Moving the HME Industry Forward

General Healthcare

Carve Out of Competitive Bid Contract – Further Guidance

May 16, 2016

AMARILLO, TX – In a previous Medtrade Monday article, I discussed CMS’s final rule entitled “Revision to Change of Ownership Rules to Allow Contract Suppliers to Sell Specific Lines of Business.”

The rule states: “For contracts issued in the Round 2 Recompete and subsequent rounds in the case of a CHOW where a contract supplier sells a distinct company, (e.g., an affiliate, subsidiary, sole proprietor, corporation, or partnership) that furnishes a specific product category or services a specific CBA, CMS may transfer the portion of the contract performed by that company, to a new qualified entity, if the following conditions are met: (i) Every CBA product category, and location of the company being sold must be transferred to the new qualified owner who meets all competitive bidding requirement; i.e., financial accreditation and licensure; (ii) All CBAs and product categories in the original contract that are not explicitly transferred by CMS remain unchanged in that original contract for the duration of the contract period unless transferred by CMS pursuant to a subsequent CHOW; (iii) All requirements of paragraph (d)(2) of this section are met; (iv) The sale of the distinct company includes all of the contract supplier’s assets associated with the CBA and/or product category(s); and (v) CMS determines that transfer of part of the original contract will not result in disruption of service or harm to beneficiaries.”

As I mentioned in the article, the final rule results in some unanswered questions, the most important of which is: What does CMS mean by “distinct company?” CMS has recently issued guidance that addresses this question. Specifically, in a Change of Ownership Fact Sheet published in April, there is a section entitled “Transferring a Portion of the Contract.” It states:

A DMEPOS Competitive Bidding Program contract cannot be sold or subdivided. However, in accordance with § 414.422(d)(4), for contracts issued in Round 2 Recompete and subsequent rounds, when a contract supplier sells a distinct company that furnishes a specific product category or services a specific CBA, CMS may transfer the portion of the contract performed by the distinct company to a new qualified entity. As explained above, the purchaser must meet all applicable competitive bidding eligibility requirements in accordance with CFR § 414.414(b) through (d).

If a contract supplier is selling a distinct company that furnishes a specific product category or services a specific CBA, the seller must submit the following documents for CMS to determine if the relevant portion of the contract is eligible to be transferred:

• Taxpayer identification number(s)(TIN).
• Draft bill of sale/letter of intent.
• Seller’s organizational chart/structure and any additional documentation to assist with determining the distinct company.
• Copy of seller’s certificate and articles of incorporation (if corporation).
• Tax return extract.
• PTAN(s) of distinct company being sold.
• Financial statements.

The transfer of the distinct company’s portion of the contract to the purchaser will not be considered until CMS determines the regulatory requirements at CFR § 414.422(d)(4) are met.

A portion of a contract cannot be transferred if:
• the company being sold furnishes the same product categories and services the same CBA(s) as the seller’s other company(s);
• the purchaser does not agree to accept the rights, liabilities, and the responsibilities associated with the portion of the contract to be transferred;
• the purchaser does not meet the eligibility requirements in accordance with CFR § 414.414(b) through (d);
• CMS determines transferring a portion of the contract could cause harm to beneficiaries or a disruption in the continuity of care for beneficiaries.

CMS will make a determination whether the portion of the contract being performed by the distinct company can be transferred to a new qualified entity, and will notify the seller of the determination.

If it is determined that the contract can be transferred to the new entity, the seller is responsible for submitting a novation agreement to transfer a portion of the contract to CMS. For more information on this agreement, please refer to the “Novation Agreement to Transfer a Portion of the Contract” section below.

At the end of the day, CMS has a great deal of discretion in determining if a contract supplier is “selling a distinct company,” thereby meeting the requirements for a carve-out. Let’s look at some hypotheticals…

• ABC Medical Equipment, Inc. is located in Salt Lake City. ABC is the 100% stockholder of XYZ Medical Equipment, Inc., which is located in Phoenix. Said another way, XYZ is a wholly-owned subsidiary corporation of ABC. XYZ has its own Tax ID #. ABC has a PTAN in Salt Lake City and XYZ has a PTAN in Phoenix. ABC is awarded a CB contract for Salt Lake City and Phoenix. The Salt Lake City CBA is for respiratory while the Phoenix CBA is for general DME. Because ABC and XYZ are commonly-owned then, with the CBIC’s permission, XYZ is added to ABC’s contract; in doing so, XYZ is limited to providing general DME in Phoenix. Assuming that all of the CMS requirements are met, then it appears that XYZ can sell its assets (pertaining to general DME in Phoenix) and ABC can transfer the Phoenix/general DME portion of ABC’s contract to the purchaser.

• ABC Medical Equipment, Inc. is located in Salt Lake City. ABC has a “division” called XYZ Medical Equipment. XYZ is not a separate legal entity and it does not have its own Tax ID #. Rather, it is a “dba” of ABC. ABC has a PTAN in Salt Lake City and XYZ has a PTAN in Phoenix. ABC is awarded a CB contract for Salt Lake City and Phoenix. The Salt Lake City CBA is for respiratory while the Phoenix CBA is for general DME. Assuming that all of the CMS requirements are met, then it appears that ABC can sell the assets of its XYZ division (pertaining to general DME in Phoenix) and ABC can transfer the Phoenix/general DME portion of ABC’s contract to the purchaser.

• Same as the first bullet except that XYZ is also located in Salt Lake City; it does not have a facility in Phoenix. This means that the parent (ABC) and the subsidiary (XYZ) are both in Salt Lake City. Each corporation has a PTAN. XYZ services Phoenix patients out of Salt Lake City. Assuming that all of the CMS requirements are met, then it appears that XYZ can sell its assets (pertaining to general DME in Phoenix) and ABC can transfer the Phoenix/general DME portion of ABC’s contract to the purchaser.

• Same as the second bullet except that XYZ is also located in Salt Lake City; it does not have a facility in Phoenix. This means that ABC and its division (XYZ) are both in Salt Lake City. ABC and XYZ each has a PTAN. XYZ services Phoenix patients out of Salt Lake City. Assuming that all of the CMS requirements are met, then it appears that XYZ can sell its assets (pertaining to general DME in Phoenix) and ABC can transfer the Phoenix/general DME portion of ABC’s contract to the purchaser.

• ABC Medical Equipment, Inc. is located in Salt Lake City. It does not have an XYZ subsidiary corporation nor an XYZ division. ABC has one PTAN….for its Salt Lake City location. ABC is awarded a CB contract that includes (i) respiratory in Salt Lake City and (ii) general DME for multiple CBAs on the east coast. ABC has no presence on the east coast CBAs and has no patients in the east coast CBAs. It is unlikely that ABC can enter into an asset sale and successfully request a “carve-out” of ABC’s CB contract pertaining to the east coast CBAs.

• I can discuss multiple other “what ifs,” but you get the picture.

Joshua Skora will be presenting the following webinar:
AAHOMECARE’S EDUCATIONAL WEBINAR
After the Purchase is Complete: Transfer of Patient Files, Calling the Seller’s Patients, and Other Hot Button Issues
Presented by: Joshua I. Skora, Esq., Brown & Fortunato, P.C.
Monday, May 16, 2016
2:30-4:00 p.m. EASTERN TIME
Buying and selling a DME supplier is not simple.  In addition to the standard transactional issues (e.g., specific provisions in the Asset Purchase Agreement or Stock Purchase Agreement), there are a number of federal and state regulatory issues that must be addressed. For example, can a Medicare Part B supplier number be transferred?  What about a Medicaid provider number? Must the purchaser obtain new physician orders? New AOBs? How do the WOPD and face-to-face rules fit in? What type of notice must be given to the seller’s patients? Can the purchaser simply pick up the phone and call the patients who are transferred to the purchaser? The answers to these questions are impacted by whether the sale is a “stock” sale or an “asset” sale. This program will discuss the multiple regulatory issues that must be addressed when a DME supplier is sold.

Register for After the Purchase is Complete:  Transfer of Patient Files, Calling the Seller’s Patients, and Other Hot Button Issues on Monday, May 16, 2016, 2:30-4:00 pm ET, with Joshua I. Skora, Esq., of  Brown & Fortunato, PC.

Contact Ika Sukh at ikas@aahomecare.org 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. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or jbaird@bf-law.com.