"We prepared for the worst, and we're pleasantly surprised," said Rebecca Olson, sales manager for Oxygen One, Wakesha, Wis. The independent provider had planned for severe oxygen cuts--anywhere from 10 to 30 percent, Olson said. "I would rather [the government] not cut [oxygen rates] at all, but realistically, if they're going to make the cuts, they're at least small and not across the board," she added.

Based on location, however, not all providers are quite as happy. Don White, president of Amherst, N. Y.-based Associated Healthcare Systems, called the 12 percent average cut in New York "pretty substantial. It's 2 percent over what I had expected," said the long-time provider. "I had already made adjustments to account for a 10 percent cut."

MMA-Mandated Cuts
The Medicare Modernization Act requires CMS to bring oxygen reimbursements in line with median Federal Employee Health Benefits Plan pricing as determined by the OIG. But because the OIG analysis was delayed by several months, CMS has been paying 2005 oxygen claims at 2004 rates.

When the OIG issued its final report last Wednesday, CMS immediately posted the 2005 fee schedule. The agency estimates that the average rate reduction is 8.6 percent for stationary oxygen and 8.1 percent for portable units. Actual fee cuts, however, vary by state. The new monthly payment amounts for the states range from $194.48 to $200.41 for stationary oxygen and from $30.57 to $32.08 for portable equipment.

Reimbursements in states with the highest Medicare fees came down by the highest percentage; Hawaii, for example, will be hit with a 25 percent cut for stationary oxygen and a 28 percent cut for portable systems, and New York and Alabama providers will take a 12 percent cut on stationary systems and a 10 percent cut for portables.

Cuts are lighter in states where current fees are closer to FEHBP median pricing, and states with fees already at or below the FEHBP median price will see no changes.

The new fees will be implemented by the DMERCs "as soon as possible and by no later than April 8," according to a CMS statement. 2005 claims submitted before the fees take effect will be paid at 2004 rates and will not be retroactively adjusted. But claims submitted after the fees are implemented will be paid using the new fee schedule amounts, the agency said.

"It's difficult to take a reduction of any kind in the face of other costs going up, such as fuel," said Lisa Getson, executive vice president of business development and clinical services at Apria Healthcare, Lake Forest, Calif., one of the nation's largest respiratory providers. "[But] we anticipated this reduction for a long time, [and] we'll continue to manage our business under the new constraints."

"I was expecting a 15 percent cut all along," said Jeff Wills, COO and owner of CV Medical Solutions, Oklahoma City, and chairman of the American Association for Homecare's HME and Respiratory Council, referencing OIG's original report. But last week, Wills found Medicare oxygen reimbursement rates in Oklahoma will not be cut for 2005.

According to Bobby Bowden, general manager at Nare Home Medical in Cullman, Ala., "We knew [the cuts] were coming, so it's not like it's a big surprise--but it is 10 percent [in Alabama]. That's a lot of money for anybody. It affects everybody's bottom line in business, but it also affects every patient out there.

"Whether anybody likes it or not, it's all about patient care, and when they start cutting money, it's going to cut patient care," Bowden continued. "I don't know what it's going to take for the patients to start screaming nationwide."

"We have never reduced our staff because of fee cuts, even though fees have been cut 22 times in the 26 years I've been in business," said Jack Clark, founder and principal of MGR Homecare in Griffin, Ga., "but when you have sustained 22 fee reductions in two-and-a-half decades, that ... has to come out of profitability.

"This turns the industry into a 'supplier' industry even more, instead of a 'provider-of-service-and-care' industry."

Apples to Oranges
The OIG report released last week was a revision of an earlier analysis that had recommended oxygen cuts between 10 and 20 percent. But after the report's methodology was questioned--the OIG did not consider the cost of oxygen contents, for example--CMS requested a re-examination of the payment rates.

Last year, AAHomecare commissioned a study that found virtually no difference in oxygen fees between FEHBP and Medicare fee-for-service plans. The association contended that the government's comparison did not take into account the differences between managed care and fee-for-service models. Instead, last year's report blended all types of plans together, creating an apples-to-oranges comparison, the association said. Stakeholders have also said the OIG's initial report did not account for oxygen content and administrative cost differences between federal benefit plans and Medicare.

To compile its new analysis, the OIG used data from 56 FEHBP and Medicare+Choice (now Medicare Advantage) plans. Examining claims from 2002, the report pegged FEHBP median reimbursement for stationary oxygen at 12.4 percent lower than Medicare rates, and 10.8 percent lower for portable oxygen. CMS then put those percentages through a formula to come up with fees for each state.

The latest report is a "significant improvement," commented Cara Bachenheimer, vice president, government relations, for Elyra, Ohio-based Invacare. "It's not quite as good as the industry's own analysis, but it is certainly better than [the first OIG report]."

Joe Priest, president and CEO of Buffalo, N.Y.-based AirSep, pointed out that the new OIG report fails to differentiate between different kinds of federal benefit plans. "A plan that had 20 people in it got the same weight as plans with 20,000," he said, adding that some Medicare fees "are actually less than some fees with FEHB rates."

In fact, many federal health plans actually use the Medicare fee schedule, according to Jim Walsh, president of VGM Management Ltd. and general counsel for The VGM Group, Waterloo, Iowa. "I don't know how the OIG treated those plans [in the new report]," he said.

"These reimbursement cuts for oxygen are several percentage points lower than they would have been if AAHomecare had not pressed the OIG and CMS on this issue," said association President and CEO Kay Cox. "AAHomecare made a successful case for CMS to ask the OIG to take the unusual step of re-examining the data in the initial OIG report on home oxygen. We still have questions about some of the methodology used by OIG, but we are very grateful for the level of openness and cooperation at the OIG and CMS."

The latest report on oxygen fees is posted on the OIG Web site, available by clicking here.

The new oxygen rates are posted on the CMS Web site, available by clicking here.