AMARILLO, TX – Assume that ABC Medical Equipment, Inc. (“ABC Medical”) is a traditional DME supplier that bills Medicare, Medicaid and other third-party payors (“TPPs”). Assume that ABC Medical is also developing a strong retail (cash) business. Lastly, assume that ABC Medical would like to split out its retail/cash business into a separate legal entity: ABC Retail Sales, Inc. (“ABC Retail”). What steps need to be taken to accomplish this goal?
- ABC Retail will be incorporated.
- ABC Medical will transfer its retail/cash business to ABC Retail
- ABC Medical will retain its PTAN and Medicaid provider number and will continue to bill Medicare, Medicaid and other TPPs.
- ABC Medical and ABC Retail can refer patients to each other. Each company should have a “freedom of choice” policy. The companies should not provide “anything of value” to each other in exchange for referrals. However, one company can provide services to the other company…on condition that the company receiving the services will pay fair market value (“FMV”) compensation for the services.
- It will be important that ABC Medical and ABC Retail maintain their separate corporate identities. For example, the two companies cannot commingle their funds. By maintaining separate corporate identities, a claimant against one company should not be able to “pierce the corporate veil” and assert a claim against the other company.
Advantages of setting up ABC Retail include the following:
- Limitation of Liability– Assume that ABC Retail is not set up. Assume that all of the business, including the cash/retail business, is conducted by ABC Medical. There is very little health care regulatory risk associated with the cash-pay business. However, the Medicare/Medicaid/TPP business can result in audits, investigations and recoupments. If the cash-pay business and Medicare/Medicaid/TPP business are under the same Tax ID #, then if the Medicare/Medicaid/TPP business is gets hit with a recoupment action it will adversely affect the cash-pay business. On the other hand, if ABC Retail is set up, then a recoupment action against ABC Medical should not adversely affect ABC Retail. As previously mentioned, it will be important that the separate corporate identities be maintained.
- Sale – Assume that ABC Retail is not set up. If the owner of the two companies wants to spin off either the cash-pay business or the Medicare/Medicaid/TPP business, but not both businesses, then the owner will have no choice but to engage in an asset sale. The owner will not be able to engage in a stock sale. On the other hand, if both ABC Medical and ABC Retail are set up and the owner of the two companies wants to spin off one of the businesses, then the owner can engage in either an asset sale or a stock sale.
- Medicare/Medicaid/TPP Restrictions – Medicare has regulations that ABC Medical must follow. For example, under the Medicare nondiscrimination statute, ABC Medical must offer the same brand/quality of products to Medicare beneficiaries that ABC Medical offers to non-Medicare patients. Most commercial TPPs will require ABC Medical to take assignment. For example, if ABC Medical signs a BCBS contract, and if a BCBS patient desires to pay cash to ABC Medical for an item covered by BCBS, ABC Medical cannot accept the cash; rather, ABC Medical must bill BCBS. Some commercial TPP contracts have “most favored nations” clauses…meaning that ABC Medical cannot submit a claim to the TPP for a particular product that is higher than ABC Medical’s cash price for the product. Setting up ABC Retail eliminates these issues.
AAHOMECARE’S EDUCATIONAL WEBINAR
Legal Guidelines for Growing Your Retail Business
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato
Tuesday, May 18, 2021
1:30-2:30 p.m. CENTRAL TIME
“Leave it to Beaver” has been replaced by “Modern Family.” The old way of running a DME business no longer works. With stringent documentation requirements, lower reimbursement, and post-payment audits, Medicare fee-for-service should only be a component of the supplier’s total income stream. There are 78 million Baby Boomers retiring at the rate of 10,000 per day. Boomers are accustomed to paying for things out-of-pocket. And most Boomers want the “Cadillac” product – not the “Cavalier” product – so they can have an active lifestyle well into their 80s. The successful DME supplier will be focused on selling upgrades, utilizing ABNs, and selling “Cadillac” items for cash. These retail sales may take place in a store setting, through a kiosk, or over the Internet.
When selling products for cash, there are a number of requirements that the DME supplier must meet. This program will discuss these requirements, including the following:
- state licensure;
- selling Medicare-covered items at a discount off the Medicare allowable;
- obtaining a physician prescription; and
- collection and payment of sales and/or use tax;
- qualification as a “foreign” corporation;
- required notification to a Medicare beneficiary even thoughthe supplier does not have a PTAN;
- complying with federal and state telemarketing rules.
Lastly, this program will discuss the benefits of setting up a separate legal entity through which the retail business will be operated.
Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, 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 firstname.lastname@example.org.