Editorial Note on Part 414
Editorial Note: Nomenclature changes to part 414 appear at 60 FR 50442, Sept. 29, 1995, and 60 FR 53877, Oct. 18, 1995.

§ 414.408 Payment rules. ( a ) *Payment basis.* ( 1 ) The payment basis for an item furnished under a competitive bidding program is 80 percent of the single payment amount calculated for the item under § 414.416 for the CBA in which the beneficiary maintains a permanent residence.
( 2 ) If an item that is included in a competitive bidding program is furnished to a beneficiary who does not maintain a permanent residence in a CBA, the payment basis for the item is 80 percent of the lesser of the actual charge for the item, or the applicable fee schedule amount for the item, as determined under subpart C or subpart D.
( b ) *No changes to the single payment amount.* The single payment amount calculated for each item under each competitive bidding program is paid for the duration of the competitive bidding program and will not be adjusted by any update factor.
( c ) *Payment on an assignment-related basis.* Payment for an item furnished under this subpart is made on an assignment-related basis.
( d ) *Applicability of advanced beneficiary notice.* Implementation of a program in accordance with this subpart does not preclude the use of an advanced beneficiary notice.
( e ) *Requirement to obtain competitively bid items from a contract supplier.* ( 1 ) *General rule.* Except as provided in paragraph (e)(2) of this section, all items that are included in a competitive bidding program must be furnished by a contract supplier for that program.
( 2 ) *Exceptions.* ( i ) A grandfathered supplier may furnish a grandfathered item to a beneficiary in accordance with paragraph (j) of this section.
( ii ) Medicare may make a secondary payment for an item furnished by a noncontract supplier that the beneficiary is required to use under his or her primary insurance policy. The provisions of this paragraph do not supersede Medicare secondary payer statutory and regulatory provisions, including the Medicare secondary payment rules located in §§ 411.32 and 411.33 of this subchapter, and payment will be calculated in accordance with those rules.
( iii ) If a beneficiary is outside of the CBA in which he or she maintains a permanent residence, he or she may obtain an item from a— ( A ) Contract supplier, if the beneficiary obtains the item in another CBA and the item is included in the competitive bidding program for that CBA; or
( B ) Supplier with a valid Medicare billing number, if the beneficiary obtains the item in an area that is not a CBA, or if the beneficiary obtains the item in another CBA but the item is not included in the competitive bidding program for that CBA.
( iv ) A physician, treating practitioner, physical therapist in private practice, occupational therapist in private practice, or hospital may furnish an item in accordance with § 414.404(b) of this subpart.
( 3 ) Unless paragraph (e)(2) of this section applies: ( i ) Medicare will not make payment for an item furnished in violation of paragraph (e)(1) of this section, and
( ii ) A beneficiary has no financial liability to a noncontract supplier that furnishes an item included in the competitive bidding program for a CBA in violation of paragraph (e)(1) of this section, unless the beneficiary has signed an advanced beneficiary notice.
( 4 ) CMS separately designates the Medicare billing number of all noncontract suppliers to monitor compliance with paragraphs (e)(1) and (e)(2) of this section.
( f ) *Purchased equipment.* ( 1 ) The single payment amounts for new purchased durable medical equipment, including power wheelchairs that are purchased when the equipment is initially furnished and enteral nutrition equipment are calculated based on the bids submitted and accepted for these items. For contracts entered into beginning on or after January 1, 2011, payment on a lump sum purchase basis is only available for power wheelchairs classified as complex rehabilitative power wheelchairs.
( 2 ) Payment for used purchased durable medical equipment and enteral nutrition equipment is made in an amount equal to 75 percent of the single payment amounts calculated for new purchased equipment under paragraph (f)(1) of this section.
( g ) *Purchased supplies and orthotics.* The single payment amounts for the following purchased items are calculated based on the bids submitted and accepted for the following items: ( 1 ) Supplies used in conjunction with durable medical equipment.
( 2 ) Enteral nutrients.
( 3 ) Enteral nutrition supplies.
( 4 ) OTS orthotics.
( 5 ) Lymphedema compression treatment items.
( h ) *Rented equipment* — ( 1 ) *Capped rental DME.* Subject to the provisions of paragraph (h)(2) of this section, payment for capped rental durable medical equipment is made in an amount equal to 10 percent of the single payment amounts calculated for new durable medical equipment under paragraph (f)(1) of this section for each of the first 3 months, and 7.5 percent of the single payment amounts calculated for these items for each of the remaining months 4 through 13.
( 2 ) For contracts entered into beginning on or after January 1, 2011, the monthly fee schedule amount for rental of power wheelchairs equals 15 percent of the single payment amounts calculated for new durable medical equipment under paragraph (f)(1) of this section for each of the first 3 months, and 6 percent of the single payment amounts calculated for these items for each of the remaining months 4 through 13.
( 3 ) *Additional payment to certain contract suppliers for capped rental DME.* ( i ) Except as specified in paragraph (h)(3)(ii) of this section, Medicare makes 13 monthly payments to a contract supplier that furnishes capped rental durable medical equipment to a beneficiary who would otherwise be entitled to obtain the item from a grandfathered supplier under paragraph (j) of this section. Payment is made using the methodology described in paragraph (h)(1) of this section. The contract supplier must transfer title to the item to the beneficiary on the first day that begins after the 13th continuous month in which payments are made in accordance with this paragraph.
( ii ) Medicare does not make payment to a contract supplier under paragraph (h)(3)(i) of this section if the contract supplier furnishes capped rental durable medical equipment to a beneficiary who previously rented the equipment from another contract supplier.
( 4 ) *Maintenance and servicing of rented DME.* Separate maintenance and servicing payments are not made for any rented durable medical equipment.
( 5 ) *Payment for rented enteral nutrition equipment.* Payment for rented enteral nutrition equipment is made in an amount equal to 10 percent of the single payment amounts calculated for new enteral nutrition equipment under paragraph (f)(1) of this section for each of the first 3 months, and 7.5 percent of the single payment amount calculated for these items under paragraph (f)(1) of this section for each of the remaining months 4 through 15. The contract supplier to which payment is made in month 15 for furnishing enteral nutrition equipment on a rental basis must continue to furnish, maintain and service the equipment until a determination is made by the beneficiary's physician or treating practitioner that the equipment is no longer medically necessary.
( 6 ) *Maintenance and servicing of rented enteral nutrition equipment.* Payment for the maintenance and servicing of rented enteral nutrition equipment beginning 6 months after 15 months of rental payments is made in an amount equal to 5 percent of the single payment amounts calculated for these items under paragraph (f)(1) of this section.
( 7 ) *Payment for inexpensive or routinely purchased durable medical equipment.* Payment for inexpensive or routinely purchased durable medical equipment furnished on a rental basis is made in an amount equal to 10 percent of the single payment amount calculated for new purchased equipment.
( 8 ) *Payment amounts for rented DME requiring frequent and substantial servicing* — ( i ) *General rule.* Except as provided in paragraph (h)(7)(ii) of this section, the single payment amounts for rented durable medical equipment requiring frequent and substantial servicing are calculated based on the rental bids submitted and accepted for the furnishing of these items on a monthly basis.
( ii ) *Exception.* The single payment amounts for continuous passive motion exercise devices are calculated based on the bids submitted and accepted for the furnishing of these items on a daily basis.
( i ) *Monthly payment amounts for oxygen and oxygen equipment* — ( 1 ) *Basic payment amount.* Subject to the provisions of paragraph (i)(2) of this section, the single payment amounts for oxygen and oxygen equipment are calculated based on the bids submitted and accepted for the furnishing on a monthly basis of each of the five classes of oxygen and oxygen equipment described in § 414.226(c)(1).
( 2 ) *Additional payment to certain contract suppliers.* ( i ) Except as specified in paragraph (i)(2)(iii) of this section, Medicare makes monthly payments to a contract supplier that furnishes oxygen equipment to a beneficiary who would otherwise be entitled to obtain the item from a grandfathered supplier under paragraph (j) of this section as follows: ( A ) If Medicare made 26 or less monthly payments to the former supplier, Medicare makes a monthly payment to the contract supplier for up to the number of months equal to the difference between 36 and the number of months for which payment was made to the former supplier.
( B ) If Medicare made 27 or more monthly payments to the former supplier, Medicare makes 10 monthly payments to the contract supplier.
( ii ) Payment is made using the methodology described in paragraph (i)(1) of this section. On the first day after the month in which the final rental payment is made under paragraph (i)(2)(i) of this section, the contract supplier must transfer title of the oxygen equipment to the beneficiary.
( iii ) Medicare does not make payment to a contract supplier under paragraph (i)(2) of this section if the contract supplier furnishes oxygen equipment to a beneficiary who previously rented the equipment from another contract supplier.
( j ) *Special rules for certain rented durable medical equipment and oxygen and oxygen equipment* — ( 1 ) *Supplier election.* ( i ) A supplier that is furnishing durable medical equipment or is furnishing oxygen or oxygen equipment on a rental basis to a beneficiary prior to the implementation of a competitive bidding program in the CBA where the beneficiary maintains a permanent residence may elect to continue furnishing the item as a grandfathered supplier.
( ii ) A supplier that elects to be a grandfathered supplier must continue to furnish the grandfathered items to all beneficiaries who elect to continue receiving the grandfathered items from that supplier for the remainder of the rental period for that item.
( 2 ) *Payment for grandfathered items furnished during the first competitive bidding program implemented in a CBA.* Payment for grandfathered items furnished during the first competitive bidding program implemented in a CBA is made as follows: ( i ) For inexpensive and routinely purchased items described in § 414.220(a), payment is made in the amount determined under § 414.220(b).
( ii ) For other durable medical equipment or capped rental items described in § 414.229, payment is made in the amount determined under § 414.229(b).
( iii ) For items requiring frequent and substantial servicing described in § 414.222, payment is made in accordance with paragraph (a)(1) of this section.
( iv ) For oxygen and oxygen equipment described in § 414.226(c)(1), payment is made in accordance with paragraph (a)(1) of this section.
( 3 ) *Payment for grandfathered items furnished during all subsequent competitive bidding programs in a CBA.* Beginning with the second competitive bidding program implemented in a CBA, payment is made for grandfathered items in accordance with paragraph (a)(1) of this section.
( 4 ) *Choice of suppliers.* ( i ) Beneficiaries who are renting an item that meets the definition of a grandfathered item in § 414.402 of this subpart may elect to obtain the item from a grandfathered supplier.
( ii ) A beneficiary who is otherwise entitled to obtain a grandfathered item from a grandfathered supplier under paragraph (j) of this section may elect to obtain the same item from a contract supplier at any time after a competitive bidding program is implemented.
( iii ) If a beneficiary elects to obtain the same item from a contract supplier, payment is made for the item accordance with paragraph (a)(1) of this section.
( 5 ) *Notification of beneficiaries and CMS by suppliers that choose to become grandfathered suppliers.* ( i ) *Notification of beneficiaries by suppliers.* ( A ) *Requirements of notification.* A noncontract supplier that elects to become a grandfathered supplier must provide a 30-day written notification to each Medicare beneficiary that resides in a competitive bidding area and is currently renting a competitively bid item from that supplier. The 30-day notification to the beneficiary must meet the following requirements: ( 1 ) Be sent by the supplier to the beneficiary at least 30 business days before the start date of the implementation of the competitive bidding program for the CBA in which the beneficiary resides.
( 2 ) Identify the grandfathered items that the supplier is willing to continue to rent to the beneficiary.
( 3 ) Be in writing (for example, by letter or postcard) and the supplier must maintain proof of delivery.
( 4 ) State that the supplier is willing to continue to furnish certain rented Durable Medical Equipment (DME), oxygen and oxygen equipment, and supplies that the supplier is currently furnishing to the beneficiary (that is, before the start of the competitive bidding program) and is willing to continue to provide these items to the beneficiary for the remaining rental months.
( 5 ) State that the beneficiary has the choice to continue to receive a grandfathered item(s) from the grandfathered supplier or may elect to receive the item(s) from a contract supplier after the end of the last month for which a rental payment is made to the noncontract supplier.
( 6 ) Provide the supplier's telephone number and instruct the beneficiary to call the supplier with any questions and to notify the supplier of his or her decision to use or not use the supplier as a grandfathered supplier.
( 7 ) State that the beneficiary can obtain information about the competitive bidding program by calling 1-800-MEDICARE or on the Internet at *http://www.Medicare.gov .*
( B ) *Record of beneficiary's choice.* The supplier should obtain an election from the beneficiary regarding whether to use or not use the supplier as a grandfathered supplier. The supplier must maintain a record of its attempts to communicate with the beneficiary to obtain the beneficiary's election regarding grandfathering. When the supplier obtains such an election, the supplier must maintain a record of the beneficiary decision including the date the choice was made, and how the beneficiary communicated his or her choice to the supplier.
( C ) *Notification.* If the beneficiary chooses not to continue to receive a grandfathered item(s) from their current supplier, the supplier must provide the beneficiary with 2 more notices in addition to the 30-day notice prior to the supplier picking up its equipment. ( 1 ) *10-day notification:* Ten business days prior to picking up the item, the supplier should have direct contact (for example, a phone call) with the beneficiary or the beneficiary's caregiver and receive acknowledgement that the beneficiary understands their equipment will be picked up. This should occur on the first anniversary date after the start of the CBP or on another date agreed to by the beneficiary or the beneficiary's caregiver. The beneficiary's anniversary date occurs every month and is the date of the month on which the item was first delivered to the beneficiary by the current supplier. When a date other than the anniversary date is chosen by the beneficiary or the beneficiary's caregiver, the noncontract supplier will still receive payment up to the anniversary date after the start of the CBP, and the new contract supplier may not bill for any period of time before the anniversary date.
( 2 ) *2-day notification:* Two business days prior to picking up the item the supplier should contact the beneficiary or the beneficiary's caregiver by phone to notify the beneficiary of the date the supplier will pick up the item. This date should not be before the beneficiary's first anniversary date that occurs after the start of the competitive bidding program unless an alternative arrangement has been made with the beneficiary and the new contract supplier.
( D ) *Pickup procedures.* ( 1 ) The pickup of the noncontract supplier's equipment and the delivery of the new contract supplier's equipment should occur on the same date, that is, the first rental anniversary date of the equipment that occurs after the start of the competitive bidding program unless an alternative arrangement has been made with the beneficiary and the new contract supplier.
( 2 ) Under no circumstance should a supplier pick up a rented item prior to the supplier's receiving acknowledgement from the beneficiary that the beneficiary is aware of the date on which the supplier is picking up the item and the beneficiary has made arrangements to have the item replaced on that date by a contract supplier.
( 3 ) When a beneficiary chooses to switch to a new contract supplier, the current noncontract supplier and the new contract supplier must make arrangements that are suitable to the beneficiary.
( 4 ) The contract supplier may not submit a claim with a date of delivery for the new equipment that is prior to the first anniversary date that occurs after the beginning of the CBP, and the contract supplier may not begin billing until the first anniversary date that occurs after the beginning of the CBP.
( 5 ) The noncontract supplier must submit a claim to be paid up to the first anniversary date that occurs after the beginning of the CBP. Therefore, they should not pick up the equipment before that date unless an alternative arrangement has been made with the beneficiary and the new contract supplier.
( ii ) *Notification to CMS by suppliers.* A noncontract supplier that elects to become a grandfathered supplier must provide a written notification to CMS of this decision. This notification must meet the following requirements: ( A ) State that the supplier agrees to continue to furnish certain rented DME, oxygen and oxygen equipment that it is currently furnishing to beneficiaries (that is, before the start of the competitive bidding program) in a CBA and will continue to provide these items to these beneficiaries for the remaining months of the rental period.
( B ) Include the following information: ( 1 ) Name and address of the supplier.
( 2 ) The 6-digit NSC number of the supplier.
( 3 ) Product category(s) by CBA for which the supplier is willing to be a grandfathered supplier.
( C ) State that the supplier agrees to meet all the terms and conditions pertaining to grandfathered suppliers.
( D ) Be provided by the supplier to CMS in writing at least 30 business days before the start date of the implementation of the Medicare DMEPOS Competitive Bidding Program.
( 6 ) *Suppliers that choose not to become grandfathered suppliers.* ( i ) *Requirement for non-grandfathered supplier.* A noncontract supplier that elects not to become a grandfathered supplier is required to pick up the item it is currently renting to the beneficiary from the beneficiary's home after proper notification.
( ii ) *Notification.* Proper notification includes a 30-day, a 10-day, and a 2-day notice of the supplier's decision not to become a grandfathered supplier to its Medicare beneficiaries who are currently renting certain DME competitively bid item(s) and who reside in a CBA.
( iii ) *Requirements of notification.* These notifications must meet all of the requirements listed in paragraph (j)(5)(i) of this section for the 30-day, 10-day and 2-day notices that must be sent by suppliers who decide to be grandfathered suppliers, with the following exceptions for the 30-day notice. ( A ) State that, for those items for which the supplier has decided not to be a grandfathered supplier, the supplier will only continue to rent these competitively bid item(s) to its beneficiaries up to the first anniversary date that occurs after the start of the Medicare DMEPOS Competitive Bidding Program.
( B ) State that the beneficiary must select a contract supplier for Medicare to continue to pay for these items.
( C ) Refer the beneficiary to the contract supplier locator tool on and to 1-800-MEDICARE to obtain information about the availability of contract suppliers for the beneficiary's area.
( iv ) *Pickup procedures.* ( A ) The pick-up of the noncontract supplier's equipment and the delivery of the new contract supplier's equipment should occur on the same date, that is, the first rental anniversary date of the equipment that occurs after the start of the competitive bidding program unless an alternative arrangement has been made with the beneficiary and the new contract supplier.
( B ) Under no circumstance should a supplier pick up a rented item prior to the supplier's receiving acknowledgement from the beneficiary that the beneficiary is aware of the date on which the supplier is picking up the item and the beneficiary has made arrangements to have the item replaced on that date by a contract supplier.
( C ) When a beneficiary chooses to switch to a new contract supplier, the current noncontract supplier and the new contract supplier must make arrangements that are agreeable to the beneficiary.
( D ) The contract supplier cannot submit a claim with a date of delivery for the new equipment that is prior to the first anniversary date that occurs after the beginning of the CBP.
( 7 ) *Payment for accessories and supplies for grandfathered items.* Accessories and supplies that are used in conjunction with and are necessary for the effective use of a grandfathered item may be furnished by the same grandfathered supplier that furnishes the grandfathered item. Payment is made in accordance with paragraph (a)(1) of this section.
( k ) *Payment for maintenance, servicing and replacement of beneficiary-owned items.* ( 1 ) Payment is made for the maintenance and servicing of beneficiary-owned items, provided the maintenance and servicing is performed by a contract supplier or a noncontract supplier having a valid Medicare billing number, as follows: ( i ) Payment for labor is made in accordance with § 414.210(e)(1) of subpart D.
( ii ) Payment for parts that are not items (as defined in § 414.402) is made in accordance with § 414.210(e)(1) of subpart D.
( iii ) Payment for parts that are items (as defined in § 414.402) is made in accordance with paragraph (a)(1) of this section.
( 2 ) Additional payments are made in accordance with § 414.210(e)(2), (e)(3) and (e)(5) of this part for the maintenance and servicing of oxygen equipment if performed by a contract supplier or a noncontract supplier having a valid Medicare billing number.
( 3 ) Beneficiaries must obtain a replacement of a beneficiary-owned item, other than parts needed for the repair of beneficiary-owned equipment from a contract supplier. Payment is made for the replacement item in accordance with paragraph (a)(1) of this section.
( l ) *Exceptions for certain items and services paid in accordance with special payment rules.* The payment rules in paragraphs (f) thru (h), (j)(2), (j)(3), and (j)(7), and (k) of this section do not apply to items and services paid in accordance with the special payment rules at § 414.409.
[72 FR 18085, Apr. 10, 2007, as amended at 74 FR 2880, Jan. 16, 2009; 74 FR 62009, Nov. 25, 2009; 75 FR 73623, Nov. 29, 2010; 76 FR 70315, Nov. 10, 2011; 79 FR 66264, Nov. 6, 2014; 88 FR 77875, Nov. 13, 2023]