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Letter to the editor

Medicare often pays top dollar

It spends billions on products and services that others pay less for, an analysis shows.

By Times Wires
Published December 1, 2007

Millions of Americans with respiratory diseases have relied on oxygen equipment delivered to their homes. 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.

One of the nation's largest home oxygen providers is Lincare Holdings Inc. of Clearwater. The company has 1,000 locations in 47 states, with more than 9,000 employees. Last year, Lincare reported earnings of $213-million on revenues of $1.4-billion, 56 percent of which came from Medicare.

Congressional efforts to trim Medicare reimbursements for oxygen and medical devices in recent years have cost the company millions of dollars, the company has said. But Lincare has succeeded by acquiring smaller competitors unable to endure cutbacks. Last year Lincare acquired 10 competing home oxygen providers.

But the high expense of oxygen equipment - which cost Medicare over $1.8-billion last year - is not the only case.

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. The government agency has paid above-market costs for dozens of items, a comparison of Medicare figures with retail catalogs finds.

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, calling and writing to their representatives in Congress, protesting at rallies, and even participating in political attacks against individual lawmakers.

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, R-Wyo., 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 actual 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 to help bring down the cost of products like oxygen equipment.

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.

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 Pacific Pulmonary Services, a large oxygen supply company. "Those avoided hospital visits end up saving Medicare billions."

Oxygen suppliers that bill Medicare also incur significant administrative costs, Kelly said. "At some point, shrinking Medicare reimbursements will inevitably impact our ability to offer this high level of patient care," 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, D-Calif., a senior member of the Ways and Means Committee who recently pushed to cut Medicare's oxygen spending.

Information from Times Staff Writer Kris Hundley and the New York Times was used in this report.

[Last modified November 30, 2007, 23:18:08]