Revised Supplier Standards: Final Observations

On Aug. 27, the Centers for Medicare and Medicaid Services published a final rule on Medicare enrollment standards for DMEPOS providers. The rule expands on existing standards that providers must meet to establish and maintain billing privileges in the Medicare program; the new supplier standards took effect Sept. 27. In a special series for HomeCare Monday, health care attorney Neil Caesar of the Health Law Center provides clarification and insight on a number of the new standards. This week, Caesar wraps up his series and adds some final observations. Here’s what he has to say:

Let’s conclude our analysis of the revised supplier standards with a look at a new provision addressing overpayment.

CMS has added a new paragraph to the existing regulations concerning the intertwining of supplier standard violations and overpayments. The new material is not a specific, enumerated supplier standard, but rather applies to all of the standards. Back in 2008 when this material was first proposed, it was called Standard No. 57.

The new language requires CMS, the National Supplier Clearinghouse and the DME MACs to treat as “overpayments” all payments to a supplier for equipment and services rendered after the date of a revocation, an adverse legal action or a felony conviction. This means that any monies received by a supplier for services rendered after an adverse action will be considered overpayments, subject to recoupment. In addition, this new language emphasizes the supplier’s obligation to report the triggering adverse action to the NSC.

CMS acknowledges that the original proposal in 2008 was somewhat vague, and consequently has added a definition for a “final adverse action” sufficient to trigger this provision. This term means one or more of the following: 1) a Medicare imposed revocation of a billing number; 2) suspension or revocation of a state license; 3) revocation or suspension of accreditation; 4) a conviction of a federal or state felony within the 10 years preceding enrollment, revalidation, or enrollment; or (5) an exclusion or debarment from participation in a federal or health care program.

This definition is more narrow than the one proposed in 2008. Essentially, CMS’ position is that this new rule limits “final adverse actions” to those actions that currently serve as a basis for supplier number revocation. CMS’ position is that any such action would already render the supplier ineligible to maintain Medicare billing privileges from the date of the final adverse action.

According to CMS, the new rule provides CMS and its contractors “with the discretion to establish an overpayment determination … for all Medicare items and services furnished from the date of the final adverse action.” This allows CMS or contractors to reopen all paid claims for services rendered on or after that date.

Despite CMS’ contention that this is merely a restatement of “business as usual,” there are some important elements to this rule. First, it only applies to claims for services rendered after the final adverse action. It should not apply to claims submitted after the action for services previously rendered. Further, by virtue of the explanation of final action, it should not apply to services rendered during the notice period after, for example, revocation is imminent but not yet official. So, services rendered during the notice period should continue to be reimbursed.

Second, suppliers will be significantly “at risk” for services rendered after a revocation date, but not while the supplier is appealing the revocation. This is because it will be unclear in most incidences whether a favorable determination for the supplier in the course of the appeal process will become retroactive to the revocation date. If a favorable determination is retroactive, the revocation will be deemed never to have occurred. However, if the revocation is overturned but not retroactive to the original revocation date, then all services rendered during that interim period will be considered non-reimbursable.

It is frequently difficult to determine whether an overturned revocation will be deemed fully retroactive. Suppliers who contest an adverse action by CMS must evaluate this issue carefully, and must argue retroactivity with zeal and precision if they wish to minimize the risk of nonpayment.

Third, this new rule also applies to “an exclusion or debarment from participation from a Federal or State health care program.” This makes sense for companies who are excluded. However, it is likely that CMS will also apply this rule to suppliers who employ (or contract with) individuals who themselves have been excluded from the Medicare program. Because CMS makes clear that the potential overpayments occur from the date of the “final adverse action,” this could mean that all services reimbursed to a supplier who hires an excluded employee or contractor will be deemed ineligible overpayments from the date of that hire. In other words, 100 perent of all Medicare billings after a prohibited hiring would be subject to overpayment challenge if this interpretation stands up to challenge.

This danger emphasizes that CMS wants suppliers to crack down on internal monitoring of hiring practices to ensure that they are not hiring ineligible persons. It also emphasizes the supplier’s obligation to promptly report adverse legal events. The consequence of a careless hiring could bankrupt many suppliers.

Until the fairness of this position is sorted out, the lesson for suppliers is clear: Carefully screen new hires to ensure they are allowed to participate in providing Medicare reimbursed services.

Fourth, the new language also would allow an overpayment to be assessed if the supplier fails to report to the NSC information regarding a final adverse action. CMS believes that this reporting obligation is already implicit in the existing statutory language, which outlines the provisions for denial of enrollment and the revocation of billing privileges. CMS considers this simply as one of the many “reportable changes” that must be communicated to the NSC. (Other such changes include change of location and change of ownership.)

Finally, remember that a supplier number is tied to the supplier’s tax identification number. For suppliers who operate multiple branches under a single tax ID entity, this overpayment risk would put all of the branches’ Medicare revenues at risk if a final adverse action occurred at any one branch. Suppliers should consider this risk when evaluating whether to form a distinct entity (with its own tax ID number) for each location.

Closing Observations

CMS includes in its commentary to the new rules some observations regarding the quantity and nature of existing DMEPOS suppliers. CMS’ listed information was only current through March 2008. At that time, there were 113,114 individual suppliers. (Because some of the suppliers had multiple offices, there were actually only 65,984 unique billing numbers.) Of the 113,154 suppliers, CMS believed approximately 20 percent of them (23,000) where located in rural areas.

In October 2010, CMS released more current data. On Jan. 1, 2010, there were 97,164 individual suppliers, a drop of almost 19,000 locations. On Sept. 1, 2010, that number had climbed to 100,523; still 13,000 less than in March 2008.

For suppliers still operating, it is my opinion that CMS would prefer to be able to license DMEPOS suppliers at the federal level and micromanage many aspects of their operations. Because the agency does not have that ability, CMS must be content with an increasing quantity of rules, including rules that focus on day-to-day operational details. This trend toward increased and tightly focused supplier standards may continue, at least until such time as Congress might be persuaded that the volume of rules is unfair.

I do not think such congressional outcry is likely, at least for the foreseeable future. But one can dream. Wouldn’t it be interesting if CMS, the MACs or the NSC were held to the same standard of near perfection to which DME suppliers are held?

Neil B. Caesar is president of the Health Law Center (Neil B. Caesar Law Associates, PA), a national health law practice in Greenville, S.C. He also is a principal with Caesar Cohen Ltd., which offers compliance training, outsourcing and consulting and the author of the Home Care Compliance Answer Book. You can reach him at 864/676-9075 or [email protected].