Moving the HME Industry Forward

General Healthcare

State Brick and Mortar Laws

July 20, 2015

AMARILLO, TX – Recently, some states have adopted laws or regulations that require DME suppliers to have a physical location either within the state or within a certain proximity to the state’s border. These laws vary from state to state, with some applying to suppliers of all residents and others applying solely to suppliers of Medicare beneficiaries. This article addresses “brick and mortar” laws in Alabama, Colorado, Kentucky, Mississippi and Tennessee.

Of the five above-referenced states only Colorado’s “brick and mortar” law is limited to suppliers of Medicare beneficiaries. In other words, the scope of Colorado’s law is limited to suppliers that bill or plan to bill Medicare for any items included in the competitive bid program or suppliers that plan to bid for items in the program. Colorado requires this location to be accredited and staffed during reasonable business hours. The remaining states (Alabama, Kentucky, Mississippi and Tennessee) all require a “brick and mortar” location within the state’s border in order to receive a home medical equipment license, regardless of payor or beneficiary status.

Note that Kentucky’s “brick and mortar” law allows a supplier the option of having a physical location in one of the seven contiguous bordering states (not including Tennessee) if certain conditions are met.1

Also note that Alabama carves out “mail order companies” from its licensing requirements.2  However, by definition, a “mail order company” does not include a company that delivers “respiratory care” equipment.3

Thus, if an out-of-state supplier does not bill Medicare, it will nevertheless be required to obtain a license in each of the above-mentioned states, except Colorado. Obtaining state licensure in the other four states will require the out-of-state supplier to open a physical “brick and mortar” location in accordance with each state’s rules and regulations regarding proximity, accreditation, staffing, and reasonable business hours.

Shipping Products Into a State Without a License
Shipping products to residents of states in which an out-of-state supplier does not have the appropriate state licenses will violate state laws and regulations and may jeopardize the supplier’s PTAN. Medicare’s supplier standard number one states that the supplier must operate its business in compliance with all applicable federal and state licensure and regulatory requirements.4  

Setting Up Locations in the Referenced States
If the out-of-state supplier wishes to ship products to residents of the referenced states, it should open up a suitable location in each state, with two exceptions:

Colorado – The out-of-state supplier is not required to open an office in Colorado unless it bills (or plans to bill) Medicare for items or supplies shipped to Colorado residents.

Kentucky – A physical location within Kentucky may not be required to ship to residents of Kentucky, provided that a physical location is set up in a bordering state that meets Kentucky’s reciprocal licensure requirements.

Options for the Out-of-State Supplier
There are (at least) three options for the out-of-state supplier in the referenced states. First, the out-of-state supplier could open (or purchase) a physical location in each of the states, pursuant to the state’s licensure requirements, and continue fulfilling orders as usual. Second, the out-of-state supplier could enter into a subcontract agreement with the in-state supplier. Finally, the out-of-state supplier could decide not to do business in these states5 and refer any patients residing in these states to an in-state supplier without remuneration.

A) Option One: Open a physical location in Alabama, Colorado, Kentucky, Mississippi, and Tennessee

Under the first option, the out-of-state supplier would open physical locations pursuant to the “brick and mortar” laws of the five states (as mentioned above, Colorado does not require a physical location if no Medicare beneficiaries are serviced within the state).

The remaining states (Alabama, Kentucky, Mississippi and Tennessee) all have similar requirements for in-state physical locations. First, the location must be open and adequately staffed during normal business hours. The location must be used for storing, dispensing, and repairing home medical equipment (however, not all shipments to residents of the state must be dispensed from the in-state location). The location must also have a working telephone that is listed in the business name as well as visible signage containing the name of the company and normal hours of operation. The location must be clean, sanitary, and properly ventilated with business areas separated from repair and maintenance areas. It must also contain adequate space for the storage of business records, including records required under federal regulations and records of problems or complaints and resolutions to problems and complaints. Additionally, each state requires that the supplier’s service be available 24 hours a day, seven days per week if it is essential to the maintenance of life or the lack of service might reasonably cause harm.

Additional requirements for the physical locations differ slightly among the referenced states. For instance, Alabama has incorporated the CMS DMEPOS supplier standards as part of its licensure criteria; Kentucky and Mississippi both have detailed sanitation and safety documentation requirements to ensure that the equipment at the location has been inspected for defects and is functioning properly.

B) Option Two: Subcontract Agreement

Under the second option, the out-of-state supplier and in-state supplier will enter into a subcontract agreement. Under the subcontract agreement, the out-of-state supplier will provide a designated set of services for the in-state supplier. The in-state supplier would pay compensation to the out-of-state supplier for the services. If the out-of-state supplier refers federally-funded customers (i.e., Medicare, Medicaid, Tricare, etc.) to the in-state supplier, the remuneration to the out-of-state supplier from the in-state supplier might potentially implicate federal and state6 anti-kickback statutes.

Under the federal anti-kickback statute, if “one purpose” behind the payment to a referral source is to induce referrals, then the anti-kickback statute is violated even if the referral source provides legitimate non-referral services and the payment is the fair market value equivalent of the services. Therefore, an arrangement between an out-of-state supplier and an in-state supplier would need to meet the Personal Services and Management Contracts safe harbor to the federal anti-kickback statutes.7  This safe harbor requires, among other things, that the term of the agreement be for at least one year, the aggregate amount for the services be set in advance, and the amount of remuneration cannot be based on the volume or value of referrals between the two parties.

The subcontract agreement should not provide for percentage compensation. The safest approach is for the in-state supplier to pay a fixed annual fee to the out-of-state supplier, and for the annual fee to be the fair market value equivalent of the out-of-state supplier’s services. Such a compensation arrangement is a key element of the Personal Services and Management Contracts safe harbor.

A middle ground approach—one that entails a kickback risk—is for the compensation to be on a fee schedule basis. The problem with a fee schedule is that the money paid by the in-state supplier could vary based upon the volume of business generated by the out-of-state supplier. If the parties adopt this middle ground approach, then the risk can be reduced by other elements of the subcontract arrangement (e.g., the out-of-state supplier provides services to patients of the in-state supplier who are not referred by the out-of-state supplier).

C) Option Three: Not Sell Products Into The Referenced States

The third option would be for the out-of-state supplier to not do business in Alabama, Kentucky, Mississippi and Tennessee and refer any patients in those states to in-state suppliers. As noted above, the out-of-state supplier could continue to ship products to Colorado without having an in-state physical location, provided that the out-of-state supplier does not service any Medicare beneficiaries residing in Colorado. Also, the mail order exception in Alabama would allow the out-of-state supplier to continue to ship certain products to Alabama residents without requiring Alabama licensure. This option may be appealing if the costs of opening a physical location under Option One or the potential kickback risks involved under Option Two are too high.

What other states are going to require in-state locations as a prerequisite to licensure?
There has been an increase in the number of state legislatures considering or passing laws that require a DME supplier to have a physical location within the state or in close proximity to the state. Currently, the legislatures of North Carolina and Georgia have proposed legislation regarding physical locations of DME suppliers.

The proposed legislation in North Carolina would require a supplier to maintain at least one physical location within the state or within 40 miles of the state border; the location must have a sufficient amount of inventory to respond to orders or requests within the state in a timely manner. The proposed North Carolina law would exempt disposable medical supply mail order companies from this requirement.

Georgia’s proposed legislation would require a supplier to maintain an accredited physical location within the state of Georgia. Further, Georgia’s legislation states that the accreditation organization must be recognized by CMS.

Denise Leard will be presenting the following webinar:
AAHomecare’s Educational Webinar
Audits: “Nuts and Bolts” Steps to Successfully Respond
Presented by: Denise M. Leard, Esq., Brown & Fortunato, P.C.
Tuesday, July 28, 2015
2:30-4:00 p.m. EASTERN TIME
In the past, DME suppliers had to respond to occasional post-payment audits. Well…the past is gone and we now have to face a new reality: Medicare is tightening its purse strings; there are 78 million baby boomers, 10,000 of whom are retiring each day; and the boomers will live to a ripe old age. No matter how we look at it, Medicare will strive to pay less up front and will strive to recoup as much money on the back end as possible. The tools for CMS to accomplish this fall into two categories: post-payment audits and prepayment reviews. Post-payment audits are unpleasant but not life-threatening; at least the supplier has been paid its money. Prepayment reviews, however, can be life-threatening; the supplier will not get paid unless the contractor determines (usually in an arbitrary fashion) that the supplier’s documentation is in order. This program will discuss practical, “nuts and bolts” steps that the supplier must take in order to (1) reduce the chances of being hit with a post-payment audit and prepayment review and (2) successfully respond to an audit/review. This program will further discuss the key documents that the supplier must have in order to get paid by Medicare and to keep the money it has received from subsequently being recouped by Medicare.

Click Here to Register for Audits: “Nuts and Bolts” Steps to Successfully Respond on Tuesday, July 28, 2015, at 2:30-4:00 pm ET, with Denise M. Leard, of Brown & Fortunato, PC.

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, 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