 13 (OEI-09-03-00160). As a bonus, the OIG surveyed Medicare+Choice plans for their oxygen rates and found them to be 10 to 23 percent less than Medicare levels.

The OIG drew the information from about 50 FEHB plans after Congress ordered the Centers for Medicare & Medicaid Services in the Medicare Modernization Act to implement price cuts for seven DME items plus oxygen, based on 2002 FEHBP levels (see table for items and their rates and cuts).

But the industry isn't taking those drastic payment rate cuts lying down. The American Association for Homecare disputes the OIG findings, offering up its own study of FEHBP payment rates for oxygen. The study, which Morrison Informatics Inc. conducted for AAH, claims FEHBP oxygen prices were within 1 percent of Medicare levels.

Why the difference? The OIG study surveyed all of a FEHBP's product lines while AAH's study focused solely on plans' fee-for-service products, the association explains. "The most appropriate comparison between Medicare and any other managed care entity is the fee-for-service plan model," AAH CEO Kay Cox says in a release. "The traditional Medicare program does not contract directly with home oxygen providers and does not guarantee enrollee volume in exchange for pricing concessions, especially across multiple product lines."

Because of those crucial differences, using data from all types of plans "is an apples-to-oranges comparison," Cox maintains.

Also, the OIG failed to include in its calculations separate payments for oxygen contents included with oxygen units, AAH claims. And the OIG ignored "the significant pricing, contracting, patient service and administrative differences between the Medicare program as compared to FEHBP or Medicare+Choice plans," the trade association concludes.

Finally, AAH's study surveyed 107 FEHBP plans while the OIG study included information from about 50 plans.

Don't Hold Your Breath For Changes

Observers don't expect the industry's arguments against the OIG's methodology to make much difference to the final rate cuts CMS implements. CMS "will be reducing the Medicare fee schedule amounts for home oxygen in 2005 using the data from the report," Administrator Mark McClellan says in the agency's response to the report.

Wall Street analyst Legg Mason advises investors to "assume CMS implements the recommendations as proposed."

CMS lacks discretion under MMA to consider the AAH study, points out attorney Tim Webster with Amarillo, TX-based Brown & Fortunato. MMA language requires CMS to use the OIG data to set the rate cuts, Webster tells Eli.

Possible Reprieve: Lawmakers required the FEHBP cuts, and they may be able to eliminate them - or at least soften the blow. In an Aug. 23 letter to HHS Secretary Tommy Thompson, House Ways and Means Committee Chair Bill Thomas (R-CA) and Rep. Dave Hobson (R-OH) warn of "deficiencies in the information used in the OIG survey process."

The congressmen ask Thompson to furnish information on whether the data set is "a representative sample of Medicare patients that use DME;" the clinical differences in the populations covered by FEHBP versus Medicare; and other government data that may contradict the OIG's findings.

Hobson has introduced a bill calling for repeal of the FEHBP cuts (see Eli's HCW, Vol. XIII, No. 21, p. 167). The legislation, H.R. 4491, has gained 52 cosponsors so far, AAH reports. But observers expect neither this bill nor any other Medicare legislation to pass in this election year.

Bidding Waiting in the Wings for More Cuts

The FEHBP reductions may come in a bit higher than some experts expected. Legg Mason was predicting a 9 percent across-the-board reduction while Apria Healthcare Inc. this summer announced a 10 percent estimate.

The FEHBP cuts will be only the first step in a rate downslide. Next will be competitive bidding, which starts in 2007 (see Article 3). Oxygen, which accounts for almost one-third of Medicare DME spending and was used in the bidding demonstration projects, will almost surely be one of the first items put up for bid.

The Polk County, FL bidding demo saw a 19 percent cut to oxygen rates while the San Antonio, TX project saw a 22 percent cut, the OIG notes in its report.

But the OIG wants CMS to consider even more ways to cut oxygen spending after FEHBP and bidding cuts, the report says. For example, CMS should consider making oxygen DME a capped rental item, purchasing oxygen equipment for long-term users and contracting with local or national suppliers for better rates, the OIG recommends.

CMS agrees to consider the recommendations, although it notes some of them would require statutory changes by Congress. 

Editor's Note: The GAO report is at
www.oig.hhs.gov/oei/reports/oei-09-03-00160.pdf.