Retail: A Separate Legal Entity
What are the advantages of setting up a cash business as a separate legal entity, and what are the licensure, prescription and notice requirements?
- By Jeffrey S. Baird
- May 01, 2019
For a number of reasons, DME suppliers are focusing on retail cash sales of products — both Medicare-covered products and non-covered products. With lower reimbursement, post-payment audits, and the next round of competitive bidding that will start in less than two years, suppliers understand that they need to reduce their dependency on the Medicare fee-for-service (FFS). Also, DME suppliers recognize that there are 78 million Baby Boomers who are retiring at the rate of 10,000 per day. Providers understand that most Boomers expect to have an active life, do not want to wait around for Medicare approval, and want the “Cadillac,” not the “Cavalier,” product.
These circumstances present an opportunity for the DME supplier to develop a retail business. As the supplier moves into the retail space, it needs to decide whether its retail business will operate under the same legal entity that has the PTAN, or operate out of a separate legal entity that does not have a PTAN. There are advantages of setting up a retail business as a separate legal entity, as well as licensure, prescription and notice requirements.
While a non-participating Medicare supplier (i.e., one with a PTAN) can choose not to accept assignment and collect its usual charge from the patient, it is, nevertheless, required to submit a claim to Medicare on the patient’s behalf unless the patient specifically requests otherwise. In the event that the supplier reasonably believes that Medicare will deny the claim, it is required to obtain a signed Advance Beneficiary Notice of Noncoverage (“ABN”) from the patient in order to charge and collect from the patient. A cash sale business, established as a separate legal entity and not enrolled as a supplier with Medicare, is not subject to these requirements.
Many commercial insurance contracts require that the supplier accept assignment for covered items/services provided and prohibit the supplier from billing the patient instead of the payor. If the cash sale business is a “division” of an entity with commercial insurance contracts, it will not have the ability to engage in cash sales for covered items or services with individuals covered by such third-party insurance plans. On the other hand, if the cash sale business is a separate legal entity that is not contracted with any insurance payors, it will not have such limitations.
A DME supplier contracted with Medicare/Medicaid/commercial payors is at risk for recoupment liability in the event of an aggressive audit. If the cash sale business is only a “division” or “DBA” of a contracted DME supplier and if the contracted DME supplier does get hit with a large recoupment, then it will also adversely affect the financial condition of the cash sale “division.” On the other hand, if the cash sale business is a separate legal entity, then generally speaking, any recoupment liability imposed against the contracted DME supplier will not spill over to the legally separate cash sale business.
Future Sale/Future Investors
If the cash sale business is a “division” of a DME supplier contracted with Medicare/Medicaid/commercial payors and if the owner desires in the future to sell the cash sale business but retain the Medicare/Medicaid/commercial insurer business, then the owner has no choice but to enter into an asset sale of its cash sale business. On the other hand, if the retail business is a separate legal entity and the owner decides in the future to sell it, then it has the option of engaging in either an asset sale or a stock sale. Additionally, if the cash sale business is a separate legal entity, then it can bring in additional investors without affecting the ownership of the contracted DME supplier entity.
Licensure, Prescription and Notice Requirements
Even though the cash sale business will not have a Medicare PTAN or be contracted with other third-party payers, it must still comply with all other regulatory requirements for a business providing medical equipment. Many states require some type of medical equipment licensure or registration. This requirement may be imposed on the supplier located within the state as well as an out-of-state supplier shipping into the state. A few states (e.g., Tennessee, Colorado, and Georgia) require the DME supplier to have a “brick and mortar” presence in the state before a license will be issued to the supplier.
Additionally, the cash sale business should not dispense any legend device or supply without a valid prescription. The manufacturer’s labeling for legend devices and supplies will indicate that the items are to be dispensed only pursuant to a prescription.
42 U.S.C. 1395m(j)(4)(A) states that if a supplier furnishes DME to a Medicare beneficiary for which no payment may be made by Medicare because the supplier does not have a Medicare supplier number, then any expenses incurred for the DME will be the responsibility of the supplier. This means that the cash sale business customer will have no financial responsibility for the product; and the cash sale business will be required to refund the customer unless, before the product is furnished, the customer is informed that Medicare will not reimburse the customer for the product, and the customer agrees to pay cash knowing that he will not be reimbursed.
In order to meet this requirement, when a customer walks into the retail location and a employee suspects that the customer is covered by Medicare, the employee might want the customer to sign an ABN. Alternatively, the retail business might decide not to require a suspected Medicare customer to sign an ABN; and in those instances when a Medicare customer subsequently complains that he was unaware that Medicare would not reimburse him, the cash sale business will reimburse the customer. This likely will not occur very often. The retail business should also post conspicuous signs stating that the cash sale business is not enrolled as a Medicare supplier and that Medicare will not pay for items obtained from the cash sale business.
If the DME supplier creates a separate legal entity for its cash sale business and desires to sell items over the Internet, the cash sale business web page should have the following, in large bold type, appear as soon as the customer clicks on a link to view DME as well as immediately prior to check-out:
“Notice to Medicare Beneficiaries. Medicare will pay for medical equipment and supplies only if a supplier has a Medicare supplier number. We do not have a Medicare supplier number. Medicare will not pay for any medical equipment and supplies we sell or rent to you. You will be personally and fully responsible for payment.”
This article originally appeared in the May 2019 issue of HME Business.
Jeffrey S. Baird, Esq. is chairman of the Health Care Group at law firm Brown & Fortunato, P.C., where he represents pharmacies, HME companies, and other healthcare providers throughout the United States. He can be reached at (806) 345-6320 or firstname.lastname@example.org.