AMARILLO, TX – A “consignment closet” is also known as a “loan closet”…which is also known as a “stock and bill arrangement.” When a DME supplier sets up a consignment closet at a hospital/physician’s office, then this means that (i) the supplier places inventory at the hospital/physician’s office (e.g., in a “closet”); (ii) when a physician orders DME for a patient, the hospital/physician’s office will ask the patient if he/she has a preference for a DME supplier; (iii) if the patient does not express a preference, then the hospital/physician’s office can refer the patient to the supplier that has set up the consignment closet; (iv) if the patient chooses the supplier (that has the closet with the hospital/physician’s office), then the hospital/physician’s office employee will pull the item out of the “closet” and hand it to the patient; (v) the hospital/physician’s office employee will collect the documentation that the supplier needs to conduct intake, assessment and coordination of care (collectively referred to as “intake”); and (vi) if the supplier determines that the patient qualifies for coverage for the product, then the supplier will accept the patient and bill the third party payor (“TPP”) for the product.

There is no law that prohibits consignment closet arrangements between DME suppliers and hospitals/physician’s offices. As will be discussed below, at one point in time, CMS attempted to limit the use of consignment closets, but such efforts ultimately failed.  Thus, consignment closets are currently common practice in the industry.  When establishing consignment closets, suppliers must ensure that the consignment closet operates in a manner that is consistent with applicable laws, including the DME Supplier Standards located at 42 C.F.R. § 424.57.

CMS Rescinded its Attempt to Limit Consignment Closets
In 2009, CMS published a transmittal with a change request to the Medicare Program Integrity Manual with the purpose of prohibiting most consignment closet arrangements, but the transmittal was rescinded before it was scheduled to go into effect. The proposed change would have prohibited consignment closet arrangements unless they were structured so that (i) title to the DME transfers to the physician/practitioner at the time the DME is furnished; (ii) the DME is billed by the physician/practitioner using his own DME  billing number; (iii) fitting or other services related to the DME are performed by individuals associated with the physician/practitioner and not by the DME supplier; and (iv) patients are instructed to contact the physician/practitioner and not the DME supplier for problems or questions regarding the DME. Although the proposal was geared toward s consignment arrangement with physicians/practitioners, it is likely that the transmittal (if adopted) would have also impacted consignment arrangements with hospitals. CMS stated that it was “rescinding this change request to consider other implementation dates” after the industry challenged the proposed changes; however, to this date there has been no follow-up.

Consignment Closet Does Not Qualify as a Practice Location
A DME supplier that sells or rents DME to Medicare beneficiaries must enroll with Medicare Part B to obtain Medicare billing privileges and must maintain compliance with the Supplier Standards. The Supplier Standards require that a “supplier must enroll separate physical locations it uses to furnish Medicare-covered DMEPOS, with the exception of locations that it uses solely as warehouses or repair facilities.” The NSC has published guidance in a Frequently Asked Question relating to location and enrollment requirements:

Q: I have three operating locations. Is it okay for me to have only one billing number for my corporate office?
A: Each supplier location where Medicare beneficiaries are served must have billing privileges with the exception of warehouses or repair facilities. If beneficiaries are being served in ANY capacity at a warehouse or repair facility, including being fitted or picking up products, the location should be enrolled with billing privileges.

Warehouses and repair facilities are not subject to the enrollment requirement because patients have no access to the warehouse in which inventory is kept. Physical locations such as warehouses and repair facilities are not the type of location where a Medicare beneficiary would reasonably expect to receive DME or services from a DME supplier and, therefore, these spaces are not required to be registered with the NSC as a supplier location.

While there is no bright-line rule for consignment closet arrangements, the NSC typically views the specific facts and circumstances of each consignment arrangement and focuses on whether or not a Medicare beneficiary would reasonably expect that he or she could receive services from the DME supplier in the hospital/physician’s office in which the DME supplier maintains a consignment closet. Although a Medicare beneficiary may receive items from the closet, that are generally retrieved from the closet by a member of the hospital’s/physician’s office’s staff, there is not a reasonable expectation that the beneficiary would return to the hospital/physician’s office to receive services or additional DME items from a representative of the DME supplier. Thus, if the beneficiary is unaware of the consignment closet and the closet or suite is not held out to the public as a place where beneficiaries may obtain DME, the arrangement is more akin to a warehouse and is not required to be enrolled with Medicare.

Importance of Written Agreement
There is no legal requirement that a consignment closet arrangement be in writing. Nevertheless, it is wise for such an arrangement to be memorialized in a written agreement. Such an agreement can be called “Consignment Closet Agreement,” “Loan Closet Agreement,” “Stock and Bill Agreement,” or “Equipment Placement Agreement.” For the balance of this article, I will refer to the agreement as an Equipment Placement Agreement or “EPA.”

An EPA will address the most important aspects of the consignment closet arrangement. These are:

1. Title to the DME – The EPA will confirm that title to the DME will remain with the DME supplier until the product is delivered to the patient.
2. Replacement of DME – The EPA will give the DME supplier the right to enter the hospital/physician’s office and replenish the consignment closet as needed.
3. Missing or Damaged DME – If an item goes missing from the closet (i.e., it has not been placed on a patient), or if an item in the closet is damaged, then the EPA will impose on the hospital/physician’s office the obligation to pay the DME supplier for the missing or damaged item.
4. Collection and Transmittal of Documents – When a hospital/physician’s office employee pulls an item out of the “closet” and delivers it to a patient, then the hospital/physician office is obligated to collect (and transmit to the DME supplier) documents necessary for the supplier to (i) conduct intake, (ii) take over responsibility for the patient, and (iii) submit a claim to the TPP. If after reviewing the documentation provided by the hospital/physician’s office, the supplier determines that the patient does not meet coverage requirements (and, therefore, the supplier cannot bill the TPP), then the hospital/physician’s office will be obligated to pay the supplier for the product.
5. Employee Liaison – If the DME supplier places an employee liaison in the hospital/physician’s office, then the EPA will state that the liaison cannot perform any services that the hospital/physician’s office is obligated to perform. Doing so will result in the supplier saving the hospital/physician’s office money…which is “something of value” to a referral source…which is a violation of the federal anti-kickback statute (“AKS).
6. Rent – If the DME supplier rents an office or suite at the hospital/physician’s office, then the EPA will state that the rent is fixed one year in advance and is fair market value (“FMV”). Fixed annual (FMV) rent is an important element to the Space Rental safe harbor to the AKS and the Space Rental exception to the federal Stark physician self-referral statute.
7. Preferred Provider Status/Patient Choice – If the parties so choose, the EPA can state that the hospital/physician’s office designates the DME supplier as the hospital’s/physician’s office’s “preferred DME provider.” The EPA will state that if the physician orders DME for a patient, then the hospital/physician’s office employee will ask the patient if he/she has a particular preference for a DME supplier. If the patient does not designate a preference, then the EPA will provide that the hospital/physician’s office can suggest to the patient that he/she choose the DME supplier that is the party to the EPA.
8. No Referrals – The EPA will state that the hospital/physician’s office will have no obligation to make referrals to the DME supplier…and vice versa.

AAHOMECARE’S EDUCATIONAL WEBINAR

Kickbacks, Inducements, False Claims and Other Fraud Landmines to Avoid
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C. & Markus P. Cicka, Esq., Brown & Fortunato, P.C.

Tuesday, June 25, 2019
2:30-3:30 p.m. EASTERN TIME
The DME supplier lives in the proverbial “glass house.” If the supplier does something that it should not be doing, then someone knows about it. That “someone” can be an employee, a competitor, a third-party payor, or a governmental agency. The DME supplier must strive to be “pristine” in all that it does. Unfortunately, the many federal and state anti-fraud laws read like The DaVinci Code … in Latin. This program will discuss the key federal anti-fraud laws that can trip up a DME supplier, including the anti-kickback statute, the Stark physician self-referral statute, the beneficiary inducement statute, the general health care fraud statute, and the False Claims Act. The program will also give examples of state anti-fraud laws that are similar to the federal laws. The program will discuss activities that can cause problems for the supplier. Equally as important, the program will discuss practical steps that the DME supplier can take to avoid fraud landmines.

Register for Kickbacks, Inducements, False Claims and Other Fraud Landmines to Avoid on Tuesday, June 25, 2019, 2:30-3:30 p.m. ET, with Jeffrey S. Baird, Esq. and Markus P. Cicka, Esq., of Brown & Fortunato, PC.

FEES:
Member: $99.00
Non-Member: $129.00

Jeffrey S. Baird, JD, is Chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Texas. He represents pharmacies, infusion companies, HME companies 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 protected].