Legal Speak

Still in the Dark on the DRA

The Deficit Reduction Act of 2005 (DRA) revised the Medicare payment methodologies for oxygen and certain DME. Effective January 1, 2006, Medicare no longer pays for oxygen as a continuous rental. Under the new reimbursement methodology, Medicare will pay for oxygen equipment for only 36 continuous months. After 36 months, Medicare will continue to pay for medically necessary oxygen, but ownership of the oxygen equipment will transfer to the beneficiary. For capped rental DME, beneficiaries will no longer have the option to rent or purchase the item. Congress eliminated the capped rental program, requiring all beneficiaries to own their equipment after 13 months of “continuous use.”

Even though CMS (Centers for Medicare & Medicaid Services) published a proposed rule earlier this year, there is still a lack of substantive information on how to implement the oxygen and capped rental equipment provisions of the DRA. At press time, CMS had not published a final rule, but one is expected before the end of the year.

Most suppliers are aware that CMS proposed to revise the current “modality neutral” reimbursement for oxygen to reimbursement that varied depending on the kind of oxygen equipment a beneficiary received. Under the proposal, monthly rental payments for concentrators would be reduced and payment for newer technologies such as portable concentrators would increase. Monthly equipment rental payments would end after 36 months and equipment ownership would transfer to the beneficiary regardless of the type of equipment. However, Medicare would continue to pay for medically necessary oxygen contents for the duration of medical need.

Although, the payment provisions under the proposed rule received the greatest attention, it is also worthwhile to review the operational issues CMS addressed in the proposal. While specific provisions are subject to change, overall it’s likely that the substance of the final rule will be very much like what CMS has already published. Some of the more significant issues are summarized below.

CMS expects that the equipment delivered to the beneficiary on the first date of service will be the same equipment that the beneficiary owns at the conclusion of the rental period. The proposed rule contains a few exceptions to this requirement, such as when the beneficiary moves or decides to change suppliers, but those exceptions are limited. This raises practical issues for suppliers who will need to track beneficiary equipment during the rental period whenever it comes back to the facility for servicing. Under the proposed rule, the supplier would not be able to switch equipment that is broken or in need of repair with different equipment of the same type that is in good working order.

The proposed rule would establish an equipment useful life of five years. For equipment that requires significant repairs during its useful life, CMS would require the supplier to replace the equipment at no charge to the beneficiary or the Medicare program if the cumulative costs of repairs equal 60% or more of the value of the equipment. If equipment is lost, stolen, or irreparably damaged during the rental period, a new rental period does not begin when replacement equipment is delivered to the beneficiary.

For oxygen cylinders that require refilling, CMS would expect the beneficiary to receive title to at least two cylinders — one at home and one that is being refilled. Again, literally read, the regulation would require the supplier to track each beneficiary’s cylinder to ensure that he always receives the cylinder he owns. There are numerous other operational issues that the proposed rule did not address. For example, the rule is vague about how the equipment ownership provisions apply to beneficiaries who move outside the supplier’s service area either temporarily or permanently. There is also no mechanism to pay for ongoing routine maintenance. CMS’ position is that the beneficiary or his family is responsible for routine maintenance. Suppliers also have not been given direction on what documentation CMS expects to support claims for equipment repairs.

Despite these uncertainties, suppliers should be considering how they will implement the new policies, especially in light of the other payment and operational changes affecting their businesses. Expect to see the final rule before the end of the year.

This article originally appeared in the Respiratory Management Nov/Dec 2006 issue of HME Business.

About the Author

Asela M. Cuervo, Esq., specializes in legal/regulatory cases and issues concerning the HME industry, and is a member of CMS' Program Advisory and Oversite Committee regarding national competitive bidding. The Law Office of Asela M. Cuervo, located in Washington, D.C., can be reached at (202) 496-1281 or

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