How the Medicare CPAP Payment Prohibition Affects Your Business

The medical community has embraced the significance of obstructive sleep apnea (OSA) on patients’ health. While at one time only pulmonologists and other specialists understood OSA, this understanding has spread to primary care physicians and the general public. Today, it is not uncommon for some employers to require their employees to undergo OSA testing. Medicare, Medicaid and commercial insurers cover OSA testing and treatment in the form of continuous positive airway pressure (CPAP) therapy and disposable supplies.

The increased demand for CPAPs and disposables creates opportunities for home medical equipment (HME) and durable medical equipment (DME) suppliers. But a word of caution: The supplier can have no involvement with a home sleep test (HST) administered to a patient covered by Medicare fee-for-service (FFS).

Let’s make a distinction between two kinds of tests: 1. A DME supplier can have some involvement with an overnight oxygen qualification test. The supplier can

• own the oximeter,
• deliver the oximeter to a FFS patient’s home,
• pick up the oximeter the next morning and
• transmit the raw data to the independent diagnostic testing facility.

If the physician orders oxygen for a FFS patient and if the patient chooses to obtain the concentrator from the DME supplier who served as the courier for the oximeter, then the supplier can provide the concentrator to the patient.

2. Logic would suggest that a DME supplier could have the same involvement with a home sleep test and be able to provide the CPAP to the FFS patient. This is not the case. Assume the following:

• ABC Medical Equipment, Inc. owns HST devices.
• The FFS patient’s physician orders an HST for a FFS patient.
• At the physician’s request, ABC delivers the HST device to the FFS patient and assists the patient with set-up and use of the device.
• ABC retrieves the HST from the FFS patient the next morning;
• ABC transmits the test results to the physician.
• If the physician orders a CPAP for the FFS patient, and if the patient elects to obtain it from ABC, ABC runs the risk of violating the Medicare CPAP payment prohibition by providing it.

The Medicare CPAP payment prohibition states the following:

“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.”

It is important to understand how Medicare defines an “affiliate.” The definition of an affiliate for purposes of the prohibition is “a person or organization that is related to another person or organization through a compensation arrangement or ownership.” The term “compensation arrangement” is not defined in the section of the Centers for Medicare & Medicaid (CMS) regulations that the prohibition appears in, but the same term is used in (and defined by) the Stark statute as “any arrangement involving any remuneration.”

In short, Medicare will not pay ABC for the CPAP if ABC is the provider of the sleep test. That term is defined as “the 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.” When promulgating this definition, CMS provided some clarity in the final rule when it stated:

“We have defined a provider of sleep test as an individual or entity that directly or indirectly administers and/or interprets the test and/or furnishes the sleep test device. By indirect we mean that one or more intermediary actors are used to accomplish the sleep test to its end. For example, if a DME supplier contracted with a sleep test provider to furnish HST, that supplier would indirectly provide the HST. Directly providing the test means there are no intermediary actors—no intervening persons or entities between them.”

In the above example, because ABC furnished the HST device to the FFS patient, there is a risk that ABC will be considered the provider of the test. Because the physician will be the one to submit claims for the sleep test, it might be argued that the physician—not the DME provider—is the direct provider of the HST. However, there is a risk that ABC will be considered an indirect provider of the HST because ABC is the entity that

• delivers the HST device,
• assists the FFS patient through the set-up and education process,
• retrieves the HST device from the FFS patient, and
• transmits the resulting data to the patient’s physician.

The safest course of action is for the DME supplier to have no involvement with the HST administered to a FFS patient. Another safe course of action is for the DME supplier to introduce the sleep lab to the manufacturer or distributor of the HST devices—at which point the DME supplier steps away, allowing the sleep lab and manufacturer or distributor to work directly with each other.

A credible argument can be made that it is permissible for a DME supplier to sell HST devices to a sleep lab. In this scenario, title to the devices changes hands—from the supplier to the sleep lab—before the sleep lab sends the HST device home with the FFS patient. There is nevertheless some risk that CMS will assert that by selling the HST device to the sleep lab, the supplier is indirectly furnishing the device to the FFS patient. From a practical standpoint, if a DME supplier is considering selling the device to the sleep lab, the supplier should introduce the sleep lab to the manufacturer or distributor—and let the two parties work out their arrangement. Because of the broad wording of the payment prohibition, it would be unwise for a DME supplier to lease HST devices to a sleep lab.

Some additional points that you may want to consider:

• This payment prohibition applies to FFS patients. To determine whether or not there is a similar prohibition with commercial insurance patients (including Medicare Advantage patients), the supplier will need to examine the insurance contracts and the insurance company’s coverage guidelines.
• The payment prohibition applies to sleep labs and DME companies owned by the same hospital. A number of years ago, hospitals argued that the payment prohibition should not apply if a hospital-owned DME company wanted to furnish CPAPs to beneficiaries who qualified through an HST conducted by the hospital’s sleep lab. The government rejected this argument.
• If a supplier determines that it has violated the payment prohibition, they need to refund money they have been paid for the CPAPs and may need to refund money received for disposables.
• The payment prohibition can come into play for the DME supplier when it is about to sell. In conducting due diligence, if the buyer determines that the payment prohibition has been violated, then it is likely that the purchase price will drop or the buyer will walk away.