Face Challenges Confidently

Failure to Repay Medicare: Effect on Affiliated Company

Tuesday, January 16th, 2018

By: Jeffrey S. Baird, Esq.

Assume that ABC Medical Equipment, Inc. (“ABC”) is 100% owned by John Smith. Assume that Smith also owns 50% of XYZ Medical Equipment, Inc. (“XYZ”) and 25% of DEF Medical Equipment, Inc. (“DEF”). Lastly, assume that, pursuant to a series of aggressive audits, ABC gets hit with recoupment demands that ABC simply cannot meet. What happens to ABC and what effect will such nonpayment have on XYZ and DEF?

What CMS Does During A Review Of DME Suppliers

Failing to pay a recoupment obligation is grounds for revocation of ABC’s PTAN. Such a revocation may affect XYZ and DEF. 42 C.F.R. § 424.535(f) states that “[w]hen a provider or supplier is revoked from the Medicare program, CMS automatically reviews all other related Medicare enrollment files that the revoked provider or supplier has an association with (for example, as an owner or managing employee) to determine if the revocation warrants an adverse action of the associated Medicare provider or supplier.”

42 U.S.C. § 1395cc(j)(5) states that a provider or supplier enrolling with Medicare or submitting a revalidation application after 3/23/11 “shall disclose … any current or previous affiliation (directly or indirectly) with a provider of medical or other items or services or supplier that has uncollected debt, … or has had its billing privileges denied or revoked.” Since Smith is also an owner of XYZ and DEF, to the extent that XYZ and DEF enroll or are required to revalidate their Medicare enrollments in the future, they will likely be required to disclose their affiliations with ABC. These prior affiliations do not mean that XYZ and DEF will necessarily be impacted; however, it does allow CMS the opportunity to evaluate the affiliations to determine what, if any, risk to the Medicare trust fund exists.

While the law states that these disclosures must be made, CMS has not finalized regulations to implement the form of such disclosures. CMS’ proposed rule states that providers/suppliers must make such disclosures when completing their Form CMS-855 application for enrollment or revalidation purposes. However, current versions of the Form CMS-855 do not request disclosure of these types of affiliation. CMS may, in the near future, request such disclosures on Form CMS-855.

CMS Rules For Pharmacies

Now, let’s change the facts and assume that XYZ and DEF are pharmacies, not DME suppliers. Assume that the two pharmacies are not enrolled in Medicare as either Part B providers or as DMEPOS suppliers. Assume that the pharmacies participate in Medicare Part D, Medicaid, and Tricare prescription drug programs. The pharmacies are not required to complete a Form CMS- 855 in order to participate in any of these government programs. Pharmacies that participate in the Medicare Part D program are not required to complete a Medicare Form CMS-855 for enrollment purposes. Therefore, the disclosures discussed above may not be required for the pharmacies. To the extent that Part D Plan Sponsors or commercial payors request such information in their enrollment or revalidation process, the two pharmacies may be required to disclose their affiliation with ABC. Further, if the pharmacies enroll in Medicare Part B or as a Medicare DMEPOS supplier in the future, they will be required to complete the Form CMS-855 enrollment application. It is yet to be determined whether CMS will modify the current forms to affirmatively require the affiliated disclosures, as set forth above. However, to the extent these forms request such affiliated information in the future, the pharmacies will likely have to make such disclosures, based on the specific requirements (this could include a specific number of years look-back period for affiliations: for instance the current proposed rule looks back five years for affiliations from the date of the enrollment or revalidation).

On a related topic, CMS may make adjustments to payments owed to an “applicable provider of services or supplier” in order to satisfy an amount due from such other obligated provider or supplier. See Social Security Act § 1866(j)(6).  Here, the phrase “obligated provider” means a provider of services or supplier that owes an amount to CMS, such as an overpayment. Further, the phrase “applicable provider” means a provider of services or supplier that has the same taxpayer identification number assigned under section 6109 of the Internal Revenue Code, regardless of whether the applicable provider of services or supplier is assigned a different billing number or national provider identification number under the program. In other words, CMS has the ability to collect over-payment amounts from Medicare receivables associated with multiple PTANs so long as all of the PTANS are operating under the same tax ID.

Jeffrey S. Baird, JD, is Chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or jbaird@bf-law.com.