Computer Software Update: Avoiding HIPAA Headaches

If home medical equipment providers aren't prepared, the HIPAA changes coming this month could bring unimaginable billing headaches. On Oct. 16, Congressional mandates require that all HME billing programs, including the four DMERC free billing programs, be updated or replaced with HIPAA-compliant ANSI X12 837 format and NCPDP 1.1 batch electronic claims programs.

Be Prepared

In order to file electronically after Oct. 16, HME dealers must upgrade their software or purchase new software. In the past providers had the option to file paper claims, but the HIPAA regulations and Congressional law only allow companies to send paper claims if both of the following are true: First, they must have less than 10 full-time equivalent employees, and secondly, they cannot be using any other electronic services from the DMERCs - ERNs, CSI or eligibility. Failure to send claims in the new required HIPAA format could result in claims being denied or fines.

Studies show more than 20 percent of HME dealers still use the free DMERC software. Providers who need to convert have four options:

Option One:Use a Clearinghouse

Clearinghouses charge for each claim with hefty minimums and expensive surcharges for certificates of medical need (CMN). They don't provide billing to secondary payers, provide accounts receivable management or help meet any of the Medicare paperwork requirements including delivery tickets, CMNs and physicians orders.

There are some advantages to using a clearinghouse. First, the clearinghouse claims scrubbing program takes the responsibility for correct HCPCs codes with the item provided. Second, it is simple and easy to use.

However, clearinghouses are unable to file a secondary payer. With 80 percent of all DMERC claims having secondary payers?whether separate third party or state Medicaid?that poses a big problem. Also, clearinghouses don't post payments to confirm compliance with the necessary Medicare paperwork. It's not easy to track what was approved and what was denied or even keep track payments received or not received. As for cost, HMEs are required to pay a fee of $25 every month for the duration of store ownership plus $.40 for every claim over what is covered in the $25 fee. Submitting a CMN is often an expensive additional charge and feedback is minimal to help avoid errors or missing information.

Option Two:Use a Billing Service

Advantages of using a billing service includes electronic filing, procedure code analysis and a paper claim back up. However, billing services charge up to nine percent of each insurance claim and often have little experience billing home medical equipment and products to the DMERCs. Some don't bill direct electronic claims to DMERCs, slowing reimbursements as much as two weeks.

Option Three: Learn Two New Systems

Providers can learn either a revised version of their current HME billing system or a new HME billing system that utilizes the new HIPPA required ANSI X12 system and the NCPDP 1.1 batch system to manage Medicare and state programs for Medicaid. Medicare requires that all drugs be dispensed via a licensed pharmacy. Beginning Oct. 16, all drugs must be billed through the new NCPDP 1.1 batch system instead of being billed via the new ANSI X12 837 format. None of the revised DMERC free programs has the ability to billing NCPDP 1.1 batch claims. Many current HME billing programs may not have the ability to bill NCPDP 1.1 batch claims. This means that many Medicare providers will be forced to use two separate programs or use a clearinghouse or billing service. Using two systems also can mean losing time, with the re-entering of all patient and doctor information twice because the programs can't communicate.

Option Four: Use an Integrated System

An integrated system can provide a permanent and total solution to billing and overall HME management. The most effective software programs can bill direct electronic claims to all four DMERCs and most, if not all, state Medicaids. HME management systems can automatically bill secondary carriers, help manage accounts receivable, and track important DMERC-required paperwork such as delivery tickets and related paperwork, physician's orders and CMNs. With the right software, HME dealers can easily track who has paid and who hasn't, as well as whether the payments made match the allowed amounts. Compared to the costs of the DMERC free software or low cost medical office or limited HME billing programs, integrated systems can be more costly, but they manage far more than billing, often tracking inventory, sales, rentals and maintenance. Ask a potential software provider if they bundle their system in modules so the business can add functions as it grows. A few HME billing software vendors even offer integrated pharmacy programs that will share data with their HME programs.

Integrated System Options: Buy, Lease or ASP?

In addition to buying a system, HME management software vendors now offer alternative payment options such as leasing an integrated system or paying a small fee each month for an application service provider (ASP).

Leasing allows a provider to get all the hardware, software and training without having to make a large capital outlay required when directly purchasing a system. Leasing also leaves full credit lines available for inventory purchases, A/R financing and other business needs.

ASP vendors can package their software, updates and support services for a lower monthly fee or transaction fee instead of requiring a complete system purchase. This option does not require the user to purchase new software or constantly have to upgrade hardware with each software upgrade. Like a lease, the ASP option does not require a large upfront purchase amount. However, the fees paid to a vendor will eventually surpass the total cost of an up-front purchase or lease.

Plan for Future Profitability

To compound these software changes, the federal government is considering two options to clamp down on Medicare expenses: eliminating cost of living increases for seven years or allowing competitive bidding that potentially may put many HME providers out of business. Either option stands to dramatically decrease the profitability of HME dealers, making the efficient management of inventory and accounts receivable more critical than ever before.

In this changing reimbursement environment, many dealers are considering adding pharmacy service and many pharmacies are considering adding HME services to further tap into the aging population and increase profits. These options also present challenges:


Can a pharmacy or HME section fit in the store's existing space? Providers may need to consider giving up valuable display space or adding a freestanding store next door, maybe even somewhere else in the area.


Like any new business venture, adding a pharmacy or HME services will entail some substantial start-up costs. HME dealers should develop a business plan keeping in mind the billing cycles for insurance companies and patients.


The store's location and the demographics of the area will likely determine the extent of marketing efforts that will be required. Both the HME dealer and pharmacy who is adding a pharmacy probably has the advantage of an existing customer base for marketing purposes. Most will still need to get new patients from advertising or by cultivating referrals.

System Management

Will the business use two software management systems to manage the store, one for HME and one for pharmacy? Consider an HME management system and a pharmacy system that can communicate through integration to save time and improve workflow in the entire store.

Finally, dealers must stay on top of current trends and plan for a profitable future in the ever-changing HME environment. Consider joining the state HME association and the national arm, AA Homecare. Gain additional insight from other providers facing the same situations and problems. Membership also will help give HME dealers a voice in Congress.

This article originally appeared in the October 2003 issue of HME Business.

About the Authors

Bob Radvanovsky, CISM, CIFI is a member of the Chicago Chapter of the FBI?s INFRAGARD organization, and is an active participant with several online security-focused magazines and discussion forums. He has an MS in Computer Science from DePaul University in Chicago. He has been awarded several professional certifications in the fields of information technology and security, including that of Certified Information Forensics Investigator for specialization in criminal IT forensics management. He has special interests and knowledge in matters of critical infrastructures, and has published a number of articles and whitepapers on the topic. He has been significantly involved in establishing security training and awareness programs through his company, Infracritical.

Deborah V. DiBenedetto, MBA, R.N., COHN-S/CM, ABDA, is president of DVDiBenedetto & Associates Ltd. and president of the American Association of Occupational Health Nurses and senior consultant for Medgate Inc. She can be contacted at (914) 771-5152, or by visiting

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