AMARILLO, TX – The law establishing Medicare went into effect in 1965. Because Medicare is primarily for the elderly, it naturally followed that the DME industry would come into existence in the 1970s. From its inception until approximately 10 years ago, the DME industry was primarily a fee-for-service (“FFS”) industry. That is, the DME supplier would (i) receive the physician’s order, (ii) dispense the product to the patient, (iii) take assignment from the patient, and (iv) bill Medicare.
Managed care began entering into the DME space, in a noticeable way, about 10 years ago. Fast forward to the present: today, approximately (i) 50% of Medicare beneficiaries are covered by Medicare Advantage Plans (“MAPs”) and (ii) 70% of Medicaid patients are covered by Medicaid Managed Care Plans (“MMCPs”). This article will focus on MAPs.
A MAP in the DME space serves as a “middleman” …the same way that a PBM serves as a middleman in the pharmacy space. The MAP signs a contract with Medicare in which (i) the MAP signs up a large number of “enrollees,” (ii) the MAP contracts with hospitals, physicians, DME suppliers and other providers, and (iii) the MAP contract with Medicare in which Medicare pays the MAP to take care of the enrollees. The MAP, in turn, (i) pays the providers and (ii) pockets the difference
In working with (or attempting to work with) a MAP, the DME supplier faces several challenges, one of which is that the MAP may not offer a contract to the DME supplier because, according to the MAP, its DME panel is full. In other words, the MAP believes it has a sufficient number of DME suppliers on its panel…and does not need any more DME suppliers. The question is this: What steps can the DME supplier take to be added to a MAP’s DME panel?
It is natural for the DME supplier (that is not allowed onto a MAP’s DME panel) to want an immediate fix. The supplier has existing patients who are enrolled in the MAP. The supplier has physicians who refer patients to the supplier, some of whom are enrolled in the MAP. The supplier is placed in a difficult position if it cannot serve the MAP’s enrollees. Unfortunately, there are no quick fixes. The challenges faced by the supplier include the following:
- Federal statutes and regulations governing MAPs are voluminous. Unfortunately, the statutes/regulations focus on protection of the beneficiary…not protection of the provider (e.g., DME supplier).
- The statutes/regulations allow the MAP to select DME suppliers. In particular, the MAP can select as many…or as few…suppliers as the MAP determines are necessary to serve the DME needs of the MAP enrollees. This means that the MAP can select 10 suppliers, or 5 suppliers, or 1 supplier to handle the DME needs of the MAP’s enrollees.
- Approximately 27 states have patient choice statutes (otherwise known as “any willing provider” statutes). These state that if a provider is willing to comply with the MAP’s terms, then the MAP must allow the provider onto its panel. Unfortunately, most of the state patient choice statutes do not apply to DME suppliers.
Notwithstanding these challenges, there are steps the supplier can take that can improve the chances of being added to a panel. Often, this is a process that may take months…perhaps years. Here are the steps:
- As trite as this might sound, the “squeaky wheel gets the grease.” What this means is that on a consistent basis, the supplier should contact the MAP and ask to be added to its DME panel. The supplier might eventually “wear the MAP down” where it will say “yes.” Or the supplier might reach a different MAP decision maker who will say “yes.” Or the MAP’s circumstances might change…resulting in the MAP needing the supplier on its panel.
- Assume that on the MAP’s hospital panel is a hospital that the DME supplier works with. Assume that on the MAP’s physician panel is a physician group that the supplier works with. The supplier can ask the hospital and physician group to lobby the MAP on behalf of the supplier.
- The DME supplier can collect data showing how patients who use the supplier stay out of the hospital. The supplier can present this data to the MAP. The purpose of doing so will be to show the MAP that by adding the supplier to the MAP’s DME panel, the supplier will save money for the MAP.
- The DME supplier can offer value-added services to its patients. The services can include: (i) providing a device and/or software that measures the patient’s multiple vital signs and that transmits the data to the supplier and to the patient’s treating physician; (ii) providing educational in-person programs, webinars and videos designed to address the patient’s health condition; and (iii) providing access to the supplier’s clinicians (e.g., nurses, RTs) in which the clinicians can advise the patient regarding management of his/her health condition. These services are designed to keep patients out of the hospital. The supplier can tell the MAP about the value-added services and explain to the MAP that if it adds the supplier to its DME panel, these value-added services will save money for the MAP.
- Using the analogy of the “camel’s nose under the tent flap,” the DME supplier can suggest to the MAP that the supplier be added to the DME panel for a limited product or limited service. This will allow the MAP to get accustomed to working with the supplier. If the MAP sees that the supplier is performing well in a limited capacity, the MAP may feel comfortable expanding the supplier’s role on the DME panel.
- The DME supplier can purchase the stock, not the assets, of another DME supplier that has multiple MAP contracts. After the stock purchase is completed, it is likely that the contracts will remain in place with the purchased entity. Change of ownership (“CHOW”) notices will need to be given to the MAPs.
AAHOMECARE’S EDUCATIONAL WEBINAR
Buying And Selling A DME Supplier: Steps to Succeed
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato & Tom A. Knapp, Esq., Brown & Fortunato
Tuesday, July 25, 2023
1:30-2:30 p.m. CENTRAL TIME
When a person/entity intends to buy…or sell…a DME supplier, there are a number of documentation and regulatory issues that must be addressed. The seller must take a number of steps to make itself more attractive. The buyer and seller need to decide whether the transaction will be an asset or stock sale. The parties will need to engage in multiple transactional steps: mutual nondisclosure agreement, letter of intent, stock purchase agreement/asset purchase agreement, and other closing documents. The buyer will need to engage in three types of due diligence: financial, corporate and regulatory. And the parties will need to meet a number of regulatory requirements such as submitting change of ownership notifications. This program will discuss all of these (and other) issues associated with the purchase and sale of a DME supplier.
Jeffrey S. Baird, Esq., is chairman of the Health Care Group at Brown & Fortunato, a law firm with a national health care practice based in Texas. He represents pharmacies, infusion companies, HME companies, manufacturers and other health care 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@example.com.