The Administration Must Stabilize the Medicare Home Oxygen Benefit

Access to oxygen therapies is critical for the nearly 16 million Americans who suffer from chronic obstructive pulmonary disease. Despite a growing need for respiratory care for older Americans, Medicare’s unfair payment rules that govern how oxygen providers bid on contracts are creating financial instability in the market, forcing companies to shut down, and threatening beneficiaries’ access to timely oxygen and sleep therapies.

Though it was originally intended to lower rates by encouraging fair competition, the Medicare competitive bidding program (CBP) instead does the opposite by using a flawed methodology that sets artificially low-level payments for home respiratory supplies and services. As a result, some products such as life-sustaining oxygen therapy are reimbursed at lower rates in non-bid areas than bid areas.

Why does this absurd situation exist? In short, it’s due to poor policy.

Because Medicare inappropriately adjusts reimbursement rates so that at least half of bidders receive rates that are below the amount they bid, providers are not reimbursed for the full cost of providing therapies. Moreover, some bidders — known as “suicide bidders” — enter the market with no intention of serving clients, bidding high on one product area and below cost for another with no intent of supplying the product for which they bid the below-cost amount.

Finally, while the Centers for Medicare and Medicaid Services’ dramatic increase in oversight is laudable, its overemphasis on auditing minor paperwork errors and missing documentation hardly benefits patients’ access to respiratory treatments, while increasing the cost of compliance. For all of these reasons, more companies are opting to shut down operations rather than continue losing money.

According to a recent white paper by the Council for Quality Respiratory Care, between 2013 and 2017, there was a 47 percent reduction in the number of suppliers in the 10 most populous states where the CBP was concentrated. In rural areas and so-called “non-competitive areas,” the ramifications are especially acute due to high fixed costs and a sparse population spread across wide geographic areas.

As providers exit CBP-area markets in droves, competition actually decreases, and patients who need oxygen are left to deal on their own with reduced access and services.

For providers that have remained in the market, the CBP has made it nearly impossible for companies to offer the quality level of service that patients deserve. Companies have done their best to insulate patients from the worst effects of the reimbursement cuts, but as providers have adjusted to lower rates, beneficiaries have been forced to contend with fewer services, reduced deliveries, limited interactions with respiratory therapists, increased wait times and reduced service areas — in both competitive and non-competitive bid areas.

There have been anecdotal reports of providers being spread so thin in their commitment to delivering oxygen to patients in need that deliveries have continued until well after 11 p.m. Obviously, this is problematic for providers and downright unsafe for patients.

Congress is beginning to notice the severity of this problem. In the spending omnibus that was recently signed into law, lawmakers upped the pressure on CMS to release the interim final rule for the Durable Medical Equipment, Prosthetics, Orthotics, and Supplies Competitive Bidding Program. As an important first step toward comprehensive reform, the legislation would ensure that the blended rate for home respiratory care is extended to prevent CMS from inappropriately applying urban competitive bidding rates to non-competitive bid areas.

In order to create a true market-based competitive bidding program that protects patient access to quality respiratory care in the home, CMS should take several actions. First, it must update the method for setting reimbursement levels by adopting a clearing-price approach to ensure that no supplier is asked to accept a contract at rates below what it bid.

Second, CMS should recognize the unique aspects of the oxygen supplies and sleep equipment markets by splitting them into two distinct categories. This will help ensure that bids more accurately reflect the market cost for providing oxygen and home respiratory therapies.

Finally, CMS should ensure that providers bid using a lead product and refrain from using bid amounts set by companies that have a lack of experience or capacity in meeting the needs of patients in a competitive bidding area. CMS has the power to make all of these fixes — so why is it stalling?

Congress has shown its resolve to ensure that the millions of Americans with COPD and related respiratory illnesses have access to the oxygen they need to live quality lives. Lawmakers understand that home-based treatment is good for both patients and the Medicare system as a whole, as it is much more cost-effective than initial hospitalization, extended hospital stays and readmissions.

It’s time for CMS to implement these comprehensive reforms to the competitive bidding program to stabilize the marketplace and protect the delivery of quality home respiratory care.


Steve Griggs is CEO of AeroCare Holdings, a member of the Council for Quality Respiratory Care, a coalition of the nation’s leading home oxygen therapy provider and manufacturing companies.

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