DME Modifiers NU, RR, and UE: How Medicare Pays Purchase and Rental Equipment

2026-10-07 · Caduvo Team

Learn how Medicare pays for new, rented, and used durable medical equipment using modifiers NU, RR, and UE, and how the 13-month capped rental rule impacts supplier cash flow.

A medical device company projecting Medicare revenue for a home-use product often starts with a single fee schedule rate. That projection breaks down the moment billing begins. The Centers for Medicare & Medicaid Services (CMS) rarely reimburses durable medical equipment through an immediate lump sum. Instead, Medicare classifies equipment into statutory payment categories and relies on two-digit dme modifiers to determine whether suppliers receive an upfront purchase payment, a series of monthly capped rental disbursements, or a discounted rate for used hardware.

Understanding how the nu modifier, rr modifier, and ue modifier govern reimbursement is central to commercial modeling. If an item falls into a capped rental category instead of an outright purchase bucket, distribution partners collect the fee schedule allowance across 13 continuous months. That payment schedule directly dictates distributor cash flow, inventory carrying costs, and wholesale pricing.

Decoding Core DME Modifiers: NU, RR, and UE

Medicare uses three primary pricing modifiers on claims submitted to Durable Medical Equipment Medicare Administrative Contractors (DME MACs) to define the transaction type:

NU (New Equipment Purchase): Identifies the purchase of brand-new equipment delivered directly to the patient. Suppliers may only append the nu modifier if new equipment was delivered.
RR (Rental): Identifies equipment furnished on a rental basis, triggering a monthly rental allowance rather than a purchase fee.
UE (Used Equipment Purchase): Identifies the purchase of equipment that has been previously used, rented, or deployed as a trial or demonstrator unit.

According to Noridian's Inexpensive and Routinely Purchased DME guidance, equipment counts as used under Medicare billing rules if it was purchased or rented by anyone prior to the current purchase transaction. This definition includes devices used without a commercial exchange, such as trial periods or demonstrator units.

Under CMS DMEPOS Fee Schedule documentation, Medicare maintains separate pricing lines for NU, RR, and UE across billing jurisdictions. On the standard claim form or electronic 837P transaction, modifier sequence matters. Under Noridian modifier placement instructions, the claim form captures up to four modifiers per line item:

First position: Pricing modifiers (such as NU, RR, KH, KI, or KJ).
Second position: Modifiers indicating clinical policy requirements are met (such as the KX modifier for medical necessity).
Third and fourth positions: Additional informational modifiers. If more than four modifiers are required, suppliers submit modifier 99 in the fourth position and enter additional modifiers in the claim narrative.

If a required modifier is missing, the DME MAC denies the claim as unprocessable. For teams structuring a broader medical device reimbursement strategy, these rules establish the baseline operational mechanics within the Medicare DME fee schedule.

Payment Categories: Inexpensive Items vs. Capped Rental

Medicare does not permit suppliers to choose between billing NU or RR at will. Reimbursement follows the statutory payment category CMS assigns to the product's HCPCS code. Two categories dominate home medical hardware:

1. Inexpensive and Routinely Purchased (IRP) DME

As defined by Noridian's IRP guidelines, inexpensive DME consists of equipment whose purchase price does not exceed $150. Routinely purchased DME covers items purchased at least 75 percent of the time historically. Examples include canes, walkers, crutches, commode chairs, low pressure and positioning equalization pads, home blood glucose monitors, seat lift mechanisms, pneumatic compressors (lymphedema pumps), bed side rails, and traction equipment.

For IRP equipment, Medicare allows either a lump-sum purchase (billed with NU or UE) or monthly rental (billed with RR). Under DMEPOS Supplier Standard number 5, suppliers must advise beneficiaries that they may rent or purchase inexpensive or routinely purchased equipment. Total payment cannot exceed the actual charge or the allowable fee for purchase. Once rental disbursements reach the allowable purchase amount, payments cease.

2. Capped Rental Items

Therapeutic medical devices exceeding a $150 purchase price that are not routinely purchased generally fall into capped rental. For capped rental items, Medicare does not permit an immediate lump-sum purchase upon delivery. The supplier must bill using the rr modifier on a monthly schedule. Title to the equipment remains with the supplier throughout the rental period and transfers to the beneficiary after 13 continuous months of payment.

Allowable rates vary widely by state. For instance, querying continuous positive airway pressure (CPAP) code E0601 on Caduvo shows 2026 monthly rental (RR) rates ranging between $50.04 and $100.22 per month depending on the state.

The 13-Month Capped Rental Math and Exceptions

The capped rental payment formula is fixed by regulation. Suppliers bill the rr modifier alongside stage-specific rental tracking modifiers to reflect duration of use:

Months 1 through 3 (Modifiers RR and KH/KI): Medicare sets the monthly rental payment at 10 percent of the base allowed purchase price on assigned claims for new equipment during a base period, updated for inflation. The KH modifier identifies the initial rental month, while KI covers months two and three.
Months 4 through 13 (Modifiers RR and KJ): For the remaining 10 months, Medicare sets the monthly payment at 7.5 percent of the base allowed purchase price. Suppliers append the KJ modifier to indicate months 4 through 13.

Summed across the 13-month cycle (3 months at 10% = 30%, plus 10 months at 7.5% = 75%), total Medicare reimbursement equals 105 percent of the base purchase price. After 13 paid rental months, title transfers to the beneficiary. The supplier can no longer bill rental. From month 14 forward, Medicare pays for reasonable and necessary maintenance and servicing, covering parts and labor not covered under a supplier or manufacturer warranty.

Power wheelchairs follow an adjusted formula under Noridian capped rental guidelines. Payment for the first three months is 15 percent of the purchase price, and payment for months 4 through 13 is 6 percent, which also totals 105 percent.

Interruptions in Continuous Use

A capped rental schedule requires continuous patient use. Under CMS Internet Only Manual (IOM) Publication 100-04, Chapter 20, Section 30.5.4, an interruption must exceed 60 consecutive days plus the days remaining in the 30-day rental month in which use ceased for a new 13-month rental period to begin. If the patient enters a hospital, skilled nursing facility (SNF), or hospice where medical need continues, rental payment pauses while home use ceases. Billing resumes at the previous month count once home use resumes.

The BP and BR Purchase Option

CMS maintains an exception allowing upfront purchase for complex rehabilitative power wheelchairs (codes K0835 through K0843 and K0848 through K0864) and parenteral/enteral nutrition pumps. Under Noridian Modifier BP instructions and Modifier BR instructions, suppliers must offer beneficiaries the choice to purchase or rent when the item is first furnished:

If the beneficiary chooses purchase, the supplier submits the initial claim with NU or UE and modifier BP, triggering a lump-sum payment.
If the beneficiary chooses rental, the claim carries RR and modifier BR (or BU if undecided). Enteral pumps can be rented for up to 15 monthly payments.
A beneficiary has the option of purchasing a parenteral/enteral pump at any time during the rental period. If the beneficiary initially rented and later decides to purchase, the supplier submits a claim with modifier NU or UE and BP in the month requested, and a lump-sum payment is calculated.

Commercial Implications for Device Manufacturers

Reimbursement mechanics directly shape commercial terms with DME distributors:

Working Capital Drag for Suppliers: A distributor delivering a capped rental device pays the manufacturer upfront, often on net-30 or net-60 terms. Medicare pays out only 30 percent of the allowable over the first 90 days. If wholesale pricing requires 60 percent of the total fee schedule allowance, the distributor operates cash-flow negative on that unit for seven months.
Therapy Abandonment: If a patient stops therapy at month four, the supplier collects only 37.5 percent of the fee schedule allowance (10% x 3 + 7.5% x 1). The supplier must retrieve, inspect, and restock the hardware before deploying it to another patient under a new rental cycle.

Actionable Steps for Device Makers and Suppliers

Confirm the statutory DME category early: Do not assume a new device qualifies for lump-sum purchase. Verify whether CMS assigns the code to Inexpensive/Routinely Purchased, Capped Rental, or Items Requiring Frequent and Substantial Servicing. Comparing HCPCS vs CPT codes prevents faulty revenue projections.
Stress-test wholesale pricing against month-three receipts: Calculate distributor margins against the first 90 days of rental receipts (30 percent of the Medicare allowable). If distributors cannot cover hardware acquisition costs by month three, consider extended payment terms.
Coordinate warranties with the 13-month transfer window: Medicare does not pay for repairs covered under a manufacturer warranty. Align commercial warranty periods with the 13-month title transfer date so suppliers can bill Medicare maintenance codes once patient ownership takes effect.
Structure claim line modifier order: Ensure billing templates submit pricing modifiers (NU, RR, UE, KH, KI, KJ) in the first position, clinical coverage indicators (such as KX) in the second position, and purchase election modifiers (BP, BR) when billing applicable power mobility or infusion hardware.

Sources

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