AMARILLO, TX – A “stock and bill arrangement” is also known as a “loan closet…which is also known as a “consignment closet.” A DME supplier can set up a stock and bill arrangement at a hospital, clinic, or physician’s office (“Facility”).  In a typical stock and bill arrangement: (i) the supplier places inventory at the Facility (e.g., in a “closet”); (ii) when a physician orders DME for a patient, the Facility 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 Facility can refer the patient to the supplier with which the Facility has the stock and bill arrangement; (iv) if the patient chooses the supplier that has the closet at the Facility, then a Facility employee will pull the item out of the “closet” and hand it to the patient; (v) the Facility 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 federal law that prohibits stock and bill arrangements between DME suppliers and Facilities. As will be discussed below, at one point in time, CMS attempted to limit the use of stock and bill arrangements, but such efforts ultimately failed.  Thus, stock and bill arrangements are currently common practice in the DME industry.  When establishing stock and bill arrangements, suppliers must ensure that the arrangement 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CMS Rescinded its Attempt to Limit Stock and Bill Assignments
In 2009, CMS published a transmittal with a change request to the Medicare Program Integrity Manual with the purpose of prohibiting most stock and bill arrangements, but the transmittal was rescinded before it was scheduled to go into effect. The proposed change would have prohibited stock and bill arrangements (between DME suppliers and physicians) unless they were structured so that (i) title to the DME transfers to the physician at the time the DME is furnished; (ii) the DME is billed by the physician using his own DME  billing number; (iii) fitting or other services related to the DME are performed by individuals associated with the physician and not by the DME supplier; and (iv) patients are instructed to contact the physician and not the DME supplier for problems or questions regarding the DME. Although the proposal was geared toward a stock and bill arrangement with physicians, it is likely that the transmittal (if adopted) would have also impacted stock and bill arrangements with hospitals and other facilities. 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 could receive services from the DME supplier in the Facility in which the DME supplier maintains a consignment closet. Let us look at a stock and bill arrangement with a hospital. Although a Medicare beneficiary may receive items from the consignment closet, that are generally retrieved from the closet by a member of the hospital’s staff, there is not a reasonable expectation that the beneficiary would return to the hospital 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 stock and bill 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 stock and bill arrangement. These are:

• 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.
• Replacement of DME – The EPA will give the DME supplier the right to enter the Facility and replenish the consignment closet as needed.
• 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 Facility the obligation to pay the DME supplier for the missing or damaged item.
• Collection and Transmittal of Documents – When a Facility employee pulls an item out of the “closet” and delivers it to a patient, then the Facility 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 Facility, the supplier determines that the patient does not meet coverage requirements (and, therefore, the supplier cannot bill the TPP), then the Facility will be obligated to pay the supplier for the product.
• Employee Liaison – If the DME supplier places an employee liaison in the Facility, then the EPA will state that the liaison cannot perform any services that the Facility is obligated to perform. Doing so will result in the supplier saving the Facility money…which is “something of value” to a referral source…which is a violation of the federal anti-kickback statute (“AKS”).
• Rent – If the DME supplier rents an office or suite at the Facility, 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.
• Preferred Provider Status/Patient Choice – If the parties so choose, the EPA can state that the Facility designates the DME supplier as the Facility’s “preferred DME provider.” The EPA will state that if the physician orders DME for a patient, then the Facility 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 Facility can suggest to the patient that he/she choose the DME supplier that is the party to the EPA.
• No Referrals – The EPA will state that the Facility will have no obligation to make referrals to the DME supplier…and vice versa.

AAHOMECARE’S EDUCATIONAL WEBINAR

Collaborative Arrangements with Physicians, Hospitals and Other Referral Sources
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.
Tuesday, September 29, 2020 

1:30-2:30 p.m. CENTRAL TIME
The lifeblood of a DME supplier is to develop relationships with physicians, hospitals and other referral sources. In so doing, it is important that the supplier avoid violating federal and state anti-fraud laws. This program will discuss the federal anti-fraud laws that suppliers must follow, including the federal anti-kickback statute, the Stark physician self-referral statute, the False Claims Act, the beneficiary inducement statute, and The Travel Act. The program will also discuss examples of state anti-fraud laws. The program will then pivot to a discussion of the types of arrangements that are legally permissible … and those that should be avoided. Examples include Medical Director Agreements, Preferred Provider Agreements, placement of employee liaisons, meals to physicians’ staffs, gifts to physicians, payment to physicians for providing education programs, and loan closet arrangements.

Register for Collaborative Arrangements with Physicians, Hospitals and Other Referral Sources on Tuesday, September 29, 2020, 1:30-2:30 p.m. CT, with Jeffrey S. Baird, Esq. of  Brown & Fortunato, PC.

Members:  $99
Non-Members:  $129

AAHomecare’s Retail Work Group
The Retail Work Group is a vibrant network of DME industry stakeholders (suppliers, manufacturers, consultants) that meets once a month via video conference during which (i) an expert guest will present a topic on an aspect of selling products at retail, and (ii) a question and answer period will follow. The next Retail Work Group video conference is scheduled for October 8, 2020, at 11:00 a.m. Central. Mike Scarsella of Compass Health Brands will address “Key Considerations for Improving Customer Retention.” Participation in the Retail Work Group is free to AAHomecare members. For more information, contact Ashley Plauché Manager of Member & Public Relations, AAHomecare ([email protected]). 

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 [email protected].