This Insight is part of our Medicare Payment Primers series.
Medicare Part B covers medically necessary equipment, devices, and supplies falling under several benefit categories defined under Section 1861 of the Social Security Act (Act), commonly referred to as DMEPOS. Durable medical equipment (DME) includes ventilators, oxygen equipment, hospital beds, and wheelchairs if the equipment is used in the patient’s home or in an institution that is used as a home, subject to a written order/prescription from a physician or other practitioner.
DME is defined in Medicare regulations at 42 Code of Federal Regulations (CFR) 414.202 as equipment furnished by a supplier or a home health agency that meets these conditions:
- Can withstand repeated use,
- Is primarily and customarily used to serve a medical purpose,
- In most cases is not useful to an individual in the absence of an illness or injury, and
- Is appropriate for use in the home.
All requirements of the definition must be met before an item can be covered as durable medical equipment.
Prosthetics and orthotics (POS) that replace all or part of an internal body organ (including contiguous tissue) or replace all or part of the function of a permanently inoperative or malfunctioning internal body organ are covered when furnished on a physician’s order and include artificial legs, arms, and eyes, and leg, arm, back and neck braces, artificial limbs, parenteral and enteral (PEN) nutrition, cardiac pacemakers, and prosthetic lenses.
Section 1834 of the Act requires the use of fee schedules under Medicare Part B for reimbursement of DMEPOS, beginning January 1, 1989. Payment is limited to the lower of the actual charge for the equipment or the fee established. In 2016, the Centers for Medicare & Medicaid Services (CMS) implemented competitive bidding for specific items provided in selected areas of the country. As of January 2024, the competitive bidding process expired, and no date for restarting the program has been determined.
DMEPOS are categorized into one of the following payment classes:
- Inexpensive & Other Routinely Purchased Items
CMS calculates statewide fee schedule amounts using the average statewide payment for the purchase or rental, respectively, of the item for the 12-month period ending on June 30, 1987 (“base year”), increased by annual covered item update factors. Inexpensive and other routinely purchased items have a purchase price of $150 or less; were routinely purchased (75% of the time or more) under the rent/purchase program in effect prior to 1989; or are accessories used in conjunction with nebulizers, aspirators, continuous positive airway pressure devices, or respiratory assist devices; or are speech generating devices or accessories needed to use a speech generating device. If covered, these items can be purchased new or used and can be rented; however, total payments cannot exceed the purchased new fee schedule amount for the item.
- Frequently Serviced Items
Frequently serviced items require frequent and substantial servicing to avoid risk to the patient’s health. Fee schedule amounts for frequently serviced items are calculated in the same manner as inexpensive and other routinely purchased items. If covered, these items can be rented if the item is medically necessary. The monthly rental fee schedule amounts include payment for all necessary supplies and accessories necessary for the effective use of the DME as well as all necessary maintenance and servicing of the DME.
- Oxygen & Oxygen Equipment
Monthly rental payment amounts are calculated for oxygen and oxygen equipment using the total payments for the item during the 12-month period ending with December 1986, divided by the total number of months for all beneficiaries receiving the item in the state during the base year period, increased by annual covered item update factors. The monthly fee includes all covered stationary equipment, stationary and portable contents, and all accessories used in conjunction with the oxygen equipment.
Medicare payment for oxygen equipment may not continue beyond 36 months of continuous use. After the 36-month rental cap, Medicare will continue to make monthly rental payments for oxygen contents only. In addition, payment for in-home maintenance and servicing of supplier-owned oxygen concentrators and transfilling equipment may be made every six months, beginning six months after the 36-month rental cap, for any period of medical need for the remainder of the reasonable useful lifetime of the equipment.
- Covered Items Other than DME
Fee schedule amounts for other covered items are calculated in the same manner as inexpensive and other routinely purchased items. Other covered items are supplies that are necessary for the effective use of DME.
- Capped Rental Items
Fee schedule amounts for capped rental items are calculated in the same manner as oxygen and oxygen equipment. Capped rental items are DME that do not fall under any of the other DME payment classes.
In general, Medicare pays for the rental of these items, when covered, for a period of continuous use not to exceed 13 months, at which point the beneficiary takes over ownership of the equipment. Complex rehabilitative power wheelchairs can be purchased in the first month of use.
For capped rental items other than power wheelchairs, the fee schedule amount is calculated based on 10% of the base year purchase price, increased by the covered item update. This is the fee schedule amount for months 1-3. Beginning with the fourth month, the fee schedule amount is calculated based on 7.5% of the base year purchase price (or 75% of the fee schedule amount paid in the first three rental months), increased by the covered item update.
For power wheelchairs, the fee schedule amount is calculated based on 15% of the base year purchase price, increased by the covered item update. This is the fee schedule amount for months 1-3. Beginning with the fourth month, the fee schedule amount is calculated based on 6% of the base year purchase price (or 40% of the fee schedule amount paid in the first three rental months), increased by the covered item update. The purchase fee schedule amount for complex rehabilitative power wheelchairs is equal to the rental fee schedule amount for month one divided by 0.15.
- Certain Customized Items
Customized devices are defined at 42 CFR 414.224 as a covered item (including a wheelchair) that must be uniquely constructed or substantially modified for a specific beneficiary according to the description and orders of a physician and be so different from another item used for the same purpose that the two items cannot be grouped together for pricing purposes. Fee schedule amounts are not calculated for customized DME. If covered, payment is made in a lump sum amount for the purchase of the item and based on the Medicare Administrative Contractor’s individual determination.
Implanted DME, implanted prosthetic devices, and implanted diagnostic devices are paid under the hospital outpatient prospective payment system (PPS). In addition, non-implantable orthotic and prosthetic devices furnished in a hospital are subject to the hospital outpatient PPS.
Resources
Durable Medical Equipment https://www.cms.gov/medicare/payment/fee-schedules/dmepos
DME Calculation and Update of Payment Rates https://www.cms.gov/regulations-and-guidance/guidance/manuals/downloads/clm104c20.pdf
Payment Policies for DMEPOS https://www.cms.gov/medicare/payment/fee-schedules/durable-medical-equipment-prosthetic-devices-prosthetics-orthotics-supplies/payment-policies-dmepos-items-services
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