AMARILLO, TX – Running a DME operation is complicated. There are many moving parts. With reduced reimbursement, stringent documentation requirements, the proliferation of Medicare Advantage Plans (“MAPs”), and competitive bidding re-entering the picture, profit margins are tight.

The DME supplier has no choice but to reduce expenses and improve efficiencies. This article discusses two approaches the DME supplier can take to reduce expenses and improve efficiencies: centralized intake and implementation of the “hub and spoke” model.

Let’s look at a supplier that is organized as a legal entity with a single tax identification number (“Tax ID #”) and with multiple locations. Assume that each location has its own PTAN.

The locations receive physician orders and collect documentation pertaining to the patients and the physician orders (collectively referred to as “intake documentation”). The locations transmit the intake documentation to a central office that has a PTAN. Personnel at the central office review the intake documentation and conduct intake, assessment and coordination of care (collectively referred to as “intake”).

The issue of a centralized intake center implicates the DMEPOS Quality Standards. With regard to the Quality Standards, a supplier is responsible for performing “intake and assessment.” CMS Provider Enrollment has stated that a DME supplier may not subcontract out or otherwise delegate to a third party its intake and assessment responsibilities. CMS has not issued additional significant guidance regarding what constitutes “intake and assessment.”

Based on a review of the limited Medicare guidelines available and informal guidance from Provider Enrollment, locations sharing the same Tax ID are likely to be considered the same supplier and, therefore, may centralize their intake operations at a single location if the following policies and procedures are implemented:

• Each location must maintain its own local telephone number.

• Calls to a location’s local telephone number must allow a beneficiary to speak with a live representative at that location.  

• At the time of intake, the beneficiary will be assigned to the nearest supplier location, as determined by the beneficiary’s zip code.

• Intake personnel at the centralized intake center will advise the beneficiary that the aforementioned nearest supplier location will be his or her supplier with regards to the equipment.

• The location that dispenses the equipment will be the one that bills Medicare for the item.

• Paperwork provided to the beneficiary from the DME supplier must indicate the particular location from which the equipment will be dispensed. 

• The equipment being dispensed will come from the inventory of the location that sets up the beneficiary.

• The beneficiary will go to the location that dispensed the equipment for any service or repair.

The above discussion is limited to the centralization of intake operations among locations that share the same Tax ID # under a single entity. In circumstances involving locations with two or more distinct Tax ID #s, such locations are considered to be separate suppliers. Accordingly, in order to reduce the risk of violating the Quality Standards, the following additional procedures should be implemented if establishing a centralized intake center for multiple legal entities:

• To the extent that the centralized intake center obtains intake documentation, the centralized center will provide such documentation to the primary supplier prior to furnishing the equipment to the beneficiary.

• Upon receipt of the intake documentation, the primary supplier will review the intake documentation and independently determine whether there is medical necessity for the item prior to furnishing the equipment to the beneficiary.

“Hub and Spoke” Model

The hub and spoke model is a method to expand into new geographical areas without having to obtain new PTANs. Here is how the model works:

• ABC Medical Equipment, Inc. (“ABC”) is located in Dallas, TX; it has a PTAN attached to its Dallas location.

• ABC decides to expand into Denton, TX, but does not want to go through the expense and time to obtain a PTAN for a location in Denton. Because of the moratorium, even if it wants to do so, ABC cannot obtain a PTAN for the Denton facility.

• ABC opens a warehouse in Denton and hires a delivery driver to service the Denton area.

• The warehouse is not open to customers.

• The phone number published in the Denton phone book is a toll-free number that goes to the Dallas location.

• When a physician calls in an order, the call goes to Dallas; likewise, when a customer calls ABC, the call goes to Dallas.

• ABC’s employee handles the intake. In other words, the “point of sale” occurs in Dallas.

• The Dallas employee instructs the Denton delivery driver to pick up the equipment from the warehouse and deliver it to the customer’s house.

• If the customer has a piece of equipment that needs to be repaired, the delivery driver drops a “loaner” off at the customer’s house, picks up the equipment to be repaired, has the equipment repaired, delivers the repaired equipment to the customer’s house, and picks up the “loaner.”

The applicable law regarding the “Hub and Spoke” model is as follows:

• United States Code – The Social Security Act states, “The Secretary may not issue more than one supplier number to any supplier of medical equipment and supplies unless the issuance of more than one number is appropriate to identify subsidiary or regional entities under the supplier’s ownership or control.”

• Code of Federal Regulations – A DME supplier must enroll each “separate physical location[] it uses to furnish Medicare-covered DMEPOS, with the exception of locations that it uses solely as warehouses[.]” The supplier standards for enrolled supplier locations include that the location “is in a location that is accessible to the public” and that the location maintains “a permanent visible sign in plain view and posts hours of [operations].”

• Federal Register – In the final rule addressing the DMEPOS Supplier Standards, DHHS indicates that “warehouses” are not used for retail customers and thus are not subject to the standards: 

• • [Many] suppliers maintain warehouse locations that are not used for retail customers. These types of locations should not be subject to the telephone standard because appropriately trained customer service representatives would not be available to respond to the public’s questions.

Likewise, DHHS indicates that a DME supplier’s central site is required to be enrolled in Medicare (and have a PTAN), but that other locations such as warehouses are not:

• “We recognize that some suppliers may have multiple sites from which they do business and may maintain records at one central site … We note that locations serving simply as warehouses are not subject to these standards.”

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, a law firm based in Texas with a national health care practice. He represents pharmacies, infusion companies, HME companies, manufacturers, 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].