Moving the HME Industry Forward


Hospital Loan Closet – Legal Basis to Bill Part B

January 23, 2017

AMARILLO, TX – It is a common practice for a DME supplier to enter into a loan closet arrangement with a hospital. This is also known as a “consignment” or “stock and bill” arrangement. In a typical loan closet arrangement, the supplier stores inventory (e.g., canes, walkers, braces) at the hospital. When a patient is about to be discharged, the hospital employee pulls the item from the “closet,” gives it to the patient, the patient goes home with the item, and the DME supplier bills Medicare Part B.

If certain conditions are met, then it is proper for the supplier to bill Part B, as opposed to the item falling under the Part A reimbursement to the hospital. The preamble to the outpatient bundling regulation indicates that DME intended for home use is not required to be bundled in the hospital encounter charge because a hospital furnishing DME for home use is not providing a hospital service but is acting in the capacity of a DME supplier. Further, Chapter 20, Section 110.3 of the Medicare Claims Manual allows a DME supplier to deliver durable medical equipment, prosthetics, and orthotics (but not supplies) to a beneficiary who is in an inpatient facility up to two days before discharge if certain requirements are met.

In addition, the following supports the position that DME furnished to a beneficiary while at the hospital is not covered by Part A if it is intended for home use:

• The Medicare Benefit Policy Manual states in § 40 of Chapter 1 that “[s]upplies, appliances, and equipment, which are ordinarily furnished by the hospital for the care and treatment of the beneficiary solely during the inpatient hospital stay, are covered inpatient hospital services.”  And it goes on to state that “[s]upplies, appliances, and equipment furnished to an inpatient for use only outside the hospital are not, in general, covered as inpatient hospital services” unless the item furnished is “a temporary or disposable item, which is medically necessary to permit or facilitate the patient’s departure from the hospital and is required until the patient can obtain a continuing supply.”  

In the case of a consignment closet, the item is (i) not furnished by the hospital, (ii) is not furnished for care and treatment solely during the hospital stay, and (iii) is furnished for use only outside the hospital.  So, this passage indicates that DME furnished for home use out of a consignment closet is not covered by Part A under the hospital stay.

• Chapter 20 of the Medicare Claims Processing Manual addresses DMEPOS, and section 30 contains a passage addressing DME or oxygen furnished to inpatients under a Part A covered stay.  It states that “the definition of DME in §1861(n) of the [Social Security] Act provides that DME is covered by Part B only when intended for use in the home, which explicitly does not include a SNF or hospital. (See the Medicare Benefit Policy Manual, Chapter 15). This does not preclude separate billing for DME furnished after discharge.”

This further indicates that the determination of whether Part A or Part B would cover an item of DME depends, at least in part, on where the item is intended to be used rather than where it is furnished.  And, it explicitly acknowledges that there are situations when DME is furnished to a hospital patient and is billed for separately.

• Finally, Section 110.3 in Chapter 20 of the Claims Processing Manual explicitly states that “[i]n some cases, it would be appropriate for a supplier to deliver a medically necessary item of durable medical equipment (DME), a prosthetic, or an orthotic – but not supplies – to a beneficiary who is an inpatient in a facility that does not qualify as the beneficiary’s home. The CMS will presume that the pre-discharge delivery of DME, a prosthetic, or an orthotic (hereafter “item”) is appropriate when” 9 listed conditions are met, including that the item is not delivered more than two days before discharge.  It also clarifies that pre-discharge delivery of items intended for use upon discharge are considered provided on the date of discharge.

Based on this language, the determination of whether an item of DME is covered by Part A or Part B hinges not on where the beneficiary receives the item, but, rather, on where the beneficiary will use the item.  Further, the language expressly addresses the ability of DME suppliers to furnish items to beneficiaries at inpatient facilities up to 2 days before discharge to facilitate the patient’s transition home. While consignment closets cannot be used as a way for the hospital shift costs to Part B by delaying the furnishing of items that would be necessary for the beneficiary’s use while in the facility, a DME supplier may bill Part B for items furnished from a properly-used consignment closet arrangement.

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. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or