AMARILLO, TX – For most DME suppliers, their revenue comes from multiple third-party sources: traditional Medicare, Medicare Advantage, traditional Medicaid, Medicaid Managed Care, employer-sponsored group health insurance, TRICARE, the V.A., and state workers compensation programs. An additional – and growing – source of revenue is derived from cash-pay patients. With the large number of Baby Boomers, this makes sense. Many Boomers are willing to pay cash for “Cadillac” products…rather than have a third-party payor (TPP) pay for “Cavalier” products.
When a DME supplier decides to expand its cash business (or enter into the cash business for the first time), the initial question is whether (i) the supplier should run its cash business under its existing Tax ID # (meaning that the same legal entity is billing TPPs and selling products for cash) or (ii) the supplier should set up a separate legal entity (with its own Tax ID #) that only sells products for cash. This is the issue that this article will address.
Assume that ABC Medical Equipment, Inc. (ABCME) bills (i) traditional Medicare, (ii) traditional Medicaid, (iii) Medicare Advantage Plans, (iv) Medicaid Managed Care Plans, (v) employer-sponsored group health insurers, and (vi) TRICARE. Further assume that ABCME intends to move aggressively into the cash-pay space.
To accomplish the goal of moving into the cash-pay space, there are two basic models. One model is for ABCME to bill Medicare and other TPPs…and also sell products for cash. These activities will occur under one Tax ID #. The other model is for the owner of ABCME to set up a separate legal entity (“ABC Retail, Inc.” or “ABCR”) that will not have a PTAN nor insurance contracts. ABCR will only sell products for cash.
Under Same Tax ID #
ABCME can sell products for cash under its existing Tax ID #. The company can sell non-Medicare covered items for cash for whatever price selected by the company. The company can sell a covered item for cash for any price above the Medicare allowable.
If ABCME wants to sell a product for less than the Medicare allowable, the company needs to be aware of the statute that says that a provider cannot bill Medicare substantially in excess of the provider’s usual and customary charges unless good cause is shown. CMS and the Office of Inspector General (“OIG”) have not clearly defined what this statute means. The best guidance we have is a rule that was proposed in 2003 and withdrawn in 2007.
The rule says that a provider can sell a covered item for cash for a price less than the Medicare allowable…so long as the discount off the Medicare allowable does not exceed 17%. The rule goes on to say that a provider can give a greater-than-17% discount off the Medicare allowable if the provider (if it is ever asked for it) can provide evidence that the cost savings in not having to deal with Medicare justifies the higher discount. I am not aware of a government enforcement action based on this statute.
ABCME also needs to be aware that most (if not all) states have laws that state that a provider cannot bill the Medicaid program greater than the company’s usual and customary charges. My observation is that these state laws are rarely enforced. In addition, many commercial insurance contracts have a provision stating that the provider must give its “best price” to the insurance company. My observation is that insurers rarely bring enforcement actions under these contractual provisions.
If the company is targeted with an aggressive audit/recoupment action by a TPP, the cash-pay business may be adversely impacted because everything is under one Tax ID #.
Lastly, if ABCME wants to subsequently sell the cash-pay business and retain the TPP business, ABCME has no choice but to engage in an asset sale. The company cannot engage in a stock sale because both the TPP and cash-pay components are under the same Tax ID #.
Separate Legal Entity
ABCR will not (i) be accredited, (ii) have a PTAN, (iii) have a Medicaid provider number, nor (iv) have commercial insurance contracts.
ABCR will likely need to secure state DME licenses from (i) the state where ABCR is located and (ii) the states into which ABCR ships products.
ABCR can sell covered and non-covered items for whatever prices ABCR selects. If a product is a “legend” item requiring a prescription, ABCR will need to obtain a prescription before selling the item for cash.
ABCR can refer patients to ABCME … and vice versa. There can be nothing of value exchanging hands in exchange for the referrals. If referrals take place, the referring company should offer patient choice.
It will be important that ABCR maintain its separate corporate identity (no comingling of bank accounts, etc.). ABCME and ABCR will want to avoid the scenario in which a claimant against one company attempts to “pierce the corporate veil” and proceed against the other company.
ABCR will not be a HIPAA-covered entity. However, ABCME is a HIPAA covered entity. ABCME can cross market with ABCR, but as is often the case, the “devil is in the details.” A cross-marketing program will need to comply with strict HIPAA guidelines.
There is a federal statute that requires ABCR to inform Medicare beneficiaries that (i) ABCR is not a Medicare supplier, (ii) ABCR will not submit a claim to Medicare on behalf of the beneficiary, and (iii) the beneficiary will not receive reimbursement from Medicare. If ABCR is selling items online, this notification and acknowledgment (by the beneficiary) can easily be accomplished by a drop-down box. If ABCR will have a walk-in brick and mortar facility, notifications to the beneficiaries (who walk in) can be a bit more complicated.
If such notification is not given and if the beneficiary so demands, (i) ABCR must refund the beneficiary and (ii) the beneficiary can keep the item. My observation is that it is rare for a beneficiary to later demand reimbursement from the cash-pay business. And I believe that “big box” pharmacies (that sell DME for cash) often ignore this statute. If a beneficiary subsequently demands reimbursement, the big box chalks it up as a cost of doing business.
ABCME can provide services to ABCR. The arrangement will need to be memorialized in a written agreement and ABCR will need to pay fair market value (“FMV”) compensation for the services. Likewise, ABCME can furnish employees to ABCR. The arrangement will need to be memorialized in a written agreement and ABCR will need to pay FMV compensation for the employees.
Lastly, if the owner of ABCME and ABCR wants to sell the cash-pay business, the owner has the flexibility of engaging in a stock or asset sale.
Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, 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. 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].
AAHOMECARE’S EDUCATIONAL WEBINAR
Employee Retention Tax Credit: Benefits and Pitfalls
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato & Kianna L. Sitarski, Esq., Brown & Fortunato
Thursday, July 11, 2024
1:30-2:30 p.m. CENTRAL TIME
The COVID pandemic was unprecedented … and traumatic … for all of us. In response, the federal government passed laws – and issued regulations – designed to (i) provide “safety nets” to businesses, (ii) expand the provision of health care in the home, and (iii) assist families financially. A key provision is the Employee Retention Tax Credit that is designed to encourage employers, that are adversely affected by the pandemic, to keep employees on their payroll. Since its inception in 2020, the Employee Retention Credit has been modified by federal statute and IRS regulations to relieve financial struggles faced by employers. This webinar will discuss the history of the Employee Retention Credit, including eligibility and value of tax credits available for wages paid between March 2020 and December 31, 2021. The webinar will also discuss how to retroactively claim the Employee Retention credits and common pitfalls to avoid when the DME supplier is amending its tax filing. Lastly, the webinar will discuss how the DME supplier can avoid the scams that have arisen in conjunction with the Employee Retention Tax Credit.
Register for Employee Retention Tax Credit: Benefits and Pitfalls on Thursday, July 11, 2024, 1:30-2:30 p.m. CT, with Jeffrey S. Baird, Esq., and Kianna L. Sitarski, Esq., of Brown & Fortunato.
Members: $99
Non-Members: $129
