\ .: \

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 

clat OEI-03-91-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. 

The RCF FY 92 budget includes a proposal to reduce Medicare payments for 

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 
 decide whether competitive bid
 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'-'--'-'-'-'-'-,-,--,-,-,-,-,-,-,--,-,-,--,-,-,--,-,-'-'-'-'-'--'-'-'-'-'-'-'--'-'-'-'-'--'


$300 1. A A A A AA A A A

$250 -r 
 A A

$200 l r---- VA --­

.t PAID AMOUNT 


$150 + i ALLOWED AMOUNT: MEDICARE i .


$ 100 + 
L_.

$50 t.

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 0 0 g x 


Ww 5rrzzzzz wL:s 

w 0 Z C) x r r 
 0 I w o 

Oz 

W W zz :: 0. 0. fn 0. 

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.