AMARILLO, TX – Obstructive sleep apnea (“OSA”) is a medical condition recognized by the medical community as affecting a wide swath of our society.  OSA is not limited to the elderly. It affects adults of all ages. Commercial insurers and Medicare pay for sleep tests and for equipment (e.g., CPAPs) and supplies (masks, tubing and filters) that are used in with CPAPs.

Sleep labs conduct OSA tests on patients. These tests fall into two categories: (i) overnight attended polysomnographies  (i.e., the patient spends the night at a “brick and mortar” facility) and (ii) home sleep tests (“HSTs”). With an HST, the patient uses an HST device in his/her home.

The sleep lab will transmit the test data to a physician who specializes in sleep. The sleep physician will interpret the test data. If the interpretation indicates that the patient has OSA, the patient’s treating physician will likely order a CPAP for the patient.

This is where DME suppliers come in. The DME supplier will (i) provide the CPAP and disposables and (ii) bill the third-party payor (e.g., Medicare, commercial insurers).

It is not uncommon for a DME supplier and a sleep lab to work together in the provision of therapeutic equipment to patients who test positive for OSA. For example, the supplier and sleep lab may enter into a loan closet arrangement. Such an arrangement is also known as a consignment or stock and bill arrangement.

In such an arrangement, the DME supplier will store CPAPs and disposables at the sleep lab facility. If a patient tests positive for OSA, and if the treating physician orders a CPAP for the patient, and if the patient chooses to obtain a CPAP from the DME supplier that has inventory stored at the sleep lab facility, the sleep lab employee will pull the CPAP/disposables out of the “closet” and hand them to the patient.

In addition to handing the CPAP/disposables to the patient, a sleep lab employee can spend time with the patient showing him/her how to (i) use the CPAP, (ii) clean the disposables, and (iii) change out the disposables. The DME supplier may want to compensate the sleep lab for the education/set-up services. If the DME supplier is compensating the sleep lab for education/set-up services, and if at least some of the patients are covered by Medicare, the supplier needs to be aware of the federal laws governing such an arrangement. The balance of this article focuses on these laws.

Applicable Law

False Claims Act
31 U.S.C. § 3729, commonly known as the federal False Claims Act (“FCA”) provides that any person/entity that knowingly submits, or causes to submit, false claims to the government is liable for three times the government’s damages plus a penalty. It is the position of the Department of Justice (“DOJ”) that if a Medicare claim arises out of a kickback arrangement, or arises from violating the CPAP Payment Prohibition (see below), then the claim is a false claim.

Federal Anti-Kickback Statute
42 U.S.C. § 1320a-7b, commonly known as the federal anti-kickback statute (“AKS”), states that it is a felony for a person or entity to knowingly or willfully offer, pay, solicit or receive any remuneration to induce a person/entity to refer a person for the furnishing or arranging for the furnishing of any item for which payment may be made under a federal health care program (“FHCP”), or the purchase or lease or the recommendation of the purchase or lease of any item for which payment may be made under a FHCP.

AKS Safe Harbors
Because of the breadth of the AKS, the Office of Inspector General (“OIG”) has published a number of “safe harbors.” If an arrangement meets all of the elements of a safe harbor, the arrangement does not violate the AKS. If an arrangement does not meet all of the elements of a safe harbor, it does not mean that the arrangement violates the AKS. Rather, it means that the arrangement must be carefully analyzed in light of the wording of the AKS, court decisions, and other published guidance.

When working with a sleep lab, an important safe harbor is the Personal Services and Management Contracts and Outcomes-Based Payment Arrangements (“PSMC”) safe harbor. It states that illegal remuneration (as defined by the AKS) does not include payment made to an independent contractor as long as a number of standards are met, including the following: (i) the agreement must be in writing and signed by the parties; (ii) the agreement must specify the services to be provided; (iii) the term of the agreement is not less than one year; (iv) the methodology for determining the compensation must be set in advance, be consistent with fair market value (“FMV”) in arm’s-length transactions, and must not take into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under a FHCP; (v) the services performed must not involve a business arrangement that violates any state or federal law; and (vi) the aggregate services contracted for do not exceed those that are reasonably necessary to accomplish the commercially reasonable business purpose of the agreement.

Federal Physician Self-Referral Statute
42 U.S.C.S. § 1395nn, commonly known as the federal physician self-referral statute (“Stark”), is a civil statute. It states that a physician cannot refer a Medicare/Medicaid patient to an entity for designated health services (“DHS”), in which the physician has a financial relationship (ownership or compensation) with the entity, unless an exception applies. One of the Stark exceptions is entitled the “Personal Services” (“PS”) exception. It is similar to the PSMC safe harbor to the AKS. Stark becomes relevant to an arrangement between a DME supplier and a sleep lab when the sleep lab is owned by a physician who refers Medicare/Medicaid patients to the sleep lab for sleep tests.

CPAP Payment Prohibition
The CPAP Payment Prohibition (“Prohibition”), 42 C.F.R. § 424.57, states: “No Medicare payment will be made to the supplier of a CPAP device if that supplier, or its affiliate, is directly or indirectly the provider of the sleep test used to diagnose the beneficiary with obstructive sleep apnea. This prohibition does not apply if the sleep test is an attended facility-based polysomnogram.” An “affiliate” is a “a person or organization that is related to another person or organization through a compensation arrangement or ownership.” A “provider of the sleep test” is an “individual or entity that directly or indirectly administers and/or interprets the sleep test and/or furnishes the sleep test device used to administer the sleep test.” Although the law is not entirely clear on this point, the safest course of action is to construe the Prohibition as being applicable to both traditional Medicare patients and Medicare Advantage patients.

The Prohibition’s purpose is to ensure that the CPAP device is medically necessary by preventing the CPAP supplier’s financial interest from creeping into the diagnosis and treatment. CMS explained that it “believe[d] that Medicare beneficiaries and the Medicare program are vulnerable if the provider of a diagnostic test has a financial interest in the outcome of the test itself. This creates the incentive to test more frequently or less frequently than is medically necessary and to interpret a test result with a bias that favors self-interest.” 73 Fed. Reg. 69856 (Nov. 19, 2008). In the final rule, CMS acknowledged that the Payment Prohibition was implemented to account for close cases. 73 Fed. Reg. 69857 (noting “that the provider of a sleep test will have a bias to interpret an inconclusive test as positive if that provider has a financial interest in the payment for the CPAP device.”).

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].

AAHOMECARE’S EDUCATIONAL WEBINAR

Billing Nonassigned:  Steps to Replace Lost Income

Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato & Noel Neil, ACU-Serve

Tuesday, October 15, 2024

1:30-2:30 p.m. CENTRAL TIME
DME suppliers, like other health care providers, are being squeezed by traditional Medicare and Medicare Advantage (“MA”). In the traditional Medicare space, an example of this is the loss by DME suppliers of the 75/25 blended rates. To offset, at least in part, the decrease in reimbursement from traditional Medicare, DME suppliers should look seriously at billing traditional Medicare beneficiaries on a nonassigned basis. The movement to billing nonassigned is aided by the willingness of aging Baby Boomers to pay cash for “Cadillac” products, as opposed to being relegated to accepting “Cavalier” products when the DME supplier takes Medicare assignment. Billing nonassigned means that the Medicare beneficiary pays cash up front to the DME supplier and is directly reimbursed by Medicare. This program will discuss the multiple issues arising out of billing on a nonassigned basis, including the following: (i) What does it mean to bill non-assigned? (ii) If the supplier bills an item nonassigned, can the supplier set the price without limitation? (iii) Must the supplier submit a claim to Medicare so that the beneficiary can be reimbursed? (iv) Can the supplier sell a capped rental item for cash? (v) Does the supplier need to obtain documentation supporting medical necessity? (vi) Is the supplier at risk of having to repay Medicare and/or the beneficiary in the event of a subsequent audit?

Register for Billing Nonassigned:  Steps to Replace Lost Income on Tuesday, October 15, 2024, 1:30-2:30 p.m. CT, with Jeffrey S. Baird, Esq. and Noel Neil.

Members:  $99
Non-Members:  $129