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Medicare overpays for health supplies

The Baltimore Sun

Millions of Americans with respiratory diseases have relied on oxygen equipment delivered to their homes to help them breathe. A basic setup, deliveries of small oxygen tanks for three years, can be bought from pharmacies and other retailers for as little as $3,500, or about $100 a month.

Unless, that is, the buyer is Medicare, the government health care program for older Americans.

Despite enormous buying power, Medicare pays far more. Rather than buy oxygen equipment outright, Medicare rents it for 36 months before patients take ownership, and pays for services that critics say are often unnecessary.

The total cost to taxpayers and patients is as much as $8,280, or more than double what somebody might spend at a drugstore.

The expense for oxygen equipment, which cost Medicare more than $1.8 billion last year, is hardly an anomaly.

Medicare spends billions of dollars each year on products and services that are available at far lower prices from retail pharmacies and online stores, according to an analysis of federal data by The New York Times. A comparison of Medicare figures with retail catalogs reveals dozens of instances of the program paying above-market costs.

For example, last year Medicare spent more than $21 million on pumps to help older and disabled men attain erections, paying about $450 for the same device that is available online for as little as $108. Even for something as simple as a walking cane, which can be purchased online for about $11, the government pays $20, according to government data.

These widespread price discrepancies, including those for oxygen services, have been noted in dozens of regulatory reports.

But when officials and politicians have tried to cut these costs, they have often encountered a powerful foe: the companies that sell these devices, who ask their elderly customers to serve, in effect, as unpaid lobbyists.

As the nation's elderly population grows, dozens of industries have sought to harness the political might of older Americans to serve corporate goals. Physician groups, medical device manufacturers, insurance companies and other businesses have rallied aging voters to protest even minor legislative changes.

"These industries rely on a basic threat: If you mess with us, we can turn the seniors against you," said former Sen. Alan K. Simpson, a Wyoming Republican who tried to cut Medicare reimbursements while he was in Congress. "Angering seniors is the quickest route to political suicide."

Many of those battles focus on the $427 billion Medicare program. Because of fierce patient and corporate lobbying, for instance, Medicare still pays prices for many items that are based on rates established in the early 1980s, when many devices were much more expensive than they are now.

Even as the cost of many machines and services has fallen, Medicare has only occasionally lowered the prices it pays.

"There's no question that parts of Medicare are mispriced," said Herb B. Kuhn, deputy administrator of the Centers for Medicare and Medicaid Services, the agency overseeing Medicare. Kuhn said the program has made price refinements and is in the process of carrying out a competitive bidding system.

But, Kuhn acknowledged, officials have confronted political and logistical obstacles in adjusting a program that last year provided health care services to 43 million older and disabled Americans.

The battles over oxygen equipment highlights many of those challenges.

Earlier this decade, legislators ordered Medicare to pay less for the equipment and use the competitive bidding program.

Then the oxygen industry started fighting back. Companies organized themselves into a deep-pocketed lobbying force that has defeated attempts to cut Medicare's rates, and has attacked the competitive bidding program.

The companies that profit from Medicare say their tactics are appropriate and the payments they receive are fair.

When the government pays for oxygen equipment, "it also gets an enormous number of other services that are keeping patients out of hospitals," said Peter Kelly, president of Pacific Pulmonary Services, a large oxygen supply company. "Those avoided hospital visits end up saving Medicare billions."

Kelly's company provides its customers, most of whom are Medicare patients, with access to 24-hour emergency technicians, weekly check-in phone calls and other services that might not be available to people who buy equipment on their own.

Oxygen suppliers that bill Medicare also incur significant administrative costs, Kelly said. But lawmakers have argued that companies are offering extra services to justify high fees.

"I would guess we're grossly overpaying for about 80 percent of the people who receive these services," said Rep. Pete Stark, a California Democrat and a senior member of the powerful Ways and Means Committee who recently pushed to cut Medicare's oxygen spending.

A study released last year by the office of the U.S. inspector-general found that oxygen companies checked equipment for malfunctions much more frequently than manufacturers recommend and performed routine maintenance that patients could do on their own. Executives at oxygen companies challenge those findings.

Nonetheless, firms such as Kelly's have flourished. More than 114,000 home medical equipment suppliers billed Medicare last year, according to HME News, an industry newsletter. Over 1,500 of them collected more than $1 million.

The government's overall bill for Medicare soared last year to an average of $8,568 per beneficiary, up from $5,522 in 1999, an increase that outpaces inflation by 34 percent.

In 1997 and 2003, Congress lowered oxygen reimbursements by a total of about 39 percent.

"I'm scared to death that they are going to cut us off," said Beverly Karagin of Morning Sun, Iowa, whose husband has used oxygen equipment for about 11 years. Karagin wrote her senators and congressman after her oxygen delivery company told her about proposed payment cuts, she said.

"If something goes wrong with the machine and Medicare won't pay to repair it, my husband could die," Karagin said in an interview. "I told them that this is a matter of life and death."

Lawmakers say such fears are unfounded. After patients take ownership of the equipment, Medicare pays for repairing machines and backup systems.

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