Consignment Closet Could Be Closed Door for Providers

ATLANTA — HME providers supplying physicians and non-physician practitioners with DMEPOS items and services could easily run afoul of new CMS provisions if they don’t closely analyze their consignment closet arrangements, health care attorneys warned last week.

And they better do it soon. The new conditions go into effect Sept. 8.

In an Aug. 7 change request transmittal, CMS severely curtailed what are commonly known as consignment closets or stock-and-bill arrangements between HME providers and physicians or non-physician practitioners. Established for the convenience of patients, the closets allow them immediate access to needed equipment — a CPAP, a wheelchair, a walker, say. The new conditions substantially narrow a provider’s participation in such arrangements by limiting billing for items only to the physician or non-physician practitioner. Under the new rules:

• Title to the DMEPOS is transferred to the practitioner at the time the item is furnished to the patient;
• The practitioner bills Medicare for furnishing the item under his, her, or its own DMEPOS billing number;
• All services concerning fitting or use of the item are performed by individuals being paid by the practitioner, and not by any other DMEPOS supplier; and
• The patient is advised to contact the practitioner concerning problems or questions regarding the DMEPOS item.

However, simply adhering to the new conditions might not be enough, the attorneys said. The transmittal notice is murky and open to interpretation in some areas.

“The transmittal states that it is premised on CMS’ concerns that consignment, ‘or stock-and-bill,’ arrangements with physicians do not comply with all of the supplier standards,” said Jeff Baird, chairman of the health care group at Brown & Fortunato, Amarillo, Texas. “However, the transmittal fails to specify which standards are not being met.” (See a Q&A from Baird on the Update on Consignment Closet Transmittal from CMS.)

The notice also does not define some terms, such as “practitioner,” and it does not detail the other rules governing consignment closets.

“Any DME supplier who has an arrangement where it has supplies in a physician’s office or a non-physician’s office needs to take a look at this,” said Jana Kolarik Anderson, an attorney with Epstein Becker & Green in Washington, D.C. However, she cautioned, “[Providers] have to look to more than just this ruling. You can’t just say, ‘Here are the four points I need to meet and I’m OK.’”

Anderson, Baird and Cara Bachenheimer, a health care attorney and senior vice president of government relations for Elyria, Ohio-based Invacare, each noted that the rules governing consignment closet arrangements are multi-layered. In addition to Medicare rules, they pointed out, there are anti-kickback statutes, the Stark law governing physician self-referral and regulations to deter fraud and abuse.

Providers, said Anderson, “must be conscious of those rules and reach out to somebody who is familiar with those rules.”

While it may sound as if providers should just shut up their consignment closets, Baird said it is still possible to maintain such arrangements. “The supplier can maintain a consignment arrangement (where the supplier bills for the product) with a physician for commercial [non-Medicare] patients,” he said. “If the supplier wants to maintain a consignment arrangement with the physician for Medicare patients, then the physician will need to bill for the product under his or her Part B supplier number.

“An alternative may be for the physician to call the supplier when the physician orders an item for a Medicare patient, and the supplier delivers the item to the Medicare patient at the physician’s office, or to the Medicare patient at the patient’s home,” he added.

Providers, however, need to be prepared for the physician to pull the plug on the arrangements, according to Anderson. Some physicians may not want to go to the trouble of obtaining a supplier number in order to bill Medicare and/or deal with the extra paperwork involved. And then there is the time crunch. The transmittal notice was issued only a month before the implementation date.

“Physicians need to obtain DMEPOS numbers, and that takes more than 30 days,” Anderson said.

In a “Hot Button” article on Invacare’s Web site, Bachenheimer said the new ruling came as a surprise.

“This issuance was surprising because last year, CMS issued a proposed rule that included a prohibition on shared space arrangements, but had specifically asked for comments on whether CMS should establish an exception to the space-sharing prohibition for physicians and non-physician practitioners,” she noted.

“It was an amendment to the supplier standards,” Anderson said of the proposed rule that did not go through.

The recent transmittal, however, circumvented the public notice/comment process. Attorney Neil Caesar of the Health Law Center in Greenville, S.C., said he is bothered by that sidestep.

“This is an actual change of significance that needs to be handled in a formal way open to public notice and comment,” he said. “Whatever this is, it is not a technical clarification.”

Caesar added that he believes CMS has violated administrative procedure requirements by issuing a transmittal notice.

“This is a done deal,” he said. “Absent a challenge … this thing is happening. It certainly was snuck in under the radar.”

Caesar said he also believes CMS does not understand how consignment closets generally work. That is evidenced, he said, by use of the phrase “stock-and-bill” arrangements.

“It supports my belief that they are assuming the way this might work is the only way it does work,” he said. “Stock-and-bill assumes an immediate relationship with the patient. That’s not the way it needs to work, and it is not the way it always works, and it is not the way it should work for anti-fraud purposes.”

In general, Caesar said, “The relationship between the supplier and the patient does not occur until there is some contact between the patient and the supplier.”

He said providers with consignment closets have three choices: 1) change the relationship, which may mean stopping it; 2) continue the relationship and, if necessary, be willing to fight; and 3) mount a fight to insist the new rules go through the normal public notice/comment process.

Both Caesar and Baird believe there is a chance that CMS will ultimately close down consignment closets.

“There is that risk,” Baird said.

That means another door could close to providers. “And it appears that it is a closet door,” Caesar said.