AMARILLO, TX – Aging “Baby Boomers” are today’s DME customers…and will be DME customers for years to come. Unlike earlier generations, Boomers do not expect Medicare to pay for all of their health care; they understand that they will be required to pay for some of their health care.

As the “Woodstock Generation,” psychologically, Boomers refuse to get old. They expect to be active and productive well into their 80s. Boomers are willing to pay cash for those products that will help them remain active and productive…and many Boomers will pay cash for the more expensive “Cadillac” products.

This phenomenon presents opportunities for DME suppliers to lessen their dependence on Medicare and other third party payors and aggressively move into the retail/cash market. As the supplier moves into this market, it needs to decide whether its retail/cash business should be under the same legal entity (Tax ID #) as the Part B business…or whether the retail/cash business should fall under a separate legal entity with a separate Tax ID #. As discussed below, there is a compelling argument for the retail/cash business to fall under a separate legal entity.

There are four primary reasons for setting up a separate legal entity for “cash only” sales, rather than operating such a business as a separate division of the same legal entity that has a Medicare PTAN/insurance contracts. These are:

• Exposure to Audits – A legal entity with a Medicare PTAN/other insurance contracts is at risk for recoupment liability in the event of a Medicare or other third-party payor audit. If the Retail Business is only a “division” or “DBA” of the entity with a Medicare PTAN, and if such entity does get hit with a large recoupment, then it will also adversely affect the financial condition of the retail “division.” On the other hand, if the Retail Business is a separate legal entity, then generally speaking, any recoupment liability imposed against the entity with the PTAN/insurance contracts will not spill over to the Retail Business.
• Future Sale of Retail Business – If the Retail Business is a “division” of an entity with a Medicare PTAN/other insurance contracts, and if the owner desires in the future to sell the Retail Business but retain the Part B/insurance business, then the owner has no choice but to enter into an asset sale of its Retail Business. On the other hand, if the Retail Business is a separate legal entity, and if the owner decides in the future to sell the Retail Business, then there is the option of engaging in either an asset sale or a stock sale. Additionally, if the Retail Business is a separate legal entity, then it can bring in additional investors without impacting the ownership of the entity with the Medicare PTAN/other insurance contracts.
• Prices for Cash Sale Items – If the Retail Business is a “division” of an entity with a Medicare PTAN, then the supplier needs to be aware of a federal statute (42 U.S.C. § 1320a-7(b)(6)(A)) that says that a DME supplier is prohibited from charging Medicare substantially in excess of the supplier’s usual charges, unless there is good cause. The current regulations do not give any guidance on what constitutes “substantially in excess,” “usual charges,” or “good cause.” The clearest guidance comes from a 2003 proposed rule that was not subsequently implemented. The proposed rule contemplates the “usual charge” to be either the average or median of the supplier’s charges to payors other than Medicare (and some others). Under the proposed rule, a DME supplier’s usual charge should not be less than 83% of the Medicare fee schedule amount (i.e., up to a 17% discount from the Medicare fee schedule). There would be an exception for good cause, which would allow a supplier’s usual charges to be less than 83% of the Medicare fee schedule, if the supplier can prove unusual circumstances requiring additional time, effort or expense, or increased costs of serving Medicare beneficiaries. The proposed rule would include charges of affiliate companies into the calculation of a supplier’s usual charges.
• Third-Party Payor Contract Requirements that Require Taking Assignment– Many commercial insurance contracts require that the supplier accept assignment for covered items/services provided and prohibit the supplier from billing the patient instead of the payor. If the Retail Business is a “division” of an entity with commercial insurance contracts, it will not have the ability to engage in “cash sales” for covered items or services with individuals covered by such third-party insurance plans. On the other hand, if the Retail Business is a separate legal entity that is not contracted with any insurance payors, it will not have such limitations.

42 U.S.C. 1395m(j)(4)(A) states that if a supplier furnishes DME to a Medicare beneficiary, for which no payment may be made because the supplier does not have a Medicare supplier number, then any expenses incurred for the DME will be the responsibility of the supplier. This means that the Retail Business customer will have no financial responsibility for the product, and the Retail Business will be required to refund the customer, unless before the product is furnished, (i) the customer is informed that Medicare will not reimburse the customer for the product and (ii) the customer agrees to pay cash knowing that he will not be reimbursed.  In order to meet this requirement, when a customer walks into the Retail Business and if the employee suspects that the customer is covered by Medicare, then the employee may want the customer to sign an ABN. Alternatively, the Retail Business might decide not to require a suspected Medicare customer to sign an ABN; and then in those instances when a Medicare customer subsequently complains that he was unaware that Medicare would not reimburse him, the Retail Business will reimburse the customer. This likely will not occur very often. The Retail Business should also post signs that are conspicuous to the public that say that the Retail Business is not enrolled as a Medicare supplier and that Medicare will not pay for items obtained from the Retail Business.

If a separate legal entity is established for the Retail Business, care must be taken to make sure that the Retail Business is sufficiently segregated from the Medicare/other insurance business entity to protect against any creditor or plaintiff trying to “pierce the corporate veil” and treat the two entities as one. Obviously, this can best be accomplished by having separate locations, separate staff, separate inventories, etc. At a minimum, the two entities should maintain separate bank accounts, and maintain separate corporate formalities. The Medicare entity and the Retail Business can refer customers to each other, so long as no payment or other remuneration is made in connection for such referral.

Medicare regulations prohibit two Medicare suppliers from sharing the same location. However, a Medicare supplier is not prohibited from sharing space with another business entity that does NOT have Medicare number. If, instead of establishing a separate location for the Retail Business, the DME supplier prefers to locate it in the same space currently being used to service Part B/insurance patients, care should be taken to ensure that patients clearly understand that two businesses are operating in that space, and which business is providing the item to the patient. The greater segregation of business operations, the better. It is safest if the Retail Business has segregated floor space, separate signage, separate cash register, and its own inventory. If there will be shared staff, the Retail Business entity can enter into a staffing agreement with the Medicare business entity and pay it fair market value for the staff provided. Additionally, the Retail Business entity can enter into a lease agreement with the Medicare business entity and pay fair market value for the space it occupies. In the event that the Retail Business refers patients to the Medicare business entity, there is a potential kickback risk if the Retail Business is paying less than fair market value for the space/staffing/services it obtains from the Medicare business entity.

Even though the Retail Business will not have a Medicare PTAN or be contracted with other third-party payors, it must still comply with all other regulatory requirements for a business providing medical equipment. Many states require some type of medical equipment licensure or registration. Additionally, the Retail Business should not dispense any legend device or supply without a valid prescription. The manufacturer’s labeling for legend devices and supplies will indicate that the items are be dispensed only pursuant to a prescription.

If the DME supplier creates a separate legal entity for its Retail Business and desires to sell items for cash over the internet, the Retail Business web page should have the following in large bold type appear as soon as the customer clicks on a link to view DME, as well as immediately prior to check-out: “Notice to Medicare Beneficiaries. Medicare will pay for medical equipment and supplies only if a supplier has a Medicare supplier number. We do not have a Medicare supplier number. Medicare will not pay for any medical equipment and supplies we sell or rent to you. You will be personally and fully responsible for payment.”

Most states require a DME supplier to have some type of license. This requirement may be imposed on the supplier located within the state, as well as an out-of-state supplier shipping into the state. A few states (e.g., Tennessee, Colorado) require the DME supplier to have a “brick and mortar” presence in the state before a license will be issued to the supplier. The latest state to impose such a “brick and mortar” requirement is Georgia. In the event that the Retail Business intends to contract with Amazon to facilitate its online sales, the supplier should carefully review of the contract to make sure that all regulatory requirements concerning licensure, prescription requirements, and sales tax are appropriately addressed.

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 September 13, 2018, at 11:00 a.m. Central. Micah Swick, National Sales Director, for Pride Mobility Products, will present “Retail Selling: Building Rapport, Tickets and Margins.” Participation in the Retail Work Group is free to AAHomecare members. For more information, contact Ashley Plauché Manager of Government Affairs, AAHomecare ([email protected]).

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