CMS Limits Consignment Closets

By Heidi A. Sorensen and Lawrence C. Conn

The Centers for Medicare & Medicaid Services (CMS) issued a change request (CR) on August 7, 2009, to the Medicare Program Integrity Manual, Chapter 10, Section 21.8, that significantly limits consignment closets or “stock and bill” arrangements. The changes are effective September 8, 2009. In issuing the CR, CMS cited lack of compliance with existing durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) supplier standards (42 C.F.R. § 424.57), although it did not specify which particular standard(s) it believes consignment closets have failed to meet.

The CR affects the enrollment standards for enrolled physicians or non-physician practitioners as well as enrolled suppliers of DMEPOS. The CR permits consignment closets only where the following requirements are met: (1) title to the DMEPOS transfers to the physician/practitioner at the time the DMEPOS is furnished to the beneficiary; (2) the DMEPOS is billed for by the physician/practitioner using his or her own DMEPOS billing number; (3) fitting or other services related to the DMEPOS are performed by individuals associated with the physician/practitioner and not by the DMEPOS supplier; and (4) beneficiaries are instructed to contact the physician/practitioner and not the DMEPOS supplier for problems or questions with the DMEPOS. The National Supplier Clearing House-Medicare Administrative Contractor (NSC-MAC) is tasked with enforcement of these enrollment standards. The NSC-MAC is also directed to verify that no more than one enrolled DMEPOS supplier is located at the same practice location, and that each practice location has separate entrances and separate physical addresses.

Issues regarding the use of consignment closets for furnishing of DMEPOS have been previously addressed by the Office of Inspector General (OIG) in advisory opinions. Most recently, OIG approved an arrangement in which two DMEPOS suppliers would have consignment closets on site at certain hospitals to furnish portable oxygen, walkers, wheelchairs, canes, and continuous positive airway pressure devices to patients who are being discharged and who have elected to select the suppliers to furnish DMEPOS ordered by the patients’ physicians. OIG Advisory Opinion No. 08-20 (November 19, 2008). The DMEPOS suppliers also provide licensed personnel to perform training, education, and coordination of care services for patients receiving respiratory equipment. The OIG held that the arrangement does not implicate the anti-kickback statute because the remuneration (which includes the consignment closets, as well as free telephones and desks for the DMEPOS personnel) runs the same direction as the referrals. Thus, there was no remuneration from the DMEPOS supplier to the hospitals in exchange for referrals. In issuing this opinion, the OIG stated that it “express[es] no opinion as to whether the Suppliers are satisfying applicable CMS supplier standards with respect to the Proposed Arrangement.” The CR thus directly addresses this footnote.

In 2006, the OIG disapproved an arrangement involving payments from the supplier to physicians for rental of the consignment closet, as well as payments of a percentage of revenue generated from the sale and rental of DMEPOS for non-federal healthcare program patients, and provision of trained personnel to the physician practices for fitting and other services at a fixed monthly fee. OIG Advisory Opinion No. 06-02 (March 21, 2006). The OIG had previously approved an arrangement in 2002 for a DMEPOS supplier to place portable oxygen systems on site at certain hospitals, clinics, and physician offices for distribution to departing patients. Because there were no payments being made for the use of the consignment closets and because of certain other protections to ensure patient freedom of choice, the OIG determined that the arrangement complied with the anti-kickback statute. OIG Advisory Opinion No. 02-04 (April 19, 2002). The first OIG advisory opinion addressing these issues involved a multi-level consignment arrangement between a DMEPOS manufacturer, a home medical equipment marketing consulting and medical billing company, and its physician customers. That arrangement was disapproved by the OIG. OIG Advisory Opinion No. 98-01 (March 19, 1998).

Despite the CR’s statement that the physician may bill for DME under the conditions specified, physicians and other healthcare providers need to be aware of the significant limitations the Stark Law and its regulations impose. In general, Stark prohibits physicians from “self-referring” for “designated health services,” which include DME. There is an exception from this general Stark prohibition for the in-office furnishing of certain limited items of DME by physicians: i.e., canes, crutches, walkers and folding manual wheelchairs, and blood glucose monitors, all of which are subject to certain specified requirements, as well as infusion pumps that constitute DME. 42 C.F.R. § 411.355(b)(4). Physicians may not furnish or bill Medicare for any other items of DME except in certain special circumstances (e.g., rural providers). This prohibition is not referenced in the CR, although the Stark Law itself is cited as is the anti-kickback statute and the regulatory safe harbors as “supporting information.”

Finally, the CR impacts consignment closet arrangements with physicians only. Arrangements with hospitals and other facilities are, at least as of now, not affected by these changes.

The CR is Number 6528, Transmittal Number 297. CMS expects to issue a provider education article that will be released through the MLN Matters Listserv providing more information. CMS also indicated that contractors are free to supplement the MLN Matters article with local guidance.