Observation Deck

Cash Sales of Medicare-Covered Items

How much can a supplier's retail business charge for those items?

DME suppliers continue to sharpen their focus on retail cash sales of products — both Medicare-covered products and noncovered products. It’s hard to ignore 78 million Baby Boomers who are retiring at the rate of 10,000 per day and that are willing to buy DME. However, as the supplier moves into the retail space, it needs to decide whether its retail business will (i) operate under the same legal entity that has the PTAN, or (ii) operate out of a separate legal entity that does not have a PTAN.

Let’s examine retail businesses operating under the same legal entity that has the PTAN. Federal law bars a supplier from charging Medicare or Medicaid heavily in excess of the company’s usual charges, unless there is good cause. Specifically, 42 U.S.C. § 1320a-7(b)(6)(A) provides, in relevant part, as follows:

The Secretary may exclude the following individuals and entities from participation in any Federal health care program (as defined in section 1320a–7b (f) of this title): …

Any individual or entity that the Secretary determines—

(A) has submitted or caused to be submitted bills or requests for payment … under subchapter XVIII of this chapter or a State health care program containing charges … for items or services furnished substantially in excess of such individual’s or entity’s usual charges … for such items or services, unless the Secretary finds there is good cause for such bills or requests containing such charges or costs[.]

The key terms “substantially in excess” and “usual charges” are not defined in the statute. The current regulations issued under the statute, codified at 42 C.F.R. § 1001.701, simply repeat the language of the statute without providing any guidance about the meaning of “substantially in excess” or “usual charges.” The Office of Inspector General (OIG) has provided guidance through OIG Advisory Opinions and a guidance letter regarding the meaning of these terms on several occasions, but that guidance has been inconsistent.

The OIG’s most recent attempt to clarify the meaning of the statute came in 2003 when the agency published a proposed rule. 68 Fed. Reg. 53,939 (Sept. 15, 2003). In the proposed rule, a provider’s “usual charge” was defined as the average or the median of the provider’s charges for the same item or service during the previous year, excluding charges for services provided to uninsured patients free of charge or at a substantially reduced rate; charges under capitated contracts; charges under fee-for-service managed care contracts where the provider is at risk for more than 10 percent of its compensation; and charges to Medicare, Medicaid, and other federal health care programs, except TRICARE.

Under the 2003 proposed rule, a supplier’s charge to Medicare would be considered “substantially in excess” of its usual charges if an item’s fee schedule amount (or the submitted charge, if the submitted charge was less than the fee schedule amount) was more than 120 percent of the supplier’s usual charge. Stated another way, the supplier would be in violation of the statute if its usual charge for an item was less than 83 percent of the Medicare fee schedule amount.

The statute provides an exception for “good cause” which could allow a supplier’s usual charges to be less than 83 percent of the Medicare fee schedule if the supplier can prove unusual circumstances requiring additional time, effort, or expense or increased costs of serving Medicare beneficiaries. CMS later withdrew the proposed rule. 72 Fed. Reg. 33,430, 33,432 (June 18, 2007). As a result, while there is no definitive federal guidance on when a supplier’s charge to Medicare or Medicaid will be viewed as “substantially in excess” of its “usual charge,” a Medicare or Medicaid supplier could be at risk if it sells items for cash at prices lower than a 17 percent discount off the Medicare/Medicaid fee schedule amounts without documented “good cause.”

For example, let’s assume that a supplier rents a portable oxygen concentrator to a Medicare beneficiary, takes assignment, and bills Medicare. Can the supplier sell accessories to the beneficiary for cash? The Oxygen LCD states:


Oxygen reimbursement is a bundled payment. All options, supplies and accessories are considered included in the monthly rental payment for oxygen equipment. Oxygen rental is billed using the appropriate code for the provided oxygen equipment. Separately billed options, accessories or supply items will be denied as unbundling.

The Oxygen Policy Article states:

Months 37-60

There is no further payment for oxygen equipment during the 5-year reasonable useful lifetime (RUL) of the equipment after 36 rental payments have been made. If use of portable equipment (E0431, E0433, E0434, E1392, K0738) begins after the use of stationary equipment begins, payment for the portable equipment can continue after payment for the stationary equipment ends until 36 rental payments have been made for the portable equipment.

For information on payment for contents and maintenance, see separate sections

The supplier who provided the equipment during the 36th rental month is required to continue to provide the equipment, accessories, contents (if applicable), maintenance, and repair of the oxygen equipment during the 5 year reasonable useful lifetime of the equipment.


Accessories, including but not limited to, trans-tracheal catheters (A4608), cannulas (A4615), tubing (A4616), mouthpieces (A4617), face tent (A4619), masks (A4620, A7525), oxygen conserving devices (A9900), oxygen tent (E0455), humidifiers (E0555), nebulizer for humidification (E0580), regulators (E1353), and stand/rack (E1355) are included in the allowance for rented oxygen equipment. The supplier must provide any accessory ordered by the treating practitioner. Accessories used with beneficiary-owned oxygen equipment will be denied as non-covered.

Code E1392 describes an oxygen concentrator which is designed to be portable, is capable of delivering 85 percent or greater oxygen concentration, and is capable of operating on either AC or DC (e.g., auto accessory outlet) power. Code E1392 includes the device itself, an integrated battery or beneficiary-replaceable batteries that are capable of providing at least 2 hours of remote portability at a minimum of 2 LPM equivalency, a battery charger, an AC power adapter, a DC power adapter, and a carry bag and/or cart. The combined weight of the concentrator and the battery/batteries capable of 2 hours of portability must be 20 pounds or less. If a concentrator meets all of these criteria and is also capable of functioning as a stationary concentrator, operating 24 hours per day, 7 days per week, the stationary concentrator code (E1390) is billed in addition to code E1392.

To the extent that the accessory requested by the beneficiary is included as a component of the E1392 HCPCS description, the supplier cannot charge the patient separately for the item. If, however, it is in addition to the items required to be provided by the supplier, the supplier can charge the patient for the item, but should obtain a signed ABN disclosing that the item requested exceeds the quantity covered by Medicare

This article originally appeared in the Nov/Dec 2020 issue of HME Business.

HME Business Podcast