FAQ on O2

On Nov. 9, CMS issued its final rule implementing new payment rules in the Deficit Reduction Act, which capped oxygen reimbursement at 36 months and DME reimbursement at 13 months. While the payment caps were effective for rental periods that began on or after Jan. 1, 2006, there are additional and new requirements that took effect on Jan. 1 of this year. These rules impose new responsibilities on HME providers.

FIVE-YEAR RESPONSIBILITY

Q What does the “five-year” requirement mean in general for suppliers?

A. Suppliers are now responsible for ensuring that the equipment they provide to beneficiaries will be in good working order for five years from the date of initial issue. Under Medicare’s definition, five years represents the “useful life” of equipment. If equipment fails during this time, suppliers could be responsible for replacing it at their own expense.

Q What items does this requirement apply to?

A. This requirement applies to capped rental equipment such as hospital beds, manual wheelchairs, CPAPs, nebulizers and oxygen equipment.

Q Will Medicare pay when an item is lost or irreparably damaged?

A. Medicare will continue its policy of paying for replacement items when the item is lost or irreparably damaged; suppliers will be compensated for providing a new rental item if the item is needed as a result of circumstances beyond the supplier’s control.

Q Technically, when did the new rule go into effect?

A. Even though the 13-month DME cap and the 36-month cap for home oxygen reimbursement began Jan. 1, 2006, the new five-year requirement applies to all rental periods beginning Jan. 1, 2007. Therefore, items that began a rental period in 2006 are not affected by this requirement.

Q Who decides that an item did not last five years?

A. The carrier decides. If the carrier determines that an item will not last for five years, the supplier will be responsible for furnishing replacement equipment at no cost to the beneficiary or to the Medicare program.

The final rule gives the carriers discretion to determine whether replacement equipment is warranted and whether the supplier will be financially responsible for furnishing the replacement equipment. In making the determination, carriers may consider whether repair costs will exceed 60 percent of the replacement cost.

Q How will the carriers determine the replacement cost of an item?

A. Replacement cost of a capped rental item is equal to 10 times the first month’s rental fee schedule amount; replacement cost of oxygen equipment will be established by the carrier on a case-by-case basis. Therefore, if the carrier determines that repair costs will exceed 60 percent of the replacement cost, the carrier will likely require the supplier to replace the item, at no cost to the Medicare program or to the beneficiary.

Q What about Medicare payment for replacement parts and labor for repairs?

A. Medicare will pay for “reasonable and necessary” replacement parts and labor for repairs that require a technician, as long as the item is not under warranty. Current Medicare payment rates are approximately $12 for every 15 minutes of labor; payment rates for parts are not generally known.

Since Medicare has historically not paid for parts and labor for capped rental and oxygen equipment, it is difficult to predict with any certainty what Medicare will pay under the new payment system.

Q Why is Medicare imposing this requirement on suppliers?

A. In the section of the final rule in which CMS responds to comments, the agency states: “We expect that equipment furnished by the supplier will function for the entire period established under Medicare regulations and program instructions as the equipment’s reasonable useful lifetime.

If this is not the case, then the supplier has not furnished a quality item of durable medical equipment for which they have been paid.”

PROHIBITION ON REPLACING EQUIPMENT DURING THE RENTAL PERIOD

Q What is this new rule?

A. The rule says that in general the supplier may not replace the equipment (oxygen or other capped rental items) prior to the expiration of the 36/13-month rental period unless one of four exceptions applies.

Q What are the exceptions?

A. The exceptions are: 1) the item was lost, stolen, or irreparably damaged; 2) the physician orders different equipment (and if the order is based on medical need, the order must indicate why original equipment is no longer medically necessary); 3) the beneficiary chooses to obtain new technology or an upgraded item; or 4) carrier discretion.

PROVIDING AN ITEM FOR THE ENTIRE PERIOD OF MEDICAL NEED

Q What is this new rule?

A. Suppliers must furnish the item throughout rental period, except if one of the following occurs: the item becomes subject to competitive bidding; the beneficiary relocates outside the service area; the beneficiary elects to obtain the item from a different supplier; or carrier discretion. This rule is effective for rentals that began on or after Jan. 1, 2007.

INFORMING BENEFICIARIES

Q What if I decide not to provide maintenance and service or repair services to the beneficiary after the beneficiary assumes ownership of the item, whether it’s at 13 months for capped rental items or 36 months for oxygen equipment?

A. You have the right to make a business decision about whether you will continue to service the items after ownership transfers. Whichever decision you make, you are now required to inform the beneficiary of that decision no later than two months prior to title transfer.

You should notify the beneficiary in writing (and document that you have done this) about whether you will maintain and service the equipment after title transfers, and in the case of oxygen tanks, about whether you will continue to deliver oxygen contents to the beneficiary after title transfers. This requirement is effective for rentals beginning on or after Jan. 1, 2007.

Q What about assignment?

A. The rule requires suppliers to disclose to the beneficiary their assignment intent for the entire rental period. This applies both to oxygen and capped rental items. CMS states in the rule that it will post on a Web site the percentage of beneficiaries for which each supplier accepts assignment, and the percentage of cases for which the supplier accepts assignment during the entire rental period.

Recap of CMS’ Final Rule Implementing DRA Provisions on Oxygen

• Establishes different payment levels for different “classes” of equipment
• Higher payment level for new technology
• CMS is using its authority from the Balanced Budget Act of 1997
• Mandate of budget neutrality
  • Payment rates in later years will change based upon utilization

Oxygen & Capped Rental

• Effective for rentals beginning on or after January 2007
• Equipment may not be replaced by supplier prior to expiration of 36 months, unless:
  • It was lost, stolen or irreparably dam aged
  • Physician orders different equipment
    • If order is based on medical need, order must indicate why original equipment is no longer medically necessary

  • Beneficiary chooses to obtain new technology or an upgraded item
  • Carrier discretion
• After 36 months, maintenance and service paid for when performed by authorized technician
• At 42nd month, payments every six months for routine maintenance and service (30 minutes labor plus parts)
• Continue loaner equipment policy
• Medicare will pay for parts and labor not under warranty

Supplier Responsibility

• Carrier discretion whether supplier is responsible for replacement items in use less than five years
  • If total repair costs >60% of replacement cost — even after title transfers
  • Supplier responsible for five years

• Separate payment for replacement of supplies and accessories after owner- ship transfers
• One-time payment for pick-up, storage and disposal of oxygen tanks

Beneficiary Safeguards

• Effective for rentals beginning on or after January 2007
• Supplier must furnish that item throughout rental period, except:
  • If item becomes subject to competitive bidding
  • Beneficiary relocates outside service area
  • Beneficiary elects to obtain from different supplier
  • Carrier discretion

• Supplier must disclose to beneficiary assignment intent for entire rental period
  • CMS will post on Web site percentage of beneficiaries for which supplier accepts assignment, and percentage of cases for which the supplier accepts assignment during entire rental period

• No later than two months prior to title transfer, supplier must disclose to beneficiary:
  • Whether it can maintain and service the equipment after title transfers
  • Whether it can continue to deliver oxygen contents to the beneficiary after title transfers
  • Effective for rentals beginning on or after January 2007

A specialist in health care legislation, regulations and government relations, Cara C. Bachenheimer is vice president, government relations, for Invacare Corp., Elyria, Ohio. Bachenheimer previously worked at the law firm of Epstein, Becker & Green in Washington, D.C., and at the American Association for Homecare and the Health Industry Distributors Association. You can reach her by phone at 440/329-6226 or by e-mail at [email protected].