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Home Health & Hospice Week

Will Reduced Oxygen Payments Knock The Wind Out Of You?

Published on Thu Aug 12, 2004

OIG urges strapped states to adopt, enforce payment limits.

Medicare has ratcheted down oxygen payment rates since the mid-1990s, and a government watchdog wants Medicaid programs to do the same.

"The Balanced Budget Act of 1997 substantially reduced the [Medicare] payment levels for ... oxygen and oxygen equipment," the HHS Office of Inspector General notes in a recent report (A-05-03-00018). But not all states benefited as a result - even if they included requirements that Medicaid payment levels for durable medical equipment not exceed the Medicare fee schedule amount for that item.

That's because states don't adopt new Medicare payment rates in a timely manner, the OIG says. In an audit it conducted of nine states, four states that have the Medicare limit for their Medicaid payments overpaid suppliers about $10 million from 1998 to 2000. That's because states failed to adjust their rates at all, or at least on time. The biggest offender was Pennsylvania, where suppliers received $3.4 million they weren't entitled to, the OIG charges.

Two of the nine states could have shaved big bucks - $2.7 million - from their oxygen-related DME expenditures if they had adopted the Medicare fee schedule limit for their Medicaid program, the OIG stresses.

The OIG has issued a series of reports on this subject in recent years, notes attorney Tim Webster with Brown & Fortunato in Amarillo, TX. But this report goes a step further by combining the cost estimates for multiple states, and by urging that most states without the Medicare fee schedule limit adopt it.

The OIG wants the Centers for Medicare & Medicaid Services to encourage state Medicaid programs to adopt the limit for DME. But in comments on the report, CMS insists it is in no position to dictate to states how to run their Medicaid programs. "States have considerable latitude in establishing Medicaid payment rates," CMS Administrator Mark McClellan says.

Thus, the OIG scales back its recommendation, urging instead that CMS "alert" states "to the opportunity to reduce Medicaid payments by limiting reimbursement rates ... to the Medicare-allowable amount." Based on analysis of Medicaid oxygen claims from one quarter of 1999, the OIG estimates 22 states and the District of Columbia could have cut payments to suppliers by nearly $1.3 million just for one quarter if they adopted the Medicare-allowable limit.

Watch out: States with budgets stretched to the breaking point may be very receptive to suggestions on cutting Medicaid costs, observers worry. That could translate to significantly lower payment rates for oxygen-related DME.

For example, Maryland could have trimmed $272,000 from its DME spending for the quarter by using the limit, the OIG found. Second runner-up Nebraska could have shaved $151,000 from its payments to suppliers for the three months.

Good news: But suppliers shouldn't tighten their belts just yet. "The responses of state Medicaid agencies to the report will probably vary," Webster expects. When the OIG urged Wisconsin and Michigan to adopt the limits in reports from 2001, both Medicaid programs refused (see Eli's HCW, Vol. X, No. 41, p. 318). Wisconsin Medicaid officials worried rate reductions would spur suppliers to refuse to serve Medicaid clients.

The OIG also praises states that have cut oxygen DME payment rates well beyond the Medicare level. For example, Minnesota used competitive bidding to set payment rates for oxygen concentrators at between $39 to $72 per month while Medicare paid $194.48 per month for the equipment in the 1999 quarter studied. 

Editor's Note: The OIG report is at http://oig.hhs.gov/oas/reports/region5/50300018.pdf.

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