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The rules say that plans must pay for a medical service or item if regular Medicare would pay for it in this case. You can find this rule at 42 Code of Federal Regulations (CFR) Section 422.101.
The rules state that Home oxygen therapy is reasonable and necessary only if all of the following conditions are met: 1. The treating physician has determined that the beneficiary has a severe lung disease or hypoxia-related symptoms that might be expected to improve with oxygen therapy, and 2. The beneficiary's blood gas study meets the criteria stated below, and 3. The qualifying blood gas study was performed by a physician or by a qualified provider or supplier of laboratory services, and 4. The qualifying blood gas study was obtained under the following conditions: If the qualifying blood gas study is performed during an inpatient hospital stay, the reported test must be the one obtained closest to, but no earlier than 2 days prior to the hospital discharge date, or If the qualifying blood gas study is not performed during an inpatient hospital stay, the reported test must be performed while the beneficiary is in a chronic stable state - i.e., not during a period of acute illness or an exacerbation of their underlying disease, and 5. Alternative treatment measures have been tried or considered and deemed clinically ineffective. In this policy, the term blood gas study refers to either an oximetry test or an arterial blood gas test. Group I criteria include any of the following: 1. An arterial PO 2 at or below 55 mm Hg or an arterial oxygen saturation at or below 88 percent taken at rest (awake), or 2. An arterial PO 2 at or below 55 mm Hg, or an arterial oxygen saturation at or below 88 percent, for at least 5 minutes taken during sleep for a beneficiary who demonstrates an arterial PO 2 at or above 56 mm Hg or an arterial oxygen saturation at or above 89 percent while awake, or 3. A decrease in arterial PO 2 more than 10 mm Hg, or a decrease in arterial oxygen saturation more than 5 percent from baseline saturation, for at least 5 minutes taken during sleep associated with symptoms (e.g., impairment of cognitive processes and [nocturnal restlessness or insomnia]) or signs (e.g., cor pulmonale, "P" pulmonale on EKG, documented pulmonary hypertension and erythrocytosis) reasonably attributable to hypoxemia, or 4. An arterial PO 2 at or below 55 mm Hg or an arterial oxygen saturation at or below 88 percent, taken during exercise for a beneficiary who demonstrates an arterial PO 2 at or above 56 mm Hg or an arterial oxygen saturation at or above 89 percent during the day while at rest. In this case, oxygen is provided for during exercise if it is documented that the use of oxygen improves the hypoxemia that was demonstrated during exercise when the beneficiary was breathing room air. Initial coverage for beneficiaries meeting Group I criteria is limited to 12 months or the physician-specified length of need, whichever is shorter. (Refer to the Certification section for information on recertification.) Group II criteria include the presence of: A. An arterial PO 2 of 56-59 mm Hg or an arterial blood oxygen saturation of 89 percent at rest (awake), during sleep for at least 5 minutes, or during exercise (as described under Group I criteria), and
B. Any of the following: 1. Dependent edema suggesting congestive heart failure, or 2. Pulmonary hypertension or cor pulmonale, determined by measurement of pulmonary artery pressure, gated blood pool scan, echocardiogram, or "P" pulmonale on EKG (P wave greater than 3 mm in standard leads II, III, or AVF), or 3. Erythrocythemia with a hematocrit greater than 56 percent. Initial coverage for beneficiaries meeting Group II criteria is limited to 3 months or the physician specified length of need, whichever is shorter. (Refer to the Certification section for information on recertification.) Group III includes beneficiaries with arterial PO 2 levels at or above 60 mm Hg or arterial blood oxygen saturations at or above 90 percent. For these beneficiaries there is a rebuttable presumption of non-coverage. You can find this information in Medicare's Local Coverage Determination (LCD): Oxygen and Oxygen Equipment (L33797).
If you want to read these Medicare rules, you can go to this website www.medicareappeal.com.