A Cumbrian woman died after reportedly waiting hours for oxygen, prompting the NHS trust and firm responsible for the contract to launch inquiries.
Patients in most of England and Wales are being told to use the NHS not the firms if oxygen is needed urgently.
According to reports, Alice Broderick, 63, died last Saturday after oxygen, which had been ordered by an out-of-hours doctor, took more than eight hours to arrive at her home in Carlisle.
About 60,000 people require oxygen at home for pulmonary, heart and cancer problems. Many are elderly patients, but some premature babies are also on oxygen.
Before the new arrangements came in at the start of February, GPs prescribed oxygen for pharmacies to provide cylinders through local gas suppliers.
The contract with the four major suppliers - Air Products, Allied Respiratory, BOC Medical and Linde Gas - was designed to save money and allow patients quicker and easier access to gas supplies.
The Department of Health said it was aware of difficulties in the service but that it has been assured patients who urgently need oxygen will get it.
He said the problem had been caused by the "high number of orders" which had been received.
Patients in Wales and in the south west, south east, north west, Midlands, London, and Yorkshire and Humber areas of England are being asked to use pharmacies if oxygen is needed urgently.
Air Products, which supplies seven of the 11 regions in England and Wales including North Cumbria, said "We apologise to patients for these short-term difficulties."
And the spokeswoman added the company was "very sorry" to hear about Mrs Broderick's death and was launching an investigation to find out what happened.
Liberal Democrat health spokesman Steve Webb said the new system was failing and called for a full investigation into the "shambles".
The National Pharmacy Association, which represents 11,000 community pharmacies, said it had always been concerned about "possible 'worst case scenario' implications".
"This highlights the difficulties and problems inherent in the new system, when patients have to reply solely on one supplier, covering a large geographic area," it said in a statement.