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Grandfathering: Reimbursement And Legal Pitfalls

Wednesday, November 4th, 2015

(May 2013)

With competitive bidding scheduled to go into effect on July 1, “grandfathering” has taken center stage. This article addresses two key grandfathering issues. The first is the reimbursement that the grandfathered supplier will receive. The second is a potential legal pitfall that suppliers should strive to avoid.

What Items Are Grandfathered In?

The competitive bid regulations and Grandfathering Fact Sheet state that grandfathered suppliers are paid the competitive bid rates for (i) items requiring frequent and substantial services described in 42 CFR 414.222 and (ii) oxygen and oxygen equipment described in 42 CFR 414.226(c)(1). Grandfathered suppliers are paid the Medicare fee schedule rates for (i) inexpensive and routinely purchased items described in 42 CFR 414.220(a) and (ii) other DME or capped rental items described in 42 CFR 414.229.

42 CFR 414.222 states that “items requiring frequent and substantial servicing” are the following: (i) ventilators (except those that are either continuous airway pressure devices or respiratory assist devices with bi-level pressure capability with or without a backup rate, previously referred to as “intermittent assist devices with continuous airway pressure devices”); (ii) continuous and intermittent positive pressure breathing machines; (iii) continuous passive motion machines; (iv) other items specified in CMS program instructions; and (v) other items identified by the carrier.

Preliminary information we have received from the CBIC (subject to confirmation) indicates that there are no competitive bid items in the frequent and substantial servicing category. If this is correct, then oxygen would be the only competitive bid item subject to the competitive bid rates when grandfathered.

How Grandfathered Suppliers Can Handle Legal Issues During An Asset Purchase

Now, let us turn to a different topic. The competitive bid regulations require a grandfathered supplier “to continue to furnish the grandfathered items to all beneficiaries who elect to continue receiving the grandfathered items from that supplier for the remainder of the rental period for that item.” 42 CFR 414.408(j)(1)(ii). It would be appropriate for the grandfathered supplier to send a letter to its oxygen patients shortly before the 60th month that (i) points out that the 60th month is about to arrive; (ii) states that the grandfathered supplier will no longer be able to serve the patient after the 60th month; (iii) explains to the beneficiary that he has the freedom to choose any contract supplier; (iv) refers the patient to the CBIC website; (v) states that ABC Medical, Inc. is a reputable supplier that has agreed to assume responsibility for the patient and (vi) recommends that the patient contract ABC. ABC will pay nothing to the grandfathered supplier. It would be appropriate for ABC to enter into a bona fide Asset Purchase Agreement with the grandfathered supplier to purchase the grandfathered supplier’s total Medicare oxygen line of business. In this scenario, the grandfathered supplier’s patients will be scattered all along the 60 month continuum. On the other hand, if the grandfathered supplier encourages each patient to switch to ABC as the patient approaches the 36 month rental payment period (thereby allowing ABC to receive 10 months of rental payments), then there is a risk that CMS will conclude that (i) the grandfathered supplier is breaching its obligation to take care of the patient for the full 60 months and (ii) ABC and the grandfathered supplier are “gaming” the Medicare payment rules. Further, if ABC pays compensation to the grandfathered supplier on a patient-by-patient basis for patients that switch over just prior to the 36th rental month, then there is a risk of violation of the Medicare anti-kickback statute.

The Medicare anti-kickback statute prohibits the payment of anything of value to induce another party to arrange for the referral of Medicare patients. Federal courts have interpreted this to mean that even if only one purpose of remuneration given by a supplier to a referral source is to induce referrals, the statute is violated. Accordingly, a supplier cannot “buy” Medicare patients as this would violate the anti-kickback statute. Rather, a supplier can enter into a bona fide asset purchase in which it acquires hard assets and the patient files of those Medicare patients who choose the purchaser as their new supplier. This means that a supplier can buy all of the assets of another supplier or even all of the assets related to a particular line of business of another supplier. However, if ABC plans to provide something of value (cash or otherwise) to grandfathered suppliers for the assets of only Medicare beneficiaries who are approaching the rental cap, then the arrangement begins to look much less like a bona fide asset purchase and more like payment in exchange for specific Medicare referrals.

This monograph is not intended to be legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only. The law pertaining to this monograph may have changed following the date of the monograph. The reader should consult his or her own attorney for legal advice concerning the contents of this monograph. Except where noted, attorneys are not certified by the Texas Board of Legal Specialization.

Prepared by:

Health Care Group
Brown & Fortunato
P.O. Box 9418
Amarillo, Texas 79105-9418
(806) 345-6300
(806) 345-6363 (fax)

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