Moving the HME Industry Forward


Carve Out of Competitive Bid Contract – An Update

April 4, 2016

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. It says: “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: (i) 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; (ii) All CBAs and product categories in the original contract that are not explicitly transferred by CMS remains unchanged in that original contract for the duration of the contract period unless transferred by CMS pursuant to a subsequent CHOW; (iii) All requirements of paragraph (d)(2) of this section are met; (iv) The sale of the distinct company includes all of the contract supplier’s assets associated with the CBA and/or product category(s); and (v) CMS determines that transfer of part of the original contract will not result in disruption of services or harm to beneficiaries.”

Let’s look at a hypothetical:
• ABC Medical Equipment, Inc. is awarded a CB contract that covers (i) respiratory in CBA-1, (ii) enteral in CBA-2, and (iii) general DME in CBA-3.

• In CBA-1 and CBA-2, (i) ABC has a physical facility and (ii) each facility has a PTAN assigned to it. ABC serves customers in CBA-3 but it does not have a physical facility in CBA-3.

• The operations in all three CBAs are owned by one corporation (with one Tax ID #): ABC Medical Equipment, Inc.

• XYZ Medical, Inc. wants to purchase ABC’s operation in CBA-1 and ABC’s operation in CBA-3.

• Under the “carve out” rule, (i) can that portion of ABC’s contract, associated with respiratory in CBA-1, be “carved out” and transferred to XYZ and (ii) can that portion of ABC’s contract, associated with general DME in CBA-3, be “carved out” and transferred to XYZ?

CMS guidance indicates that the portion of the CB contract to be “carved out” must be a “distinct line of business with separate financials. “Assuming that the CBIC does not require the “distinct line of business” to be owned by a separate legal entity (with its own Tax ID #), then the question becomes: “What is a distinct line of business?” At this point in time, the answer is unclear. The CBIC will publish additional guidance on this after all of the executed Round Two Recompete contracts are posted on Connexion. Further, the determination as to whether a portion of a contract can be “carved out” will be made by the CBIC on a case-by-case basis.

Looking at our hypothetical, it would appear to be appropriate for ABC’s CBA-1/respiratory contract to be carved out. In CBA-1, ABC has a facility and a PTAN. A credible argument can be made that ABC’s CBA-1/respiratory operation is a “distinct line of business.” Because ABC does not have a facility in CBA-3, then it is less certain that its CBA-3/general DME operation can be classified as a “distinct line of business.”

Jeff Baird will be presenting the following webinar:
Aggressively Moving Into the Retail Market While Avoiding Legal Pitfalls
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.
Tuesday, April 5, 2016
2:30-4:00 p.m. EASTERN 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.

Register for Aggressively Moving Into the Retail Market While Avoiding Legal Pitfalls on Tuesday, April 5, 2016, 2:30-4:00 pm ET, with Jeffrey S. Baird, Esq., of  Brown & Fortunato, PC.

Contact Ika Sukh at if you experience any difficulties registering.
Member: $99.00    
Non-Member: $129.00

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, 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, and can be reached at (806) 345-6320 or