AMARILLO, TX – The DME market is expected to grow in the foreseeable future. An aging population will drive this growth, as well as increases in chronic diseases, a trend towards home-based care, and remote medical services. Because of these factors, many DME suppliers will expand their service area by providing products to patients in multiple states.
Expanding from a local to a multi-state business requires considering multiple factors. These factors range from (i) accreditation to (ii) enrollment as a supplier with state Medicaid agencies and commercial insurers (including Medicare Advantage Plans and Medicaid Managed Care Plans).
Many states have DME licensure requirements. These requirements focus on a number of factors, including one or more of the following: (i) the type of products being sold/rented, (ii) whether the products require a prescription, (iii) who purchases/rents the products and (iv) the method of delivery.
For example, assume the DME supplier is in Kentucky. Kentucky defines “home medical equipment” as “durable medical equipment which: (a) withstands repeated use; (b) is primarily and customarily used to serve a medical purpose; (c) is generally not useful to a person in the absence of illness or injury; and (d) is appropriate for use in the home.” “Providing home medical equipment and services” includes the sale, rental, and delivery of HME used by persons to allow them to be maintained in their residence which is funded through a third-party payor.
A “home medical equipment provider” is an entity engaged in providing HME and services, either directly or through a contractual arrangement, to unrelated persons in their residence. Kentucky law requires HME Providers to be licensed by the Kentucky Board of Durable Medical Equipment Suppliers. Ky. Rev. Stat. §§ 309.402, 309.412; 201 Ky. Admin. Regs. 47:010E(1). Now assume that the DME supplier wants to expand its business into Nebraska. Nebraska has no license or registration specific to DME suppliers. Hence, the supplier will not need to obtain a license to provide DME to residents of Nebraska.
Assume that the Kentucky supplier now wants to do business in North Dakota. In this instance, it will need to obtain a North Dakota license. North Dakota states that a person/entity may not sell or deliver DME to a consumer unless licensed by the board. North Dakota Century Code 43-15.3-11(1). “An out-of-state retail durable medical equipment retailer or a principal or agent of the retailer may not conduct business in this state unless the retailer is licensed by the board as a retail durable medical equipment retailer, paid the fee required by the board, and is registered with the secretary of state.” North Dakota Century Code 43-15.3-11(2). This is regardless of whether the product is over-the-counter or only by prescription.
Assume the supplier decides to expand its business nationwide without checking whether it must obtain a DME license in each state. The DME supplier can face a civil or criminal penalty from the state regulatory agencies for unlicensed activity and penalties from the supplier’s resident state. For example, in Florida, “a person who violates the Home Medical Equipment Licensing Act commits a misdemeanor of the second degree, which may require a fine to be paid or any other punishment.” Fla. Stat. § 400.93(6)(b); Fla. Stat § 775.082; Fla. Stat. § 775.083.
Each state has laws and rules that apply in sometimes different and confusing ways. Consulting with a healthcare regulatory attorney can help the DME supplier stay compliant with state licensure laws.
Jeffrey S. Baird, Esq., is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Texas with a national healthcare practice. He represents pharmacies, infusion companies, HME companies, manufacturers, and other healthcare 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].
Jacque K. Steelman, Esq., is a member of the Health Care Group at Brown & Fortunato, PC, a law firm with a national healthcare practice based in Texas. She represents pharmacies, infusion companies, HME companies, manufacturers, and other healthcare providers throughout the United States. Ms. Steelman can be reached at (972) 684-5789 or [email protected].
AAHOMECARE’S EDUCATIONAL WEBINAR
How Compliance Issues Affect A Company’s Valuation
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato & Wayne van Halem, The van Halem Group
Tuesday, April 22, 2025
1:30-2:30 p.m. CENTRAL TIME
Every DME supplier must have a functioning compliance program. Such a program serves three functions. First, the compliance program establishes guardrails that, if followed, will result in the avoidance of serious legal problems. In a sense, the compliance officer is the “canary in the mine shaft.” He/she does not need to be an expert on compliance matters…but needs to know enough to recognize a potential problem. Second, if a problem does arise, a compliance program should be able to solve the problem before it turns into a recoupment, whistleblower action or government investigation. Third…and this is the focus of this program…a functioning compliance program will help the DME supplier maintain an accurate valuation. If a supplier wants to sell, or if it wants to secure a bank loan, the most important question is: “What is the DME supplier worth?” For example, a standard formulation for calculating a purchase price for a supplier is “3 to 5 x EBITDA.” EBITDA stands for “earnings before interest, taxes, depreciation and amortization.” Essentially, EBITDA is the DME supplier’s net profit. While the 3 to 5 x EBITDA is standard, the multiple can be higher (e.g., 7 to 8 x EBITDA) if the supplier is unique enough…and successful enough…to justify the higher multiple. If the DME supplier’s EBITDA is built on a false pretense (e.g., a business model that is not legally compliant), in a sale the EBITDA will be discounted…meaning that the seller will receive less than what it anticipated. Or the purchaser may simply walk away. This program will discuss (i) how a compliance program can be drafted and (ii) how a compliance program can be implemented in order to achieve three goals discussed above – and especially the goal of maintaining the supplier’s valuation.
Register for How Compliance Issues Affect a Company’s Valuation on Tuesday, April 22, 2025, 1:30-2:30 p.m. CT, with Jeffrey S. Baird, Esq. and Wayne van Halem.
Member Benefit
Non-Members: $129
