With the impact of fluctuating reimbursement rates, health care reform, and competitive bidding, sleep labs need to be thoughtful in their approach to contracts with durable medical equipment (DME) companies for the provision of DME services. There are several key considerations that sleep labs and DME companies should consider prior to entering into a contract. The contract for DME services should clearly set forth and define which services, equipment, and supplies are going to be provided by the DME company, the compensation terms, compliance with state and federal regulations, and termination rights.

Jayme R. Matchinski, Esq

Jayme R. Matchinski, Esq

DEFINE AND IDENTIFY PROVISION OF SERVICES

Prior to entering into any arrangement or contract for the provision of DME and related services, the sleep lab and DME company should carefully define which services, equipment, and supplies are going to be provided by the DME company to the sleep lab. The contract should specifically delineate the responsibilities and obligations of the sleep lab and DME company for the provision of such services. The contract also should address which party is responsible for the business, management, administrative, billing, patient support, and any other requisite services required for the provision of DME to the patient.

The sleep lab should consider including provisions in the contract regarding the retention of management and operational control, maintenance of patient records, standard of performance, inventory and supplies, and limitation on authority by the DME company. Sleep labs also should conduct their own due diligence prior to signing a contract for DME services to make sure that the DME company is a reputable and established supplier of DME and related services to avoid any surprises. It is imperative that the contract address all billing issues for the provision of DME services, esquipment, and supplies to enable both the sleep lab and DME company to have a clear understanding of their responsibilities for DME billing and claim submission prior to the initiation of services pursuant to the contract. The DME contract also should identify which third-party payors are going to be billed for the DME services and which party is responsible to follow up with the payors if the claim is not paid within a certain time frame.

COMPENSATION TERMS

The DME contract should include provisions that spell out the compensation terms between the sleep lab and DME company. The sleep lab should consider what type of payment will be made to the DME company for the provision of services. Will the compensation terms include a management fee, percentage payment, and/or a flat monthly payment? The compensation terms must comply with all of the applicable state and federal regulations, and fair market value for services and equipment should be used as the benchmark for determining the compensation amounts and payment terms.

If the sleep lab is going to provide CPAP and other DME to Medicare or Medicaid patients, or to patients who are beneficiaries of any other governmental program, the DME contract should address such payment and contain provisions to demonstrate compliance with the applicable federal regulations including: patient confidentiality, record retention, and availability of patient records for inspection by the Department of Health and Human Services (DHHS).

Medicare payment for durable medical equipment, including payment for CPAP equipment and supplies, historically has been based on fee schedule amounts that use reasonable charge data from previous years. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub L 108 173) requires the Secretary of the DHHS to replace the current DME payment methodology for certain items with a competitive acquisition process.

The MMA authorizes DHHS to freeze payment rates and require DME suppliers, who provide services under Medicare Part B, to competitively bid for the provision of such services to patients. The new competitive bidding process establishes payment for DME. The MMA also requires the DHHS to establish and administer a Program Advisory and Oversight Committee that will provide advice on the development and implementation of the competitive acquisition program. This competitive bidding program is intended to provide an incentive for DME suppliers to provide quality items and services in an efficient manner and at a reasonable cost.

It is important that sleep labs and DME companies understand the competitive bidding program for DME and the impact of the MMA on Medicare payment. The competitive bidding process establishes payment for certain DME, including CPAP. Starting in 2007, some items of DME were paid through a competitive bidding program in 10 Metropolitan Statistical Areas (MSAs). DME suppliers will be required to competitively bid to provide services in areas established as competitive acquisition areas. Medicare beneficiaries will be able to obtain supplies, including DME, only from winning bidders. The winning bidders who meet certain quality and financial standards will be awarded contracts for up to 3 years. It is anticipated that there will be multiple winners within an area and beneficiaries will have access to multiple suppliers. Medicare will pay 80% of the payment amount determined for each item or service in a competitive acquisition area. Medicare beneficiaries will be responsible for paying the remaining 20% after meeting the Medicare Part B deductible. Sleep labs and DME companies that provide DME to Medicare or Medicaid patients or to other government beneficiaries should determine if the competitive bidding program is in place in their MSA.

Sleep labs and DME companies also should revisit and confirm the language of the applicable insurance policies prior to providing CPAP to ensure that all conditions of coverage are met pursuant to the terms of the applicable policies and payor agreements to facilitate reimbursement for CPAP.

Sleep labs and DME companies that enter into DME contracts also should ensure compliance with all National Coverage Determinations (NCDs) and Local Coverage Determinations (LCDs), including the payment requirements. The NCDs and LCDs require certain documentation requirements to facilitate Medicare and/or Medicaid payment to providers or DME suppliers. The Medicare Program Integrity Manual and Medicare coverage guidelines for DME also set forth certain requirements for the provision and payment of DME, including CPAP.

TERMINATION RIGHTS

The DME contract should include a date that is set forth as the “Effective Date” or “Commencement Date” and the exact length of the contract. Most DME contracts are for a minimum of a 1-year term with an automatic renewal term(s) or an option to renew. Sleep labs should consider including provisions in the DME contract that provide that the sleep lab can terminate the DME contract without cause when the sleep lab gives the DME company prior written notice within a certain amount of time.

The DME contract also should contain termination for cause provisions that trigger automatic termination of the contract when certain events occur. For example, if the DME company becomes insolvent and declares bankruptcy, the sleep lab should be able to automatically terminate the agreement without prior written notice. Prior to signing the DME contract, the sleep lab and DME company should understand and agree upon the term of the contract and how the contract can be terminated by either party, with or without cause.

COMPLIANCE WITH STATE AND FEDERAL REGULATIONS

The key legal issues related to the provision of CPAP are licensure, reimbursement, and, for government-paid CPAP to Medicare and/or Medicaid patients, the federal Stark regulations and state self-referral and Anti-Kickback prohibitions. State licensure, reimbursement, federal regulations, and referral sources determine how a DME supplier is structured for the provision of CPAP.

The federal Stark and Anti-Kickback Statutes are triggered if a sleep lab and DME supplier participate in government programs, including Medicare and Medicaid, and seek to provide CPAP and related DME services to Medicare and/or Medicaid patients or other government beneficiaries. Due to the federal regulatory landscape and restrictions, many sleep labs and physicians carve out the Medicare and/or Medicaid program beneficiaries and provide services only to commercial and private patients. Prior to entering into a DME contact, both the sleep lab and the DME company should review the applicable state and federal regulations to determine if the proposed DME contract complies with the regulations.

The Stark regulations prohibit physicians from referring Medicare patients for designated health services (DHS) to any facility or other entity with which the referring physician (or any immediate family members) has any financial relationship, unless an exception in the Stark Law or related regulations is satisfied. Furthermore, the entity providing the DHS would be prohibited from billing Medicare for the services. DME, which includes CPAP, is identified and defined as a DHS for purposes of the Stark regulations. Sleep labs and DME companies should continue to monitor their compliance with the Stark regulations as related to the provision of DME and related services, including CPAP. At this time, polysomnography is not a DHS under the Stark regulations.

If the sleep lab is a Medicare-enrolled Independent Diagnostic Testing Facility (IDTF), the IDTF sleep lab may not: (i) share a practice location with another Medicare-enrolled individual or organization; (ii) lease or sublease its operations or its practice location to another Medicare-enrolled individual or organization, or (iii) share diagnostic testing equipment used in the initial diagnostic test with another Medicare-enrolled individual or organization. In order to participate in the Medicare program, an IDTF sleep center must certify that it “does not share space, equipment or staff or sublease its operations to another individual or organization.” These restrictions on sharing space and leasing arrangements with other Medicare-enrolled individuals or organizations became effective on January 1, 2008. Prior to entering into a DME contract, the sleep lab and DME company should consider these regulations if the sleep lab is a Medicare-enrolled IDTF.

Sleep labs and DME companies also should be aware that the Office of Inspector General (OIG) 2012 Work Plan lists DME medical necessity and the pricing of medical equipment and supplies on its investigation agenda. The OIG has investigated fraud in several types of DME. Sleep labs and DME companies must be diligent in obtaining and managing all the necessary documentation. Proofs of delivery of the DME and authorization of benefits have become serious issues in some DME fraud investigations. DME suppliers may have a tendency to “upcode” by providing BiPAP in a case when only CPAP is indicated. Sleep labs and DME companies should be aware that the OIG is monitoring and scrutinizing the provision of DME. The DME contract should include a provision that states both the sleep lab and the DME company are in compliance with the applicable state and federal regulations. The sleep lab and DME company also should monitor the OIG Advisory opinions and investigations to ensure that the DME contract remains in compliance with the OIG guidelines and Advisory opinions.

Sleep labs and DME companies should structure the DME contract to comply with the applicable state and federal regulations, and prior to signing the contract, both parties should review the contract and define and identify provision of services, compensation terms, and termination rights.


Jayme R. Matchinski, Esq, a partner with the law firm of Hinshaw & Culbertson, LLP, in Chicago, concentrates on health care law and has counseled sleep disorder centers, physicians, and health care providers nationally. She can be reached at (312) 704-3574 and .