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Taking Over Oxygen Patients from Suppliers Who have Filed Bankruptcy

February 10, 2014

AMARILLO, TX – As the DME industry sadly anticipated, and as I believe CMS intended, competitive bidding is forcing a number of DME suppliers to close their doors. Many of these suppliers are having to go into bankruptcy. This is what happens when a supplier owes money to a bank and to vendors—and then has its legs cut out from underneath it by a program that is ill-conceived and manifestly unfair.

In a Dec 23, 2013, Medtrade Monday article, I discussed the steps that must be followed when a DME supplier takes over oxygen patients from a supplier that does not file bankruptcy—but does shut its doors. This article discusses what happens when a DME supplier takes over oxygen patients from a supplier that has filed bankruptcy.

The guidance issued by CMS related to payment for replacement oxygen equipment in bankruptcy situations is contained in Section 50.4 of Chapter 20 in the Medicare Claims Processing Manual. It states that “when a supplier files for Chapter 7 or 11 bankruptcy…and cannot continue to furnish oxygen to its Medicare beneficiaries, the oxygen equipment is considered lost in these situations and payment may be made for replacement equipment. For replacement oxygen equipment, a new reasonable useful lifetime period and a new 36 month payment period begins on the date of delivery of the replacement oxygen equipment.”

The supporting documentation that will be required to verify that the supplier declared bankruptcy depends on the whether the bankruptcy is a Chapter 7 (liquidation) or a Chapter 11 (reorganization). For a Chapter 7, the “supporting documentation must include court records documenting that the previous supplier filed a petition for a Chapter 7 bankruptcy in a United States Bankruptcy Court . . . .”

For a Chapter 11, the “supporting documentation must include Court records documenting that the previous supplier filed a petition for a Chapter 11 bankruptcy in a United States Bankruptcy Court; and documents filed in the bankruptcy case confirming that the equipment was sold or is scheduled to be sold as evidenced by one of the following: [1] The Court order authorizing and/or approving the sale; or [2] Supporting documentation that the sale is scheduled to occur or has occurred, e.g., a bill of sale, or an asset purchase agreement signed by the seller and the buyer; or [3] A Court order authorizing abandonment of the equipment.”

The guidance goes on to make clear that “Under no circumstances may payment be made for replacement equipment when the original supplier divests business and equipment outside of the court bankruptcy process.”

Because this policy contemplates the establishment a new reasonable useful lifetime, it should allow for a new 36 month payment period regardless of whether an abandoned patient was still in the 36 month rental payment period or the non-rental payment period consisting of rental months 37-60.

As with any other situation in which oxygen equipment is lost and replacement equipment is furnished, the RA modifier must be submitted on the claim and a narrative explanation should be included on the claim. In addition the replacement supplier must obtain the necessary qualifying documentation, including the blood gas testing results, a new order and/or CMN, and proof of delivery.

Baird will be presenting at Medtrade Spring 2014 in Las Vegas, where he will share his expertise, advice, and ideas. CLICK HERE to register for Medtrade Spring, held from March 10-12, 2014, at the Mandalay Bay Convention Center, Las Vegas.

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies, and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or