Moving the HME Industry Forward


Responding to Medicare Cuts – Part 2 of 4

August 8, 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 discussed 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.

Billing Non-Assigned
Statutorily Non-Covered. If a non-participating supplier without a CB contract sells or rents an item (that falls within a product category covered by CB) on a non-assigned basis to a patient residing in a CBA, the item is statutorily non-covered and the patient will not be reimbursed by Medicare. The item is statutorily excluded from coverage under § 1862 of the Social Security Act (the “Act”). The Act excludes from coverage instances “where the expenses are for an item or service furnished in a competitive acquisition area by an entity other than an entity with which the Secretary has entered into a contract ….” Additionally, the noncontract supplier is responsible for notifying the beneficiary that it is not a contract supplier for the competitive bidding item in the CBA, and the supplier must obtain a signed ABN indicating that the beneficiary was informed in writing prior to receiving the competitively bid item or service that there would be no payment by Medicare due to the supplier’s noncontract status.

Price That the Supplier Can Charge. Assume that a noncontract supplier sells an item, on a non-assigned basis, to a patient (not residing in a CBA) for cash. Assume that Medicare reimburses the item as a “sale item,” not as a “capped rental item.” The supplier can sell the item to the patient for an amount in excess of the Medicare fee schedule, and Medicare will pay the patient 80% of the fee amount (less the patient’s deductible).

Paying Cash for a Capped Rental Item. Assume that an item is reimbursable by Medicare as a “capped rental item.” The noncontract supplier can nevertheless sell the item, on a non-assigned basis, to a patient (not residing in a CBA) for cash. In so doing, the supplier can sell the item to the patient for an amount in excess of the Medicare fee schedule, but Medicare will not make any payment to the patient for the item. This is because Medicare will only pay for rental of capped items and does not pay for the purchase of such items. Since the supplier should expect Medicare not to make payment in such instance, it must obtain an ABN signed by the patient informing the patient that Medicare will pay for the rental, but not the purchase, of the item.

Renting a Capped Rental Item. Assume that an item is reimbursable by Medicare as a “capped rental item.” Assume that the non-participating, noncontract supplier rents the item, on a non-assigned basis, to a patient not residing in a CBA. In this situation, the supplier can collect a rental amount from the patient that is higher than the Medicare fee schedule, and Medicare will pay 80% of the Medicare fee schedule rental payment to the patient on a monthly basis.

Term of ABN. Assume that an item is reimbursable by Medicare as a “capped rental item.” Assume that the supplier rents the item, on a non-assigned basis, to a patient not residing in the CBA. Assume that the supplier concludes that an ABN is appropriate. The question is this: “Is it sufficient for the supplier to issue one ABN at the beginning of the rental term, or must the supplier issue an ABN every month of the rental term?” A single ABN is good for one year. A new ABN would be required if the rental extends beyond one year, or if the reason for expected Medicare denial changes. For example, assume an initial ABN is issued because the patient has not met the “face to face” visit requirement. Subsequently, the patient has a physician visit and meets that requirement, but still fails to medical coverage criteria. A new ABN would need to be obtained with the new reason for expected Medicare denial of coverage. Note:  Although a single ABN is good for one year, the supplier must still have beneficiary complete a signature authorization for the claim form every month for items rented on a non-assigned basis.

Supplies and Accessories. Assume that an item is reimbursable by Medicare as either a “rental” item or a “capped rental” item; the item is not reimbursable as a “sale” item. Assume that the supplier sells the item, on a non-assigned basis, to a patient (not residing in a CBA) for cash. For supplies and accessories used with beneficiary-owned equipment (equipment that is owned by the beneficiary, but was not paid for by the DME MAC/fee-for-service Medicare), Medicare will pay for them, however all of the following information must be submitted with the initial claim in Item 19 on the CMS-1500 claim form or in the NTE segment for electronic claims:

• HCPCS code of base equipment
• A notation that this equipment is beneficiary-owned
• Date the patient obtained the equipment

Claims for supplies and accessories must include all three pieces of information listed above. Claims lacking any one of the above elements will be denied for missing information. Medicare requires that supplies and accessories only be provided for equipment that meets the existing coverage criteria for the base item. In addition, if the supply or accessory has additional, separate criteria, these must also be met. In the event of a documentation request from the DME MAC or a redetermination request, the supplier must provide information justifying the medical necessity for the base item and the supplies and/or accessories. Refer to the applicable Local Coverage Determination(s) and related Policy Article(s) for information on the relevant coverage, documentation, and coding requirements. Note:  drugs and biologicals are mandatory assignment items so the supplier is required to accept assignment for those items, and cannot bill nebulizer drugs on a non-assigned basis.

Repairs. Repairs to equipment which a beneficiary owns are covered when necessary to make the equipment serviceable. If the expense for repairs exceeds the estimated expense of purchasing (or renting another item of equipment for the remaining period of medical need), no payment can be made for the amount of the excess. When billing for repairs, include the HCPCS code and date of purchase of the item being repaired (if the HCPCS code is not available, include the manufacturer’s name, product name, and model number of the equipment), the manufacturer’s name, product name, model number, and MSRP of the repair item provided, and the justification of the repair.

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.

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