Budget-Cut Report Targets Oxygen, Imaging Companies

(Corrects to remove Invacare Corp., which does not service oxygen equipment, in the first paragraph.)

Oxygen therapy companies led by Lincare Holdings Inc. are among government health-care vendors that are overpaid and should have reimbursements cut, according to a federal budget report.

Medical-imaging services provided by companies such as Los Angeles-based RadNet Inc. also are being overprescribed by doctors paid by Medicare, the U.S. health program for the elderly and disabled, according to the report released yesterday by the Government Accountability Office.

“Significant potential for savings exists by profiling physician practice patterns to encourage more efficient provision of health-care services,” the GAO, the investigative agency for Congress said in the report.

Medical services may be targeted for reductions as Republicans in Congress seek ways to cut $100 billion from the federal budget. Medicare spending, about $500 billion annually, is the largest single component of federal outlays. The GAO report offered 345 pages of recommended cuts, most in areas where the agency found overlapping or wasteful spending.

Imaging and oxygen payments in Medicare are regular targets for health spending reductions, and have been highlighted in past reports by the GAO as well as the Medicare Payment Advisory Commission, or MedPAC, which advises Congress on payment policy. The health-care overhaul cut imaging payments by $2.3 billion across a decade, according to the Congressional Budget Office.

Rival Companies

Madison, New Jersey-based Quest Diagnostics Inc. and Burlington, North Carolina-based Laboratory Corporation of America Holdings are among other imaging companies. Lincare is based in Clearwater, Florida.

Lincare’s shares gained 8 cents, or less than 1 percent, to $29.08 at 4 p.m. New York time in Nasdaq Stock Market composite trading. Radnet was unchanged at $3.23.

Medicare pays oxygen companies 44 percent more than what it costs them to provide services, the GAO found. Even as imaging spending overall has declined, more doctors are using in-office scanners, non-radiologists are utilizing added tests, and the rates of scans vary by as much as eightfold across the U.S., facts the agency says “raise concerns that imaging services may be over utilized.”

Further Scrutiny

“The government grinds slowly, but it grinds fine,” said Alec Vachon, president of health-care consulting firm Hamilton PPB in Washington. “There’s a focus on physician self-referral, and I think that’s an area Congress and MedPAC are going to continue to scrutinize,” he said in a phone interview about imaging payment cuts.

Medicare’s spending on imaging decreased $12.1 billion in 2007, largely because of cuts to reimbursement rates, according to the GAO report. The number of tests doctors are performing is going up, though. Some parts of the country account for eight times as many tests as other regions, the report found.

Oxygen companies also have had payments cut. Medicare reduced payments for oxygen services $800 million in 2009, according to a report by the Washington health consulting firm Avalere Health.

Kathleen King, the GAO’s director of health care, testified before Congress today and urged more effort to cut waste from the program.

“Although these rates have been reduced or limited several times, further savings are possible,” King said in written testimony.

Bidding Program

The vendors face more pressure as a government program to require bidding for medical services expands this year, according to the report. Because the program doesn’t fully roll out nationwide until 2015, the GAO said in the report it “would be appropriate for Congress to consider reducing Medicare home oxygen rates” in the meantime.

Michael Reinemer, a spokesman for the oxygen industry’s Washington trade group, the American Association for Homecare, called the GAO study “flawed” and narrow. “The GAO’s narrow scope of study, its comparisons between Medicare rates for home oxygen and the entirely different VA payment model, and its reliance on the unsustainable low-ball rates from a badly designed bidding program raise serious questions about the reliability of the GAO analysis and conclusions,” Reinemer said in an e-mail.

To contact the reporter on this story: Drew Armstrong in Washington at darmstrong17@bloomberg.net;

To contact the editor responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net.

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