Moving the HME Industry Forward


Responding to Medicare Cuts – Part 1 of a 4 Part Series

August 1, 2016

AMARILLO, TX – The DME industry, as we know it today, has been around for about 40 years. It is a young industry. For the first 30 years of its existence, there was little government oversight on the DME industry. This has changed. Over the last 10 years, it feels like the government is making up for lost time. The DME industry is caught in a “perfect storm.”

• Competitive bidding
• Reimbursement cuts
• Stringent documentation requirements
• Aggressive auditors
• Proliferation of “whistleblowers”

Let’s look at competitive bidding. On 7/1/16, the CMS July Fee Schedule went into effect. The rates encompass the expansion of competitive bid rates to non-CBAs. The cuts range between 45% to 59% on common respiratory products, but reach 82% on TENS units and Enteral IV Poles. Said another way, the rates are ugly.

Competitive bidding (“CB”) has created a two-tier system. Those on the lower end of the socio-economic scale will likely have no choice but to accept whatever it is that Medicare pays for. Those on the higher end of the socio-economic scale will be more inclined to pay cash for “higher end” products (Cadillac vs. Cavalier).

Some DME suppliers will implement “economies of scale” that will allow the suppliers to succeed in the Medicare fee-for-service (“FFS”) arena. However, these suppliers will be the exception. Most DME suppliers can no longer build their business model on Medicare FFS. The successful supplier needs to go outside its comfort zone and look for new sources of business. Said another way, the supplier needs to lessen its dependence on Medicare FFS.

Let’s step back and look at the big picture. For the last four decades, suppliers have primarily provided DME on an assigned basis. Medicare paid the suppliers directly and the patients only had to pay their copayments and deductibles. Until the last several years, this worked out for DME suppliers. Until the last several years, reimbursement was high enough and audits were not onerous … meaning that this “assignment model” worked well for suppliers. Under this “assignment model,” on the occasion when a supplier did bill non-assigned and Medicare was asked to reimburse the patient, such reimbursement was usually made. All of this is changing. It is becoming cost-prohibitive for many suppliers to continue with the “assignment model.” The reasons are obvious:

• Medicare reimbursement is not sustainable.
• It is time consuming to go through the Medicare claims submission process.
• If the DME supplier is hit with a prepayment review, then it will not get paid until it submits documentation satisfactory to the CMS contractor.
• Even if the supplier is paid, then it is subject to a “claw back” pursuant to a post-payment audit.

Up to now, DME suppliers have shouldered the burden of increasingly harsh Medicare policies. The suppliers have shielded their patients from the pain being inflicted by Medicare policies. Financially, it is difficult for DME suppliers to continue to do this. Out of necessity, suppliers are having to shift the burden (of complying with the increasingly harsh Medicare policies) to their patients. This is unpleasant … but it is the “new normal.”

What we are now witnessing are (i) DME suppliers are electing to be non-participating and (ii) DME suppliers are “billing non-assigned.” If a non-participating supplier provides a product on a non-assigned basis, this means that the supplier is not agreeing to accept the Medicare allowable as payment in full, can collect directly from the patient, and can charge more than the Medicare allowable in such cases. The supplier must file the claim with Medicare on behalf of the patient and any Medicare reimbursement will go directly to the patient. The bottom line is that the non-participating supplier (that is not a competitive bid contract supplier taking care of CB patients) can collect up-front from the patient (i.e., bill non-assigned). But as is often the case, the “devil is in the details.” And so let’s talk about the “details.”

Part 1 discusses participating vs. non-participating and Medicare’s anti-discrimination rule. Parts 2, 3 and 4 discuss how non-participating suppliers can properly bill on a non-assigned basis.

Participating vs. Non-Participating
Participating. A DME supplier elects to become a “participating supplier” by completing the Medicare Participating Physician or Supplier Agreement. When a DME supplier elects to become a participating supplier, the supplier agrees to accept assignment on all claims for Medicare products and services and agrees to be paid the Medicare-allowed amount as full payment, less any unmet deductible and coinsurance. As such, the supplier is “precluded from charging the enrollee more than the deductible or coinsurance based upon the approved payment amount determination.”

Non-Participating. When a DME supplier is a “non-participating supplier,” the supplier “may accept assignment on a claim-by-claim basis.” If a non-participating supplier accepts assignment on a claim, it agrees to be paid the Medicare-allowed amount as full payment for that particular Part B claim, except for any unmet deductible and coinsurance. If a non-participating supplier does not accept assignment, the supplier can collect directly from the patient for Medicare covered products and services and charge more than the Medicare allowable in such cases. In this instance, the supplier is required to file the claim with Medicare on a non-assigned basis on behalf of the patient, and any Medicare reimbursement is sent directly to the patient.

Switching from Participating Supplier to Non-Participating Supplier. If a participating supplier elects to become a non-participating supplier, the supplier must terminate its existing Medicare participating supplier agreement. To terminate an existing Medicare participating supplier agreement and become non-participating, the supplier “must notify the National Supplier Clearinghouse (NSC) in writing during the [Medicare participating supplier agreement] enrollment period.” The annual participation enrollment period begins on November 15 and concludes on December 31 of each year.

Avoiding Discrimination
The Age Discrimination Act of 1975 generally prohibits age discrimination under any program receiving federal financial assistance. CMS has a specific anti-discrimination rule that states that CMS can terminate a DME supplier’s PTAN for a number of reasons, including if the supplier “places restrictions on the persons it will accept for treatment and it fails either to exempt Medicare beneficiaries from those restrictions or to apply them to Medicare beneficiaries the same as to all other persons seeking care.” 42 C.F.R. 489.53.

Anti-Discrimination Rule As Applied to Business Models
Business Model No. 1. XYZ Medical Equipment, Inc. (“XYZ”), a non-participating supplier, may desire to continue to offer the same products that it currently offers. For example, assume that XYZ currently offers products A, B, C, D, E and F and accepts assignment from all payors, including Medicare, on items A through F. XYZ may desire to no longer accept Medicare assignment on products A, B and C, but will continue to accept assignment from all non-Medicare payors for these items. XYZ may desire to continue to accept assignment from all payors, including Medicare, on items D, E and F. Under this approach, the only criteria for determining when assignment for items A, B and C will be accepted is based on the beneficiary’s payor. If the payor is Medicare, then XYZ will require that the beneficiary pay cash for items A, B or C and will submit a non-assigned claim on the beneficiary’s behalf. If the payor is not Medicare, then XYZ will accept assignment for items A, B or C from the payor. Structured in this manner, this approach poses significant risk of being found to discriminate against Medicare beneficiaries since the decision is based solely on the fact that Medicare is the payor. Therefore, it is unwise for XYZ to pursue this approach. As an alternative, XYZ can create a policy that bases the acceptance of assignment decision on the expected amount of reimbursement for the particular item, not who the payor is. For example, XYZ’s policy for accepting assignment, on item A may require a minimum reimbursement rate of $100, otherwise, the item will be treated as a “cash pay” item, regardless of the payor. Because the policy is being applied to Medicare beneficiaries the same as to all other persons seeking care, this model does not discriminate against Medicare patients.

Business Model No. 2. XYZ can reduce the range of items it offers, regardless of payor. In other words, XYZ will no longer offer items A, B and C to any patient, but will continue to offer items D, E and F and accept assignment as usual. Because this model treats Medicare beneficiaries the same as non-Medicare beneficiaries, this model does not pose any risk of discrimination against Medicare patients.

Business Model No. 3. XYZ can continue to offer the same products that are currently being offered, but would only accept assignment on specific items regardless of payor. For instance, items A, B and C would be assignment items, regardless of payor, and the remaining items, items D, E and F, would be “cash pay” items, regardless of payor. This model treats Medicare and non-Medicare beneficiaries the same and, therefore, does not pose a risk of discrimination against Medicare patients. It is important to note again that if XYZ does not accept assignment for certain items it supplies to Medicare beneficiaries, it must still submit non-assigned claim for reimbursement on behalf of those patients as a non-participating supplier. Commercial payor provider agreements may also require that a claim be submitted even if assignment is not accepted.

If assignment will no longer be accepted going forward for items that patients currently use, they should be given the options of switching to another item that XYZ does accept assignment for, paying cash for their current item on a non-assigned basis going forward, or finding another supplier that accepts assignment for their current item. Additionally, if a patient’s order specifies a particular brand or feature of an item, a new order may need to be obtained before XYZ will be able to supply the patient with a different item. In such instance, the payment may be required to see his physician again to obtain a new prescription.

Joshua Skora will be presenting the following webinar:

Schemes, Scams and Flim-Flams: How the DME Supplier Can Recognize Fraud Landmines
Presented by: Joshua I. Skora, Esq., Brown & Fortunato, P.C.
Tuesday, August 9, 2016
2:30-4:00 p.m. EASTERN TIME
It would be nice if DME suppliers operated in the “real world”…….the world inhabited by auto parts stores and widget manufacturers. Unfortunately, suppliers are not in the real world. They are in Alice in Wonderland where “up is down, down is up, and every day they climb through the proverbial rabbit hole.” In this alternative universe, DME suppliers are subjected to numerous federal and state anti-fraud statutes and regulations. What would be perfectly acceptable in the auto parts world may be a felony in the health care world. This program will discuss the many anti-fraud statutes and regulations that the DME supplier must follow. More importantly, this program will teach the supplier how to recognize fraud landmines so that it does not step on them. Examples of these fraud landmines include: (i) paying commissions to 1099 independent contractor marketing reps; (ii) routinely waiving co-payments; (iii) violating the telephone solicitation statute and Supplier Standard #11; and (iv) furnishing prohibited gifts to physicians and prospective customers.

Register for Schemes, Scams and Flim-Flams: How the DME Supplier Can Recognize Fraud Landmines on Tuesday, August 9, 2016, 2:30-4:00 pm ET, with Joshua I. Skora, Esq., of  Brown & Fortunato, PC.

Please contact Ika Sukh at if you experience any difficulties registering.
FEES: 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