WASHINGTON--More than $1.5 billion will be slashed off the Medicare home care oxygen benefit by 2010, thanks to the combined effects of legislative and regulatory cuts initiated over the past several years, according to a new study released last week.

Totaling $710 million in 2009 and $855 million in 2010, the funding reductions amount to an 18.8 percent reduction in the reimbursement rate, according to "Home Oxygen Therapy/An Analysis of Recent Medicare Payment Policy," a data analysis conducted by Avalere Health LLC. In addition, some 1.4 million Medicare beneficiaries will be affected by the cuts, which average $325 per patient, the report says.

The report was commissioned by the Council for Quality Respiratory Care, a coalition of 11 home oxygen therapy providers and manufacturers including Air Products, AirSep, American HomePatient, Apria, Invacare, Lincare, Pacific Pulmonary, Praxair, Respironics, Rotech and Sunrise Medical.

The study looked at the effects of changes to home oxygen reimbursement from 1997 to 2010 brought about by the Balanced Budget Act of 1997, the Medicare Modernization Act of 2003 and the Deficit Reduction Act of 2005, including competitive bidding and the 36-month oxygen cap. Its results provided sobering data for HME stakeholders.

"When you consider these cuts in a historical context, the severity is particularly significant," said John Richardson of Avalere Health, one of the analysis' authors. "Not adjusted for inflation, the average Medicare home oxygen payment by 2010 will be almost half what it was in 1997."

"While we knew these funding cuts were on the horizon, until now we had no idea of their true severity since the Congressional Budget Office, which determines costs of legislation, has never had the correct data to determine their impact on the home oxygen benefit," said Peter Kelly, chairman of CQRC.

"It's unfathomable to think that, even with these debilitating cuts looming, there could be additional reductions with which to contend as well, cuts that will further jeopardize vital patient services and caregiving staff," he added. CQRC said as many as 15 million Americans have been diagnosed with COPD.

Lisa Getson, executive vice president, government relations, investor services and compliance, for Lake Forest, Calif.-based Apria Healthcare, said those involved in the home oxygen sector expected the cuts from the DRA mandate would be deep, but now they have hard data that show just how deep.

"It is important to have a well-respected health care policy and analytics firm such as Avalere confirm what we had suspected all along--that the total cuts associated with the DRA for oxygen alone would far exceed any estimates initially provided by the [CBO]," Getson said.

"By the time both the DRA and competitive bidding's savings are incorporated into the system, Medicare's daily expenditures for oxygen will continue to decrease from Avalere's estimated $7.62 today to the $4.50 to $5 range," she added.

The study also examines how many patients on a state-by-state basis will be affected by the 36-month oxygen rental cap, which kicks in on Jan. 1, 2009.

According to the study, Medicare's home oxygen benefit will decrease almost 19 percent from 2008 to 2009 as a result of the 36-month capped rental policy alone. Florida will be hit hardest--some 19,700 Medicare beneficiaries will be affected by the cap. Texas follows with nearly 17,400 patients, and California is third on the list with 13,900 beneficiaries.

"We estimate that the 36-month-capped rental period policy will permanently reduce Medicare expenditures for home oxygen by approximately $400 million to $500 million per year, beginning in 2009," the report states.

The Avalere report provides key information that must be somehow transmitted to policymakers, said Walt Gorski, vice president of government affairs for the American Association for Homecare.

"The Avalere study is a critical document to help show the impact that changes to oxygen reimbursement have had not only on the provider community but on those who require oxygen therapy," he said. "What the study shows is that even if no congressional action is taken, there will be significant cuts to oxygen payments over the next several years. No other benefit category can make that statement. This is important information to get before policymakers."

Getson agreed, noting that the study arms the industry with "quantifiable data, rather than relying on emotional arguments.

"It should assist policymakers and their staff ... to become better educated about the value of the home oxygen benefit to the Medicare program overall," she said. Learning about the major policy and reimbursement changes may also help them understand "why patients who represent the fourth leading cause of death in the U.S. (COPD) will be the ones most impacted by any additional changes or reimbursement cuts," Getson added.

CQRC's Kelly called for Congress and the Bush administration "to protect the benefit from any further erosion."

To view the full analysis, click here.