GT Alert: New Provision in Medicare Program Integrity Manual is Effective on September 8

Thursday, September 17, 2009 General News
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Medicare Restricts Consignment Closet Arrangements Between Suppliers of Durable Medical Equipment and Physician Offices

By William B. Eck and Daniel B. Brown, Greenberg Traurig LLP

WASHINGTON, Aug. 31 /PRNewswire/ -- The Centers for Medicare & Medicaid Services (CMS) has published a new manual provision that will severely restrict the use of consignment closets in physician offices by suppliers of durable medical equipment, orthotics and supplies (DMEPOS).

As a practical matter, this new provision may eliminate consignment closets and similar arrangements. CMS is adding the provision to the Medicare Program Integrity Manual, and the provision is effective on September 8, 2009. DMEPOS suppliers that have any form of supply or consignment closet arrangement, or stock and bill arrangement, with physician or other practitioner offices should review these arrangements promptly and make any needed changes before September 8.

Consignment closets and similar arrangements developed as a marketing and distribution channel for some kinds of DMEPOS, particularly items that are relatively small and easily dispensed by a physician office. Typically, in these arrangements the supplier places an inventory of items of equipment and supplies at a physician's office. The physician furnishes the items to patients, and furnishes the necessary physician order and patient billing information to the supplier. In some cases, supplier personnel fit items at the physician's office. The supplier then bills for the items furnished. The new Program Integrity Manual Provision prohibits the supplier from billing Medicare for supplies furnished or dispensed at a physician or other practitioner's office.

Under the new provision, a DMEPOS supplier may maintain an inventory at a practice location owned by a physician or other practitioner only if the following conditions are met:

1) The title to the DMEPOS must be transferred to the enrolled physician or non-physician practitioner practice at the time the DMEPOS is furnished to the beneficiary;

2) The physician or non-physician practitioner must bill for the DMEPOS supplies and services using the practitioner's own enrolled DMEPOS billing number;

3) All services provided to a Medicare beneficiary concerning fitting or use of the DMEPOS shall be performed by individuals being paid by the physician or non-physician practitioner's practice, and not by any other DMEPOS supplier; and

4) The beneficiary shall be advised that if he or she has a problem or question regarding the DMEPOS, then the beneficiary should contact the physician or non-physician practitioner, and not the DMEPOS supplier who placed the DMEPOS at the physician or non-physician practitioner's practice.

CMS' intent is to eliminate the physician office as a DMEPOS supplier distribution channel. CMS is concerned that consignment closet arrangements impair Medicare beneficiary freedom of choice, and in some cases may be abusive. CMS determined that it could address consignment closets and similar arrangements through an interpretation of the DMEPOS supplier standards regulations, specifically the regulation that requires each supplier location to be enrolled. Under CMS' view, reflected in the new provision, in a consignment closet arrangement the practitioner office becomes a DMEPOS supplier location. The new policy does not apply to hospitals or ambulatory surgical centers (although other rules and instructions are applicable).

As a result of this change, suppliers will need to consider placing greater emphasis on direct marketing to Medicare beneficiaries, and on more traditional forms of marketing to physician and non-physician practitioners. The requirement that items furnished through a practitioner's office be billed using the practitioner's own DMEPOS supplier number is likely to largely eliminate consignment closet arrangements.

The new policy does, however, permit a supplier maintaining a consignment closet to become a distributor to the practitioner, rather than functioning as a DMEPOS supplier. In this case, the practitioner must enroll as a DMEPOS supplier and conform to the other requirements listed above. This possibility may be especially intriguing to certain suppliers in view of the exception of practitioners from Medicare competitive bidding for certain DMEPOS items (although practitioners are limited to the competitive bid single payment amount).

Another possibility that some suppliers may explore is furnishing items through practitioner offices that will not be billed to Medicare, the beneficiary or any other party. This practice would be somewhat analogous to the distribution of pharmaceutical samples. Both of these potential options can raise issues under the Stark law and the federal health care program anti-kickback and anti-inducement statutes. For example, pricing in a distributor relationship is required to be fair market value, but will need to provide some margin for the practitioner to recover the costs of fitting and billing. Compliance with the supplier standards also will need to be evaluated. These alternatives, therefore, should be carefully structured and reviewed.

Finally, CMS has not yet clarified whether suppliers will be permitted to fill a specific patient order by taking the item to a physician or practitioner office rather than to the patient's home, and fitting the item. Here, no inventory is pre-positioned at the physician's office. CMS' initial response to this question was not favorable. However, trade groups are urging CMS to reconsider this position in view of clinical realities, such as a patient with a foot fracture having to leave a physician office without a boot to go to a separate supplier location.

CMS' new Program Integrity Manual provision broadly affects arrangements between DMEPOS suppliers and physicians that are common in the industry. There are some alternatives suppliers may consider in response to the provision, separately or in combination. Whether or not a supplier can immediately implement the alternatives, every supplier should promptly evaluate its existing consignment closet or similar arrangements and address any changes necessary for compliance with the new provision.

Note: This GT Alert article was prepared by William B. Eck and Daniel B. Brown. Eck and Brown are Shareholders in Greenberg Traurig's Health and FDA Business Practice. All views expressed herein are solely those of the authors and should not be attributed to Greenberg Traurig. Mistakes and omissions remain the sole responsibility of the authors. This communication is issued for informational purposes only and is not intended to be construed or used as general legal advice. The hiring of a lawyer is an important decision. Before you decide, ask for written information about the lawyer's legal qualifications and experience. Greenberg Traurig is a trade name of Greenberg Traurig, LLP and Greenberg Traurig, P.A.

SOURCE Greenberg Traurig LLP

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