Payment Sources Above and Beyond Competitive Bidding

It is the “irresistible force” meeting the “immovable object.” The “irresistible force” is the 78 million-strong Baby Boomer Generation—born between 1946 and 1964—who will live to be 85 years old or older, whose bodies will break down when they reach age 70 and who will need what the HME industry has to offer.

The “immovable object” is a broken Medicare system. In short, Medicare will only be able to pay what it can, which will not be much. The successful HME provider will need to seek payment sources other than Medicare. This Q&A discusses these alternative payment sources.

If I am not awarded a competitive bid (CB) contract, how can “grandfathering” help me?

Under CB, there is a grandfathering process for oxygen equipment and supplies; inexpensive or routinely purchased items furnished on a rental basis; items requiring frequent and substantial servicing; and capped rental items furnished on a rental basis. Only DME suppliers that began furnishing these grandfathered items prior to implementation of competitive bidding may be eligible to participate as a grandfathered supplier.

Beneficiaries may choose to continue renting the item from the grandfathered supplier, provided the grandfathered supplier is willing to continue furnishing the item under the same terms as the contract supplier, at the same price as the contract supplier.

The beneficiary may choose to switch from a grandfathered supplier to a contract supplier at any time. If a DME supplier chooses to be a grandfathered supplier, then it must do so for all beneficiaries who request the services. For items requiring frequent and substantial servicing and oxygen equipment, the grandfathered supplier will be paid the bid payment amount. For capped rental items and inexpensive or routinely-purchased items, the grandfathered supplier will be paid the lower of the actual charge or rental fee schedule amount.

Grandfathering is also applicable to DME suppliers that lose their contract status in a subsequent competitive bidding period.

Whether or not I am located in a competitive bidding area (CBA), I may want to enter into a subcontract arrangement. In such an arrangement, what can I do, and what am I prohibited from doing?

There are a number of issues when it comes to subcontract agreements. A subcontractor cannot handle intake, assessment and coordination of care for the supplier. A subcontractor can handle education, set-up, maintenance and repair.

Also, a subcontract agreement cannot violate the Medicare anti-kickback statute, which states that a health care provider cannot give anything of value to a person or entity in exchange for referring Medicare patients or in exchange for arranging for the referral of Medicare patients.

In addition, there is the “one purpose” test contained in court decisions. This test provides that if “one purpose” behind payment to a referral source is to induce referrals, then the anti-kickback statute is violated even if the referral source provides legitimate nonreferral services and the payment is the fair market value equivalent of the services. An example of a subcontractor arrangement is where a provider is not awarded a CB contract and wants to preserve its relationship with referral sources. The provider may seek to become a subcontractor for a CB winner, or contract supplier. The subcontractor will end up referring or arranging for the referral of Medicare beneficiaries to the contract supplier. Under the subcontract agreement, the contract supplier will pay compensation to the subcontractor for services other than referring patients.