Moving the HME Industry Forward

Manufacturer/Provider

Establishing Common Ownership After CB Contract is Signed

May 5, 2014

AMARILLO, TX – A non-contract supplier can have its PTAN(s) added to a competitive bid contract after: 1) a contract supplier purchases 5% or more of the non-contract supplier; 2) a non-contract supplier purchases 5% or more of a contract supplier; or 3) a shared parent company or shared individual owner acquires 5% or more of both the contract supplier and the non-contract supplier. This is sometimes known as a “5% transaction.”

When this idea first surfaced, the key question was whether a contract supplier can add the PTAN(s) of a commonly-owned supplier if the common-ownership link between the two is established after the time that the competitive bid contract was awarded. CBIC guidance indicated that (i) a contract supplier may add additional locations as long as the locations are for the same product category/CBA for which the contract supplier was awarded a contract and (ii) the contract supplier may only add locations, including those of a commonly owned supplier, if the locations (identified by PTANs) are not on another contract for the same CBA/product category combination and the locations meet all of the competitive bidding program requirements.

In other words, a contract supplier can only add a commonly-owned supplier’s PTAN to a CBA/product category combination that is included on the competitive bid contract, and the contract supplier cannot add a commonly-owned supplier’s PTAN to a CBA/product category combination if that PTAN is already on another competitive bid contract for the same CBA/product category combination. So long as a common-ownership link is established and reported to the NSC on the 855S of the supplier that sells 5% or more of its stock, the issue of which supplier acquires the stock of the other should not matter.

Before proceeding with a 5% transaction, some of the regulatory issues to consider are the following:
• If the 5% or greater common-ownership link exists when a future round of competitive bidding comes up, and the commonly-owned parties desire to bid on the same product category in the same CBA (i.e., the parties want to directly compete), the parties will have to submit a joint bid. And if a contract is awarded pursuant to that joint bid, it will be a single contract number shared by both parties.

• If the parties share a joint contract, the actions of either party may have a direct impact on the other party’s standing as a contract supplier. In other words, if company A and company B establish a common-ownership link, and company A adds company B to the company A contract, then there is a risk that a breach of the terms of the contract by either A or B could lead to the termination of the entire contract as opposed to the removal of just the breaching party. We are not aware of any situations in which CMS has brought a breach action in the context of a shared contract, so we are not certain how CMS would actually handle this, but the risk nevertheless exists.

• Related to this point is the fact that a competitive bid contract is an “all or nothing” proposition in the sense that individual CBAs or product categories cannot be removed or deleted from a contract. So, if each party does not cover the entire contract, but together they cover the entire contract, and one party desires to walk away from a part of the contract that the other does not cover, this could potentially jeopardize the contract.

By establishing a common-ownership link between two suppliers, those suppliers become “affiliated” for purposes of the increased enrollment reporting requirements issued by the Affordable Care Act. See 42 U.S.C. 1395cc(j)(5). These requirements say that a supplier submitting an enrollment or revalidation application on or after 3/23/11 must disclose any current or previous, direct or indirect, affiliation with a supplier that (1) has uncollected debt, (2) has been or is subject to a payment suspension under a Federal health care program, (3) has been excluded from participating in Medicare, Medicaid, or CHIP, or (4) has had its billing privileges denied or revoked.

Additionally, if CMS determines that the current or previous affiliation poses an undue risk of fraud, waste, or abuse, CMS may deny the enrollment or revalidation application. Again, we are not aware of instances in which CMS has denied enrollment or revalidation applications on this basis, but it is a risk to be aware of.

Todd A. Moody, JD, is an attorney with the Health Care Group at Brown & Fortunato PC, a law firm based in Amarillo, Tex. He represents DME suppliers, pharmacies, infusion companies, and other health care providers throughout the United States. Moody can be reached at (806) 345-6343 or tmoody@bf-law.com.