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.
Nevertheless, the parties will need to contend with the “one purpose” test. What the subcontract agreement cannot provide is percentage compensation. In other words, the agreement cannot say that the contract supplier will pay 75 percent of payments that the contract supplier receives from Medicare to the subcontractor. The safest approach is for the contract supplier to pay a fixed annual fee to the subcontractor and for the annual fee to be the fair market value equivalent of the subcontractor’s services. Such a compensation arrangement is a key element of the Personal Services and Management Contracts safe harbor to the anti-kickback statute. A middle ground approach – one that entails a kickback risk – is for the compensation to be on a fee schedule basis, such as $75 per delivery or $125 per service call.
The problem with a fee schedule is that the money paid by the contract supplier varies based on the volume of business generated by the subcontractor. If the parties adopt this middle ground approach, then the risk can be reduced by other elements of the subcontract arrangement, such as the contract supplier purchasing the inventory from the manufacturer as opposed to purchasing the inventory from the subcontractor.
Should I focus on selling products not subject to CB and/or not covered by Medicare?
Absolutely. The CB program only covers defined product categories, featuring enumerated items. Suppliers may sell products, not covered in the CB program’s product categories, without going through the bidding process. From a broader perspective, the supplier can sell products that Baby Boomers will need as they age but which are not covered by Medicare. Examples are installation of wheelchair ramps; installation of vehicle wheelchair lifts; installation of devices that will transport a person from one room to another; and bathroom and kitchen remodeling.
Is there an opportunity to provide products to residents of long-term care facilities?
Yes. Most residents in long-term care facilities may receive DME reimbursed by Medicare Part B as if those patients were residents of their own homes. For those long-term care facilities that are not paid a per diem rate for the patient’s care, DME suppliers may either bill Medicare directly for provision of the equipment, or, in some cases, facilities may choose to contract with the DME supplier to provide the equipment directly to the facility and the facility will then provide it as a benefit to its residents.
What about hospices?
The hospice benefit paid to the hospice facility includes the equipment and products used to service the beneficiary. DME suppliers are not entitled to receive reimbursement from Medicare for equipment provided to hospice patients. Hospices, however, may purchase this equipment directly from DME suppliers. The DME supplier should approach hospice providers in its market to inquire about their source of medical equipment and to determine if the hospice is a potential purchaser of equipment or supplies.
What steps must the DME supplier take to sell to the federal Department of Veterans Administration (VA)?
The VA is a large purchaser of DME and routinely sends out requests for proposals asking that DME suppliers submit a bid to different VA regions or facilities that service patients. The VA operates a nationwide system of hospitals, clinics, Veterans Integrated Service Networks (VISN), data processing centers and national cemeteries which require a broad spectrum of goods and services.
It purchases these goods and services on a national, regional and local level. The VA purchases a majority of its requirements for direct delivery through its local Acquisition and Material Management office. Some of the items the VA purchases are pharmaceuticals and medical and surgical supplies; perishable subsistence; equipment, supplies, and materials for facility operation; prosthetic and orthopedic aid; medical gasses; and other items.
Acquisitions are accomplished by sealed bidding, negotiation, or simplified acquisition procedures. Depending on the commodity, most acquisitions at a medical center are of a definite-delivery/indefinite-quantity type. Much of the purchasing is accomplished through the use of mandatory sources such as Federal Supply Schedules and supply depots. A significant portion, however, will be acquired from sources obtained through the publication of solicitations in the Federal Business Opportunities (FedBizOpps), solicitation mailing lists, commercial advertising or any other accepted means that will provide the procuring activity with a sufficient number of responsible bidders to ensure full and open competition.
Federal Business Opportunities (“FedBizOpps”) can be searched here. Simply typing in “durable medical equipment” or “dme” into the Keyword/Solicitation # field will bring up opportunities for contracts with the Department of Veterans Affairs as well as other federal agencies.
The Office of Small and Disadvantaged Business Utilization (OSDBU) was established in the VA to assist and support the interests of small business. Check the Small Business Program website for details. OSDBU is responsible for monitoring VA implementation and execution of the following socioeconomic procurement programs:
• Service-Disabled Veteran-Owned Small Business
• Veteran-Owned Small Business
• Small Disadvantaged Business (includes Section 8(a))
• Historically Underutilized Business (HUB) Zone Small Business
• Women-Owned Small Business
What is TRICARE and how can I sell products to patients covered by this program?
TRICARE is the health care program for uniformed service members, their families, and survivors. TRICARE is another large purchaser of DME which offers both contract and noncontract opportunities for suppliers. TRICARE uses military treatment facilities—also known as direct care—as the main delivery system and augments direct care with a network of civilian providers and facilities.
The program is available worldwide and managed regionally in six separate TRICARE regions jointly by the TRICARE Management Activity (TMA) and TRICARE Regional Offices: (1) North, (2) South, (3) West, (4) Eurasia-Africa, (5) Latin America and Canada and (6) Pacific. Each TRICARE region has its own managed care support contractor (MCSC) that is responsible for administering the TRICARE program in each region. The TRICARE regional contractors assist the TRICARE Regional Offices/TRICARE Area Offices and military treatment facility commanders. The MCSCs are responsible for establishing the provider networks in each TRICARE region.
At a minimum, all TRICARE providers must be authorized/certified under TRICARE regulation and must have their authorized/certification status verified by the MCSCs in each region. To find links to certification information as well as contract opportunities, click here.
TRICARE has an established “hierarchy” of provider types. Understanding the different types will help you decide what type of TRICARE provider you want to be. A TRICARE-authorized provider is a provider that meets TRICARE's licensing and certification requirements and has been certified by the managed care support contractor to provide care to TRICARE beneficiaries. There are two types of TRICARE-authorized providers:
• Network providers sign a contractual agreement with the managed care support contractor and agree to provide care at a negotiated rate and file claims for beneficiaries.
• Non-network providers must be certified, but they do not sign a contractual agreement with the managed care support contractor. There are two types of non-network providers.
Participating providers agree to file claims for beneficiaries, to accept payment directly from TRICARE and to accept the TRICARE maximum allowable charge as payment in full for their services. Non-participating providers do not agree to accept the TRICARE maximum allowable charge or file beneficiary claims. Non-network providers can choose to participate on a claim-by-claim basis. You do not choose to be either participating or non-participating all of the time. The maximum amount that TRICARE can pay a provider for a procedure or service is known as the TRICARE allowable charge. The TRICARE allowable charge is tied by law to Medicare's allowable charge whenever practical and may vary based on the prevailing rate in a given location.
Is it possible for me to bill workers compensation insurance carriers?
Yes. Those injured on the job have access to workers’ compensation insurance. There are workers’ compensation programs at both the federal and state levels. These insurance programs are another source of business for DME providers. Each of these programs has its own system for enrolling/registering providers, and you will need to gain entrance to certified workers’ compensation health care networks. This website provides links to every state workers’ compensation website to determine the procedures for providing DME through the respective states’ programs.
Thinking “outside the box,” what other programs and businesses are there that may wish to purchase DME from me?
Many state prison systems require DME or pharmaceuticals for prisoners. Many states have moved towards having specific prison facilities designated as “medical detention centers.” DME suppliers interested in this should click here. This website provides links to specific state boards of correction or prison systems and information regarding the appropriate contact person at the state level.
In addition, many large resort hotels provide wheelchairs, scooters and other medical equipment to their guests. DME suppliers that are located in a marketplace with large hotels and casinos should contact the hotels directly to determine if there is a contracting process and how suppliers may participate.
Airports are frequent purchasers of wheelchairs and other medical equipment for use by customers traveling through the airport. Many of these pieces of equipment are provided by local DME suppliers. Suppliers wishing to obtain more information should contact the airport facilities manager to discuss the contracting process.
Can I sell Medicare-covered items for cash at a discount off the Medicare allowable?
Yes. Increasingly, HME companies are moving into the “cash and carry” market. That is, companies are striving to sell items to non-Medicare customers who desire to pay cash. Because of the cost-savings resulting in not having to submit claims to Medicare, HME companies price products, that are sold for cash, less than the Medicare allowable for the same items. In so doing, however, it is important that the company adhere to published guidance addressing discounts to cash customers.
An HME company is prohibited from charging Medicare substantially in excess of the company’s usual charges, unless there is good cause. The regulations do not give any guidance on what constitutes “substantially in excess” or “usual charges.” “[U]nusual circumstances or medical complications requiring additional time, effort, expense” would be considered good cause. An HME company that violates this prohibition is subject to exclusion from federal health care programs.
While there have been some efforts by the OIG to define “substantially in excess” and “usual charges,” no final rule has been issued. The clearest guidance came from a proposed rule that was published on Sept. 15, 2003. This rule contemplates the “usual charge” to be either the average or median of the supplier’s charges to payors other than Medicare and some others. Under the proposed rule, an HME company’s usual charge should not be less than 83 percent of the Medicare fee schedule amount—up to a 17 percent discount from the Medicare fee schedule. There would be an exception for good cause, which would allow a company’s usual charges to be less than 83 percent of the Medicare fee schedule, if the company can prove unusual circumstances requiring additional time, effort or expense or increased costs of serving Medicare and Medicaid beneficiaries.
The proposed rule would include charges of affiliate companies into the calculation of a supplier’s usual charges. An affiliated company is any entity that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the HME company. The proposed rule explicitly excludes fees set by Medicare, state health care programs, and other federal health care programs, except TriCare. By implication, charges not specifically excluded will be included. However, the Center for Medicare & Medicaid Services declined to promulgate the proposed rule into a final rule. While the proposed rule was never finalized, it does give the industry guidance regarding the government’s view towards selling a Medicare-covered item for cash at a price below the Medicare allowable.
