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: \
Department of Health and 
Human Servces

OFFICE OF

INSPECTOR GENERAL

OXYGEN CONCENTRATOR

REIMBURSEMENT: MEDICARE 
AND THE

DEPARTMENT OF 
VETERANS AFFAIRS

MANAGEMENT ADVISORY REPORT 
:v' 
Richard P. Kusserow 
INSPECfOR GENERA 
t OEI-03-
cla 91-O711  PUROSE 
To compare amol!nts allowed by Medicare for 
home oxygen concentrators to the
amounts paid by the Department of 
Veterans Affairs (VA). 
BACKGROUN 
The Medicare program reimburses medically necessary home oxygen under the 
authority of Section 1861(s)(6) of the Social 
Security Act. There are three tyes of
home stationary oxygen systems: liquid, gaseous, and concentrators. 
Liquid oxygen systems provide the highest purity of 
oxygen. They are
prescribed for patients requiring a large amount of oxygen
, generally more
than four liters per minute (LPM). 
Gaseous tank systems are supplied to patients who 
requie only two LPM 
rather than a continuous flow. 
Concentrators are stationary machines which operate electronically to generate 
higher concentrations of oxygen from room atmosphere. They are 
designed
for patients requiring continuous 
oxygen with a flow rate of up to four LPM
and who are house-bound or have minimal portability 
needs. 
The Omnibus Budget Reconcilation Act of 
1987 (OBRA) established reimbursement 
for oxygen based on a fee schedule. The fee schedule established monthly payment
amounts for two broad 
categories of oxygen systems -- stationary and 
portable. By
establishing only two payment rates
, OBRA bundled the varieties of 
oxygen delivery
systems, contents, and accessories into a modality neutral payment scheme. 
Reimbursement for home 
oxygen servces represents about one-half of total
Medicare expenditures for durable 
medical equipment (DME). 
In 1989, Medicare
allowed $620 millon for stationary 
oxygen equipment and contents. 
FY 92 budget includes a proposal to reduce Medicare payments for 
The RCF 
oxygen. 
Previous Offe of Inspector General (DIG) Work 
In 1987, the OIG conducted a study comparing Medicare reimbursement for home 
oxygen and oxygen equipment with amounts paid by non-
Medicare payers. We
found non-Medicare payers had developed cost-effective reimbursement methods for
home oxygen which resulted in monthly payments as low as one-
quarter the amount
paid by Medicare.
 One of the non-Medieare payers mentioned in the report was the 
VA. We
contacted 122 VA hospitals and found all 
paid: less than Medicare for each home 
oxygen system. The greatest difference was for oxygen concentrators. 
The VA hospitals have independent authority to 
 whether competitive bid

decide 
procedures, open market methods, or other alternative 
servces provided by the

individual hospital would be the most cost-effective. About 
73 percent of the 122

hospitals contacted provided home 
oxygen systems through the competitive bid 
process. There are currently 172 VA hospitals. 
We are now identifying trends in home 
oxygen use. Preliminary results indicate that 
oxygen concentrators were the most frequently used stationary 
system in 1989. We
estimate concentrators represented approximately 80 percent of the Medicare 
reimbursement for oxygen and 78 percent of oxygen servces. 
METHODOLOGY 
We selected a random sample of 35 of the VA 
hospitals that had been contacted in
the 1987 review. We obtained 
copies of the contract Award Sheet from the VA 
hospitals where contracts were competitively bid. (The contract award sheet 
lists the
amount reimbursed by the VA for each 
tye of system.) Nine hospitals were not
included in our results since they owned their own 
oxygen equipment and contracted
only for servce on their equipment. 
We also discussed oxygen procurement with VA hospital personnel. 
Discussions 
focused on how the oxygen servces were provided, contracting policies, tyes of
oxygen systems provided, and reimbursement costs for each system. 
We obtained the RCFA 
1991 DME fee schedule for 
oxygen and oxygen equipment.
The fee schedule provides the Medicare allowed amounts for 
oxygen by carrier by
each State. We compared the Medicare allowed amount to the VA paid 
amount in
the State where the hospital 
was located. Generally, Medicare s outlay is 80% of the
allowed amount. 
Our review focused on oxygen concentrators since they represent a significant
amount of Medicare services and reimbursement for 
oxygen.  +-:j   .
 .: .
. . . 
. . 
~~~~~~~~~ ~~~ ~~~~~~~~
:: 
!_. !._.
FIING 
Medare allwed flmoun were more than twe the amoun 
th VA pays for oxyen

concentators.

Based on our 1991 sample, Medicare on the average, allowed 174 percent more than
the VA reimburses for oxygen concentrators. Specifically, the 
VA average monthly
reimbursement for an oxygen concentrator is $100.73 while Medicare 
s average
monthly allowance is 
$276.36. 
As the following chart shows, the VA reported a range of 
reimbursement rates for

oxygen concentrators from a low of $40.
00 to a high of $175.00 per month.

Medicare s allowed amounts for oxygen 
concentrators range from $232.
75 to $340.10. 
VARIATION IN MONTHLY REIMBURSEMENT 
FOR OXYGEN CONCENTRATORS

(Medicare and VA)

$ 3 5 0 r'-'--'-'-'-'-'-,-,--,-,-,-,-,-,-,--,-,-,--,-,-,--,-,-'-'-'-'-'--'-'-'-'-'-'-'--'-'-'-'-'--'

A A
A A
A A 
$300  1. A  A A
A A
$250 -r 

r---- i .

VA --
$200 l 
.t  PAID AMOUNT 

L_.
$150 +  MEDICARE 
i ALLOWED AMOUNT:
t.
$ 100 + 

$50 
J._.  l._.L._  .J_.J._.l._.l._.L_.L._  J_..J_.J.-.J._.l._.  L._l_.J._.J._. 
Z Z  C) 0 z z

5zzrrzz0r  0r  
zz0 I zg x 
   w 0 Z C) x w o 
wL:s 
Ww 
Oz  W W 
:: 0. 0. 
0.  fn
Sampled Hospitals by State 
. Refers to State where VA hospital is locted. States with more than one VA hospital appear more than once.  Medicare allowances range from 59 percent to 512 percent higher 
than the VA
reimbursement. We found no instances where: the Medicare allowed 
amount was
less than the VA 
reimbursement. 
CONCLUSION 
Our report clearly demonstrates that the VA reimburses considerably less for 
oxygen
concentrators than Medicare. This 
information may be useful to HCF A 
as a point
of reference in formulating future budget proposals.