A significant increase in the diagnosis and treatment for obstructive sleep apnea over the past several years has led to a surge in the need for sleep studies and an increase in the number of joint ventures and cooperative arrangements between HME companies, physician offices and sleep labs.
Although HME providers are justifiably interested in cooperating with other entities on matters related to sleep testing, the expansion of sleep testing and treatment for OSA has led the Centers for Medicare and Medicaid Services, the HHS Office of Inspector General as well as the Program Safeguard Contractors (in transition to Zone Program Integrity Contractors) to scrutinize sleep testing and CPAP utilization more closely than they have in the past. This increased scrutiny has resulted in both positive and negative consequences.
On the positive side, CMS has announced an anticipated expansion of qualified sleep studies to include unattended sleep studies performed in the patient's home.
On the negative side, HME providers and sleep labs must be extremely careful in structuring any joint venture arrangements to verify that they meet appropriate federal and state guidelines.
PAP LCD and Home Sleep Tests
Coverage and payment rules for sleep tests can be found in the local coverage determinations for the applicable Medicare Part A or Part B contractor. There may be differences between those LCDs and the DME MAC LCD for Positive Airway Pressure therapy. For the purposes of coverage of PAP therapy, the DME MAC coverage, coding and payment rules take precedence.
Coverage of a PAP device for the treatment of OSA is limited to claims where the diagnosis of OSA is based upon a Medicare-covered sleep test. A Medicare-covered sleep test must be either a polysomnogram performed in a facility-based laboratory (Type I study) or a home sleep test.
The test must be ordered by the beneficiary's treating physician and conducted by an entity that qualifies as a Medicare provider of sleep tests and is in compliance with all applicable state regulatory requirements.
An HST is performed unattended in the beneficiary's home using a portable monitoring device. That device must meet one of the following criteria:
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Type II device - Monitors and records a minimum of seven channels: EEG, EOG, EMG, ECG/heart rate, airflow, respiratory movement/effort and oxygen saturation; or,
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Type III device - Monitors and records a minimum of four channels: respiratory movement/effort, airflow, ECG/heart rate and oxygen saturation; or,
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Type IV device - Monitors and records a minimum of three channels that must allow direct calculation of an AHI or RDI as the result of measuring airflow or thoracoabdominal movement.
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Devices included on Appendix B, which are Type IV devices that do not report AHI/RDI based on direct measurement of airflow or thoracoabdominal movement, but which have substantive clinical evidences in published peer-reviewed medical literature to demonstrate that the results accurately and reliably correspond to an AHI/RDI. At the current time, the only device listed on Appendix B is a Watch-PAT (Itamar Medical).
For PAP devices with initial dates of service on or after Nov. 1, 2008, all beneficiaries who undergo an HST must, prior to having the test, receive instruction on how to properly apply a portable sleep monitoring device.
This instruction must be provided by the entity conducting the HST and may not be performed by a DME provider. Patient instruction can either be a face-to-face demonstration, or video or telephonic instruction with 24-hour availability of qualified personnel to answer questions or troubleshoot device issues.
For PAP devices with initial dates of service on or after Nov. 1, 2008, all HSTs must be interpreted by a physician who meets one of the following criteria:
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Current certification in Sleep Medicine by the American Board of Sleep Medicine (ABSM); or,
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Current subspecialty certification in Sleep Medicine by a member board of the American Board of Medical Specialties (ABMS); or,
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Completed residency or fellowship training by an ABMS member board and has completed all the requirements for subspecialty certification in Sleep Medicine except the examination itself, and only until the time of reporting of the first examination for which the physician is eligible; or,
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Active staff membership of a sleep center or laboratory accredited by the American Academy of Sleep Medicine or The Joint Commission.
No aspect of an HST, including but not limited to delivery and/or pickup of the device, may be performed by a DME provider. This prohibition does not extend to the results of studies conducted by hospitals certified to do such tests.
Physician Ownership
The Stark law and regulations prohibit a physician from referring Medicare and Medicaid patients for “designated health services” to any entity that has a financial relationship with the physician, or physician family member, unless a Stark exception is met.
Durable medical equipment is included as a “designated health service,” but sleep testing is not. For this reason, many physicians have an ownership interest in a sleep lab that performs sleep studies on Medicare and Medicaid patients, and this is not prohibited.
What is prohibited is that a sleep lab with physician ownership cannot provide CPAP equipment to the Medicare or Medicaid patients tested at that sleep lab. It can, however, provide CPAP equipment to non-Medicare/Medicaid patients unless there is a state statute or regulation that would prohibit it.
Similarly, a physician can own, or have an ownership interest in, an HME provider (absent prohibitive state laws or regulation), but he or she cannot refer any Medicare or Medicaid patients to that provider.
Provider Investment in a Sleep Lab
Many providers have been exploring the possibility of forming joint ventures with local physicians or investing in newly formed sleep testing facilities in areas where capital or resources may be scarce. HME providers should exercise caution regarding any potential investment in a sleep testing facility to be certain that they do not run afoul of OIG guidance.
Specifically, if an HME provider and a physician decide to jointly own and operate a sleep lab (“joint venture”), it is important that three major requirements be met. First, the joint venture must comply with the OIG's 1989 Special Fraud Alert entitled Joint Ventures.
Among other requirements, both parties must invest risk capital. The physician is a referral source to the sleep lab owned by the joint venture. The HME company cannot “front” the physician's initial capital investment. According to the Special Fraud Alert, this would result in a kickback (in violation of the Medicare anti-kickback statute).
Second, day-to-day operations of the joint venture must comply with the OIG's 2003 Special Advisory Bulletin entitled “Contractual Joint Ventures.” The bulletin mandates that the HME provider may not operate the sleep lab on a turnkey basis. Rather, the joint venture must have operational responsibilities and financial risk. In short, this means the sleep lab must have its own employees and equipment.
Last, if there is physician ownership in a sleep lab, the sleep lab cannot provide CPAP equipment to Medicare or Medicaid patients tested at the sleep lab. As previously mentioned, this would be prohibited by Stark. The sleep lab, can however, refer Medicare or Medicaid patients to the HME provider (which is an owner in the sleep lab) for their CPAPs.
Service Agreement
During the course of the past several years, HME providers and sleep labs have increasingly sought to establish cooperative relationships to facilitate convenient provision of equipment and services to patients requiring CPAPs.
In many instances, HME companies wish to enter into consignment closet arrangements with sleep labs that would allow them to place equipment in the sleep lab for distribution by the sleep lab's employees to patients tested at the facility.
The challenge in setting up a consignment closet relationship between an HME provider and a sleep lab is that CPAP requires significant interaction with the patient prior to patient utilization of the equipment. For this reason, the HME provider is left without an appropriate party to assist in setting up and training the patient on appropriate use of the equipment.
Many providers seeking a solution to this challenge have chosen to engage the sleep lab to set up the patients. Even though this arrangement satisfies the HME company's need for clinical personnel to set up and train the patient, it does raise concerns regarding the nature of the financial relationship between the HME and the sleep lab, and must be structured strictly in accordance with the anti-kickback Safe Harbors.
IDTF Regulation
The independent diagnostic testing facility regulation issued by CMS could impact an HME provider's contractual arrangements with sleep labs. The rule provides that a Medicare-enrolled IDTF may not share a practice location with, or lease its operations or its practice location to, another Medicare-enrolled individual or organization.
The question is whether this rule would affect certain common arrangements between HME suppliers and sleep labs, which are classified by Medicare as IDTFs.
In a typical arrangement, an HME provider places CPAP equipment at a sleep laboratory on a consignment basis. If a patient requires CPAP equipment and elects to obtain the equipment from that provider, laboratory personnel deliver the equipment to the patient and instruct the patient on fitting and use of the equipment. The HME provider compensates the lab for the time its personnel spend performing equipment set-ups.
The regulation is an addition to the Medicare performance standards for IDTFs. It is codified at 42 CFR § 410.33(g)(15), and reads as follows:
“With the exception of hospital-based and mobile IDTFs, a fixed-base IDTF does not include the following:
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Sharing a practice location with another Medicare-enrolled individual or organization;
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Leasing or subleasing its operations or its practice location to another Medicare-enrolled individual or organization; or
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Sharing diagnostic testing equipment used in the initial diagnostic test with another Medicare-enrolled individual or organization.”
The issue is whether this regulation prohibits arrangements of the kind described. Considering a sleep lab's performance of CPAP set-ups to be sharing a practice location, or leasing or subleasing the lab's operations or location to the HME provider would seem to be a considerable stretch of the regulation's language. However, the language does not conclusively exclude such an interpretation.
It would be helpful if the regulation contained definitions of terms, but it does not. We are attempting to gain authoritative guidance on the meaning of this rule. For the present, the best available guidance comes from the preambles to the proposed and final versions of the regulation.
Based on comments and CMS' responses in the preamble to the proposed regulation, it appears that adoption of the new performance standard was motivated by two principal concerns.
The first concern applies only in cases where an IDTF shares a location with another IDTF, as opposed to some other kind of supplier. If two or more IDTFs share space, according to CMS it may be difficult for Medicare site inspectors to determine whether a particular IDTF has all necessary equipment and meets all requirements for Medicare enrollment and billing privileges.
The HME provider-sleep lab arrangement described does not affect CMS' ability to determine whether the sleep lab meets Medicare enrollment requirements and performance standards. The space and equipment at the lab's location all belong to the lab and are used only by lab personnel.
The presence of consigned CPAP equipment and the performance of CPAP set-ups for sleep lab patients do not interfere with a site inspector's ability to determine what entity is responsible for meeting performance requirements.
The HME provider-sleep lab arrangement, therefore, does not appear to be relevant to the first concern underlying the new rule.
The second concern arises from CMS' belief that space-sharing arrangements facilitate potentially abusive relationships between IDTFs and referring physicians. CMS is concerned that these relationships permit referring physicians to profit from referrals by billing for tests that they refer to an IDTF. The arrangements between HME suppliers and sleep labs do not enable abuses of this kind.
Again, it requires a very broad reading of the regulatory language to make the rule encompass arrangements like these. Considering that these arrangements do not appear to implicate the principal concerns underlying the rule, it appears that the risk is small that a sleep lab will be considered to be in violation of the Medicare performance standards because it is a party to one of these relationships. We will be in a better position to give a definitive interpretation after additional guidance is obtained from CMS.
Although typical arrangements between sleep labs and HME providers are unlikely to be found to violate the IDTF performance standards, that conclusion does not mean that all such arrangements are safe.
The far greater risk is that if an arrangement is not structured properly, the OIG and Department of Justice will view the arrangement as a violation of the anti-kickback statute. As CPAP usage increases, and Medicare expenditures for CPAP equipment rise correspondingly, the likelihood that these arrangements will come under scrutiny will increase as well.
Read more about the history of medicare coverage for sleep products and services.
Jeffrey S. Baird, Esq., is chairman of the Health Care Group at Brown & Fortunato, P.C., a law firm based in Amarillo, Texas. He represents pharmacies, infusion companies, home medical equipment companies and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization. He can be reached at 806/345-6320 or jbaird@bf-law.com.
