Moving the HME Industry Forward


Loan Closets – Delivery of Product

March 27, 2017

AMARILLO, TX – Recently, the following question arose: Under a consignment arrangement (commonly referred to as a “loan closet” or a “stock and bill” arrangement) between a DME supplier and a hospital, does Medicare require that a DME supplier employee go to the hospital to pull the product out of the inventory “closet” and hand it to the patient, or can a hospital employee access the product and give it to the patient? This article answers this question.

How Consignment Arrangements Work
Under a traditional consignment arrangement, a DME supplier will maintain a limited inventory of DME at a hospital, physician’s office, or similar facility. For purposes of this article, I will direct my attention to a consignment arrangement between a DME supplier and a hospital. The DME supplied to the patients under these arrangements are billed by the DME supplier to the patient’s insurance, including Medicare.

An example of how a  consignment closet arrangement between a DME supplier and a hospital will work is the following: (1) DME Supplier Inc. keeps inventory in a “closet” at a hospital; (2) a physician orders a product at discharge for a patient to utilize in the home; (3) the patient is given a choice of DME suppliers; (4) if the patient chooses DME Supplier Inc., a hospital employee pulls the product out of the “closet” and gives it to the patient, (5) the hospital employee collects the necessary paperwork from the patient; (6) the patient is discharged from the hospital and takes the product home for use; and (7) DME Supplier Inc. collects the paperwork from the hospital and takes over responsibility for the patient from that point on regarding the product (e.g., bills Medicare for the product, services the product, etc.).

What the Law Says
The Office of Inspector General (“OIG”) recognizes consignment arrangements, but has expressed concerns that rental payments for such arrangements may be disguised kickbacks in violation of the federal Anti-Kickback Statute (AKS) . In 2009, CMS issued a transmittal with a change request to the Medicare Program Integrity Manual in order to significantly limit consignment arrangements.  According to the proposed change, consignment arrangements would be prohibited unless structured so that: (1) title to the DME transfers to the physician/practitioner at the time the DME is furnished; (2) the DME is billed by the physician/practitioner using his own DME billing number; (3) fitting or other services related to the DME are performed by individuals associated with the physician/practitioner and not with the DME supplier; and (4) beneficiaries are instructed to contact the physician/practitioner, and not the DME supplier, for problems or questions regarding the DME.  The DME industry challenged the change request and it was rescinded by CMS one month prior to it becoming effective in early 2010.  CMS said that it was rescinding this change request to consider other implementation dates, but so far there has been no follow-up.  

In order for a consignment arrangement to be legally acceptable, it must be structured so that it does not violate the federal Stark Law  and the AKS,  and also meets the CMS DME supplier standards.  Generally, an arrangement will be legally acceptable so long as the following requirements are met: (1) the consigned inventory is provided only for the convenience of the patient; (2) the hospital cannot make use of the consigned inventory  to provide any other service to a patient; (3) the patient must be given the option of choosing his/her DME supplier, and equipment from the closet can only be provided to patients who select the DME supplier that places inventory in the closet; and (4) if the DME supplier pays rent for the closet space, then the rental agreement must comply with the space rental safe harbor to the AKS (e.g., fixed annual fair market value rent).

The supplier standards applicable to a consignment arrangement include the following: (1) suppliers must enroll each physical location in Medicare;  (2) a Medicare supplier may not share a practice location with another Medicare supplier or provider;  and (3) suppliers are responsible for delivery of the Medicare covered product to beneficiaries and must maintain proof of delivery.  

• According to the first of these standards, each physical location (i.e. store or other retail establishment) where a DME supplier meets with patients and sells/rents products to them, must be enrolled in Medicare. Warehouses and repair facilities are not subject to the enrollment requirement.  A consignment closet is much like a warehouse location because it is simply a repository of equipment. It is not a staffed location where patients can expect to receive services from the DME supplier.

• According to the second of these standards, when a physical location is subject to the enrollment requirement, the DME supplier may not share that location with another Medicare supplier or provider. As stated above, a consignment closet does not constitute a “physical location” of the DME supplier requiring enrollment, and so such an arrangement does not violate this standard.  

• The third of these standards requires that DME suppliers be responsible for delivery of the Medicare covered product to the beneficiary. Being “responsible” for the delivery, however, does not mean that only supplier staff can deliver the product to the beneficiary. CMS has expressly approved a DME supplier subcontracting out the delivery of equipment and patient instruction.      

There is no specific law or regulation that states who must deliver equipment from a consignment arrangement to the patient. As a practical matter, the purpose of these arrangements is to provide convenience to the patient, especially for hospital discharges after a supplier’s normal business hours. Rather than a patient having to leave the hospital and drive to a DME supplier’s location to pick up the prescribed equipment, the hospital can conveniently supply the patient with the equipment from available inventory stored at the hospital. Without delay, the patient can take the equipment home and the appropriate DME supplier will begin providing the necessary service. This convenience would be greatly limited if the patient was required to wait at the hospital until an employee of the DME supplier showed up to pull the equipment out of the inventory and present it to the patient.  

The 2009 transmittal proposing changes to the Medicare Program Integrity Manual to alter the way consignment arrangements are structured is an indication that CMS is aware of how these arrangements commonly operate. The fact that CMS rescinded the proposed changes indicates that CMS is not requiring that these arrangements change at this time.    

Jeff Baird and Lisa Smith will be presenting the following webinar:

Billing Non-Assigned, Using ABNs, and Selling at Retail: The Counter to Medicare Cuts
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C. & Lisa K. Smith, Esq., Brown & Fortunato, P.C.
Wednesday, April 12, 2017

2:30-4:00 p.m. EASTERN TIME
On June 23, 2016, CMS published the July Fee Schedule for DME suppliers … and it is ugly. The rates encompass the expansion of competitive bid rates to non-CBAs. The cuts range between 45%-59% on common respiratory products, but reach 82% on TENS units and Enteral IV Poles. The bottom line is that Medicare will pay as little as possible for DME. In response, suppliers need to distance themselves from Medicare fee-for-service. This webinar will discuss ways that the DME supplier can accomplish this. For example, the supplier can elect to be nonparticipating and provide DME on a non-assigned basis. Doing so raises a number of questions. For example: (i) What does it mean to bill non-assigned? (ii) If the supplier bills an item non-assigned, then can the supplier set the price without limitations? (iii) Can a supplier bill a rental item non-assigned? Additionally, the supplier can work with hospitals to reduce the incidences of readmissions of patients soon after discharge; to accomplish this, the supplier and a hospital can jointly own a DME operation … or the supplier and the hospital can enter into a collaborative agreement. And yet another approach the supplier can take is to furnish DME that provides a higher profit and discontinue furnishing DME that is unprofitable.

Register for Billing Non-Assigned, Using ABNs, and Selling at Retail: The Counter to Medicare Cuts on Wednesday, April 12, 2017, 2:30-4:00 pm ET, with Jeffrey S. Baird, Esq., and Lisa K. Smith, Esq., of  Brown & Fortunato, PC.

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

Jeff Baird will be presenting the following webinar:
Webinar sponsored by Mediware Information Systems, Inc.

Waiver or Reduction of Medicare and Commercial Co-Payments: What DME Providers Can and Can’t Do

Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.
Thursday, April 20, 2017
1:00 p.m. CENTRAL TIME
When every dollar counts in the DME industry, it is vital that suppliers make every effort to collect copayments and deductibles. In many cases, it is challenging when patients do not have supplemental insurance, and the supplier gets in the habit of routinely waiving co-payments. This is why DME suppliers need to understand that this behavior can result in an investigation from the OIG for potential fraud.

Join Jeffrey S. Baird, Esq., Chairman of the Health Care Group of Brown & Fortunato, P.C., to learn the latest DME requirements regarding co-payments from Medicare beneficiaries and commercial patients, and the steps that the supplier should take before waiving a co-payment.

This presentation will help attendees:
• Learn why the collection of copayments and deductibles is critical to the success of a business
• Analyze when it is legally acceptable to waive copayments and deductibles
• Understand what the OIG considers to be a kickback, inducement, or false claim

Register for Waiver or Reduction of Medicare and Commercial Co-Payments: What DME Providers Can and Can’t Do on Thursday, April 20, 2017, 1:00 p.m. CT, with Jeffrey S. Baird, Esq., of  Brown & Fortunato, PC.

Please contact Kolby Wegener at if you experience any difficulties registering.
This webinar is free for attendees.

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