Q&A: Update on Consignment Closet Transmittal from CMS

AMARILLO, Texas — With a Sept. 8 compliance date coming up fast for CMS’ recently revised consignment closet rules, the following Q&A is an update on the issue from heath care attorney Jeff Baird, chairman of the Health Care Group at Brown & Fortunato. “This is an important issue to the industry,” Baird said. “We have been fielding calls on this all week.”

Q: I heard that CMS recently published something about consignment arrangements. What is it?

A: On Aug. 7, 2009, CMS issued Change Request 6528, Transmittal 297, which adds a section to the Medicare Program Integrity Manual (PIM) addressing consignment closets and stock-and-bill arrangements. The stated purpose of the transmittal is to “define and prohibit certain arrangements where an enrolled supplier of … (DMEPOS) maintains inventory at a practice location which is … owned by a physician, non-physician practitioner or other health professional for the purpose of distribution.” The changes outlined in the transmittal will be effective Sept. 8, 2009.

Q: So what exactly is CMS saying we can — and cannot — do with consignment arrangements?

A: The new PIM provisions state that “most consignment closets or stock-and-bill arrangements do not satisfy the DMEPOS supplier standards” and allow a supplier to maintain inventory at a practice location owned by a physician or non-physician practitioner only when certain conditions are met. For the purpose of this Q&A, the term “practitioner” will refer to both physicians and non-physician practitioners. The conditions the foregoing consignment arrangement must meet are the following:

1. Title to the DMEPOS item is transferred to the practitioner at the time the item is furnished to the patient;
2. The practitioner bills Medicare for furnishing the item under his, her or its own DMEPOS billing number;
3. 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
4. The patient is advised to contact the practitioner concerning problems or questions regarding the DMEPOS item.

Note that under such an arrangement, the supplier is limited to the role of a vendor to the practitioner. In addition to the above, the NSC-MAC will also verify that two or more Medicare-enrolled DMEPOS suppliers are not enrolled or located at the same practice location. A practice location must have a separate entrance and United States Postal Service post office address.

Q: Am I the only one who finds the transmittal to be confusing?

A: The new PIM provisions state that “most consignment closets or stock-and-bill arrangements do not satisfy the DMEPOS supplier standards,” but the transmittal fails to identify which standards are not being met or why. The transmittal instructions to the NSC reference consignment arrangements with a physician, non-physician practitioner or other health care professional.

But, the new PIM provisions reference arrangements only with physicians and non-physician practitioners, with no inclusion of “other health care professional,” which is not a defined term.

Q: How does the transmittal interact with the Stark physician self-referral statute?

A: The consignment arrangement permitted under the new PIM provisions is of limited value for the provision of DME at a physician’s office, due to the requirements of the Stark law. There is an exception to Stark for “in-office ancillary services,” but that exception is only applicable to limited items of DME (i.e., canes, crutches, walkers, folding manual wheelchairs, blood glucose monitors and infusion pumps). Under Stark, a physician may furnish prosthetics and orthotics under the in-office ancillary exception, because prosthetics and orthotics are not DME.

Q: Is this it, or can we expect more from CMS regarding consignment arrangements?

A: The Program Integrity Manual on CMS’ Web site contains the following in the Table of Contents:

• 21.8 — Consignment Closets and Stock and Bill Arrangements
• 21.9 — Compliance Standards for Enrollment of Mail Order Pharmacies and Suppliers of Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) Delivered Through Other Than the Supplier’s Location or Beneficiary Address

No transmittal has been issued yet for the new Section 21.9. For this reason, even though the new consignment closet PIM provisions appear not to apply to consignment arrangements with hospitals, sleep labs or other Medicare non-practitioner providers, entities involved in consignment arrangements should not assume further CMS action will not impact these arrangements.

Q: If the physician does not have a DMEPOS supplier number, can the supplier choose to just eat the charges for consignment closet items provided to a Medicare patient?

A: No. The PMI provision at issue says that a supplier can maintain inventory at the practice location only if the requirements are met. Therefore, if consignment inventory is given to a Medicare beneficiary and not billed for by the physician, it does not meet the requirements. Also, CMS or the OIG could take the position that because title to the DMEPOS item is required to be transferred from the supplier to the physician/practitioner at the time the consigned goods are furnished to the beneficiary, the supplier is providing remuneration to the physician in the form of goods at no cost to the physician.

Q: What if the physician is not given access to the equipment in the consignment closet and the supplier staff has sole access to the equipment and provides it to patients when they go to the physician’s office for fittings/clinics?

A: This arrangement still seems to fall within the language used in the PIM provision- — a supplier maintaining inventory at a practice location owned by a physician that is dispensed to a Medicare patient. Without knowing the specific supplier standard concerns CMS has, we can only work from the language of the transmittal.

Q: Does the transmittal apply to emergency clinics or urgent care clinics?

A: Not if the location is owned by someone other than physicians or non-physician practitioners. If it is owned by physicians or non-physician practitioners, it will be covered since it will be a practice location of a physician or non-physician practitioner.

Q: Does the transmittal apply to surgery centers?

A: Not if the surgery center is owned by someone other than physicians or non-physician practitioners. If the surgery center is owned by physicians, it will be covered since it will be a physician practice location.

Q: Can a supplier deliver a product to a patient while the patient is at a physician’s office?

A: We believe that the transmittal does not apply if the supplier is not maintaining inventory at the physician location, and we see this as no different than delivering to a patient at a hospital prior to discharge.

Q: Does the transmittal apply to consignment closet arrangements for non-Medicare patients?

A: No. The transmittal only applies to consignment closet items provided to a Medicare patient.

Q: Does the transmittal apply to a PT clinic owned by a physical therapist?

A: No. A physical therapist is not included in the definition of a non-physician practitioner. If the PT clinic is owned by a physician or other non-physician practitioner, the answer will hinge on whether it is also a practice location of a physician or non-physician practitioner.

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].