The DME industry in its present form has been around for about 30 years. We grew up unregulated. Thirty years ago, hardly anyone on Capitol Hill—and hardly anyone with HCFA (now CMS) —knew what DME suppliers did. So little money was paid to the DME industry (compared to money paid to hospitals and physicians) that the DME industry did not appear on the government’s radar. While the vast majority of DME suppliers were honest and caring, a minority of suppliers was intent on scamming the system. This is not unique to DME suppliers. We see physicians, politicians, attorneys and televangelists do the same thing. Unfortunately, an honest supplier does not make for an interesting story; therefore, honest suppliers do not garner press. But the small group of dishonest players received the press—and the stories were salacious. We heard stories of fraudsters in Houston and South Florida. In turn, the DME industry became low-hanging fruit for CMS, Capitol Hill, the Department of Justice and the OIG. Railing against the small number of dishonest DME suppliers made for interesting sound bites, and the DME industry caught the attention of government regulators. The government overreacted, and the pendulum swung too far to the right. Within a short period of time, the DME industry was caught in a perfect storm of competitive bidding, post-payment audits, prepayment reviews, stringent documentation requirements and lower reimbursement. Will the pendulum eventually swing back to the middle? Sure. But not until innocent DME suppliers have been hurt. In previous decades, it was easy for a DME supplier to make money. The supplier would sell a product to the Medicare patient, and Medicare would pay the supplier more than the supplier’s cost. Those days are gone. The old Medicare fee-for-service model is dead. A DME supplier can no longer survive by billing Medicare under the low reimbursement rates, particularly when the supplier knows that a portion of the money may be taken back pursuant to a post-payment audit. In order to survive, DME suppliers must think outside the box. Suppliers must walk so far away from the comfort zone that they forget what the comfort zone looks like. While this is sobering, there is good news. The 78 million baby boomers are now retiring at the rate of 10,000 per day. On average, boomers will live to be 85 years old and, until they die, they expect to be running triathlons and going to concerts. Boomers do not expect, or want, to be living in long-term care facilities. Around the age of 70, boomers will need what the DME industry has to offer, and the demand will only increase exponentially. Boomers will also pay for a portion of their health care out of pocket. In 2014, this means that there will be a great demand for what the supplier has to offer. However, the supplier will have to be creative in meeting that demand and getting paid. In short, the market outlook for the DME industry in 2014 is good, and it will only get better in the years ahead as the boomers age. The DME supplier will need to be innovative as it meets the growing demand for DME. To boost revenue this year, suppliers may want to consider following some of these creative avenues. Hospital/Supplier Joint Venture—A joint venture is nothing more than two or more people (or two or more companies) owning something together. The government may carefully scrutinize a joint venture between a hospital and DME supplier in order to ensure that the venture is not merely a sham whereby the DME supplier is paying remuneration to the hospital in exchange for the referral of customers. The safe harbor applicable to joint ventures is the Small Investment Interest. However, a joint venture will rarely fit within the Small Investment Interest safe harbor. If the Small Investment Interest safe harbor is not met, then the government will examine the joint venture under the guidelines of the OIG’s 1989 Special Fraud Alert (Joint Ventures) and the OIG’s April 2003 Special Advisory Bulletin (Contractual Joint Ventures). Hospital/DME Supplier Readmission Prevention Collaboration—A way for a hospital to protect its revenue stream is to prevent readmissions for diseases covered by the Hospital Readmissions Reduction Program (HRRP). If a patient is readmitted for a particular disease within a certain period of time after discharge, then the hospital can be subjected to future payment reductions from Medicare. Hospitals are beginning to contract with other providers, including DME suppliers, to monitor/work with discharged patients to reduce readmissions. In working with a hospital to prevent readmissions, it is important for DME suppliers to follow the guidelines set in the OIG’s Advisory Opinion No. 13-10. Discounts to Cash Customers—Increasingly, DME suppliers are moving into the cash-and-carry market. Because of the cost savings resulting in not having to submit claims to Medicare, DME suppliers reduce the price on products sold for cash to less than the Medicare allowable for the same items. In so doing, however, it is important that the supplier adhere to OIG guidance addressing discounts to cash customers. A DME supplier is prohibited from charging Medicare substantially in excess of the supplier’s usual charges, unless there is good cause. See 42 U.S.C. § 1320a-7(b)(6)(A); 42 CFR § 1001.701(a)(1). The regulations do not give any guidance on what constitutes “substantially in excess” or “usual charges.” “Unusual circumstances or medical complications requiring additional time, effort, expense” would be considered good cause [42 CFR § 1001.701(c)(1)]. A DME supplier who violates this prohibition is subject to exclusion from federal health care programs [42 CFR § 1001.701(a)]. The most recently proposed rules—and the ones that give us the clearest guidance so far—contemplate the “usual charge” to be either the average or median of the supplier’s charges to payers other than Medicare (and some others). [See generally 68 FR 53939 (Sept. 15, 2003).] Under these proposed rules, a DME supplier’s usual charge should not be less than 83 percent of the Medicare fee schedule amount (up to a 17 percent discount). There would be an exception for good cause, which would allow a supplier’s usual charges to be less than 83 percent of the Medicare fee schedule, if the supplier can prove unusual circumstances requiring additional time, effort or expense, or increased costs of serving Medicare beneficiaries. The proposed rules would include charges of affiliate companies in 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 rules explicitly exclude 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. CMS declined to promulgate the proposed rules into a final rule [72 FR 33430, 33432 (June 18, 2007)]. Cooperative Marketing Program—A DME supplier and another provider (such as a pharmacy) may enter into a cooperative marketing program. The costs and expenses of the program must be proportionately shared by the DME supplier and the other provider. Loan and Consignment Closets—A DME supplier may place inventory in a hospital or physician’s office. The inventory must be for the convenience of the hospital’s or physician’s patients, and neither can financially benefit, directly or indirectly, from the inventory. Preferred Provider Agreement—Suppliers can enter into a Preferred Provider Agreement with a hospital whereby, subject to patient choice, the hospital will recommend the DME supplier to its patients who are about to be discharged. Employee Liaison—A DME supplier may designate an employee to be on a hospital’s premises for a certain number of hours each week. The employee may educate the hospital staff regarding medical equipment (to be used in the home) and related services. The employee liaison may not assume responsibilities that the hospital is required to fulfill. Doing so will save the hospital money, which will likely constitute a violation of the Medicare anti-kickback statute. Medical Director Agreement—A DME supplier can enter into an independent contractor Medical Director Agreement with a physician, even if the physician is a referral source. The MDA must comply with the Personal Services and Management Contracts safe harbor and the Personal Services exception to the Stark Law Physician Self-Referral statute.
Purchase of Internet Leads—When a DME supplier signs a lead generation agreement (LGA) with a lead generation company (LGC), two main legal issues must be addressed. The first one involves the Medicare anti-kickback statute. It is acceptable to purchase a lead; however, it is a violation of the anti-kickback statute to pay for referral. The line between the two can be blurry. In the eyes of the OIG, there is a distinction between 1) a raw or unqualified lead and 2) a qualified lead. It is acceptable for an LGC to obtain basic information from a lead (name, address and telephone number) and sell this raw lead to a DME supplier. The DME supplier can, in turn, pay the LGC on a per lead basis. If, however, the LGC obtains qualifying information on the lead (Medicare number, other insurance information, medical condition, physician’s name, products currently being used, etc.) and sells the qualified lead to the DME supplier which, in turn, pays for the lead on a per lead basis, then it is likely that the government will take the position that the DME supplier is not buying a lead but is paying for a referral, which violates the anti-kickback statute. The telephone solicitation statute and Supplier Standard 11 say essentially the same thing. The statute/standard says that a DME supplier, or a person or company on behalf of the DME supplier, may not call a prospective customer who is a Medicare beneficiary unless the beneficiary has first given his written permission to be called. In addition to the ink signature of the beneficiary, the Federal Electronic Signature Act states that the written permission can be electronic. Subcontracting—According to CMS guidance, a DME supplier cannot subcontract out “intake, assessment and coordination of care with the physician.” On the other hand, a DME supplier can subcontract out delivery, patient education, set-up, repair and maintenance, and obtaining documentation from the physician that supports medical necessity (e.g., physician progress notes). In addition, 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. If the subcontractor is directly or indirectly generating Medicare business for the contractor, then the agreement cannot provide for percentage compensation to the subcontractor. Nursing Homes/Skilled Nursing Facilities—Most residents of nursing homes may receive DME reimbursed by Medicare Part B as if those patients were residents of their own homes. Conversely, a skilled nursing facility (SNF) is paid a per diem rate for the patient’s care. The DME supplier can enter into a contract with the SNF to provide products to the SNF patients. The SNF, not Medicare, will pay the DME supplier. 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. VA Hospitals and Facilities—The Veterans Administration (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 Department of Veterans Affairs operates a nationwide system of hospitals, clinics, Veterans Integrated Service Networks (VISN), data processing centers and National Cemetery Administration which require a broad spectrum of goods and services. It purchases these goods and services on a national, regional and local level. TRICARE—TRICARE is the health care program for uniformed service members, their families and survivors. TRICARE is a large purchaser of DME that offers 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. Direct Contracts with Employers—In order to cut costs while offering services to their employees, a number of large employers are contracting directly with health care providers, including DME suppliers. Grandfathered Suppliers—For a DME supplier that is not awarded a competitive bid contract, 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. Products and Services Not Subject to Competitive Bidding—The competitive bidding program only covers defined product categories, featuring enumerated items. Suppliers may sell products not covered in the competitive bidding program’s product categories without going through the bidding process. Medicaid and Other State Programs—All states have medical assistance programs, such as Medicaid. Medicaid programs generally require enrollment, and many Medicaid programs restrict enrollment to in-state or border-state entities. Despite that restriction, many Medicaid programs also have waiver programs that allow the state to cover a wide range of items and services. Cash Sales—Many baby boomers are accustomed to paying their way and want to avoid the inefficiencies associated with the Medicare and Social Security programs. These boomers will be inclined to simply purchase medical equipment rather than have to spend the time to obtain Medicare qualification. Innovative suppliers are focusing on the cash market. Some are building impressive showroom floors, while others are selling items through websites. This is the wave of the future. Internet Sales and Non-Medicare Covered Items—Many suppliers are beginning to consider selling items via the Internet. Having a strong Internet presence allows a supplier to reach customers on a national basis. At the same time, cash sales do not entail the oftentimes burdensome requirements of government and commercial payers. A supplier seeking to sell items over the Internet should look into state licensure requirements. Use of ABNs—By using an Advance Beneficiary Notice (ABN), which notifies the beneficiary in writing of Medicare’s likely denial, a DME supplier may furnish a beneficiary an upgrade item and collect money from the beneficiary if and when the claim is denied. The purpose of an ABN is to inform the beneficiary that Medicare will probably not pay for a certain item or service in a specific situation, even if Medicare might pay for the item or service under different circumstances. Workers’ Compensation—There are workers’ comp programs at federal and state levels. Each of these programs has its own system for enrolling providers, and the supplier will need to gain entrance to certified workers’ comp health care networks. State Prison Systems—Many state prison systems require DME or pharmaceuticals for prisoners. Many states have moved toward having specific prison facilities designated as medical detention centers. To determine whether the Department of Corrections contracts independently with DME suppliers for this service in your state, interested DME supplies should contact the appropriate department. Resort Hotels and Casinos—Many large resort hotels have begun providing wheelchairs, scooters and other medical equipment to their guests as a way of making the guests feel more at home. 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—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. Hub and Spoke Model—The hub and spoke model is a method to expand into new geographical areas without having to obtain new supplier numbers. How it works:
- ABC Medical Equipment, Inc. (ABC) is located in Dallas, and it has a supplier number attached to its Dallas location.
- ABC decides to expand into Denton, Texas, but does not want to go through the expense of obtaining a supplier number for a location there.
- ABC opens a warehouse in Denton and hires a driver to deliver in the Denton area.
- The Denton warehouse is not open to customers.
- The phone number published in the Denton phone book is a toll-free number that is directed to the Dallas location.
- When a physician calls in an order or a customer calls ABC, the calls go to Dallas.
- ABC’s employee handles the intake, assessment and coordination of care. The point of sale occurs in Dallas.
- The Dallas employee instructs the Denton delivery driver to pick up equipment from the warehouse and deliver it to the customer’s house.
- If the customer has a piece of equipment that needs to be repaired, then the delivery driver drops off a loaner at the customer’s house, picks up the equipment to be repaired, has the equipment repaired, delivers the repaired equipment to the customer’s house and picks up the loaner.
Medicare Advantage Plans—Competitive bidding applies to Medicare fee-for-service patients; it does not apply to Medicare Advantage patients. The HME supplier should endeavor to become a supplier under as many Medicare Advantage plans as possible. The HME supplier can suggest to its Medicare fee-for-service patients that they sign up for Medicare Advantage plans under which the Medicare supplier is a provider. Managed Care Contracts—The HME supplier should take aggressive steps to become a provider under a number of managed care contracts. Media Advertising—Consider creating an advertising campaign to promote on television, radio, in the newspaper and through other media outlets. Physicians and Referral Sources—It is acceptable for the DME supplier to call on physicians, hospital discharge planners, home health agencies and other referral sources in order to market the company’s products and services. Under federal law, the DME supplier cannot directly or indirectly give something of value to the referral sources for referrals. Stark Law allows a DME supplier to furnish non-cash items (such as meals) to a physician, as long as the cost of the meals, in the aggregate, does not exceed $380 over 12 months. There is not a similar exception to the Medicare anti-kickback statute. However, if this $380 Stark Law exception is followed, it is unlikely that the government will allege that the non-cash items furnished to a physician violate the anti-kickback statute. Mail-Outs—On condition that the DME supplier secures a mailing list in such a way that HIPAA is not violated (e.g., the list comes from a non-covered entity), then the supplier can mail to the individuals on the list literature that educates the recipient regarding the supplier’s products and services. Promotional Items—The DME supplier can offer an item of nominal value (i.e., retail value of not more than $10) to customers/prospective customers covered by a government health care program. During a 12-month period, the DME supplier may not give items to any one customer that have a combined retail value greater than $50. Health Fairs, Luncheons, Kiosks and Open Houses—The DME supplier can participate in local health fairs. Similarly, the supplier can put on a short program during lunch at a senior citizens’ center, at which time the supplier can distribute promotional literature. The DME supplier can place a kiosk in a mall that promotes the supplier’s products and services. On a periodic basis, the DME supplier can hold an open house.
