Moving the HME Industry Forward


Physicians Billing Part B for Orthotics

October 6, 2014

AMARILLO, TX – Orthotics are classified as custom-fabricated, custom-fitted or off-the-shelf (“OTS”). The primary distinction between custom and OTS orthotics is the level of expertise needed to properly fit the orthotic to the patient.

OTS orthotics are defined by statute as orthoses that “require minimal self-adjustment for appropriate use and do not require expertise in trimming, bending, molding, assembling, or customizing to fit an individual.”1 The CMS definition of “minimal self-adjustment” is “an adjustment that the beneficiary, caretaker, or supplier of the device can perform and does not require the services of a certified orthotist … or an individual who has specialized training.”2

Suppliers of OTS orthotics are exempt from complying with Appendix C of the DMEPOS Quality Standards specific to custom-fabricated and custom-fitted orthoses.3 OTS orthotics may be billed by any provider enrolled as a Medicare DMEPOS supplier because specialized certification is not required.

Custom-fitted orthotics are prefabricated devices, manufactured in quantity without a specific patient in mind.4 The device may be supplied as a kit that requires some assembly and/or fitting and adjustment, or a device that must be trimmed, bent, molded, or otherwise modified by a certified orthotist or an individual who has equivalent specialized training in the provision of orthotics, such as a physician, occupational therapist, or physical therapist, in compliance with applicable federal and state licensure and regulatory requirements.5

CMS requires physicians to enroll as DMEPOS suppliers in order to bill Medicare Part B for orthotics. If physicians enrolled as DMEPOS suppliers adhere to the DMEPOS Supplier Standards, DMEPOS Quality Standards and state licensure requirements, they may bill Part B for custom-fitted and OTS orthotics.

The Stark Law
42 U.S.C. § 1395nn, commonly known as the “Stark law,” prohibits a physician (or an immediate family member of the physician) from referring patients to an entity for the furnishing of certain designated health services (“DHS”) for which payment may be made by Medicare if the physician has a financial relationship with the entity, unless a statutory or regulatory exception applies. Orthotics are included in the definition of DHS.

One Stark exception is for “in-office ancillary services.”6 The exception, in relevant part, applies to services that are (i) furnished personally by the referring physician, by another physician in the same group practice,  or by individuals who are directly supervised by the physician; (ii) furnished in a building in which the referring physician or members of the same group practice furnish physicians’ services at least 30 hours per week, including some services unrelated to the furnishing of DHS, or in another qualifying location; and (iii) billed by the physician performing or supervising the services, by his or her group practice, by an entity wholly owned by the physician or group practice, or by an independent third-party billing company. A physician may prescribe a custom-fitted or OTS orthotic, fill the prescription, and bill for the orthotic so long as the in-office ancillary services exception requirements are met.

Assume that a physician group desires to contract with a DME supplier for the supplier to provide billing services for the physician group. This is acceptable so long as the physician group’s DMEPOS supplier number is used.

Medicare Anti-Kickback Statute
The Medicare Anti-kickback Statute (“AKS”)7 provides for criminal penalties for any person who solicits, receives, offers, or pays any remuneration to a person to induce that person to refer an individual for items or services reimbursable under federal health care programs, or to purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering any such item or service, subject to certain specified exceptions. Courts interpret AKS broadly; many have held that AKS is violated if one purpose of a payment is to induce referrals, even if the payment is also intended as compensation for services.

In 2003, the HHS Office of Inspector General (“OIG”) issued a Special Advisory Bulletin entitled “Contractual Joint Ventures” (“SAB”).8 The SAB described a number of business arrangements that, in the OIG’s view, were potential violations of AKS. In each case, one party to the arrangement supplied all or almost all of the services while the primary contribution of the other party was a patient base. For example:

A group of nephrologists establishes a wholly-owned company to provide home dialysis supplies to their dialysis patients. The new company contracts with an existing supplier of home dialysis supplies to operate the new company and provide all goods and services to the new company.9

The OIG described the characteristics of an abusive contractual joint venture as follows. A business owner seeks to expand into a health care service by entering into a management contract with an existing provider of that service. The newly-created business primarily serves the owner’s existing patient base. The owner’s financial investment is small; its primary involvement in the venture is making referrals of its existing patients. The owner delegates substantially the whole operation to the manager.

The services are provided by the manager, but are billed by the owner, who pays the manager a fee and retains the balance of the payment. The OIG views the manager as the real supplier of the services, although claims are submitted in the name of the owner. The OIG reasons that the illegal remuneration is the difference between the amount the owner receives from Medicare and the amount it pays the manager.

In a typical abusive joint venture, the nominal supplier is essentially passive. Its personnel have little involvement in the provision of the services, and it is not necessary for the supplier to develop expertise relating to the new product or service. As the nominal supplier’s role in providing the services increases, the risk of the arrangement’s being considered an abusive joint venture is correspondingly decreased.

Assume that a DME supplier desires to provide administrative/operational services to a physician-owned O&P operation. In order to reduce the kickback risk, the patient encounters should be conducted by the physician and members of his staff. If the core clinical services and the furnishing and fitting of orthotics will be performed by the physician and his office personnel, then the kickback risk will be reduced.

If the physician group desires to purchase inventory from the DME supplier providing the operational/administrative services, then to further reduce the kickback risk, the physician group should purchase the inventory in quantity and not on a just-in-time basis. The more operational responsibilities and financial risk the physician group has in the arrangement with the DME supplier, the less likely the arrangement will be viewed as a prohibited contractual joint venture.

Finally, to further decrease risk exposure, the DME supplier should render services to all of the physician group’s patients, not just Medicare patients.

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, home medical equipment 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. He can be reached at (806) 345-6320 or