Moving the HME Industry Forward

Manufacturer/Provider

Can You Turn Away Beneficiaries if You have Met Capacity?

November 4, 2013

AMARILLO, TX – A number of competitive bid contract suppliers are facing the same challenge. Their volume has increased substantially, and they have quickly met the capacity set out in their bid submission.

For example, in its bid submission, ABC Medical may have listed its capacity for walkers as 2,000. However, ABC has quickly sold more than 2,000 walkers. ABC’s bank will not provide any additional working capital to ABC for ABC to purchase additional walkers.

This, by the way, is a common problem. Why would a bank want to lend working capital to a DME supplier if the bank knows that the supplier’s business model can be eliminated, with “a stroke of a pen,” in three years? But I digress….

This is a dilemma for ABC. What is ABC supposed to do? How can ABC continue to sell walkers when it does not have the financial capacity to purchase additional inventory? Can ABC cease providing walkers? Unfortunately, the law is not clear, and further guidance from CMS is needed.

Tangential information from CMS and the CBIC indicates that when a contract supplier reaches its stated capacity, it can contact the CBIC to let the CBIC know that the supplier will not be serving any additional beneficiaries.  However, there is a risk that refusing to service a beneficiary will constitute a breach of the terms of a competitive bid contract. 

The competitive bid regulations – as well as the terms of the competitive bid contract – require that “[a] contract supplier must agree to furnish items under its contract to any beneficiary who maintains a permanent residence in, or who visits, the CBA and who requests those items from that contract supplier.”  42 CFR 414.422(e)(1).  This regulatory language requires a contract supplier to service any beneficiary who requests the covered items, and it does not make an exception for suppliers that have reached the capacity stated in their bid submission.

In addition to the language in the competitive bid regulations and contracts, this issue was briefly addressed in the commentary in the preamble to the final rule that promulgated the competitive bid regulations.  The following comments and responses are contained there:

Comment: One commenter requested that CMS clarify that a contract supplier can limit the number of items it provides in each category to its contracted capacity.

Response: As part of a supplier’s response to the RFB, a supplier will be expected to state its projected capacity to furnish the items in each product category for which it is submitting a bid. The projected capacity submitted by a supplier would not become a binding term of the contract because contract suppliers will be required to furnish the items in their contract to all beneficiaries who maintain a permanent residence in the CBA, or who visit the CBA, and who request the items from them unless one of the exceptions discussed in this final rule applies.

72 FR 17992, 18025-26 (Apr. 10, 2007)

Comment: One commenter urged CMS not to prohibit contract suppliers from turning away beneficiaries, since there will be more than one contract supplier per CBA. The commenter stated that there may be circumstances in which a contract supplier is already operating beyond capacity and would not be able to furnish items to additional beneficiaries. In addition, the commenter noted that a contract supplier may not believe that a requested item is appropriate for the beneficiary.

Response: We continue to believe that contract suppliers should not be able to turn away beneficiaries because we do not want to create an opportunity for contract suppliers to turn away beneficiaries who have the most difficult medical conditions or are otherwise difficult to serve. We note that we proposed that there would be a limited exception to this requirement if there is a particular item that a physician or treating practitioner has ordered to avoid an adverse medical outcome, but is an item that the contract supplier does not normally furnish. In this case, if the contract supplier could not furnish the item, the requirements at Sec.  414.420(b) of this final rule would apply.

72 FR 17992, 18050-51 (Apr. 10, 2007)

We understand that the CBIC is in the process of obtaining guidance from CMS regarding this issue. In light of the challenging predicaments many suppliers are finding themselves in, specific CMS guidance is necessary. Hopefully, such guidance will be forthcoming soon.

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 jbaird@bf-law.com.