AMARILLO, TX – In preparation for the Medicare DMEPOS Competitive Bidding Program (“CBP”), many suppliers may be either considering new subcontracting arrangements or reviewing existing subcontracting arrangements. A subcontracting arrangement is where a DME supplier has an arrangement with another entity to perform a service on behalf of the DME supplier or for the DME supplier. In such arrangements, the DME supplier is the “contractor.” This is most clear in the context of CBP because the DME supplier that has been awarded a CBP contract is called a contract supplier. The other entity is the “subcontractor,” and the subcontractor may be another DME supplier or may be a non-supplier, such as a manufacturer.
What services can be subcontracted?
The National Provider Enrollment contractor for the Western Region (“NPWest”) has published guidelines for subcontracting that apply generally to Medicare DMEPOS enrollment. The Competitive Bidding Implementation Contractor (“CBIC”) has issued similar guidance in Fact Sheets. Both sets of guidance point back to the DMEPOS Supplier Standards, suggesting that both sets of guidance are applicable to CBP and outside of CBP.
According to the guidance, a DME supplier may subcontract for three categories of services:
- Purchase of inventory
- Delivery and instruction
- Maintenance and repair of rented equipment
Purchase of inventory. A DME supplier may contract with other companies (e.g., manufacturers, wholesalers, or other DME suppliers) to purchase inventory from the other company and then use the purchased inventory to fill an order. If a DME supplier enters into a purchase of inventory subcontract arrangement, then it must provide copies of such inventory purchase contracts upon request by Medicare. A supplier may not contract with any entity that is currently excluded from federal or state health care programs. A subcontractor that only performs this service does not need to be accredited.
Delivery and instruction. A DME supplier may contract with other companies to deliver DME to the patient and to provide education and instruction to the patient on the safe and effective use of the DME. Regardless of whether a supplier directly provides delivery and instruction, or contracts with a subcontractor to do so, the supplier is responsible for documenting that delivery and instruction occurred.
Maintenance and repair of rented equipment. A DME supplier may contract with other companies to maintain and repair equipment that the supplier rents to the patient. If the subcontractor provides more than the repair of the equipment, then the subcontractor will need to be accredited unless an exemption applies. For example, if the subcontractor sets up the repaired item, or provides patient education and instruction regarding safe and effective use of the repaired item, then the subcontractor will need to be accredited unless an exemption applies.
What services cannot be subcontracted?
Guidance includes certain “core responsibilities” that may not be subcontracted:
- Patient intake and assessment
- Coordinating care with the physician
- Submitting claims to Medicare on behalf of the patient
- Ownership and responsibility for the equipment
- Ensuring product safety
Medicare’s guidance on subcontracting has not, as of this writing, offered much additional guidance on or explanation of the above “core responsibilities.” NPWest has indicated that a supplier’s subcontracting arrangements must be consistent with the DMEPOS Supplier Standards. Similarly, CBIC has stated in a Fact Sheet—
“Contract suppliers are responsible for furnishing competitively bid items directly or through the use of subcontractors. The only permissible subcontracting arrangements are those that comply with the DMEPOS Supplier Standards specified in 42 CFR § 424.57(c) and applicable accreditation requirements.”
Regardless of whether a supplier uses a subcontractor or performs a task directly, the supplier retains full responsibility and accountability for any services provided to a Medicare beneficiary.
Accreditation
In addition to the DME supplier’s compliance with Medicare’s accreditation requirements, a subcontractor must also be accredited to provide the subcontracted service unless an exception applies. A subcontractor that only sells inventory to a DME supplier does not need to be accredited. Similarly, a subcontractor that only delivers DME to a patient does not need to be accredited, and a subcontractor that only repairs equipment that a supplier is renting to a patient does not need to be accredited. For example, when a supplier uses the U.S. Postal Service or other common carrier to deliver items to patients, the postal service or other common carrier need not be accredited
Based on the guidance, a subcontractor that (i) sells inventory to the supplier, (ii) delivers items on behalf of the supplier, and (iii) repairs equipment that the supplier rents to patients need not be accredited so long as those are the only services the subcontractor provides to the supplier. If, however, the subcontractor performs equipment setup or patient instruction, then the subcontractor must be accredited unless a professional or pharmacy exemption applies to the subcontractor. Manufacturers do not need to be accredited to perform warranty repairs.
Licensure
CBIC reminded suppliers that, “If a contract supplier decides to use a subcontractor to deliver items and services under the contract or perform other subcontracted services, both the contract supplier and the subcontractor must have all applicable state/territory licenses.” This guidance likely applies to DME suppliers generally. A DME supplier must have the applicable license to furnish an item or service in a particular state or territory. Similarly, if a subcontractor is performing a task that requires licensure, then the subcontractor must also have the applicable license to perform the task in the particular state or territory. Licensure requirements vary by state and territory. NPWest and NPEast maintain DMEPOS licensure databases for the states and territories within their respective jurisdictions. The databases, however, are only guides, and it is the supplier’s responsibility to ensure compliance with all applicable licensure laws.
Jeffrey S. Baird, JD, is Chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Texas with a national healthcare practice. He represents pharmacies, infusion companies, HME companies, manufacturers, and other healthcare providers throughout the United States. Mr. 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].
Phuong D. Nguyen, JD, is a member of the Health Care Group at Brown & Fortunato, PC, a law firm with a national healthcare practice based in Texas. He represents clients in various healthcare regulatory areas, such as regulatory compliance, structuring arrangements, drafting agreements and reimbursement issues throughout the United States. Mr. Nguyen is Board Certified in Health Law by the Texas Board of Legal Specialization can be reached at (806) 345-6307 or [email protected].
AAHOMECARE’S EDUCATIONAL WEBINAR
Asset vs. Stock Purchase of a DME Supplier
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato & Blinn E. Combs, Esq., Brown & Fortunato
Tuesday, October 6, 2026
1:30-2:30 p.m. CENTRAL TIME
We have not entered the dystopian “Brave New World” described by Aldous Huxley…but artificial intelligence (“AI”) is certainly a game changer. At its core, AI is the ability of a digital algorithm (essentially, a computer) to mimic certain functions of human intelligence. AI is touching all aspects of the DME supplier’s operations, including (i) e-prescribing, (ii) patient adherence, (iii) inventory control and resupply management, (iv) billing and prior authorization management, and (v) implementation of predictive patient ordering models. AI is increasingly being used by governmental agencies to investigate fraud and abuse. Examples are (i) flagging high risk prescription activity, (ii) flagging improper reimbursement claims, and (iii) improved coverage and pricing transparency. As stated in its June 23, 2026 press release, the Department of Justice stated: “To enhance the deployment of advanced analytic to target health care fraud…the Fraud Division will be provided cloud computing space in the CMS Integrated Data Repository environment in which to deploy advanced data analytics algorithms and artificial tools.” This program will (i) discuss existing and proposed federal regulations of AI, (ii) discuss examples of state regulations of AI, (iii) how DME suppliers can use AI to streamline operations and promote efficiency, and (iv) legal pitfalls DME suppliers need to be aware of as they utilize AI.
Register for Artificial Intelligence and the DME Supplier on Tuesday, October 6, 2026, 1:30-2:30 p.m. CT, with Jeffrey S. Baird, Esq. and Blinn E. Combs, Esq., of Brown & Fortunato.
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AAHOMECARE’S EDUCATIONAL WEBINAR
Loan Closets, Employee Liaisons, and Other Arrangements with Referral Sources
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato & Noel Neil, ACU-Serve
Tuesday, November 10, 2026
1:30-2:30 p.m. CENTRAL TIME
In the non-health care world, businesses (e.g., auto parts stores) have very few restrictions regarding their relationships with referral sources. By contrast, the health care world is a totally different animal. Because a large portion of a DME supplier’s revenue is derived directly (or indirectly) from tax dollars, there are myriad federal and state laws designed to protect the tax dollars from fraud. Many of these laws focus on relationships health care providers have with physicians, hospitals, and other referral sources. This program will discuss such relationships between DME suppliers and referral sources. These arrangements include (i) loan closets (also known as consignment closets and stock and bill arrangements), (ii) employee liaisons, (iii) Medical Director Agreements, (iv) physician advisory boards, (v) preferred provider agreements, (vi) patient service agreements, (vii) marketing service arrangements, and (viii) subcontract agreements. The program will discuss how these relationships can be legally entered into…and pitfalls that need to be avoided.
Register for Loan Closets, Employee Liaisons, and Other Arrangements with Referral Sources on Tuesday, November 10, 2026, 1:30-2:30 p.m. CT, with Jeffrey S. Baird, Esq. and Noel Neil.