An analysis by Morrison Informatics, commissioned by the American Association for Homecare (AAHomecare), reveals that the September 2006 Department of Health and Human Services Office of Inspector General (OIG) report is based on limited and inadequate data about the actual costs of providing home oxygen therapy.

The OIG report &#151 “Medicare Home Oxygen Equipment: Cost and Servicing” &#151 considers only the costs of oxygen concentrators, which understates actual costs. Morrison also states that the narrow scope of the OIG report results in information that is neither accurate nor complete, and its findings should not be used for determining Medicare home oxygen reimbursement policy.

Other problems in the OIG report, as noted by the Morrison analysis, include:

Methodological Concerns

• The OIG report only examined selected costs associated with home oxygen therapy and therefore cannot justify a recommendation to reduce the payment period from 36 months to 13 months. The costs of oxygen equipment comprise only 28 percent of home oxygen providers’ total costs.


• The report did not study a statistically valid sample of beneficiaries to project the results over the entire Medicare population.


• The OIG’s savings estimate using a 13-month capped rental period is not accurate, since it does not reflect payments Medicare would have to make to reimburse providers for services currently covered in the monthly, bundled payment rate, and it includes savings that would not be scored by the Congressional Budget Office and CMS Office of the Actuary as cost savings to Medicare.


• The OIG report stated that most non-equipment service costs were not studied by the OIG, and CMS acknowledged the same in its comment letter to the OIG. So the OIG savings estimates do not account for costs that Medicare will incur and the estimates require adjustment, as recommended by CMS.

Invalid Comparative Data

• The OIG’s repeated use of 36 months of total reimbursement is inappropriate because this represents only 22 percent of all patients, not the average patient length of stay of 18 months, and therefore does not provide a valid comparison of Medicare reimbursement to the average cost of oxygen concentrators that was cited.


• The Veterans Affairs’ (VA) model cited by OIG is completely different than the Medicare model. Once all comparative costs incurred by the VA are accounted for, its payment levels for home oxygen therapy approach an acceptable range of Medicare’s payment levels.

Reimbursement Cuts Are Already Under Way with Savings Yet to be Realized

• The OIG report did not account for the financial savings attributable to the Medicare Modernization Act of 2003 (MMA), which mandated two reimbursement reductions for oxygen: the Federal Employees Health Benefits Plan median pricing adopted in 2005, resulting in an 8 percent savings, and competitive bidding, scheduled to begin in 2007, for which CMS projects 10 percent savings. Nor did OIG account for savings attributable to the Deficit Reduction Act of 2005, which will begin to be realized in 2009.


• Establishing a 13-month maximum reimbursement/rental period for home oxygen, when added on top of a series of statutory and administrative reimbursement cuts already undertaken or contemplated, would harm vulnerable beneficiaries.

To see the Morrison report, visit www.aahomecare.org.