VGM's John Gallagher and Mark Higley track the current barrage of legislative and regulatory challenges.
by John Gallagher And Mark Higley

With most every sector of the home medical equipment industry undergoing major change, or soon to be, it's hard to keep up with all the curveballs. Providers are wrangling with ongoing effects of the oxygen cap, PAP clarification policies, documentation issues for power mobility and a growing barrage of audits while trying to gauge the impact of health reform — and, of course, still fighting the fast-approaching implementation of Round 1 competitive bidding.

To help keep track of some of the most recent developments as well as a few you might have missed, VGM Group's John Gallagher, vice president of government relations, and Mark Higley, vice president of development, put together the following "scorecard" of current legislative and regulatory issues — and how these issues are shaping the HME industry. Their straight-down-the-middle discussion should give you a perspective on where your business stands today, and hopefully help you hit a homer for its future.

John's Legislative Updates

  • Competitive Bidding

On April 22, H.R. 3790 reached the magic number. Including Rep. Kendrick Meek, D-Fla., the original sponsor, the bill to repeal competitive bidding hit 216 supporters and has continued to climb since, heightening the chance for the language of this bill to move forward. While it will benefit to continue gaining more support on the House side, our focus should now be directed to the Senate side to push for a companion bill.

Additionally, at press time House Ways and Means Committee Chairman Sander Levin, D-Mich., had requested that the Congressional Budget Office score the bill to ensure that it is budget-neutral.

But with elimination of the program, legislators will ask what will replace competitive bidding to save the government money. One of the things that the DME industry may push for at this point would be further consideration of reimbursement as a fee for services — versus fees for delivery of products.

  • 36-Month Oxygen Cap
  • Oxygen providers and their patients continue to face issues with the payment cap on oxygen. Traveling patients have an especially difficult time finding a provider to supply their oxygen needs. The primary threat to the home oxygen benefit is the continued belief by policymakers that the oxygen benefit is simply an equipment-based benefit that requires little if any service to meet patient and physician expectations.

    Providers should keep pushing for more support of the Home Oxygen Patient and Protection (HOPP) Act, H.R. 2373, to repeal the cap on oxygen. Again, as of press time, this bill had earned a total of 89 cosponsors.

  • First-Month Purchase Option for PWCs
  • Section 3136 of the Patient Protection and Affordable care Act, the recently passed health care reform law, eliminates the first-month purchase option for power-driven wheelchairs. Under the law, the purchase option for complex rehabilitative power wheelchairs would be maintained. Competitive bidding contract suppliers also will retain the first-month purchase option for power wheelchairs during the duration of their contract.

    The first-month purchase option allows individuals to choose whether to purchase or rent their mobility device in the first month of use. Nearly all Medicare beneficiaries in need of power wheelchairs purchase their devices in the first month of delivery because they have long-term needs and often require a specific "fit" of each device to meet their medical and functional requirements.

    The policy change eliminates patient choice by forcing beneficiaries to rent their mobility device for 13 months before they can own it. Now suppliers are required to purchase power wheelchairs from their manufacturers and finance these devices to beneficiaries over a 13-month period. Will this cause rehab providers to supply patients with power wheelchairs based more on their diagnosis and prognosis than on their current mobility needs? Can rehab providers survive at all?

  • Fraud, Waste and Abuse
  • Although legislators have begun to understand the flaws of the competitive bidding program, many continue to express the argument that the program was to help eliminate fraud. When competitive bidding was first being discussed on Capitol Hill, legislators lauded the program's ability to create a barrier for fraudulent suppliers. However, since the Medicare Modernization Act mandated the implementation of the DMEPOS competitive bidding program, other steps have been taken to address this objective.

    One initiative is the Fraud Eradication Advisory Team (F.E.A.T.), which is an alliance of DME industry providers and stakeholders. F.E.A.T. has three primary objectives: to educate providers on fraud and abuse in the program, to assist CMS in combating fraud and abuse, and to create a channel for providers to report suspected fraud and abuse in the Medicare program anonymously. (You can find more information on F.E.A.T. at

    Fraudulent and abusive activities have created a proverbial black eye for the DME industry. Fraud-and-abuse reporting will be a major component in proving to CMS that we as a supplier community are the solution as opposed to being part of the problem. It is with providers' help that unscrupulous suppliers committing criminal billing activities are stopped and punished to the full extent of the law. Our participation in rooting out the abuse of a federally mandated benefit is valuable and necessary in order for the Medicare system to remain solvent.

    Mark's Regulatory Notes and Predictions

    • Competitive Bidding Predictions

    The Round 1 rebid results are rapidly approaching. CMS expects to announce the bidding payment rates resulting from the "competition" of the nine U.S. metro areas in June, and the winning contract suppliers in September. VGM's sampling of rebidding HMEs (Note: not statistically significant due to strength and reliability of survey methodology and sample size) suggests that more companies participated overall but fewer bid in competitive bidding areas outside of their current service areas.

    Compared to the original Round 1 bidding, the sampled discounts vary widely by product category and appear to approximate the 2008 percentages overall. Unfortunately, it also appears many providers neglected to take into account MIPPA (the Medicare Improvements for Patients and Providers Act), which financed the Round 1 delay by cutting fee schedule payments for the same items by 9.5 percent nationwide.

    Unless mitigated by legislation or litigation, the competitive bidding program is scheduled to go into effect Jan. 1, 2011. If it does, look for the majority of losing/non-bidding HMEs to utilize the "grandfathering" provisions and to offer subcontracting services.

  • Active DMEPOS Suppliers
  • Are the numbers really declining? In September 2008, CMS reported 110,172 supplier numbers. Forty-three billed Medicare more than $10 million on an annual basis; 194 billed $3 million to $10 million; 1,322, $1 million to $3 million; 5,386, $300,000 to $1 million; and 103,227 less than $300,000. (Of the latter, 30,000 supplier locations billed less than $5,000.)

    Today, we stand at about 93,000 numbers.

    Arguably, the cost of maintaining accreditation, surety bonds and, in many states, DME supplier and respiratory therapist licensing — combined with cuts in reimbursement and caps in monthly payments — have reduced to some degree the amount of "true" HME providers. But what types of suppliers make up the majority of those decreases? And how much did they actually bill?

    We know there are about 50,000 pharmacies within that total, and a rather large contingent of "non-HME" suppliers such as physicians, orthotics and prosthetics practitioners, physical therapists, occupational therapists, nursing homes, opticians, grocery and department stores, which, we estimate, approximate 20,000 of the total.

    That leaves about 23,000, encompassing the oxygen, rehab, general DME and supply facilities. About 13,000 unique companies own these locations. While there are some disturbing reductions in certain rural areas of full-line HMEs, the majority of the decline in active supplier numbers appears to be within those companies billing less than $5,000 annually, and among non-HME suppliers.

    Additionally, about 1,500 voluntarily terminated their numbers before last year's Sept. 30 accreditation/surety bond deadline; many have since been reinstated. Bottom line: Relatively few true HMEs — probably about 1,000 supplier numbers — have exited the market. Some have been absorbed by other companies.

    Overall, HME industry demographics and growth estimates remain very strong. The U.S. population age 65 and over is expected to double in size within the next 25 years. By 2030, almost one out of five Americans — some 72 million people — will be 65 years or older. The age group 85 and older is now the fastest-growing segment of the U.S. population. And while the health of older Americans is improving, many are disabled and suffer from chronic conditions. Fourteen million people ages 65 and older reported some level of disability in the last Census, mostly linked to a high prevalence of chronic conditions.

  • The Red Flag Rules
  • Will the Federal Trade Commission begin enforcement of the Red Flag rules June 1, 2010? The FTC has previously — four times before — delayed enforcement of the so-called "Red Flag" rules requiring implementation of identity theft prevention measures. However, the Commission states it will begin enforcement starting on June 1, 2010.

    The purpose of the Red Flag rules is to prevent, identify and report identity theft. In general, most health care organizations will be considered "creditors" that manage "covered accounts" under these rules and will be required to enact formal, written policies and procedures to comply with the new law.

    The Red Flag rules define "creditor" broadly to include entities that regularly defer payment on goods or services or provide goods or services and bill for them later. Virtually all HME providers will fall into the category of "creditor" under the current definition. Accordingly, your company will be required to implement written policies and procedures to identify and address the "red flags" that indicate identity theft.

    For health care organizations, the key is developing a list of red flags that may indicate that a person presenting for services is not who they say they are. In practice, some HMEs may already have procedures that cover much of what is required, but the new rules require formalized processes in written policies and procedures.

    Also required: Staff members must be appropriately trained in the new policies and reporting procedures. Several groups that represent licensed health care professionals, including the American Medical Association, are urging the FTC to exempt LHCPs from the Red Flags rule. And, last Oct. 20, the House approved legislation that would exclude certain small businesses (with less than 20 full-time employees) from the requirement. Introduced by Rep. John Adler, D-N.J., H.R. 3763 would affect many small medical practices and potentially other small health care providers depending on the definition of what is considered to be a "health care practice."

    It remains unclear whether HME providers would fall within the exemption.

    • Telemarketing

    In January, the HHS Office of Inspector General issued an updated guidance for telemarketing by DME suppliers. The initiative grew out of "receipts of credible information" that HMEs were using independent marketing firms to make unsolicited phone calls to Medicare beneficiaries.

    In its Fraud Alert, the OIG cited the prohibition of making unsolicited calls except under three circumstances: (1) the beneficiary gave written permission to the supplier to contact them by telephone; (2) the supplier is calling the beneficiary about a covered item that has already been received by the beneficiary; or (3) the beneficiary has received a covered item from the supplier in the last 15 months.

    The American Association for Homecare and other stakeholders have argued that this policy would have an adverse impact on timely beneficiary access to medically necessary equipment ordered by a physician, since the majority of suppliers call a beneficiary to arrange for equipment deliveries upon receiving an initial physician verbal.

    The OIG has now clarified that a supplier may contact a Medicare beneficiary to confirm or gather information needed to provide the prescribed covered item after a physician contacts a supplier on the behalf of the beneficiary, with the beneficiary's knowledge. (The supplier is prohibited from soliciting the purchase of additional covered items.) The beneficiary only needs to be aware that the supplier will be contacting him or her about the item. The supplier does not have to maintain documentation from the physician reflecting that the physician has contacted the supplier with the beneficiary's knowledge. In addition, a supplier returning a beneficiary's phone call is not considered "unsolicited" because the beneficiary initiated the contact.

  • The HITECH Act
  • The HIPAA/HITECH Act was effective on Feb. 17, 2010. So now what? On Feb. 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009, which included the HITECH Act (the Health Information Technology for Economic and Clinical Health Act).

    The HITECH Act modifies several areas of federal privacy law, most notably applying many HIPAA obligations directly to business associates, where previously they were only required to comply with the terms of business associate agreements (BAAs). The law applies most of the security standards and a number of the privacy standards directly to business associates, and requires business associates to comply with new security breach notification requirements. It also subjects business associates to penalties for HIPAA violations.

    However, regulations implementing many of the provisions have yet to be released, and the regulatory agency responsible for publishing those regulations has been silent on the timing of such regulations. There is also some uncertainty regarding whether existing BAAs must be amended to reflect the Act's requirements. This uncertainty stems from language in the Act, which states that changes "shall be incorporated into the BAA…."

    Some have interpreted this ambiguous language to mean that any changes from the HITECH Act will be automatically incorporated into existing BAAs. Alternatively, the majority of commentators have taken this to mean that the BAAs should have been amended as of Feb. 17. In any case, HMEs and their business associates should be active in setting up compliance procedures consistent with the HITECH Act. But be ready to alter these procedures should regulations provide more clarity or additional requirements.

  • PECOS Delay
  • The PECOS has been delayed, but some confusion remains. Medicare has announced the delay of implementation of Change Requests 6417 and 6421 (the PECOS edits) until Jan. 3, 2011. The edits require verification of a referral source's Medicare enrollment and were designed to ensure that medical equipment is ordered only by those individuals authorized to do so.

    Presumably, CMS has announced this further delay of the physician registration requirement in the Provider Enrollment, Chain and Ownership System to allow physicians and non-physician practitioners who order services or items for Medicare beneficiaries, or who refer beneficiaries to other Medicare providers, enough time to enroll or take the necessary actions to establish a current enrollment record in Medicare.

    But the new health reform legislation includes a section that appears to accelerate the PECOS registration requirement to July 1, 2010!

    If you want the particulars, Section 6405, applicable to "physicians who order items or services required to be Medicare enrolled physicians or eligible professionals," amends Section 1834(a)(11)(B) by striking "physician" and inserting "physician enrolled under section 1866(j) or an eligible professional under section 1848(k)(3)(B) that is enrolled under section 1866(j)," and states "this section shall apply to written orders and certifications made on or after July 1, 2010."

    Hence, will the PECOS issue resurrect itself in less than two months? We await clarification from CMS.