On October 11, 2000, the Health Care Financing Administration ("HCFA") issued a final rule establishing the standards for an entity to qualify as a Medicare supplier for purposes of submitting claims for durable medical equipment ("DME"), prosthetics, orthotics, and supplies ("DMEPOS"). 65 Fed. Reg. 60366. According to HCFA, these enhanced standards are designed to prevent abusive and fraudulent billing practices that have existed in the DMEPOS industry. The final rule is effective on December 11, 2000. HCFA also requests comments regarding four new standards, detailed below in Section III. HCFA will consider comments on these standards if received by December 11, 2000.

In issuing this final rule, HCFA considered the comments received in response to the proposed rule published on January 20, 1998. 63 Fed. Reg. 2926. While the provisions in the final rule are very similar to those in the proposed rule, there are a few significant differences which are discussed below. Notably, HCFA has delayed issuance of the surety bond policy, and imposed more specific operational requirements for DMEPOS suppliers. The text of the final rule can be found at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=2000_register&docid=00-25495-filed.pdf, or you can obtain it from our office.

A. Changes Of Ownership And Payment Rules

In the proposed rule, HCFA stated that Medicare will not pay for any Medicare-covered items provided by a DMEPOS supplier prior to the date on which HCFA, through the National Supplier Clearinghouse ("NSC"), issues that supplier a DMEPOS supplier number. One commenter recommended that change of ownership situations be exempt from this ban on retroactive billing. Specifically, the commenter suggested that in instances where a supplier is undergoing a change of ownership, Medicare should pay for all covered items as of the date of acquisition. This would mean that a new supplier could receive payments from Medicare for items furnished during the period that it is awaiting the issuance of a new supplier number. Historically, HCFA and the NSC have allowed new suppliers to bill retroactively to the date of the acquisition as long as the acquired entity had a valid DMEPOS number and the new buyer had all requisite licenses to furnish the products (e.g., a pharmacy license). In the final rule, HCFA acknowledged the change of ownership issue, but opted not to include a provision on it. HCFA states instead that it plans to address change of ownership issues in a separate rulemaking in the future. While we assume HCFA and the NSC will continue to permit entities acquiring an existing supplier business to bill retroactively to the effective date of the change of ownership upon receiving its supplier number in accordance with current policy, affected entities may wish to confirm this with their DME regional carrier ("DMERC") or the NSC.

B. Providing Requested Documentation

The final rule contains most of the same documentation requirements enumerated in the proposed rule. For instance, a supplier must provide to HCFA, upon request, documentation showing that it has advised beneficiaries that they may either rent or purchase inexpensive or routinely purchased equipment, and that there is a purchase option for capped rental equipment. Generally, it is advisable to use Medicare’s sample purchase option letter included in each DMERC Supplier Manual. Suppliers also must maintain proof of delivery for items furnished to Medicare beneficiaries.

HCFA also clarified one documentation requirement which now makes clear that suppliers must provide to HCFA, upon request, copies of contracts that a supplier has with any companies that either deliver supplies to beneficiaries on the supplier’s behalf or deliver items to the supplier needed to fill orders. This could allow HCFA to scrutinize suppliers’ costs. HCFA explained that this requirement does not include health maintenance organization ("HMO") or managed care organization ("MCO") contracts. It also rejected commenters’ contentions that this contract documentation requirement suggests any "Most Favored Nation" treatment for Medicare, noting that Medicare pays for DMEPOS based on the lower of the supplier’s actual charge or the fee schedule.

The final rule also contains additional documentation provisions. Most significantly, a supplier now must document that it, or another "qualified party," has provided the Medicare beneficiary with the necessary information on how to use the item provided safely and effectively. Additionally, suppliers must maintain documentation of any contacts with beneficiaries regarding complaints or questions about the Medicare-covered item that was sold or rented, and provide this information to HCFA upon request. The final rule also clarifies the provision requiring suppliers to furnish HCFA with any information required by this or other "Medicare requirements." HCFA agreed with those commenters who argued that this language would create "meaningless paper." The final rule requires suppliers to furnish to HCFA, upon request, any information required by the Medicare statute and implementing regulations.

Finally, HCFA changed the time limit in which a supplier must report to HCFA any changes in information supplied on its application from 35 days to 30 days.

C. Repairing Medicare-Covered Items

Under the final rule, suppliers must replace or repair Medicare-covered items such that the level of repair is sufficient for the item to function as required and intended. The proposed rule had required that suppliers "repair" any "Medicare-covered items it has rented to beneficiaries." The final rule now permits suppliers simply to replace deficient products that are covered by a manufacturer’s warranty, and send them back to the manufacturer for repair. Additionally, the supplier must only repair an item to the extent such that it can function as required and intended.

D. The Supplier’s Physical Facility And Telephone Number

Under the final rule, supplier locations must be accessible during business hours and maintain a visible sign and posted hours of operation. Additionally, suppliers must maintain a primary business telephone number listed by the business name under the business listings of the local telephone directory or by using the telephone company’s toll-free directory listings. This requirement differs slightly from the proposed rule which had not given the supplier the option of being listed only in the telephone company’s toll-free listings. In making this change, HCFA recognized that some suppliers have several locations with a centralized customer service center. In such cases, it would not make sense to list the local telephone number of those locations without trained staff available to respond to a beneficiary’s queries. The final rule also requires a supplier to furnish the appropriate telephone number—local or toll-free—to the beneficiary at the time of delivery of the Medicare-covered item.

E. Liability Insurance

Suppliers must have a liability insurance policy of a least $300,000 that covers both the supplier’s place of business and all customers and employees of the supplier. This standard varies somewhat from that in the proposed rule. First, unlike the proposed rule, the final rule contains a minimum policy amount. Second, the policy for a supplier manufacturing its own items must cover product liability and completed operations. Third, suppliers must maintain this insurance at all times. Finally, suppliers with multiple sites are permitted to obtain an umbrella policy for each tax identification number. While HCFA agreed with one commenter that partial self insurance might be sufficient to meet this standard, the agency was not at this time able to set forth how this approach would work. Failure to maintain the required insurance is grounds for revoking a supplier’s billing number retroactive to the date the insurance lapsed.

F. Telemarketing

The final rule governing suppliers contacting beneficiaries by telephone is the same as the proposed rule. Essentially, a supplier cannot contact a beneficiary by telephone when supplying that beneficiary with a Medicare-covered item unless (1) the beneficiary has given written permission for the supplier to contact them by phone concerning the furnishing of an item that is to be rented or purchased; (2) the supplier has furnished the item to the beneficiary and the supplier is calling to arrange delivery; or (3) the supplier has furnished at least one item to the beneficiary during the preceding 15 months and the supplier is contacting the beneficiary about another Medicare-covered item. This standard implements the statutory prohibition against telemarketing. HCFA declined to add another exception for contacts based on referral from a medical professional involved in the patient’s care, arguing that this could become a "loophole" by allowing suppliers to purchase "referrals" (i.e., patient lists) from medical professionals. The standard therefore leaves unanswered the scope of permitted telephone contacts upon initial provision of DMEPOS. The rule essentially creates a "chicken or the egg problem" because, until the supplier actually "has furnished items," the supplier cannot technically contact the patient by phone, even to clarify a general physician order or to ascertain other facts that may aid in the provision of the most appropriate item for the patient. It is difficult to believe, however, that Congress intended this result in enacting the telemarketing prohibition.

G. Surety Bonds

In the proposed rule, HCFA had proposed to require each supplier to obtain a surety bond for each tax identification number for which it had a billing number issued by Medicare. The surety bond is a statutory requirement added by the Balanced Budget Act of 1997. In the final rule, HCFA decided to delay the surety bond rule pending "extensive changes" to this requirement. HCFA received many comments regarding the proposed surety bond requirement, mainly regarding the cost of obtaining surety bonds. HCFA states that it will consider these comments, along with its experience with surety bonds for home health agencies and the General Accounting Office study of Medicare surety bonds, when it issues a proposed rule on surety bonds in the future. Thus, until HCFA issues another rule on this provision, there is no surety bond requirement for DMEPOS suppliers.

H. Physician And Hospital Ownership Of DME Suppliers

Although not addressed in the supplier standards, one commenter argued that physicians and hospitals should be prohibited from owning DME suppliers, either wholly or in part. HCFA responded to this comment by referencing the physician self-referral provisions in the Social Security Act (the so-called "Stark Law"). These provisions prohibit a physician from referring a Medicare or Medicaid patient for any "designated health services" (including DMEPOS), to an entity with "which the physician or an immediate family member has a financial relationship" unless an exception applies. HCFA noted that it may consider the issue of whether a hospital should own a DME supplier in future rulemaking.

III. REQUEST FOR COMMENTS ON NEW STANDARDS

HCFA requested comments on certain supplier standards and will consider such comments if received by December 11, 2000. First, HCFA is soliciting comments on service standards for home oxygen suppliers. Additionally, HCFA requests comments on standards for suppliers of extra-depth and custom molded shoes for diabetic patients. Third, HCFA requests comments on standards for suppliers of Medicare-covered orthoses and whether similar standards should also be applied to prostheses. Finally, HCFA is soliciting comments on "whether and what kind of standards should apply to home infusion therapy, DME such as wheelchairs or any other item provided under the DMEPOS benefit."

HCFA also notes that it is in the process of revising the application for a DMEPOS billing number (Form HCFA-855S). HCFA will solicit input from interested parties prior to requesting the Office of Management and Budget’s approval of the revised form.

While the final rule does not make many changes to the proposed rule, it does hint at a future rulemaking that will address two major issues not covered in this final rule: payment rules in change of ownership situations and the surety bond requirement.

Suppliers should remember that they must certify to HCFA that they are in compliance with the standards set forth in the final rule (as part of their application for billing privileges), and that they are in compliance with the standards described in the final rule as of December 11, 2000. Failure to be in compliance with these standards is grounds for revoking a supplier’s billing number. Suppliers also should recall that HCFA has the authority to conduct on-site inspections of suppliers’ locations in order to ascertain compliance with the supplier standards.