HME Retail Sales
The Legal Aspects of Retail Sales
Retail law expert Jeff Baird discusses what you should know about HME cash sales.
- By Joseph Duffy
- Aug 01, 2016
For many providers beleaguered by
Medicare’s winnowing reimbursement and expanding
cost and complexity when providing home medical
equipment, retail sales are the light at the end of the
tunnel. But like the saying goes, you want to make
sure that light isn’t an oncoming train.
They key is to understand that, while free from
frustrations typical of billing Medicare, retail is not
entirely restriction-free. In fact there are a number
of legal requirements related to retail sales, which
providers must understand. Bearing that in mind, HME
Business sat down with Jeffrey S. Baird, Esq., chairman of
the Health Care Group at law firm Brown & Fortunato, P.C., to learn more.
Baird argues that retail is likely the future for many home medical equipment
providers. For an industry that historically has generated the lion’s share
of its revenues through Medicare funding, that’s a bold statement to make,
but Baird says there are several converging factors have lead him to this
- The demand for DME will increase exponentially. This is due to the fact
that there are 78 million Baby Boomers who are retiring at the rate of
10,000 per day.
- Competitive bidding has created a two-tier system. Those on
the lower end of the socio-economic scale will have no choice but
to accept whatever Medicare pays for. These will be lower-quality
products with few bells and whistles. Those on the higher end of
the socio-economic scale will be willing to pay cash so as to obtain
a high-quality product with bells and whistles.
- The mindset of typical Boomers is that psychologically and
emotionally, they refuse to get old. Boomers don’t want to spend
the last years of life playing shuffleboard in a retirement community
in Arizona. Rather, until the day they die, Boomers want to be
running triathlons and going to Rolling Stones concerts. Boomers
will be willing to spend their children’s inheritance to purchase DME
products and services that help maintain an active lifestyle.
- Medicare reimbursement is low and will continue to be low. It will
be difficult to generate a profit off of what Medicare pays. The profit to
the DME supplier will come from retail/cash sales.
With more and more HME providers are growing their cash sales to
create revenue streams that support or even replace Medicare reimbursement,
Baird detailed the legal aspects of retail sales they should
HMEB: Why are the legalities of retail now so
Baird: The DME industry is young; it has been
around since the mid ’70s. The industry grew
up unregulated; frankly, no one on Capitol Hill,
and no one with HCFA (now CMS), knew what DME
suppliers did. The reason for this is obvious. While young,
healthy people go to doctors, hospitals, and pharmacies,
normally only the elderly use DME suppliers. Unless he
has been taking care of Great Aunt Martha, neither the
28-year-old legislative staffer on Capitol Hill, nor his
boss (Representative or Senator), nor the CMS regulator
in Baltimore, will have ever had a need to step foot in
a DME facility. Plus, the money spent by Medicare
on DME has always been a very small percentage
of the total Medicare expenditures. Because of
the lack of knowledge of what the DME industry
does, relatively few regulations were implemented
for the industry. Because there were relatively few
regulations in place, DME suppliers ‘did the best
they could.’ Obviously, mistakes were made. And there was
a small percentage of DME suppliers that engaged in fraudulent activities.
These ‘fraudsters’ generated bad press (e.g., Operation Wheeler Dealer in
Houston, the problems in South Florida, etc.). As the government is inclined to
do, it overreacted. We now have the “Perfect Storm” of competitive bidding,
out-of-control audits, low reimbursement, and stringent documentation
requirements. Much of the government oversight is limited to the typical DME
Medicare Fee-For-Service model (i.e., the DME supplier provides the product,
takes assignment, and bills Medicare). Much of the retail/cash business model
falls outside of this increased government oversight.
HMEB: Is the standard Medicare fee-for-service model unworkable?
Baird: There are several reasons why the standard Medicare FFS model is
pretty much unworkable:
As a result of the ‘suicide bids’ resulting from competitive bidding, reimbursement
If a DME supplier is heavily involved with competitive bidding, then its
business model can be taken away in three years when the next round of
competitive bidding comes up; there is no assurance that the supplier will
be awarded a competitive bid contract for the next round. CMS/CBIC may
disqualify the supplier’s bid for unsupportable reasons or the supplier may
bid too high. The bottom line is that while the supplier may be ‘flying high’
in one round of competitive bidding, the proverbial rug can be yanked out
from under the supplier for the next round. Banks are increasingly leery about
lending working capital to DME suppliers whose business model may disappear
Audits are out-of-control. Possession is nine tenths of everything, The CMS
contractors control (they “possess”) the supplier’s revenue. If a contractor
concludes that the supplier must repay money, then the DME MAC can offset
the recoupment amount from future payments to the supplier. If the supplier
does not like what is going on, then it can appeal the recoupment; however,
to be successful, the supplier must normally need to appeal to an ALJ.
Unfortunately, an ALJ will not consider the supplier’s appeal for several years.
These problems do not exist under the retail/cash model.
HMEB: Can you discuss some of the more important laws that HME providers
going into cash sales need to understand to grow a successful cash sales
Baird: There are several important laws that the DME supplier needs to
There is a federal law that says that a supplier cannot charge Medicare
substantially in excess of the supplier’s usual charges unless good cause
is shown. I have not seen this statute enforced, but it is out there. Over the
years, CMS and the OIG have attempted to clarify the terms ‘substantially
in excess,’ ‘usual charges,’ and ‘good cause.’ The best clarification is set out
in a proposed rule that came out in 2003, but was withdrawn in 2007. The
proposed/withdrawn rule states that a DME supplier can provide a Medicarecovered
item for cash at a discount off the Medicare allowable so long as the
discount does not exceed 17 percent off the Medicare allowable — but if the
supplier gives a discount greater than 17 percent, then if ever questioned
about it, the supplier needs to produce evidence substantiating the greater
than 17 percent discount.
Outside of competitive bidding, if the supplier sells a Medicare-covered
item for cash to a Medicare beneficiary, then the supplier (if asked by the
beneficiary) must file a claim with Medicare on behalf of the beneficiary.
If the supplier is not a competitive bid supplier, but sells a competitive bid
item for cash to a Medicare beneficiary residing in a CBA, then the supplier
needs to have the patient execute an ABN that confirms that the beneficiary
will not get reimbursed by Medicare for the item.
The supplier needs to obtain the necessary state licensure to sell the
DME items. The licenses need to be obtained in the state in which the DME
supplier is located and the states in which the customers reside.
The supplier needs to determine if it has sales tax obligations in the states in
which the cash customers reside.
The supplier needs to be aware of the anti-fraud laws in the state in which the
DME supplier is located and in the states in which the cash customers reside.
The supplier needs to be aware that a number of states have statutes that
say that suppliers cannot charge state Medicaid programs more than the
supplier’s usual charges.
HMEB: Talk about the importance of healthcare cooperation and collaboration
as it pertains to retail.
Baird: Historically, health care providers (hospitals, doctors, therapists, DME
suppliers, etc.) have operated in “silos.” Essentially, one provider did not
know what the other providers were doing. This has proven to be expensive
and inefficient. Third-party payers are now pushing healthcare providers
to engage in a collaborative care model in which the providers are collectively
responsible for positive patient outcomes. Under this collaborative
care model, reimbursement is tied to the degree of cooperation among the
providers and the outcome of the treatment of the patient.
HMEB: What do HME providers need to know about joint ventures collaborations
Baird: Hospitals are struggling to produce a positive bottom line. Not only
are hospitals attempting to generate increased revenue, but they are also
attempting to control costs. Under Medicare’s hospital patient readmission
reduction program, if patients are readmitted soon after discharge for a
particular illness (e.g., CHF, COPD), then future reimbursement from Medicare
will be adversely affected. And so hospitals desire to have a hand in patients’
post-discharge care so as to prevent the readmissions. One way for hospitals
to do this is to own 100 percent of a DME operation. Another way is to have
an ownership interest in a DME operation. And still another way is for the
hospital to enter into a collaborative care agreement with an unrelated DME
supplier in which, subject to patient choice, the hospital designates the unrelated
DME supplier as the hospital’s “preferred provider.” In return, the DME
supplier commits to provide a high level of services to the discharged patients
and to provide outcomes reports to the hospital.
HMEB: What do HME providers need to know about sales tax?
Baird: The sales tax issue generally arises when a DME supplier is selling DME
across state lines. There is a U.S. Supreme Court decision that says that if a business
has no connection (or ‘nexus’) with a state other than shipping products
into the state, then the supplier has no sales tax obligation in that state. On the
other hand, if the DME supplier has a ‘nexus’ in that state, then the supplier will
have sales tax obligations. A “nexus” can be created when, for example, the
supplier has a physical location in the state, or a W2 employee in the state, or a
1099 independent contractor sales rep in the state. Even if the DME supplier is
comfortable that it does not have a ‘nexus’ with a state and, therefore, has no
sales tax obligation, the state’s Department of Revenue may disagree and may
attempt to impose sales obligation on the supplier. At that point, the supplier
will need to decide whether to fight with the state or simply pay the tax.
HMEB: Can an HME provider co-locate with another provider?
Baird: No. If a DME supplier is located next to another provider, then in order
to comply with the supplier standards, a number of conditions must be met,
including the following:
- The post office must assign a separate address (e.g., Suite B) to the DME supplier.
- The DME supplier must be physically separated from the other provider.
- There must be separate ingress and egress for the public.
- Proper signage must be posted.
HMEB: What are microsites and what should HME providers know about
Baird: A microsite is akin to a kiosk. A microsite can be in a mall, or in the
lobby of a hospital, or in the lobby of a physician’s
office building, or in a grocery store, or at a similar
type of location. The microsite may or may not
be manned by a live person. At the microsite, the
prospective customer can learn about what the DME
supplier has to offer. At the microsite, the prospective
customer may be able to order a product. In
creating a microsite, the DME supplier needs to be
careful not to create an arrangement in which the
NSC determines that the microsite must have a PTAN
issued to it.
HMEB: What about sharing space with a nonprovider?
Is that legal?
Baird: Yes. It would be wise for the arrangement to be
configured so that an NSC inspector, or an accreditation
surveyor, is not confused regarding who the DME
supplier is and who the non-provider is.
HMEB: Can HME providers charge cash customers
less than what is billed to state Medicaid?
Baird: If the DME supplier is in a state in which there
is a statute that says that a supplier may not bill the
state Medicaid program more than the supplier’s
usual charges, then it is acceptable for the supplier
to occasionally sell cash items at a discount off the
Medicaid allowable — so long as the discounted
sales do not appreciably affect the supplier’s ‘usual
HMEB: What do HME providers need to know about
telemedicine in cash sales across state lines?
Baird: Medicare will not pay physicians for telehealth
encounters except in limited circumstances.
As to what constitutes a proper telehealth patientphysician
encounter is governed by state law. Some
state laws allow for an audio only (e.g., telephone)
encounter. Other states require both an audio
and a visual (e.g., Skype) encounter. The physician
providing the telehealth encounter must be licensed
in the state in which the patient resides and whether
the telehealth encounter is proper is governed by
the law in the state in which the patient resides. On a
separate matter, the DME supplier needs to avoid a
telehealth arrangement in which the supplier directly
or indirectly funds the payment by the telehealth
company to the physician who has the telehealth
encounter with the patient and writes the order for
the DME (in which the order ultimately goes to the
DME supplier). Such an arrangement likely violates
the Medicare anti-kickback statute.
This article originally appeared in the August 2016 issue of HME Business.