Q&A with Jeff Baird: Subcontracting and Purchasing a Contract Supplier

AMARILLO, Texas — According to health care attorney Jeff
Baird of Brown & Fortunato, there are a number of legal
pitfalls related to subcontracts and purchasing contract suppliers
involved in competitive
bidding. (See Don’t
Ignore the Legal Pitfalls, Dec. 6.) Expanding on the topic, in
the following Q&A Baird discusses guidance given by the
National Supplier Clearinghouse (NSC) and the Competitive Bidding
Implementation Contractor (CBIC) that impact these two
arrangements. “As might be expected,” Baird says, “the guidance is
somewhat convoluted and is not particularly friendly to HME
providers.”

Question: If a sleep lab, hospital, wound care center or
similar type of non-physician provider (“ancillary provider”)
performs patient education and set-up for ABC Medical Equipment,
must the ancillary provider be accredited?

Answer: Let’s say that ABC enters into a
standard consignment arrangement with an ancillary provider in
which the ancillary provider stores ABC’s inventory on its
premises; gives the patient a choice of HME providers from which
the patient wishes to purchase the DME; recommends ABC if the
patient expresses no choice; and sets the patient up on ABC’s
equipment and educates the patient on how to use the equipment.

Supplier Standard No. 12 requires that ABC “be responsible for
the delivery of Medicare covered items to beneficiaries and
maintain proof of delivery.” The standard further says: “The
supplier must document that it or another qualified party has, at
an appropriate time, provided beneficiaries with necessary
information and instructions on how to use Medicare-covered items
safely and effectively.”

There is no mention of an accreditation requirement. And yet,
the NSC has issued guidance on its website that quotes Supplier
Standard No. 12 and then states: “A subcontractor that only
delivers the item does not need to be accredited. If the
subcontractor provides more than the delivery by setting up the
equipment or giving instructions about the use of the item, then
the subcontractor needs to be accredited unless a professional
exemption applies.”

Question: Does the NSC guidance mandating accreditation
have the force of law?

Answer: The NSC guidance is not a statute or a
regulation. It was not issued through the notice and comment
rulemaking process that is required for regulations. It is not
official guidance of the kind that CMS issues through its
transmittals. As stated above, the guidance is based on a supplier
standard that makes no mention of accreditation.

Nevertheless, the guidance constitutes the view of the
contractor that handles DMEPOS enrollment for CMS. The NSC does
have the authority to revoke DMEPOS supplier numbers, and so the
NSC can cause problems for an HME provider even though the NSC’s
interpretation of Supplier Standard No. 12 is questionable at
best.

Question: So what should ABC do?

Answer: One course of action is for ABC to
ignore the NSC guidance on the basis that it does not have the
force of law, and it is based on a supplier standard that makes no
mention of accreditation. If the NSC should bring an enforcement
action against ABC (e.g., attempt to revoke ABC’s supplier number),
then ABC can challenge the NSC’s actions.
Obviously, there is risk associated with this course of action. A
more prudent course of action is for ABC to insist that the
ancillary provider go through “accreditation light,” meaning that
the facility will be accredited for the sole purpose of educating
and setting up patients.

Question: OK, let’s change directions. In
last month’s column you discussed the potential legal pitfalls
arising out of a non-competitive bidding contract winner purchasing
some (but not all) of the assets of a CB contract winner (“contract
supplier”). Tell me about the CBIC guidance that has been issued
since your last column.

Answer: In December, the CBIC issued a facts
sheet entitled “Change of Ownership.” It states: “CMS may permit
the transfer of a competitive bidding contract to an entity that
merges with or acquires a competitive bidding contract supplier if
the new owner assumes all rights, obligations and liabilities of
the competitive bidding contract. A competitive bidding contract
cannot be subdivided. For the transfer of the contract to be
considered, the CHOW must include the assumption of the entire
Medicare competitive bidding contract, including all competitive
bidding areas (CBAs) and product categories (PCs) awarded under the
contract.”

The fact sheet further states that “[t]he transferee should
agree to purchase all assets necessary to perform the terms of the
contract” and the purchaser must submit to the CBIC “[o]ne copy of
a document describing the nature of the CHOW transaction.”

Question: Please put this into plain English. What is
the CBIC saying?

Answer: Let’s say that ABC is a contract winner
for three product categories in Dallas and for one product category
in Kansas City. The CBIC is saying that if XYZ (a non-contract
supplier) desires to purchase ABC’s assets (and, in turn, assume
ABC’s rights under ABC’s CB contract), then the asset purchase must
include all of the product categories in Dallas and Kansas
City.

CMS issues only one contract per contract supplier; each
contract contains an attachment indicating the awarded product
categories and the CBAs. XYZ must purchase all of ABC’s assets
necessary for XYZ to provide the product categories in Dallas and
Kansas City and, in turn, seek approval to assume ABC’s obligation
to furnish the three product categories in Dallas and the one
product category in Kansas City.

In other words, ABC cannot sell to XYZ only those assets
necessary for XYZ to provide one product category in Dallas. It is
all or nothing.

The wording of the fact sheet leaves open the possibility of XYZ
purchasing only ABC’s competitive bidding-related assets rather
than all of the assets of ABC. The new guidance states that “[t]he
transferee should agree to purchase all assets necessary to perform
the terms of the contract.”

However, there is no guidance on the standards for making such a
determination. This leaves open the possibility that if XYZ is a
large, sophisticated organization, then it may not need to acquire
many of ABC’s assets in order to perform under the CB contract.

Last, the fact that the CBIC requires a document “describing the
nature of the CHOW transaction” indicates a desire by the CBIC to
review transactions more closely.

View more competitive bidding
stories.

Jeffrey S. Baird, Esq., is chairman of the Health Care Group
at Brown &
Fortunato, P.C., a law firm based in Amarillo, Texas. He
represents pharmacies, infusion companies, home medical equipment
companies and other health care providers throughout the United
States. Baird is Board Certified in Health Law by the Texas Board
of Legal Specialization. He can be reached at 806/345-6320 or
[email protected].