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Medicare Rule on Paying for Oxygen Vexes Patients

More than one million people rely on Medicare to pay for home-oxygen therapy. Now some patients are running into problems switching their suppliers because of complex new rules the federal insurer uses to pay for the services.

Under the new rules, which began to affect patients on Jan. 1, Medicare will pay suppliers at its prevailing rate for the first three years after a patient begins coverage. Suppliers are then required to continue providing oxygen services to patients for another two years, but at a sharply reduced payment rate. After that, patients are entitled to receive new equipment and Medicare will resume paying suppliers at the higher rate.

The changes, aimed at trimming costs for Medicare, have created problems for some patients who want to find a new source for their oxygen, perhaps because they want to move closer to family members. Some suppliers are balking at accepting new patients who are approaching, or have already reached, Medicare's new three-year limit on full payments. That's because the companies would have to provide oxygen services for the next two years without getting much payment.

"I can't afford to take [new patients] for four or five months, and then not get paid anymore," says Jim Jewell, the owner of In Home Medical, which provides oxygen to about 400 people in Washington and Oregon. Mr. Jewell says he is trying to make up for lost Medicare revenue by boosting sales of wheelchairs and other equipment. He says he has scaled back the hours of his company's respiratory therapist to save money.

Donna Miller of Lancaster, Ohio, uses an oxygen concentrator and a CPAP machine at night to help her breathe. The 71-year-old says she is planning to move into senior housing located in another town and that she contacted a nearby supplier that she heard provides good service. But because Medicare cut the payment for her oxygen when she reached the three-year cap this year, Ms. Miller says she is still trying to work out a transition plan with the new supplier. "I don't think it's fair that I have to go through all this red tape," she says.

Waste and Fraud

The rule changes are part of broader efforts by Congress and the Centers for Medicare and Medicaid Services, or CMS, which oversees the federal insurance programs, to attack what is perceived to be waste and fraud among home-oxygen suppliers and other providers of so-called "durable medical equipment," which includes tools such as wheelchairs and walkers.

The government is planning to restrict where patients may buy or rent medical equipment, by paying for devices sold only by approved suppliers. Medicare also has stepped up its efforts to root out fraud. Last month, the U.S. Attorney General's Office and the Department of Health and Human Services, which oversees CMS, announced they would form a new team to share data about suspicious Medicare billing patterns.

President Barack Obama is counting on big cost-savings at Medicare and Medicaid to help pay for a health-care overhaul. In a speech delivered Monday to the American Medical Association, the president spoke of the dangers of unchecked growth in the federal insurance programs.

Efforts to cut payments to suppliers of home-oxygen therapy underline how complicated and difficult it will be to control Medicare costs. A 2006 report prepared for CMS calculated that the agency was paying an excessive amount to private companies to supply oxygen equipment and services -- on average about $200 a month per patient. The average cost to purchase an oxygen concentrator was $587 and the equipment required little maintenance, the report concluded. CMS says it expects to save about $220 million in the fiscal year beginning in October as a result of the new payment rules. Last year, Medicare spent $2.9 billion on home-oxygen therapy, out of the insurance program's total budget of nearly $500 billion.

Laurence Wilson, director of CMS's chronic-care policy group, says the agency felt it could reduce payments to suppliers after three years because the oxygen equipment should be fully paid for by that time. After that, suppliers receive minimal payments for occasional follow-up visits and other services. But the insurer won't pay for certain services, such as repair calls that suppliers have to make when equipment breaks down. Medicare says monthly payments made in the initial three years should be sufficient to cover ongoing repairs.

"We're looking for ways to try to pay more accurately," Mr. Wilson says. Patients also benefit, since they pay 20% of the cost of home-oxygen therapy, he says.

Mr. Wilson says he is surprised to hear that some suppliers are refusing some new patients, because their equipment "is something that arguably Medicare's already paid for." Although suppliers aren't obliged to take on new patients, Medicare says patients having trouble switching can contact the insurer for help finding a new supplier.

Suppliers Protest

Oxygen suppliers say CMS is overly focusing on the cost of equipment and isn't accurately accounting for other expenses. A 2006 survey commissioned by the American Association for Homecare, an industry group, found that oxygen equipment and refills make up 28% of the cost of providing oxygen. The remainder comes from delivery and maintenance, training patients and other services. Including all expenses, it costs about $200 a month before taxes on an ongoing basis to provide oxygen to a patient, the survey found.

Suppliers say many of their patients have cognitive problems, making it more difficult for patients to monitor their own equipment. That means employees often make house visits to fix problems. The supply companies are required by law to have someone constantly on call for emergencies.

"The equipment is the least-expensive piece of it. Medicare doesn't consider this," says Wayne Stanfield, president of the National Association of Independent Medical Equipment Suppliers. The group is pressing Congress to reverse Medicare's three-year limit on full payments.

Some patients are sympathetic to suppliers' claims. Clarence A. Martin of Burbank, Wash., who has been on oxygen for more than five years because of chronic bronchitis and emphysema, says the company that supplies his oxygen once sent an employee out in the middle of the night to help him with his equipment during a power outage.

"They're trying to have these people that furnish me oxygen do all this running out here and not get any reimbursement," says the 81-year-old. "I don't think that's right."

New Patient Charges

To make up for lost Medicare revenue, some suppliers have told patients they will begin charging them for services they once provided for no additional fee, such as in-home visits from a respiratory therapist.

Suppliers are scrambling to adapt to the new rules. Sam Clay, owner of Clay Home Medical in Petersburg, Va., says he struggled recently to work out arrangements for a new patient moving from North Carolina. The patient wanted to switch to his service, but Mr. Clay says he couldn't afford to accept her because she was near the three-year limit on full Medicare payments.

Ultimately, Mr. Clay agreed to act as a subcontractor to the patient's previous supplier to provide services that Medicare won't pay for, such as equipment repairs. He says he will receive payment from the previous supplier on a fee-for-service basis. But he says he's discounting his usual charges because he knows the other supplier already is taking a hit by continuing to be responsible for the patient with minimal reimbursement.

"If we were able to do what we had been doing for 20 years, the patient would have just changed their service here," Mr. Clay says.

Write to Amy Merrick at