A final regulation changing Medicare's payment rules for home oxygen was published on November 9, 2006. Under the rule, title to oxygen equipment is transferred to the beneficiary after Medicare pays for 36 months of continuous use. As usual, "the devil is in the details."

The provider must furnish the equipment until medical necessity ends, or the 36-month period of continuous use ends, whichever is earlier, unless (i) oxygen becomes subject to the competitive acquisition program; or (ii) the beneficiary relocates to an area outside the provider's service area; or (iii) the beneficiary elects to obtain equipment from a different company; or (iv) CMS or the carrier determines that an exception should apply in an individual case.

For rentals beginning on or after January 1, 2007, oxygen equipment may not be replaced before the expiration of the 36-month rental term unless:

• (i) the provider replaces an item with equivalent equipment because the item was lost, stolen, or irreparably damaged, is being repaired, or no longer functions;
• (ii) the beneficiary's physician orders different equipment;
• (iii) the beneficiary chooses to obtain a newer technology item or upgraded item and signs an ABN; or
• (iv) CMS or the carrier determines that a change in equipment is warranted.

At the beginning of the rental term, the provider must advise the beneficiary whether the provider intends to take assignment for all or a portion of the rental period. This is an expression of intent, and is not binding on the provider. No later than 2 months before title will be transferred, the provider must disclose to the beneficiary (i) whether it can continue to maintain and service the equipment after the transfer and (ii) whether it can continue to deliver oxygen contents to the beneficiary after the transfer.

In responding to comments to the proposed rule, CMS rejected the suggestion that it establish a delivery fee for each time a supplier delivers oxygen. According to CMS, the longstanding Medicare policy for delivery of DME and other supplier expenses is that payment for these costs is included in the single payment made for furnishing the equipment. This policy is based on section 1834(a)(5) of the act, which provides that a monthly payment amount recognized under section 1834(a)(9) be paid for oxygen and oxygen equipment, and on section 1834(a)(9), which mandates that monthly payment (or fee schedule) amounts be calculated based on payments made in 1986 under the reasonable charge payment methodology. According to CMS, the reasonable charges that were used to calculate the fee schedule payment amounts included delivery costs and all other costs for furnishing the equipment. Therefore, the cost associated with the delivery of oxygen contents is included in the fee schedule payment amounts for stationary and portable oxygen contents.

Furthermore, CMS section 1834(a)(9)(D)(i) of the act requires that monthly payment rates be established for each class of oxygen and oxygen equipment. Since total Medicare expenditures under the new classes and payment amounts will be the same as they would have been under the old classes and fee schedule amounts, CMS believes that the new payment rates incorporate the delivery costs that made up part of the old fee schedule amounts.

Jeffrey S. Baird

AFTER TITLE TRANSFERS

For beneficiaries on liquid or gaseous oxygen, title to the tanks located in the beneficiary's home (at the end of 36 months) will be transferred to the beneficiary. However, Medicare will continue to pay for oxygen contents after title to the equipment is transferred. Beneficiaries may switch tanks out for refills.

In its response to comments to the proposed rule, CMS acknowledged that it initially proposed that the title to two sets of cylinders or tanks would be transferred to the beneficiary after 36 months of continuous rental. That is, title would transfer for one set of cylinders or tanks that the beneficiary would use at home, and title would transfer for a second set that would be refilled at the supplier's location. According to CMS, the number of tanks or cylinders depends on how many tanks or cylinders a beneficiary uses and how many tank or cylinder deliveries a supplier makes during a given month.

After considering the comments to the proposed rule, CMS concluded that it is unrealistic and inappropriate to require suppliers to comply with a policy where beneficiaries own specific tanks that must be refilled by suppliers for specific beneficiaries. Therefore, in the final rule, CMS provides that even though the beneficiary owns the equipment, the supplier may switch out the tanks or cylinders with their tank and cylinder supply, similar to how propane tanks are refilled in the market today. Just as owners of propane tanks receive different tanks each time they need replacement contents, in the final rule CMS states that this propane tank model will be the practice under Medicare with delivery and refilling of oxygen contents for beneficiary-owned oxygen tanks and cylinders. Because this policy modification will enable suppliers to continue swapping tanks and cylinders for beneficiaries, as they currently do, CMS believes that suppliers should also be able to handle recall situations as they currently do.

Medicare will pay for routine maintenance and repairs every 6 months. Reimbursement is for labor, not to exceed 30 minutes. If equipment is not functioning properly, then the beneficiary must attempt to have it repaired. However, if the carrier determines that the equipment will not last for its useful life (5 years), then the provider must replace the equipment at no charge.

The carrier may consider whether the accumulated costs exceed 60% of the replacement cost. There is not a set replacement cost for oxygen equipment. The carrier determines the replacement cost on a case-by-case basis using information such as invoices. When the beneficiary no longer needs the oxygen equipment, the provider may bill Medicare for picking up and storing or disposing of tanks, but not concentrators. There is no set fee; the provider submits a bill and documentation to the carrier. A manufacturer's warranty will transfer to the beneficiary at the end of the 36 months if the warranty is still in effect and is transferable.

Medicare does not pay for backup equipment. Therefore, title to backup equipment will not be transferred. The provider is not required to furnish backup equipment, but must have a backup plan. In other words, the provider must have a way to respond if the beneficiary's equipment stops working.

WHAT ABOUT FAIRNESS?

There is some inherent unfairness to the provider in the 36-month rule. For example, once title transfers, the provider cannot ensure that the beneficiary will take care of the equipment. Yet, the provider is "on the hook" if the equipment fails before its useful life expires. As another example, if the beneficiary has not paid co-payments during the 36 months, title transfers nevertheless. The beneficiary therefore has little incentive to pay co-payments.

Ultimately, the 36-month rule presents a number of new challenges to oxygen providers. Providers must thoroughly understand the new requirements if they are to succeed in servicing oxygen patients under the 36-month rule.

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies, and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached via e-mail: .