Life After the O2 Cap

The sentiment expressed by Jimmy Buffett in “Breathe In, Breathe Out, Move On,” a song done as a tribute to Katrina victims, seems appropriate as a way to express the effects that the Deficit Reduction Act of 2005 has had on HME companies that are in the oxygen business.

It would appear, at first, that the 36-month cap on oxygen, along with the impending competitive bid, could be the last nail in the coffin of HME providers. All I have heard lately is doom and gloom in this industry.

Well, you know me. If I can find a silver lining in the storm cloud, then I will. So in the case of the 36-month oxygen cap, let's consider what the real effects will be.

The DRA's 36-month cap on home oxygen was retroactive to Jan. 1, 2006. That means, in effect, that all of the concentrators you had out on beneficiaries as of that date will remain in rental for 36 months. Additionally, however, that means every one of those concentrators will cap out on Jan. 1, 2009. And at that time, under the DRA, ownership of the equipment must transfer to the beneficiary.

This transfer of ownership also extends to the portable tanks the beneficiary is using. So it would appear that your oxygen equipment will be transferring ownership to some of your patients beginning Jan. 1, 2009 (or sometime after that for oxygen equipment put out after Jan. 1, 2006).

But according to a report from the HHS Office of Inspector General, only 22 percent of Medicare beneficiaries keep their oxygen equipment for more than 36 months. That means, on average, that 78 percent of Medicare beneficiaries will keep their oxygen equipment for less than 36 months.

This is a critical point, because if beneficiaries do not have the equipment at the 36-month cap, you do not transfer ownership. So, on average, you will only transfer ownership 22 percent of the time. That would equate to only a 22 percent drop in revenue vs. the total loss of income that some predict is coming along with the 36-month cap.

Another critical point is that Medicare will continue to pay for portable contents after the 36-month cap. What is important is that Medicare's overhaul of its oxygen reimbursement policy raised the rate for portable gas contents after the 36-month cap from $31.79 to $77.45. This increase in the amount paid only comes after the oxygen equipment has capped out.