On August 7, 2009, CMS announced major changes with respect to certain arrangements involving durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) enrolled suppliers.¹  This new guidance is intended to "define and prohibit" certain arrangements in which enrolled DMEPOS suppliers maintain consignment closets, or participate in stock and bill arrangements, where the DMEPOS supplier maintains an inventory at a practice location that the DMEPOS supplier does not own.  As of September 8, 2009, enrolled DMEPOS suppliers must ensure that such consignment closet and stock and bill arrangements comply with the new DMEPOS provisions.

In the Transmittal, CMS described consignment closet or stock and bill arrangements where the DMEPOS supplier maintains inventory at a practice location that the DMEPOS supplier does not own, but which is instead owned by a physician, non-physician practitioner, or other health care professional.  CMS directs its National Supplier Clearinghouse Medicare Administrative Contactors (NSC-MACs) to evaluate and verify such arrangements on a case-by case basis and to allow an enrolled DMEPOS supplier to maintain inventory at a practice location owned by a physician, non-physician practitioner, or other health care professional for the purpose of DMEPOS distribution only when the following conditions are met: 

• Title to the DMEPOS is transferred to the enrolled physician/non-physician practitioner/other health care professional's practice at the time the DMEPOS is provided to the Medicare beneficiary;
• The physician/non-physician practitioner/other health care professional's practice bills for the DMEPOS supplies and services using their own enrolled DMEPOS billing number;
• All services provided to a Medicare beneficiary concerning the fitting or use of DMEPOS are performed by individuals being paid by the physician/non-physician practitioner/other health care professional's practice, and not by any other DMEPOS supplier; and
• The beneficiary is advised that should they have questions or problems arise regarding the DMEPOS, the beneficiary is to contact the physician/non-physician practitioner/other health care professional's practice and not the DMEPOS supplier who placed the DMEPOS at the practice site.

In addition, the NCS-MAC will verify that no more than one DMEPOS supplier is enrolled and/or co-located at the same practice site.²  All DMEPOS practice locations must have a separate entrance and address as recognized by the United States Postal Service.  CMS further stated that the obligation to comply with these provisions will fall equally to both the DMEPOS suppliers and the physician/non-physician/other health care professional providers. 

Notably, CMS states that the purpose of the Transmittal is to "define and prohibit certain arrangements" commonly referred to as consignment closet and/or stock and bill arrangements.  However, this Transmittal was issued without following formal notice and comment rulemaking procedures.  Further, CMS expressly noted in the Transmittal that, "[a] common practice example is that of an enrolled physician practice that allows DMEPOS owned by a separately enrolled DMEPOS supplier to be kept at the physician’s practice location."  If CMS is aware that the consignment closet/stock and bill arrangements it seeks to prohibit are common practices, then the failure to follow notice and comment rulemaking may violate the Administrative Procedures Act.  The timing of this Transmittal is also noteworthy, as CMS has recently resumed the competitive acquisition program for certain items of DMEPOS.

If you have questions regarding the CMS Transmittal or the impact on your current arrangement for providing on-site DMEPOS, please contact Neal Cooper (ncooper@hallrender.com), Regan Tankersley (rtankersley@hallrender.com), or Mark Douglas (mdouglas@hallrender.com) at 317-633-4884.  

¹ CMS Transmittal 297, available at http://www.cms.hhs.gov/Transmittals/downloads/R297PI.pdf, modified Pub. 100-08, Medicare Program Integrity Manual, Chapter 10, § 21.8.

² This prohibition does not exist for one or more physicians enrolled as DMEPOS suppliers at the same physical location.