AMARILLO, TX – DME suppliers can no longer build their business model on Medicare fee-for-service. The successful supplier needs to go outside his comfort zone and look for new sources of income. In particular, the DME supplier needs to look to the retail market.
There are 78 million Baby Boomers. They are retiring at the rate of 10,000 per day. Boomers understand that they will be required to pay out-of-pocket for a portion of their health care expenses…including DME. From a Boomer’s standpoint, the most important asset he has is time. Many 70-year-old Boomers will not want to wait around for Medicare approval. Rather, the Boomers will simply pay cash and move on with their lives.
As the DME supplier moves into the retail market, it needs to adhere to certain legal guidelines. Within these guidelines, the DME supplier can be aggressive and innovative as it grows its retail business.
Discounts to Cash Customers
A DME supplier is prohibited from charging Medicare substantially in excess of the company’s usual charges, unless there is good cause. The current regulations do not give any guidance on what constitutes “substantially in excess” or “usual charges.”
The most recently proposed rule contemplates the “usual charge” to be either the average or median of the supplier’s charges to payors other than Medicare (and some others). Under the proposed rule, a DME supplier’s usual charge should not be less than 83% of the Medicare fee schedule amount (i.e. up to a 17% discount from the Medicare fee schedule). There would be an exception for good cause, which would allow a supplier’s usual charges to be less than 83% of the Medicare fee schedule, if the supplier can prove unusual circumstances requiring additional time, effort or expense, or increased costs of serving Medicare beneficiaries.
The proposed rule would include charges of affiliate companies into the calculation of a supplier’s usual charges. An affiliated company is any entity that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the DME supplier. The proposed rule explicitly excludes fees set by Medicare, State health care programs, and other Federal health care programs (except TRICARE). By implication, charges not specifically excluded will be included. CMS declined to promulgate the proposed rule into a final rule. Nevertheless, this proposed rule gives insight into CMS’ thinking.
When a DME supplier ships products into another state, the question is whether the supplier must collect sales tax in that state. The general rule is that a state cannot require a DME supplier to collect sales tax if the supplier (1) does not have a physical presence in the state and (2) does not have sufficient connections with the state to create a “substantial nexus.” Quill vs. N. Dakota, 504 U.S. 298, 311 (1992).
Because of the general rule, many states have strengthened their efforts to establish that DME suppliers (shipping into these states) have a “substantial nexus” in their states. A state may assert that a “substantial nexus” occurs when an out-of-state supplier has an employee…or a warehouse…in the state.
Co-Location With Another Provider
42 CFR § 424.57(c)(29) states that a DME supplier “is prohibited from sharing a practice location with any other Medicare supplier or provider.” NSC published an FAQ that expands on this supplier standard. Question: If a DME supplier decides to co-exist with a sleep lab that is jointly owned by physicians and a related hospital system entity and there are separate and distinct entrances into the facilities, is this permissible under the supplier standard rule? Answer: To comply with DMEPOS supplier standard 424.57(c)(29), the locations must be separate suites with separate suite numbers recognized by the U.S. Post Office. They should not share personnel, equipment, or inventory.
Sharing Space With a Non-Provider
A DME supplier may desire to lease some of its retail showroom space to a “lifestyle” company, that is not a health care provider, in which the lifestyle company offers products and services that will help the aging Baby Boomer enjoy the active lifestyle that he or she is accustomed to having.
Assume that ABC Medical Equipment, Inc. desires to lease a portion of its showroom to XYZ Senior Lifestyle, Inc. XYZ is not a Part B supplier; it sells items for cash. It will be important for ABC to retain at least 200 square feet and continue its Medicare Part B business operations in accordance with the Supplier Standards. When the NSC inspector comes on-site to inspect ABC, it will be important that ABC’s and XYZ’s spaces be configured so as to avoid any confusion on the inspector’s part. For example, the two stores can be separated by seven foot high grid walls, and each store can have its own cash register, telephone line, and sales representatives. On the front of the building, the logo and hours of operation for each store will be displayed. The logo of each store will be displayed in the area of the showroom that is occupied by the applicable store.
Charging Cash Customers Less Than What is Billed to State Medicaid
Billing and collecting from state Medicaid programs is more expensive and time consuming for a DME supplier than collecting from a cash-paying customer. It is logical for suppliers to desire to charge a cash-paying customer less than what the supplier bills Medicaid. The question thus arises: Is it permissible for the supplier to do so? Most state Medicaid programs require the supplier to bill the Medicaid program its usual and customer price.
Most states do not require a provider to bill Medicaid the lowest price it offers to any payor. Rather, the regulations generally require that a provider not bill Medicaid in excess of its “usual and customary” price. “Usual and customary” is typically defined as the price most commonly charged by the provider for items or services provided to non-Medicaid patients. If the supplier’s cash sales are small in relation to what the supplier bills Medicaid, the small volume of such cash sales should not appreciably affect the supplier’s usual and customary charges.
Qualification as a “Foreign” Corporation
The requirement to register or “qualify” as a foreign corporation generally hinges on whether an entity is “doing business” in a state according to that state’s foreign corporation statute. Most states do not statutorily define what constitutes “doing business” in the state; instead, the statute sets forth a non-exhaustive list of activities that do not constitute “doing business” in the state and “interstate commerce” is frequently listed as one of the exceptions. In most states, solely (1) obtaining a DME license, and (2) shipping products into the state will not result in the supplier being required to qualify as a foreign corporation in the state.
Note that qualification as a foreign corporation will subject the DME supplier to potential state business income taxation in some states. If a DME supplier does decide to qualify as a “foreign corporation” in another state, the qualification process typically involves filing fees and an application for foreign corporation qualification with the secretary of state’s office, maintaining a registered office and/or registered agent in the state and filing an annual report. Most states will not allow an entity to qualify and conduct business in the state under a name that is not distinguishable from a name already on file in that state.
The requirements for withdrawing registration as a foreign corporation are generally more onerous than the initial application to qualify as a foreign corporation. Certain states require detailed financial information and most require clearance from other state agencies in order to withdraw. All states require the withdrawing entity to certify, under penalty of perjury, that it is no longer conducting business in the state, and surrender its authority to conduct business in the state.
Doing business in another state may result in the DME supplier owing certain types of taxes to that state. Because the state tax laws frequently use criteria that differ from the state foreign corporation statute, these taxes may be owed even if the business isn’t otherwise required to register as a foreign corporation.
State Law Requirement of Physical Location
Increasingly, we are witnessing state legislatures passing laws that require a DME supplier to have a “physical location” in the state before the supplier will be issued a DME license. A recent state to impose this requirement is Colorado.
In determining the scope of a law requiring a physical location, the “devil is in the details.” Requirements vary from state-to-state. In some states, before a license is issued, an inspection is required. Such an inspection is not required for Colorado. When looking at a state “physical location” statute, a number of issues should be addressed, including the following:
• Must the location be in the state or can it be in a bordering state?
• Are there any requirements regarding number of square feet, hours that the facility must be open, and signage?
• Must a customer be able to walk into the facility and purchase a product, or can the facility be simply a “warehouse” from which products are delivered to customers’ homes?
• Must the facility have a PTAN or can the DME supplier simply sell items for cash out of the facility?
• Can the out-of-state DME supplier meet the “physical location” requirement by the simple act of leasing minimal space from a local DME supplier . . . or from a local pharmacy . . . or from any other type of landlord?
Use of Telemedicine in Cash Sales Across State Lines
In implementing a retail model, the supplier may want to engage the services of a physician who will issue an order without physically meeting with the patient. For example, the physician may want to issue an order based on (i) e-mail correspondence with the patient, (ii) a survey completed by the patient and submitted to the physician, or (iii) a telephone call with the patient, or (iv) a real time video interview with the patient.
A valid physician’s order is required for a number of items of DME, even if the patient will pay cash for the item. As to whether a physician’s order is valid is governed by the laws of the state (i) in which the physician has his practice and (ii) in which the patient resides. And so if the DME supplier and the prescribing physician are in “State A,” and if the cash-paying patient is in “State B,” and if the physician does not physically meet with the patient, then whether the remote prescribing is valid will depend on the laws of State A and State B.
As the DME supplier sells cash items across state lines, based on physician orders in which the physician does not have a traditional physical meeting with the patient, then the supplier needs to ensure that the physician orders are valid under the applicable state laws.
Selling DME by a Supplier Without a PTAN
Certain disclaimers must be made when a supplier sells, without a PTAN, DME to a Medicare beneficiary. 42 U.S.C. §1395m(j)(4)(A) states that if a supplier furnishes DME to a Medicare beneficiary, for which no payment may be made because the supplier does not have a Medicare supplier number, then any expenses incurred for the DME will be the responsibility of the supplier. The beneficiary will have no financial responsibility for the expenses, and the supplier will refund any amounts collected from the beneficiary, unless before the DME was furnished, the beneficiary was informed that Medicare would not pay for the DME and the beneficiary agreed to pay for the item.
Assume that a DME supplier, without a PTAN, desires to sell items for cash over the internet. The supplier’s web page should have the following in large bold type appear as soon as the customer clicks on a link to view DME….as well as immediately prior to check-out:
• Notice to Medicare Beneficiaries. Medicare will pay for medical equipment and supplies only if a supplier has a Medicare supplier number. We do not have a Medicare supplier number. Medicare will not pay for any medical equipment and supplies we sell or rent to you. You will be personally and fully responsible for payment.
Virtually all states and U.S. Territories require state licensure. DME licensure in 18 states cover most DME. DME licensure in 25 states cover select items of DME. Most states require out-of-state DME suppliers to obtain a license.
Use of Social Media
“Social media” is a way for people to communicate and interact online. Social media has been around since the dawn of the Internet, but in the last ten (10) years or so we’ve seen a surge in both the number and popularity of social media sites.
The future of the DME industry is the servicing of the 78 million “Baby Boomers” who are retiring at the rate of 10,000 per day. Unlike their parents (the “Greatest Generation”) Boomers are comfortable using social media. The forward-thinking DME supplier will utilize social media to (i) advertise to prospective customers, (ii) stay in touch with existing customers, and (iii) monitor patient outcomes.
Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN SPAM Act) was enacted to protect consumers from unwanted commercial email (i.e., “spam”). The act imposes restrictions on the sending of commercial email, which is defined as “messages that have as their primary purpose a commercial advertisement or a promotion of a commercial product of service.” Generally speaking, under the CAN-SPAM Act, unsolicited commercial email advertisements must have a functioning return email address, the legitimate physical address of the mailer, and a way for people to opt-out of future mailings. The Act also prohibits deceptive subject lines and false or misleading header information.
Direct mailings must comply with the laws of three regulatory agencies: (1) FTC, (2) U.S. Postal Service, and (3) State Attorneys General. The state regulations are relatively uniform and mirror the FTC regulations. The Federal Trade Commission Act focuses on preventing and deterring consumer deception and fraud—part of which is regulating direct mail advertising. Essentially, this Act operates to prevent false advertising.
The U.S. Postal Service also has some regulations that enforce advertising through direct mail. There are prohibitions on the following: certain non-mailable matter, mail bearing fictitious names or addresses, delivery of mail to people not actually residents of the place of address, and false representations for lottery mailings. Most state regulations on direct mailings mirror the federal statutory language and impose similar penalties for violations of the law.
Cooperative Marketing Program
A DME supplier and another provider (e.g., pharmacy) may enter into a cooperative marketing program. The costs and expenses of the program should be proportionately shared by the DME supplier and other provider.
Approaching Physicians and Other Referral Sources
It is acceptable for the DME supplier to call on physicians, hospital discharge planners, home health agencies, and other providers in order to market the company’s products and services. The DME supplier cannot directly or indirectly give something of value to the provider.
Stark allows a DME supplier to furnish non-cash items (such as meals) to a physician so long as the cost of the meals, in the aggregate, does not exceed $392 over 12 months. There is not a similar exception to the Medicare anti-kickback statute.
However, if this $392 Stark exception is followed, it is unlikely that the government will allege that the non-cash items furnished to a physician violate the anti-kickback statute.
Promotional Items to Customers and Potential Customers
The DME supplier can offer an item of nominal value (i.e., retail value of not more than $10) to customers/prospective customers covered by a government health care program. Over a 12-month period, the DME supplier may not give items to any one customer that have a combined retail value greater than $50.
Health Fairs, Luncheons, Kiosks and Open Houses
The DME supplier can participate in local health fairs. Similarly, the supplier can put on a short program during lunch at a senior citizens’ center, at which time the supplier can distribute promotional literature. The DME supplier can place a kiosk in a mall that promotes the supplier’s products and services. On a periodic basis, the DME supplier can hold an open house.
Jeff will be presenting the following webinar on behalf of AAHomecare…
Round 2 Recompete: Carve Out of Contract, Curing Bad Financials and Other Hot Button Issues
Presented by: Jeffrey S. Baird, Esq., of Brown & Fortunato, P.C.
Thursday, Feb 26, 2015 – 2:30-4:00 p.m. EASTERN TIME
With Round 2 Recompete fast approaching, there are several “hot button” issues that DME suppliers should address. First, due to multiple factors, including low reimbursement resulting from competitive bidding, many suppliers will likely submit financials that will be unimpressive at best. As such, there is a risk that a number of the bids will be disqualified. This program will discuss how information can be submitted through Form B that addresses “expanded capacity” and “other supplemental information.” There is a possibility that such additional information will at least partially alleviate concerns raised by the financials. Second, this program will discuss a new regulation that allows, in certain instances, a contract supplier to sell a portion of its business, including part of its contract. Third, this program will discuss how a non-contract supplier can gain access to a competitive bid contract through a 100% purchase, a partial asset purchase, a 100% stock purchase, or a purchase of 5% or more of a company.
Sign up now for Round 2 Recompete: Carve Out of Contract, Curing Bad Financials and Other Hot Button Issues on Thursday, February 26, 2015, 2:30-4:00 pm ET, with Jeffrey S. Baird, Esq., Chairman of the Health Care Group of Brown & Fortunato, PC. Contact Ika Sukh at email@example.com 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, 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. He can be reached at (806) 345-6320 or firstname.lastname@example.org.