Moving the HME Industry Forward

General Healthcare

Selling Items at Retail – Hot Button Issues

June 8, 2015

AMARILLO, TX – DME suppliers can no longer build their business model on Medicare fee-for-service. The successful supplier needs to go outside its comfort zone and look for new sources of income. Specifically, the supplier need to look to the retail market.

There are 78 million Baby Boomers who 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 be aware of the following hot button issues:

Collaboration With Hospital
Under the Hospital Readmissions Reduction Program, if a patient is readmitted after discharge within a certain period of time, for a particular disease, then the hospital can be subjected to future payment reductions from Medicare. A hospital can contract with a DME supplier to monitor/work with discharged patients so that they are not readmitted soon after being discharged. In entering into such a collaborative arrangement, the supplier should adhere to the guidelines set out in the OIG’s Advisory Opinion No. 13-10. According to the Advisory Opinion, among other requirements, the hospital should pay fair market value compensation for the supplier’s services.

Provision of Discounts to Cash Customers
There is a federal statute that says that a DME supplier is prohibited from charging Medicare substantially in excess of the supplier’s usual charges, unless there is good cause. The regulations do not give any clear guidance on what constitutes “substantially in excess,” “usual charges,” or “good cause.”

Some guidance can be derived from a rule that was proposed in 2003 and withdrawn in 2007. This proposed rule contemplates “usual charge” to be either the average or median of the DME supplier’s charges to payers 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 includes charges of affiliated companies into the calculation of a DME supplier’s usual charges. According to the proposed rule, 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 are included.

CMS declined to promulgate the proposed rule into a final rule. Nevertheless, this proposed rule gives insight into CMS’ thinking.

Sales Tax
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 (i) does not have a physical presence in the state and (ii) 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… 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.” The NSC published the following FAQ that addresses this issue.

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 – In order 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.

In responding to another question, the NSC confirmed that it is acceptable that a DME supplier may be in the same building as another DME supplier and that the supplier would not be “sharing a practice location” with another supplier if the supplier “has a separate suite, a separate address, a separate entrance from the outside, a separate telephone number, and both suppliers are using separate equipment.”

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 provider, in which the lifestyle company offers products and services that will help the aging Boomer enjoy the active lifestyle that he is accustomed to having.

For example, assume that ABC Medical Equipment, Inc. desires to lease a portion of its showroom to XYZ Senior Lifestyle, Inc. Assume that XYZ is not a provider; it sells items for cash. It will be important for ABC to retain at least 200 square feet and continue its Medicare Part B 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 can be displayed in the area of the showroom that is occupied by the applicable store.

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 (i) obtaining a DME license and (ii) shipping products into the state will not result in the supplier being required to qualify as a foreign corporation in the state.

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 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.”

State Licensure
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.

Increasingly, state legislatures are passing laws that require a DME supplier to have a “physical location” in the state before the supplier will be issued a DME license. 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. When looking at a state “physical location” statute, a number of issues should be addressed, including the following: (i) Must the location be in the state or can it be in a bordering state? (ii) Are there any requirements regarding number of square feet, hours that the facility must be open, and signage? (iii) 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? (iv) Must the facility have a PTAN or can the DME supplier simply sell items for cash out of the facility? (v) Can the out-of-state DME supplier meet the “physical location” requirements 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?

Jeff Baird 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:  Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.

Thursday, June 11, 2015
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 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.

Contact Ika Sukh at to register for “After the Purchase is Complete: Transfer of Patient Files, Calling the Seller’s Patients, and Other Hot Button Issues” on Thursday, June 11, 2015, 2:30-4:00 pm ET, with Jeffrey S. Baird, of Brown & Fortunato, PC.

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