AMARILLO, TX – A significant increase in the diagnosis and treatment for OSA has led to a surge in the need for the performance of sleep studies and an increase in the number of joint ventures and cooperative arrangements between DME companies, physician offices, and sleep labs.  

Although DME suppliers are justifiably interested in cooperating with other entities on matters related to sleep testing, the expansion of sleep testing and treatment for OSA has led CMS, the OIG, and the ZPICs to more closely scrutinize sleep testing and CPAP utilization.

In 2001, the national coverage policy on CPAP was expanded. However, the policy specified that only PSG done in a facility-based sleep study laboratory could be used to identify patients with obstructive sleep apnea.  In 2005, CMS determined that the evidence was not adequate to conclude that the use of unattended portable multi-channel sleep testing was reasonable and necessary in the diagnosis of OSA and these tests remain noncovered for the diagnosis of OSA.  

Throughout 2007, CMS received multiple requests to reconsider the 2005 NCD and allow home sleep test (“HST”). On March 13, 2008, CMS published the final Decision Memo that expands qualified sleep studies to include unattended sleep studies performed in the patient’s home. In the wake of competitive bidding and reimbursement cuts, DME suppliers have become more aggressive about seeking to identify patients that may qualify for CPAP equipment.  CMS policies that allow home sleep studies performed by an IDTF to qualify the patient for such equipment have also fueled an increase in this business. Suppliers need to understand the prohibition that CMS has issued regarding the suppliers’ involvement with the HST.

CPAP Payment Prohibition
42 CFR 424.57(f) states:

No Medicare payment will be made to the supplier of a CPAP device if that supplier, or its affiliate, is directly or indirectly the provider of the sleep test used to diagnose the beneficiary with obstructive sleep apnea. This prohibition does not apply if the sleep test is an attended facility-based polysomnogram.”

“Affiliate” and “provider” are defined terms.  “Indirect” is also defined in the preamble to the final rule.  “Affiliate” means a person or organization that is related to another person or organization through a compensation arrangement or ownership. “Provider of the sleep test” is the individual or entity that directly or indirectly administers and/or interprets the sleep test and/or furnishes the sleep test device used to administer the sleep test.

“Indirect” in this context means “that one or more intermediary actors are used to accomplish the sleep test to its end.  For example, if a DME supplier contracted with a sleep test provider to furnish an HST, that supplier would indirectly provide the HST.”

CMS adopted the payment prohibition because CMS believed that the expanded coverage of HSTs could result in overutilization and abuse. CMS believes that Medicare beneficiaries and the Medicare program are vulnerable if the provider of a diagnostic test has a financial interest in the outcome of the test itself.  According to CMS, this creates an incentive to test more frequently or less frequently than is medically necessary and to interpret a test result with a bias that favors self-interest.

In the preamble to the final rule, CMS explained that diagnostic testing for sleep disorders is vulnerable to abuse because the results are “technique dependent.” As a result, CMS concluded that a “financial interest in the payment for a CPAP device” could influence the subjective testing and interpretation of inconclusive cases.  

Many comments regarding the payment prohibition asserted that the existing fraud and abuse laws sufficiently protect the Medicare program. In response, CMS stated that it had the “authority to limit or prohibit payment for items and services that are provided in a manner that does not implicate” other fraud and abuse laws, including the federal anti-kickback statute.  The preamble to the final rule indicates that even though a contract may meet an exception to the federal fraud and abuse laws, CMS may still determine that the arrangement will lead to abusive practices and prohibit payment when such an arrangement is in place.

OIG Report
In March 2012, the OIG published a report addressing questionable billing for IDTF services.  Pertinent excerpts from this report state: “Identification of questionable characteristics.  We developed a list of three characteristics that may identify questionable IDTF claims. We based this list on IDTF requirements and previous OIG work that analyzed billing patterns.

The characteristics include: (i) Claims involving a beneficiary linked to four or more IDTFs; (ii) Claims for which beneficiaries did not see their referring physicians within 90 days before or after receiving the IDTF service; and (iii) IDTF claims on which the diagnosis category is not the same as the diagnosis category on any other corresponding provider claim for that beneficiary.

Seventeen percent of IDTF claims in high-utilization Core Based Statistical Areas  (CBSAs) had no corresponding claim by the referring physician.  In high-utilization CBSAs, 17.3 percent (115,669 of 668,252) of IDTF claims had no corresponding claim by the referring physician within 90 days before or after the beneficiary received the IDTF service, compared to 14.2 percent of IDTF claims in all other CBSAs.  More than 46 percent of claims in high-utilization CBSAs did not have the same diagnosis categories as any other corresponding provider claims.  

In high-utilization CBSAs, 46.7 percent (311,910 of 668,252) of IDTF claims did not have the same diagnosis categories as any other corresponding provider claims 90 days before or after the beneficiary received an IDTF service, compared to 35.4 percent of IDTF claims in all other CBSAs.  If the diagnosis category on the IDTF claim is not the same as that on any other corresponding provider claim within 90 days before or after the beneficiary received the IDTF service, it may indicate that the IDTF provided unnecessary services.”

DME Supplier Involvement with HST
As previously stated, Medicare will not cover a CPAP furnished by a DME supplier that leased or sold the HST used to diagnose the beneficiary: “No Medicare payment will be made to the supplier of a CPAP device if that supplier, or its affiliate is directly or indirectly the provider of the [home] sleep test used to diagnose the beneficiary with obstructive sleep apnea.

This prohibition does not apply if the sleep test is an attended facility-based polysomnogram.” By adopting this rule, CMS established “a specific payment prohibition that would not allow the supplier to receive Medicare payment for a CPAP device if that supplier or its affiliate . . . is directly or indirectly related to the provider of the sleep test that would be used to diagnose the beneficiary with OSA.”

Also as previously stated, “affiliate” means a person or organization that is related to another person or organization through a compensation arrangement or ownership. “Provider of the sleep test” is the individual or entity that directly or indirectly administers and/or interprets the sleep test and/or furnishes the sleep test device used to administer the sleep test.  Therefore, if a DME supplier leases or sells the HST to the provider of the sleep test, then the provider is an affiliate of the DME supplier.  

As a result, Medicare will not cover a CPAP furnished by the DME supplier to a beneficiary diagnosed with the HST.  The payment prohibition will not apply to a DME supplier that furnishes items other than a CPAP to a Medicare beneficiary who received an HST sold or leased by the DME supplier.  The payment prohibition specifically prevents payment for CPAPs only.  Therefore, the prohibition will not apply to claims for other equipment and supplies.

If the DME supplier furnishes a CPAP to a beneficiary diagnosed by an HST device leased or sold by the DME supplier, then the payment prohibition listed in the Supplier Standards will apply, and Medicare will not cover the cost of the CPAP.  Therefore, the DME supplier should inform the beneficiary that Medicare will not cover the cost of the CPAP unless the beneficiary obtains the equipment from another supplier.

If despite this information, the beneficiary chooses to obtain the equipment from the DME supplier that sold or leased the HST, then the DME supplier may sell the CPAP to the beneficiary for cash.  In this instance, the DME supplier should obtain a signed statement from the beneficiary in which the beneficiary agrees to purchase the CPAP from the DME supplier without filing a claim with Medicare and acknowledges that: (i) Medicare will not pay for the CPAP furnished by the DME supplier, and (ii) Medicare will pay for the CPAP furnished by another DME supplier.

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 [email protected].