Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

M H O
EDICARE  OME  XYGEN 

E :

QUIPMENT
C S
OST AND  ERVICING 

Daniel R. Levinson

Inspector General 

September 2006

OEI-09-04-00420 
 Office of Inspector General 

http://oig.hhs.gov 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, 
as amended, is to protect the integrity of the Department of Health and Human Services 
(HHS) programs, as well as the health and welfare of beneficiaries served by those 
programs.  This statutory mission is carried out through a nationwide network of audits, 
investigations, and inspections conducted by the following operating components: 
Office of Audit Services 
The Office of Audit Services (OAS) provides all auditing services for HHS, either by 
conducting audits with its own audit resources or by overseeing audit work done by others. 
Audits examine the performance of HHS programs and/or its grantees and contractors 
in carrying out their respective responsibilities and are intended to provide independent 
assessments of HHS programs and operations.  These assessments help reduce waste, 
abuse, and mismanagement and promote economy and efficiency throughout HHS. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 
HHS, Congress, and the public with timely, useful, and reliable information on 
significant issues.  Specifically, these evaluations focus on preventing fraud, waste, or 
abuse and promoting economy, efficiency, and effectiveness in departmental programs.  
To promote impact, the reports also present practical recommendations for improving 
program operations. 
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative 
investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries 
and of unjust enrichment by providers.  The investigative efforts of OI lead to criminal 
convictions, administrative sanctions, or civil monetary penalties. 
Office of Counsel to the Inspector General 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to 
OIG, rendering advice and opinions on HHS programs and operations and providing all 
legal support in OIG's internal operations. OCIG imposes program exclusions and civil 
monetary penalties on health care providers and litigates those actions within HHS. 
OCIG also represents OIG in the global settlement of cases arising under the Civil False 
Claims Act, develops and monitors corporate integrity agreements, develops compliance 
program guidances, renders advisory opinions on OIG sanctions to the health care 
community, and issues fraud alerts and other industry guidance.    E X E C U T I V E   S U M M A R Y  

OBJECTIVE 
To (1) compare Medicare spending for oxygen concentrators with 
suppliers average purchase price and (2) determine the nature and 
frequency of servicing for concentrators and portable equipment. 
BACKGROUND 
Section 1834(a)(5) of the Social Security Act authorizes Medicare 
payment for home oxygen equipment under its durable medical 
equipment (DME) benefit.  DME is defined as equipment that can 
withstand repeated use, is used primarily to serve a medical purpose, 
and is appropriate for use in a beneficiarys home.  Medicare covers both 
stationary and portable oxygen delivery systems, which were payable on 
a rental-only basis from 1989 (the year in which Medicare implemented 
the DME fee schedule) until 2006. 
The monthly allowance for stationary oxygen equipment covers the 
oxygen equipment; oxygen contents including all refills for stationary 
and portable systems; equipment delivery, setup, and maintenance; 
accessories and supplies; patient education;, and other services 
associated with furnishing home oxygen.  Medicare pays an additional 
amount for portable equipment that a beneficiary rents to provide 
mobility in the home.  Typically, beneficiaries rent both stationary and 
portable units. 
Although Medicare has reduced the payment rates for home oxygen 
equipment three times since 1989, this equipment still consumes a large 
share of Medicare spending for DME.  The Balanced Budget Act of 1997 
reduced the rates by 25 percent effective January 1, 1998, and an 
additional 5 percent effective January 1, 1999.  In 2005, Medicare 
further reduced payment rates by an average of 8.6 percent for 
stationary oxygen equipment and 8.1 percent for portable oxygen 
equipment. In 2004, home oxygen equipment accounted for 24 percent 
($2.7 billion of $11.1 billion) of all Medicare spending for DME, 
prosthetics, orthotics, and supplies. 
The Deficit Reduction Act (Public Law 109-171), signed into law on 
February 8, 2006, ended the longstanding rental-only payment policy 
for home oxygen equipment.  The law limits rental payments to 36 
months of continuous use.  After this threshold is reached, suppliers 
must transfer title of the equipment to the beneficiary; however, under 
a proposed rule that the Centers for Medicare & Medicaid Services 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  i  E X E C U T I V E   S U M M A R Y  
(CMS) published in August 2006, suppliers would receive payments for 
certain maintenance and servicing. The Presidents fiscal year 2007 
budget proposes further reform and would limit the rental period to 13 
months. 
We used a mail survey to collect information from suppliers that 
furnished oxygen equipment to 150 Medicare beneficiaries who rented 
oxygen equipment in 2004.  Using a standardized data collection 
instrument, we asked suppliers to report all services they provided to 
the beneficiaries for the entire rental period and to submit 
documentation supporting each service.  We also requested that 
suppliers report the price they paid for oxygen concentrators, which are 
stationary equipment, and submit a copy of the invoice.  We visited 
suppliers in California and Florida to obtain detailed information about 
their operations, servicing and maintenance practices, and relationships 
with patients. We also accompanied suppliers on visits to patients 
homes to observe delivery and setup practices as well as ongoing 
maintenance for oxygen equipment. 
FINDINGS 
Based on the 2006 median fee schedule amount, Medicare will allow 
$7,215 for 36 months for concentrators that cost $587, on average, 
to purchase. At todays median monthly rental rates, Medicare will 
allow $7,215 for beneficiaries who started renting in January 2006 and 
continue renting for 36 months.  Beneficiaries will incur $1,443 in 
coinsurance over this period.  If Medicare rental payments for oxygen 
concentrators were limited to 13 months, the program and its 
beneficiaries would save approximately $3.2 billion over 5 years.   
Based on our analysis, minimal servicing and maintenance for 
concentrators and portable equipment are necessary. Beneficiaries 
typically receive a concentrator, which is stationary equipment, and a 
portable cylinder system. Suppliers train beneficiaries to perform 
limited routine maintenance.  Based on our survey, suppliers check 
concentrators every 4 months on average, a frequency that exceeds 
manufacturers guidelines.  Maintenance for a portable system 
primarily consists of picking up empty cylinders and delivering full 
ones. 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  ii  E X E C U T I V E   S U M M A R Y

RECOMMENDATIONS 
Recent legislation limits the rental period for home oxygen equipment 
and directs the Secretary to pay for maintenance and servicing after the 
rental period ends if the Secretary determines such payments are 
reasonable and necessary.  Concentrators require and receive limited 
servicing in beneficiaries homes.  Medicare will continue to pay for 
portable contents.  Therefore, we recommend that CMS: 
Work with Congress to further reduce the rental period for oxygen 
equipment. The Deficit Reduction Act ended the longstanding rental-only 
payment policy for oxygen equipment, but further reform is warranted.  
Medicare and its beneficiaries will continue to pay more than 12 times the 
purchase price for concentrators under the new 36-month rental 
limitation. 
Determine the necessity and frequency of nonroutine maintenance 
and servicing for concentrators.  Suppliers most commonly perform 
routine servicing that Medicare does not cover for DME that beneficiaries 
own.  CMS needs to determine the necessity and frequency of nonroutine 
servicing, which is covered by Medicare, and appropriate reimbursement. 
Determine if a new payment methodology is appropriate for portable 
oxygen systems. Unlike concentrators, portable oxygen systems require 
refills and suppliers pick up empty cylinders and deliver full ones. 
Ongoing monthly payments for cylinder contents only may not adequately 
reimburse suppliers for providing refills. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS concurred with our recommendations.  The agency noted that the 
Presidents budget for fiscal year 2007 proposed reducing the rental 
period for oxygen equipment to 13 months.  Furthermore, CMS stated 
that its proposed rule, published on August 3, 2006, addresses the 
payment methods for nonroutine maintenance and servicing, as well as 
for portable oxygen systems.   
CMS expressed concern that our savings estimate for a 13-month rental 
limit is too high, because it includes beneficiaries savings and does not 
reflect payments for maintenance and servicing, potential shifts in 
utilization, or factors that the Congressional Budget Office (CBO) and 
CMSs Office of the Actuary would consider.  We acknowledge that, 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  iii  E X E C U T I V E   S U M M A R Y  
based on these factors, our calculation would likely result in a higher 
estimate than CBO or CMS estimates. 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  iv    T A B L E   O F   C O N T E N T S  

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

I N T RO DUC T IO N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

F I N D IN G S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8

Medicare Spending for Oxygen Concentrators . . . . . . . . . . . . . . . .  8

Minimal Servicing for Equipment  . . . . . . . . . . . . . . . . . . . . . . . . .  11

R E C O MMEN D A T ION S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14

Agency Comments andOIG Response. . . . . . . . . . . . . . . . . . . . . .  15

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16

A:  Confidence Intervalsfor SelectedStatistics. . . . . . . . . . . . . . .  16

B:  Methodology for Savings Calculation. . . . . . . . . . . . . . . . . . . .  17

C:  AgencyComments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19

A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23
   I N T R O D U C T I O N  

OBJECTIVE 
To (1) compare Medicare spending for oxygen concentrators with 
suppliers average purchase price and (2) determine the nature and 
frequency of servicing for concentrators and portable equipment. 
BACKGROUND 
Section 1834(a)(5) of the Social Security Act (the Act) authorizes 
Medicare payment for home oxygen equipment under its durable 
medical equipment (DME) benefit.  DME is defined as equipment that 
can withstand repeated use, is used primarily to serve a medical 
purpose, and is appropriate for use in a patients home 
(42 CFR  414.202).  Medicare Part B covers both stationary and 
portable oxygen delivery systems. 
Stationary systems include concentrators, which concentrate the oxygen 
in room air, and stationary gas and liquid systems.  Portable systems 
include portable concentrators, as well as gas and liquid oxygen 
systems. A portable gas system consists of a cylinder, which stores 
pressurized oxygen, and a regulator, which controls the flow of oxygen 
from the cylinder.  A portable liquid oxygen unit is a small unit filled 
with oxygen cooled to a very low temperature.1 
Until January 1, 2006, Medicare paid a monthly rental fee for home 
oxygen equipment as long as it was medically necessary.  Section 
5101(b)(1) of the Deficit Reduction Act (DRA) eliminated indefinite 
rental for this equipment and limited it to 36 months, effective  
January 1, 2006. 
Rental payments for oxygen equipment are based on monthly fee 
schedule allowances that vary by State.  The basis for these allowances 
is the average payment that Medicare made in each State in 1986.  The 
fee schedule amounts generally are adjusted annually based on the 
change in the Consumer Price Index (42 CFR  414.226).  The fee 
schedule amounts are limited by a ceiling (upper limit) and floor (lower 
limit) equal to 100 percent and 85 percent, respectively, of the median of 
the statewide fee schedule amounts.  Medicare pays 80 percent of the 
1 Centers for Medicare & Medicaid Services, Coverage Issues Manual, DME:  Home Use 
of Oxygen, 60-4. 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  1  I N T R O D U C T I O N  
fee schedule amount and beneficiaries are responsible for 20-percent 
coinsurance as long as they rent oxygen equipment. 
The monthly allowance for stationary oxygen equipment covers the 
oxygen equipment; oxygen contents including all refills for stationary 
and portable systems; equipment delivery, setup, and maintenance; 
accessories and supplies; patient education; and other services 
associated with furnishing home oxygen.  Medicare pays an add-on, or 
additional amount, for portable equipment that a beneficiary rents to 
provide mobility in the home.  Typically, beneficiaries rent both 
stationary and portable units.  Suppliers of oxygen equipment submit 
claims to the DME Regional Carriers for processing and payment. 
Since implementation of the fee schedule, Medicare has reduced the 
payment rates for home oxygen equipment three times.  The Balanced 
Budget Act of 1997 reduced the rates by 25 percent effective January 1, 
1998, and an additional 5 percent effective January 1, 1999.  Section 
302(c)(2) of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) required the Centers for Medicare & 
Medicaid Services (CMS) to reduce payments for oxygen and oxygen 
equipment based on the percentage difference between the 
2002 Medicare fee schedule amount for each State and the median 
prices paid by Federal Employees Health Benefits (FEHB) plans.  In 
2005, Medicare reduced payment rates by an average of 8.6 percent for 
stationary oxygen equipment and 8.1 percent for portable oxygen 
equipment based on the Office of Inspector General (OIG) report 
Medicare and FEHB Payment Rates for Home Oxygen Equipment 
(OEI-09-03-00160, Revised), which compared Medicare payments to the 
rates paid by FEHB plans. 
Medicare Spends $2.3 Billion To Rent Oxygen Concentrators for 
Approximately 1.3 Million Beneficiaries 
Nearly all Medicare beneficiaries who rent home oxygen equipment rent 
concentrators. Approximately 1.3 million beneficiaries rented them in 
2004. Based on Medicare paid claims data, Medicare spends 
significantly more money on concentrators than on any other type of 
home oxygen equipment. In 2004, concentrator rentals accounted for 
84 percent, or $2.3 billion, of all Medicare spending for home oxygen 
equipment and supplies. 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  2  I N T R O D U C T I O N

A typical concentrator weighs 
Figure 1 
approximately 50 pounds and is 
Oxygen Concentrator 
The concentrator is a  approximately 2 feet high.  (See 
stationary device that  Figure 1.)  In addition to the 
concentrates the oxygen 
concentrator, Medicare pays for a 
in room air. 
portable cylinder system, which 
provides backup in the event of a 
power outage as well as mobility in 
the home.  The cylinder is filled with 
gaseous oxygen.  When suppliers 
deliver the stationary and portable 
Source:  Patient Instructions from Oxygen  systems, they also furnish accessories, 
  Supplier, 2005.  
including oxygen tubing and a nasal 
cannula. The tubing is attached to the outlet on the concentrator or 
cylinder and the oxygen is delivered through the nasal cannula, which 
the patient wears.  The tubing, available in different lengths, allows the 
patient to move around the home.  Portable oxygen cylinders are 
available in different sizes.  Patients transport the cylinders in a cart or 
carrying case, such as a shoulder bag. 
Payment Categories for DME 
Under Medicare Part B, all DME is classified into one of several 
payment categories.  Each payment category has distinct payment 
methodologies that govern how Medicare pays for the equipment (see 
section 1834(a) of the Act and 42 CFR  414.210.) 
Oxygen and oxygen equipment.  Medicare pays for oxygen contents (liquid 
and gas) and oxygen equipment on a monthly basis.  Until Congress 
modified the longstanding payment method in 2006, Medicare allowed 
indefinite rental for stationary and portable equipment.  (See discussion 
of this new method on the following page.)  Effective January 1, 2006, 
payments for stationary and portable equipment will cease after  
36 months of continuous rental.  Medicare has and will continue to pay 
separately for portable oxygen contents based on a beneficiarys 
continuing need. 
Inexpensive or other routinely purchased items.  Inexpensive DME is 
defined as equipment for which the purchase price does not exceed 
$150. Routinely purchased DME is defined as equipment acquired by 
purchase at least 75 percent of the time.  Medicare will purchase or rent 
equipment in this category; however, total payments may not exceed 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  3  I N T R O D U C T I O N  
the fee schedule purchase amount. Examples of items in this category 
include canes, walkers, and crutches. 
Items requiring frequent and substantial servicing. This category includes 
items requiring frequent and substantial servicing in order to avoid risk 
to the beneficiarys health.  Examples include passive motion exercise 
devices and infusion pumps used for administration of certain 
medication.  For these items Medicare pays for rental only. 
Customized items.  This category includes items uniquely constructed or 
substantially modified to meet the specific needs of an individual 
beneficiary.  For these items Medicare pays for purchase only. 
Capped rental.  The capped rental category includes all other equipment 
that does not fall into one of the other payment categories.  Medicare 
currently limits, or caps, rental payments for approximately 149 items, 
including hospital beds and wheelchairs.  Effective January 1, 2006, 
carriers pay monthly fee schedule amounts for these items for a period 
not to exceed 13 consecutive months, at which time title to the 
equipment transfers to the beneficiary.  Medicare will continue to pay 
for reasonable and necessary servicing and maintenance after the end 
of the rental period. 
Other covered items (other than DME). This category includes supplies 
that are payable for purchase. 
New Payment Methodologies 
The DRA, signed into law on February 8, 2006, changed the 
reimbursement methodology for home oxygen equipment from 
continuous rental to capped rental, effective January 1, 2006.  The DRA 
limits rental payments for home oxygen equipment to 36 months of 
continuous use.  After 36 months, suppliers must transfer title of the 
equipment to the beneficiary, but they may receive payments for 
nonroutine maintenance and servicing. 
The Presidents proposed budget for fiscal year 2007 would further 
reform the payment methodology for all home oxygen equipment.  The 
budget proposes limiting rental payments for home oxygen equipment 
to 13 months of continuous use.   
In August 2006, CMS issued a proposed rule implementing DRAs 
provisions governing Medicare payment for oxygen equipment and 
capped rental DME (71 FR 44082, August 3, 2006).  CMS proposes to 
establish a new variable rate structure for different classes of oxygen 
and oxygen equipment, with monthly payments tied more closely to the 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  4  I N T R O D U C T I O N  
costs of each class.  For example, under this proposed rule, the monthly 
payment rate for stationary concentrators would be reduced to $177, 
while payments for portable concentrators and transfilling systems 
would increase. Medicare would also cover nonroutine maintenance for 
beneficiary-owned equipment that an authorized technician would need 
to perform. Pursuant to current policy, CMS would not cover routine 
maintenance, including testing, cleaning, and changing filters, after 
beneficiaries reach the 36-month cap and assume ownership of their 
equipment. 
Alternative Payment Methodologies 
Section 302(b)(1) of the MMA mandated competitive bidding for certain 
DME in urban areas beginning in 2007.  One aim of the initiative is to 
reduce Medicare payments. CMS tested the feasibility of competitive 
bidding at two sites from 1999 to 2002 and achieved average price 
reductions ranging from 19 percent to 22 percent for home oxygen 
equipment. 
The Veterans Affairs (VA) Medical Center in Tampa, Florida, was the 
first VA facility in the United States to purchase concentrators rather 
than renting them indefinitely or capping the rental period. This 
facility, which started buying concentrators in 1999, now purchases 
from a local manufacturer and contracts with a supplier to deliver and 
maintain the equipment. VA has contracted with the same supplier for 
servicing since the program began and pays $895 to purchase a 
concentrator, $90 for delivery, and $48 for annual maintenance. 
VA acknowledges that $895 is not the lowest price available but pays 
more because the manufacturer is nearby, and the proximity facilitates 
communication and exchanges of equipment.  The VA Medical Center 
serves an average of 825 oxygen patients per month, two-thirds of whom 
are eligible for Medicare. 
Like Medicare, the VA Medical Center in Atlanta, Georgia, rents all of 
its equipment and pays twice as much per month as the Tampa medical 
center.  Tampas monthly costs are $100.27; Atlantas monthly costs are 
$217. 
Prior Inspector General Work 
OIG has previously examined the servicing and payment methods for 
respiratory equipment, which includes home oxygen equipment and 
other respiratory devices. In addition to the report comparing Medicare 
payment rates for home oxygen equipment to the rates paid by FEHB 
plans (mentioned on page 2), OIG assessed the servicing for a 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  5  I N T R O D U C T I O N  
respiratory assist device with bilevel capability and a backup rate in the 
June 2001 report, Respiratory Assist Devices With Back-up Rate 
(OEI-07-99-00440).  OIG concluded that the equipment belonged in the 
capped rental payment category rather than the frequent and 
substantial servicing category.  OIG recommended that CMS reclassify 
the device. In January 2006, CMS issued a final rule implementing 
OIGs recommendation (71 FR 4518, January 27, 2006). 
In June 1999, OIG issued the report, Home Oxygen Therapy Profiles 
(OEI-03-96-00092), which assessed the nature and frequency of 
servicing for home oxygen equipment.  In November 1994, OIG issued 
Oxygen Concentrator Services (OEI-03-91-01710), which documented 
the wide variation in the servicing that suppliers provided. 
METHODOLOGY 
We based this review on a simple random sample of Medicare 
beneficiaries who rented home oxygen equipment in calendar year  
(CY) 2004 and information about the cost and rental history of the 
concentrators these beneficiaries used. 
Scope 
This review is national in scope and focuses on the cost of concentrators 
that beneficiaries rent, as well as the nature and frequency of services 
that oxygen equipment suppliers provide to beneficiaries in their homes. 
This report addresses neither the cost of providing these services nor 
such ancillary expenses as billing, processing the physicians order, 
regulatory compliance, and equipment maintenance outside the home. 
These costs are reflected in the fee schedule amounts, which are based 
on historical charges by suppliers. 
Sample Selection 
Using the 100-percent National Claims History database for services 
rendered in CY 2004, we selected a simple random sample of 
150 Medicare beneficiaries. We selected this sample from a population 
of 448,974 beneficiaries for whom Medicare paid a monthly rental for an 
oxygen concentrator (E1390) during 2004 but not for any stationary 
oxygen equipment during 2003 (E1390, E0439, E0424) so that the 
sample would consist of new users of oxygen concentrators. 
Data Collection and Analysis 
We surveyed by mail all of the suppliers that provided equipment to the 
beneficiaries in our sample. Using a standardized data collection 
instrument, we requested that suppliers report all services they 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  6  I N T R O D U C T I O N  
provided to the beneficiaries for the entire rental period and submit 
documentation supporting each service.  We counted services if the 
supplier documented them but did not report them on the instrument.  
We also asked suppliers to report and document the price that they paid 
for the concentrator that the sampled beneficiary used, as well as the 
number of previous users of the equipment (both Medicare and non-
Medicare). The suppliers provided data on 145 of the 150 beneficiaries 
in our sample, which yielded a 97-percent response rate. 
In addition to surveying suppliers by mail, we visited several suppliers 
in California and Florida to obtain detailed information about their 
operations, servicing and maintenance practices, and relationships with 
beneficiaries. We visited suppliers in California because of their 
proximity to our office and suppliers in Florida because of their location 
near the VA Medical Center in Tampa.  All of the suppliers invited us to 
accompany them during routine patient visits to observe delivery and 
setup practices as well as ongoing maintenance.  We visited the VA 
Medical Center in Tampa to interview staff about their longstanding 
purchase program for home oxygen equipment. Finally, we 
accompanied VA staff on home visits to oxygen patients. 
We also analyzed National Claims History data from CYs 1994 to 2004 
for a 1-percent sample of Medicare beneficiaries to estimate the savings 
associated with different payment methods. 
See Appendix A for the confidence intervals for selected statistics and 
Appendix B for the methodology for calculating the savings associated 
with limiting the rental period for oxygen concentrators to 13 months. 
This study was conducted in accordance with the Quality Standards for 
Inspections issued by the Presidents Council on Integrity and 
Efficiency and the Executive Council on Integrity and Efficiency. 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  7  F I N D I N G S  
  F I N D I N G S

Based on the 2006 median fee schedule  The DRA limits rental payments 
amount, Medicare will allow $7,215 for  for oxygen equipment to 
36 months of continuous use.  
36 months for concentrators that cost 
Based on our analysis of 
$587, on average, to purchase 
Medicare paid claims data, 
approximately 46 percent of beneficiaries who started renting their 
equipment in 2001 rented continuously for at least 12 months, while 
22 percent rented for 36 months or longer. 2  (See Figure 2.) 
Duration of Oxygen Concentrator Rental by 
Figure 2 
Medicare Beneficiaries Who Started Renting in 2001 
Duration of Rental 
Twenty-two 
100

percent of 
90

Medicare  es  80

beneficiaries rent  ari
ci 70

for 36 months or  efi 60

longer.  n
be 50

of  40

ent  30

c
er 20

P
10

0 
0 1 0 2 0 3 0  
Number of months rented 
Source:  Office of Inspector General analysis, 2006. 
The median Medicare monthly fee schedule allowance for concentrators 
is $200.41 as of January 2006.  The monthly rental payment is the same 
for both new and used concentrators.  Based on this fee schedule 
amount, Medicare will allow $7,215 for beneficiaries who started 
renting in January 2006 and continue renting for 36 months. 
The average cost of a new concentrator is $587 
Based on invoices and other documentation from suppliers and 
manufacturers associated with our sample of beneficiaries, new oxygen 
concentrators cost $587 each, on average.  (See Appendix A for 
2 We used the definition of continuous use found in the Medicare Claims Processing 
Manual (publication 100-04), chapter 20, section 30.5.4.  A rental period is continuous even 
if there are gaps of up to 60 days between rental months. 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  8  F I N D I N G S  
confidence interval.)  We based this estimate on the prices for new 
concentrators purchased between 2000 and 2004 and rented to 
beneficiaries in our sample. These prices reflect volume discounts that 
manufacturers offer routinely.  Suppliers reported that they also 
received prompt pay discounts and rebates for one-third of the 
concentrators that sampled beneficiaries rented. The prices that 
suppliers reported typically did not reflect these prompt pay discounts 
and rebates and, therefore, are not included in our estimate of the 
average concentrator price. 
Beneficiaries coinsurance for a 36-month rental is more than twice the 
average cost of a new concentrator 
Based on a 36-month rental period at the 2006 median fee schedule 
amount, beneficiaries will incur $1,443 in coinsurance.  Since the 
average cost of a concentrator is $587, the coinsurance exceeds the 
average cost of two concentrators by $269. 
If Medicare rental payments for oxygen concentrators were limited to  
13 months, the program and its beneficiaries would realize considerable 
savings 
The DRA changed the reimbursement methodology for capped rental 
items, except oxygen equipment, by reducing the rental period from  
15 months to 13 months. The Presidents budget for fiscal year 2007 
would limit the rental period for oxygen equipment to 13 months. 
We calculated potential savings for concentrators if the rental period 
were 13 months instead of 36 months and found that Medicare and its 
beneficiaries would save approximately $3.2 billion over 5 years.  To 
estimate these savings, we used the 2006 median fee schedule amount 
of $200.41 for rental of an oxygen concentrator. Our estimate does not 
include any allowances for maintenance and servicing or potential shifts 
in utilization to other oxygen modalities such as portable concentrators 
and transfilling systems.  These factors would likely result in lower 
savings than our estimate.  In addition, our estimate includes 
beneficiaries coinsurance and premium-related costs, which amount to 
approximately 40 percent of our calculated savings.  (See Appendix B 
for a more detailed discussion of our methodology.) 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  9  FF	 II NN DD II NN GG
 SS  
Suppliers commonly provide used concentrators to Medicare beneficiaries 
Suppliers rented used concentrators to 73 percent of sampled 
beneficiaries. On average, the concentrators were 212 years old. For 
example: 
	 One beneficiary in our sample was the 17th person to rent a 
concentrator that the supplier purchased in 1996. 
	 Another beneficiary was the 16th person to use a concentrator that 
was purchased in 1997. 
	 One beneficiary rented a concentrator that the supplier purchased in 
1988 for $745. The supplier calculated that revenue from that 
concentrator totaled $11,530.58. 
	 Medicare allowed $7,554 for another unit rented by a sampled 
beneficiary. The supplier paid $546 for the concentrator in 2002. 
The sampled beneficiary rented it for 112 months. Another Medicare 
beneficiary had rented this concentrator for 212 years before the 
sampled beneficiary started renting it. 
	 Medicare allowed $7,260 for a single concentrator that one sampled 
beneficiary rented. This total reflects the allowance for one previous 
Medicare beneficiary who rented the equipment for 214 years. The 
supplier bought this equipment for $617 in 2001. 
Despite the fact that suppliers routinely rent used equipment to 
Medicare beneficiaries, only 6 percent of the concentrators used by 
sampled beneficiaries malfunctioned at any time during their rental 
period. Based on our sample and discussions with suppliers, when a 
concentrator malfunctions, the supplier typically replaces it with 
another unit rather than repairing the malfunctioning unit and 
returning it to the same beneficiary. 
Suppliers reported that they exchanged the malfunctioning 
concentrators that were rented by 12 of 145 beneficiaries 
(12 concentrators). The number of previous users of the concentrators 
that malfunctioned ranged from 1 to 16. In at least 8 of the 12 cases, 
suppliers replaced the defective equipment with used concentrators (we 
do not have information on the remaining 4 cases). 
OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  10  F I N D I N G S  

Based on our analysis, minimal servicing and  Suppliers train beneficiaries 
maintenance for concentrators and portable  to perform routine 
equipment are necessary  maintenance. Based on 
instructions in the 
educational materials that 
Figure 3 
suppliers provide to 
Patients 
perform  beneficiaries at the time of 
routine  delivery, patients must 
maintenance 
clean and change their 
Suppliers 
tubing and nasal cannula 
train patients 
to change  on a regular basis. In 
their tubing  addition, suppliers instruct 
and cannula 
patients to clean the 
and to clean 
concentrators external 
the external 
filter.  (dust) filter, which can be 
washed in a sink with soap 
and water. (See Figure 3.) 
Source:  Patient Instructions from Oxygen Supplier, 2005. 
Suppliers check concentrators every 4 months on average 
Among beneficiaries in our sample who rented continuously for 1 year 
or longer, suppliers checked their concentrators approximately once 
every 4 months on average.3 Suppliers typically perform the same 
services during every visit.  These services include checking the flow 
rate (liters per minute) prescribed by the physician and checking the 
concentration of oxygen delivered by the unit. 
When suppliers visit beneficiaries, they often perform services that a 
beneficiary has been instructed to do.  For example, based on our 
sample, 50 percent of the visits to service the concentrators included 
cleaning the external filter, which the beneficiary is trained to 
maintain. 
When we accompanied suppliers on their visits to beneficiaries homes, 
we observed that routine maintenance for a concentrator consists of 
checking the filter to make sure it is clean and checking the oxygen 
3 When we counted services and calculated the statistics in this paragraph, we excluded 
the services provided on the first and last day of the rental period (i.e., delivery and pickup). 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  11  FF II NN DD II NN GG SS  
concentration and flow rate using handheld instrumentstasks that 
can be performed in less than 5 minutes. 
Although suppliers checked concentrators every 4 months, this 
frequency exceeds the guidelines of two major manufacturers that 
accounted for two-thirds of the concentrators rented by sampled 
beneficiaries. According to these guidelines, comprehensive preventive 
maintenance need only be performed annually or after several thousand 
hours of use. Similarly, the VA Medical Center in Tampa covers annual 
maintenance only. 
Suppliers often use the visits to deliver accessories, typically new tubing 
and cannula, that they could mail to the beneficiary. Ongoing patient 
education is uncommon; only 18 percent of these visits included 
educating beneficiaries. Furthermore, 21 percent of these visits 
occurred when the supplier was scheduled to deliver oxygen cylinders to 
the home. 
Initial delivery and setup are more time-consuming because suppliers 
have to find appropriate places for the concentrator and portable 
equipment in the home and educate beneficiaries and their caregivers 
about the new equipment. These visits can take as long as 1 hour. 
Suppliers deliver cylinders once every 3 months 
Figure 4  Approximately 83 percent of supplier visits 
Oxygen Cylinder  related to portable equipment are to switch 
Cylinders are available 
out empty cylinders with full ones. (See Figure
in different sizes. 
4.) Other visits involve educating patients and 
delivering accessories. Among beneficiaries 
who rented concentrators for 1 year or more, 
65 percent received two or fewer cylinders from 
their suppliers in the first year of rental 
(excluding the initial cylinder delivery). We 
observed that beneficiaries do not need to be at 
home when suppliers deliver the cylinders. In 
addition, we reviewed documentation indicating 
Source: Patient Instructions from
Oxygen Supplier, 2005. 
that, in some cases, suppliers left cylinders on 
the beneficiarys porch. 
The DRA mandates capped rental for both stationary and portable units 
after 36 months of continuous rental. Medicare will continue to pay for 
portable contents after 36 months on a monthly basis as long as the 
beneficiary requires oxygen. Currently, suppliers must provide 
OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  12  F I N D I N G S  
whatever quantity of oxygen the beneficiary uses.  Medicare 
reimbursement is the same, regardless of quantity.  In 2006, the median 
monthly allowance for portable contents is $21.41. 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  13    R E C O M M E N D A T I O N S  

The DRA limits the rental period for home oxygen equipment and 
directs the Secretary to pay for maintenance and servicing if the 
Secretary determines that such payments are reasonable and necessary 
after the rental period ends.  In a proposed rule, CMS indicated that it 
will make such payments. Concentrators are reliable equipment that 
require limited servicing, as evidenced by instructions from 
manufacturers, the common practice of providing used equipment to 
beneficiaries, and the age of the concentrators that some sampled 
beneficiaries use. We recommend that CMS: 
Work with Congress To Further Reduce the Rental Period for Oxygen 
Equipment 
Medicare and its beneficiaries will continue to pay more than 12 times 
the purchase price for concentrators under the new 36-month rental 
limitation. Therefore, a shorter rental period may be warranted. 
Determine the Necessity and Frequency of Nonroutine Maintenance and 
Servicing for Concentrators 
Medicare does not cover routine servicing for DME that beneficiaries own 
but will cover nonroutine maintenance. Based on our sample, suppliers 
most commonly perform routine servicing that Medicare does not cover. 
However, CMS needs to determine the extent and frequency of nonroutine 
servicing and maintenance, as well as the appropriate reimbursement. 
Determine if a New Payment Methodology Is Appropriate for Portable 
Oxygen 
Unlike concentrators, portable oxygen systems require refills, and 
suppliers pick up empty cylinders and deliver full ones. Currently, 
Medicare pays an add-on amount for portable systems; however, 
payment for the contents of the cylinders is bundled into the monthly 
rental amount for the concentrator. When beneficiaries reach the 
36-month rental limit, Medicare will no longer pay for concentrators or 
portable systems but will pay for cylinder contents only.  The monthly 
payment for contents (currently $21.41 per month) does not vary based 
on the amount of oxygen a beneficiary requires. This payment may not 
adequately reimburse suppliers for providing portable refills and related 
services once a beneficiary has reached the 36-month rental limit.  (We 
note that CMS included a variable rate structure in its proposed rule.) 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  14  R E C O M M E N D A T I O N S  

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS concurred with our recommendations and noted that the 
Presidents budget for fiscal year 2007 proposed reducing the rental 
period for oxygen equipment to 13 months.  CMS noted that its 
proposed rule, published on August 3, 2006, addresses nonroutine 
maintenance and servicing and that it would be interested in receiving 
comments during the comment period on the appropriate frequency of 
servicing schedules.  The proposed rule also addresses the payment 
methodology for portable oxygen systems and proposes to increase the 
monthly payment for contents from $21 to $55. 
In CMSs comments on the draft report, the agency expressed concern 
that our savings estimate for a 13-month rental limit is too high, 
because it does not include adjustments to payments for maintenance 
and servicing or potential shifts to oxygen modalities other than 
concentrators. We acknowledge that our estimate did not include the 
effect of maintenance and servicing payments or potential shifts to other 
types of equipment.  These factors would likely result in lower savings 
than our estimate.  CMS also notes that our methodology differs from 
the way that the CBO or CMSs Office of the Actuary would calculate 
savings. We acknowledge that CBO and CMS estimates exclude 
beneficiaries coinsurance and premium-related costs, which amount to 
approximately 40 percent of our calculated savings.  CMSs comments 
are included in their entirety in Appendix C. 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  15    A P P E N D I X ~ A  
Confidence Intervals for Selected Statistics 
Statistic  N  Point Estimate  95% Confidence Interval 
Average (mean) purchase price for new 
oxygen concentrators that were purchased 
from 2000 to 2004 and used by  119 concentrators  $587  $570603 
beneficiaries whose Medicare payments for 
concentrators began in 2004 
Of beneficiaries whose Medicare payments 
for oxygen concentrators began in 2001, 
3,754 beneficiaries  46.3%  44.747.9% 
proportion who rented continuously for at 
least 12 months 
Of beneficiaries whose Medicare payments 
for oxygen concentrators began in 2001, 
3,754 beneficiaries  22.0%  20.723.3% 
proportion who rented continuously for at 
least 36 months 
Of beneficiaries whose Medicare payments 
for oxygen concentrators began in 2004, 
145 beneficiaries  73.1%  65.980.3% 
proportion who received at least one used 
concentrator 
Average (mean) number of months from 
purchase or lease of equipment to 
beneficiarys rental of concentrator, for 
177 concentrators  32.1 months  26.537.6 months 
concentrators rented to beneficiaries whose 
Medicare payments for the units began in 
2004 
Percentage of concentrators  (rented to 
beneficiaries whose Medicare rental 
203 concentrators  5.9%  2.98.9% 
payments for the units began in 2004) that 
malfunctioned 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  16    A P P E N D I X ~ B  

Methodology for Savings Calculation 
The table below shows potential savings for concentrators (code E1390) 
if the rental period were 13 months rather than 36 months. 
Potential Savings for Oxygen Concentrators  13-Month Limitation4 
Duration of 
Year 1  Year 2  Year 3  Year 4  Year 5 
Rental 
13 months  0  $1.0 billion  $1.0 billion  $0.6 billion  $0.6 billion 
Source:  Office of Inspector General analysis of 1 percent of National Claims History for DME, prosthetics, orthotics, and supplies, 
2006. 
We performed the following calculations to estimate the potential 
savings. We used CY 2004 claims to calculate this estimate. 
1. 	 We used a 1-percent sample of allowed claims for DME, 
prosthetics, orthotics, and supplies rendered during CY 2004.  This 
sample contained 102,086 E1390 claims for 12,619 beneficiaries. 
For each of these beneficiaries, we obtained claims data for all 
E1390 claims during CYs 2000 through 2004. 
2. 	 To estimate the potential savings during the second year of 
implementation, we used the database created in step 1.  For each 
claim for E1390 for 2004, we determined the number of claims for 
the first month of rental (disregarding any concentrator rental 
before 2003) and similarly for months 2 through 24.  In counting 
these beneficiary rental months, we reset the counter to month 1 if 
there was a break of more than 60 days in the beneficiarys rental 
of the oxygen concentrator.  We used this criterion so that our 
estimate would correspond to the definition of continuous use 
found in the Medicare Claims Processing Manual (publication  
100-04), chapter 20, section 30.5.4. We assumed that portable 
oxygen contents would be paid for separately after month 13, so 
we included in our estimate a separate monthly payment of 
$21.41, which is the median among State fee schedule amounts for 
4 These potential savings reflect savings to both Medicare and its beneficiaries.  If 
savings were limited to Medicare, they would be approximately 60 percent of the savings in 
the table, because beneficiaries coinsurance and premium-related costs would be excluded 
from the calculation.  CBO and CMS exclude coinsurance and premium-related costs from 
their savings estimates.  For example, total savings to Medicare would be approximately  
$0.6 billion in each of Years 2 and 3 and approximately $0.4 billion in each of Years 4 and 5. 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  17  A P P E N D I X ~ B  
E0443 and E0444 (portable oxygen contents).  Using these 
amounts, we calculated savings per E1390 claim as follows: 
Beneficiarys oxygen rental, months 1 through 13: 
Medicare payment under 13-month limit:  
Median 2006 fee schedule amount = $200.41 
Medicare payment without 13-month limit: 

Median 2006 fee schedule amount = $200.41

Medicare savings:  $200.41$200.41 = $0 

Beneficiarys oxygen rental, months 14 through 24:

Medicare payment under 13-month limit:  

Portable contents = $21.41 

Medicare payment without 13-month limit: 
Median 2006 fee schedule amount = $200.41 
Medicare savings:  $200.41$21.41 = $179.00 
To estimate the potential savings during the second year of 
implementation, we multiplied the savings above by the number of 
E1390 claims during CY 2004 for each of months 1 through 24 of 
rental, and we multiplied the result by 100 (because these 2004 
claims were from a 1-percent sample).  This resulted in savings of 
approximately $1.0 billion. 
The estimated savings for the third and subsequent years after 
implementation were calculated similarly. 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  18  ..
A P PEN D x c
('& ' ln.
DEPARTMENT OF HEALTH & HUMAN SERVICES Centers for Medicare & Medicaid Services
..i-.ri:
...,.lI"t...."rc~u~'"." Administrator
Washington, OC 20201
DATE: SEP 7 20
1f ~
TO: Daniel R. Levinson
Inspector General
Offce of Inspector General
FROM: Mark B. McClellan, M.D., Ph.D.
Administrator
SUBJECT: Offce of Inspector General (OIG) Draft Report: "Medicare Home Oxygen
Equipment: Cost and Servicing," (OEI-09-04-00420)
Than you for the opportunity to review and comment on this oiG report which compares
Medicare spending on oxygen concentrators with suppliers' average purchase price and
describes the nature and frequency of servicing concentrators and portable equipment.
Regarding equipment costs, the report found that the average purchase price for concentrators is
$587; under the current payment system suppliers would receive a tota of$7,2l5 for 36 months,
a figure significantly in excess of the equipment acquisition costs. Indeed, the report finds that
Medicare beneficiar coinsurance during a 36 month rental period of$I,443 would be in excess
of  twce the equipment purchase price. Regarding servicing, the report finds that minimal
servicing and maintenance is necessary for concentrators and portble equipment and that
servicing tasks can be performed in less than 5 minutes. Notably, the report found suppliers
performing services that a beneficiary could be doing. This is an importt report by the OIG
that concludes Medicare will continue to pay excessively for oxygen equipment, even after
the Deficit Reduction Act of2005 (ORA) affecting oxygen
implementation ofthe provisions of 
equipment.
Home oxygen equipment and oxygen contents are covered under the durable medical equipment
(DME) benefit and payment is made on the basis of monthly fee schedule amounts that are
whether the patient uses a
modality neutral (i.e. the same payment amount applies regardless of 
the ORA, these monthly payments
gaseous, liquid or concentrator system). Prior to passage of 
continued for as long as medically necessar. The ORA limited Medicare payment to 36
monthly rental payments after which equipment ownership transfers to the beneficiary. The
ORA did not change Medicare's current fee schedule amount of about $200 per month. Of  the
$200, Medicare pays 80 percent or $160, and the beneficiary pays 20 percent or $40.
The draft report provides valuable insight for the Centers for Medicare & Medicaid Services
(CMS) on the suppliers' average purchase price for oxygen concentrators. The OIG report found
that concentrators cost about $587, on average, to purchase. The report also found that suppliers
the sampled beneficiaries. With the curent
rented used concentrators to about 73 percent of 
$200 monthly payment amount, suppliers would receive a total of$7,215 for 36 months, a figure
significantly in excess of the equipment acquisition costs. Medicare beneficiary coinsurance
OEI-09.04.00420 MEDICARE HOME OXYGEN EQUIPMENT: COST AND SERVICING 19 A P PEN D
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Page 2 - Daniel R. Levinson
during a 36 month rental period would be $ i ,443 and the coinsurance payments exceed the costs
of  purchasing two concentrators.
The draft report also provides details for eMS on the maintenance and servicing that is actually
done during a supplier's visit. The report finds that minimal servicing and maintenance is
necessar for concentrators and portable equipment. The report found suppliers performing
services that a beneficiar could do, such as a cleaning a concentrator's external fiter. This
finding is based on reports from suppliers, on actual on-site observation and accompanying
suppliers on their visits to beneficiaries' homes.
The report also found that suppliers checked concentrators every 4 months but it does not
indicate whether servicing every 4 months is an appropriate servicing schedule. It points out
that these servicing tasks take minimal time to perform and can be performed in less than 5
minutes, however, the initial delivery and set-up can tae as long as one hour. Also, according to
manufacturer guidelines, more comprehensive preventive maintenance need only be performed
anually or after several thousand hours of use. This report substatiates that oxygen
concentrators are sturdy and long lasting equipment that require minimal maintenance and
servicing. This information is very useful as CMS develo'ps policy on maintenance and servicing
for beneficiar-owned oxygen equipment.
The draft report also provides information on the refillng of contents for portable systems.
Unlike concentrators, most portble oxygen systems require refillng tans. The exceptions are
the new technology of oxygen equipment such as the transfillng machines and the portable
concentrators. The report found that suppliers picked up empty tank and delivered full ones
once every 3 months. As the report indicates, after ownership of equipment, Medicare wil make
a separate payment for refillng portble tans, currently about $21 per month and that such
payment amount may not be an adequate amount to reimburse suppliers for providing portable
refills. The appropriateness of current payment structure for beneficiary owned oxygen
the recent changes by the ORA. This is critical
equipment has been amplified in light of 
information as CMS develops policy for beneficiary-owned equipment, specifically for portable
systems.
Finally, the report contains an estimate ofthe savings for a policy that would reduce the number
of  months for which Medicare would make rental payments for oxygen concentrators from 36 to
l3 months. We are concerned that the savings estimate presented in Table i for such policy is
too high. As the report indicates, this estimate does not include an offset for separate payments
that Medicare would make for maintenance and servicing after ownership transfers to a
beneficiary after i 3 months under such policy. Also, the estimate is for a policy that would
monthly rental payments from 36 to l3 for concentrators only. As such,
reduce the number of 
there could be incentives for suppliers to switch oxygen modality to oxygen tanks in order to
continue to receive the $200 monthly payment amounts from Medicare for months 14 through
36. The estimate does not make an adjustment for such potential behavior shift or any other
potential behavior changes. Savings are typically presented by the Congressional Budget Offce
OEI.09.04.00420 MEDICARE HOME OXYGEN EQUIPMENT: COST AND SERVICING 20 A P PEN D
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Page 3 - Daniel R. Levinson
(CBO) and the eMS Offce of  the Actuary (OAeT) as estimates of  Federal budget savings, that
is excluding coinsurance and Part B premium savings to beneficiaries. As footnote 3 indicates,
sllch Federal savings are tyically 60 percent of savings without these offsets. Thus, the figures
presented in Table i are higher than would be presented by CBO or OACT. eBO and OACT
also present savings on a fiscal year basis and on a cash rather than incurred basis which would
also reduce the estimates presented in Table 1.
The Deparent of Health and Human Services is committed to ensurng that changes in
Medicare payment rules for home oxygen affecting Medicare beneficiaries and suppliers are
implemented in a way that fosters access to needed items and services in a cost effective maner.
published on August 3, 2006 at CMS
This commitment is reflected in the proposed rule that was 
1304-P (71 Fed Reg 44082 (August 3, 2006)), that would establish certain policies designed to
implement the DRA changes and other changes in a way that safeguard beneficiary access to
quality items and new technology and ensure access to oxygen contents and maintenance and
servicing of  beneficiary owned equipment.
OIG Recommendation
Recommends that CMS work with Congress to furter reduce the rental period for oxygen
equipment.
CMS ResDonse
We agree. The Administration's fiscal year 2007 budget contained a proposal to reduce the
monthly rental limit for oxygen from 36 to 13 months.
OIG Recommendation
Recommends that CMS determine the necessity and frequency ofnonroutine maintenance and
servicing for concentrators.
CMS ResDonse
In the proposed rule published on August 3, 2006, CMS proposed to pay for reasonable and
necessary nonroutine service and maintenance for oxygen concentrators. Nonroutine service and
maintenance would cover tasks that a trained technician needs to perform such as the
concentrator flow rate prescribed by the physician and checking the concentration of oxygen
delivered by the unit but would exclude tasks that a beneficiar does such as cleaning the
concentrator's external (dust) fiter. The proposed rule did not propose a specific frequency
schedule though we would be interested to receive comments during the comment period on
servicing schedules.
"--
OEI-09.04.00420 MEDICARE HOME OXYGEN EQUIPMENT: COST AND SERVICING 21 A P PEN D
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OIG Recommendation
Recommends that eMS determine if a new payment methodology is appropriate for portable
oxygen systems.
eMS ResDonse
In the proposed rule published on August 3, 2006, CMS proposed to revise payment for refillng
portable oxygen tanks after ownership. The rule proposes to raise the payment amount from $2 I
this payment amount for the
to $55. We are accepting comments on the appropriateness of 
refilling of portble contents after ownership.
We conclude by offering thans to the oiG for this informative report that provides essential
information that eMS can use to achieve the goals of  the Agency to improve beneficiar access
to necessar equipment and services and implement cost effective Medicare payments for home
oxygen equipment. Over the past several years we have worked closely with the DIG on issues
affecting Medicare payment for oxygen equipment and we look forward to continuing this
collaboration on these very important issues.
OEI.09.04.00420 MEDICARE HOME OXYGEN EQUIPMENT: COST AND SERVICING 22   A C K N O W L E D G M E N T S  

This report was prepared under the direction of Paul A. Gottlober, 
Regional Inspector General for Evaluation and Inspections in the San 
Francisco regional office, and Deborah W. Harvey, Assistant Regional 
Inspector General.  Other principal Office of Evaluation and Inspections 
staff who contributed include: 
Cindy Lemesh, Project Leader 
Camille Harper, Project Leader 
China Eng, Program Analyst 
Scott Hutchison, Program Analyst 
Scott Manley, Program Specialist 
Tricia Davis, Director, Medicare Branch 
Rob Gibbons, Mathematical Statistician 
  OEI-09-04-00420  MEDICARE HOME OXYGEN EQUIPMENT:  COST AND SERVICING  23