Moving the HME Industry Forward

Billing/Reimbursement

Carve Out of a Competitive Bid Contract

February 16, 2015

AMARILLO, TX – On July 11, 2014, CMS published a proposed rule entitled “Revision to Change of Ownership Rules to Allow Contract Suppliers to Sell Specific Lines of Business.” The rule was finalized on November 6, 2014. Interestingly, only one comment from the DME industry was filed. The new rule, found at 42 CFR§ 414.422 (d) (4), states:

For contracts issued in the Round 2 Recompete and subsequent rounds in the case of a CHOW where a contract supplier sells a distinct company, (e.g., an affiliate, subsidiary, sole proprietor, corporation, or partnership) that furnishes a specific product category or services a specific CBA, CMS may transfer the portion of the contract performed by that company to a new qualified entity, if the following conditions are met:

Every CBA, product category, and location of the company being sold must be transferred to the new qualified owner who meets all competitive bidding requirements; i.e. financial, accreditation and licensure;
 All CBAs and product categories in the original contract that are not explicitly transferred by CMS remain unchanged in that original contract for the duration of the contract period unless transferred by CMS pursuant to a subsequent CHOW;
 All requirements of paragraph (d)(2) of this section are met; and
 The sale of the distinct company includes all of the contract supplier’s assets associated with the CBA and/or product category(s); and
 CMS determines that transfer of part of the original contract will not result in disruption of service or harm to beneficiaries.

What Has Been Occurring Up To Now
Up to now, a competitive bid (CB) contract could be transferred by one of the following ways:

• ABC, Inc. is awarded a CB contract that covers multiple product categories in three CBAs. ABC sells all of its assets to JKL, Inc. Through the novation process, the CBIC transfers ABC’s entire CB contract to JKL.
• ABC only sells its assets that are associated with ABC’s CB contract. This is a partial asset sale. Through the novation process, the CBIC transfers ABC’s entire contract to JKL.
• In other words, up to now, ABC’s CB contract could not be “carved up”….or “split up”…..or “subdivided.” The entire CB contract would stay with ABC or the entire CB contract would go over to JKL.

What The Final Rule Appears To Be Saying
• Assume that ABC, Inc. is awarded a CB contract that covers multiple product categories in multiple CBAs. Assume that ABC has “common ownership” with XYZ, Inc., DEF, Inc. and GHI, Inc. As “commonly-owned” entities, XYZ, DEF and GHI are added to ABC’s CB contract.
• Assume that ABC’s CB contract includes Negative Pressure Wound Therapy (“NPWT”) in CBA #1. Assume that XYZ is handling the NPWT in CBA #1. The final rule allows XYZ to sell all or a portion of its assets to JKL, Inc. Pursuant to the novation process, that portion of ABC’s CB contract (pertaining to NPWT in CBA #1) will be transferred to JKL…..and ABC will retain the balance of the CB contract. In other words, the rule allows for a “carve out” of ABC’s CB contract.
• There are ambiguities associated with the final rule. (i) First ambiguity – The rule indicates that XYZ must be a separate legal entity (e.g., a corporation or LLC). This is exemplified by the fact that “distinct company” is used two times. But then the rule lists examples of “distinct companies.” One example is a “sole proprietor.” A “sole proprietor” is not a legal entity (i.e., it is not a corporation or LLC). A sole proprietor is simply an assumed name (a “dba”). For example, if Fred Jones owns Fred’s Taco Stand, and if Fred has not set up a legal entity for Fred’s Taco Stand, then “Fred’s Taco Stand” is simply a “dba” of Fred Jones. I mention this ambiguity because of a variation of the hypothetical set out in the preceding bullet. Assume that XYZ is not a separate legal entity; rather it is a “division” of (or “dba” of) ABC. In this situation, can ABC sell its “XYZ division” to JKL? I don’t think so, but you can see where there may be some confusion. (ii) Second Ambiguity – Assume the fact situation set out in the preceding bullet. Assume that in addition to providing NPWT in CBA #1, XYZ also (i) provides items not covered by Medicare and (ii) provides items covered by other payers. Assume that NPWT is only a small part of XYZ’s business. Can XYZ sell only that portion of its assets associated with NPWT in CBA #1, and keep the balance of its business? Or must XYZ sell all of its assets to JKL? On the one hand, by utilizing the phrase “sell a distinct company,” it appears that the rule contemplates that all of the assets of XYZ must be sold. On the other hand, the rule states that the “sale of the distinct company includes all of the contract supplier’s assets associated with the CBA and/or product category(s).” This indicates that XYZ can sell only those assets associated with NPWT in CBA #1.

Effect on Bidders
The rule may affect (i) how some bidders submit bids and/or (ii) their actions after the competitive bid (“CB”) contracts are awarded. For example, in the past it has been common for ABC, Inc. to submit a bid for multiple product categories in multiple CBAs. ABC would be awarded one CB contract. ABC would be stuck with the entire contract. It would have to keep the entire contract or ask the CBIC to transfer the entire contract. In other words, ABC was either “totally in” competitive bidding or “totally out of” competitive bidding. In light of the rule, as a Round 2 Recompete bidder, ABC may want to do one or more of the following:

• Before it submits its bid, ABC may want to form several “commonly owned” legal entities. When ABC submits its bid, it will include the commonly owned entities. If ABC is awarded a CB contract, then “Commonly Owned Entity #1” can handle one product category/CBA combination, “Commonly Owned Entity #2” can handle a different product category/CBA combination, and so on and so forth. Then ABC can “spin off” the commonly owned entities, along with that portion of the CB contract associated with each entity’s product category/CBA combination.
• Alternatively, ABC may want to wait to form “commonly owned” legal entities until after ABC is awarded the CB contract. ABC can ask the CBIC to add the commonly owned entities to ABC’s CB contract. Each commonly owned entity will be limited to a specific product category/CBA combination. Then ABC can “spin off” the commonly owned entities, along with that portion of the CB contract associated with each entity’s product category/CBA combination.

Jeff Baird will be presenting the following webinars in the month of February:
Webinar by Mediware Information Systems Inc
Innovative Retail Strategies Within Legal Guidelines
Presented by: Jeffrey S. Baird, Esq. of Brown & Fortunato, P.C.

Wednesday, February 18, 2015, 
1:00-2:00 p.m. CENTRAL TIME
A DME supplier can no longer survive while being dependent on Medicare fee-for-service. With competitive bidding, stringent documentation requirements, lower reimbursement, post-payment audits, and the fact that Medicare is tightening its purse strings, Medicare fee-for-service should only be a component of the supplier’s total income stream. There are 78 million Baby Boomers (people born between 1946 and 1964); they are retiring at the rate of 10,000 per day. Boomers are accustomed to paying for things out-of-pocket. The successful DME supplier will be focused on selling upgrades, utilizing ABNs, and selling items for cash. These retail sales may take place in a store setting, or they may take place over the internet. Even when Medicare is not the payor, there are a number of requirements that the DME supplier must meet. This program will discuss the federal and state requirements that the DME supplier must meet as it sells DME at retail. These requirements include state licensure, collection and payment of sales and/or use tax, qualification as a “foreign” corporation, obtaining a physician prescription, and complying with federal and state telemarketing rules. In addition, the program will discuss how the supplier can sell Medicare-covered items at a discount off the Medicare allowable.

Sign up now for “Innovative Retail Strategies Within Legal Guidelines” on Wednesday, February 18, 2015, 1:00-2:00 pm CT, with Jeffrey S. Baird., Esq. Chairman of the Health Care Group of Brown & Fortunato, PC.
Please contact Kolby Wegener at Kolby.Wegener@mediware.com or 913-307-1068 if you experience any difficulties registering.
This webinar is free for attendees.

AAHomecare’s Educational Webinar
Round 2 Recompete: Carve Out of Contract, Curing Bad Financials and Other Hot Button Issues

Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.

Thursday, February 26, 2015, at 2:30 p.m. – 4:00 p.m. EASTERN TIME
With Round Two Recompete fast approaching, there are several “hot button” issues that DME suppliers should address. First, due to multiple factors, including low reimbursement resulting from competitive bidding, many suppliers will likely submit financials that will be unimpressive at best. As such, there is a risk that a number of the bids will be disqualified. This program will discuss how information can be submitted through Form B that addresses “expanded capacity” and “other supplemental information.” There is a possibility that such additional information will at least partially alleviate concerns raised by the financials. Second, this program will discuss a new regulation that allows, in certain instances, a contract supplier to sell a portion of its business, including part of its contract. Third, this program will discuss how a non-contract supplier can gain access to a competitive bid contract through a 100% purchase, a partial asset purchase, a 100% stock purchase, or a purchase of 5% or more of a company.”

Sign up now for Round 2 Recompete: Carve Out of Contract, Curing Bad Financials and Other Hot Button Issues on Thursday, February 26, 2015, 2:30-4:00 pm ET, with Jeffrey S. Baird, Esq., Chairman of the Health Care Group of Brown & Fortunato, PC.

Contact Ika Sukh at ikas@aahomecare.org if you experience any difficulties registering.
FEES
 – Member: $99
Non-Member: $129

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato PC, law firm based in Amarillo, Tex. He represents pharmacies, HME 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.