60366 Federal Register / Vol. 65, No. 197 / Wednesday, October 11, 2000 / Rules and Regulations

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 424

[HCFA–6004–FC]

RIN 0938–AH19

Medicare Program; Additional Supplier

Standards.

AGENCY: Health Care Financing

Administration (HCFA), HHS.

ACTION: Final rule with comment period.

SUMMARY: This final rule establishes

additional standards for an entity to

qualify as a Medicare supplier for

purposes of submitting claims and

receiving payment for durable medical

equipment, prosthetics, orthotics, and

supplies (DMEPOS). These regulations

will ensure that suppliers of DMEPOS

are qualified to provide the appropriate

health care services and will help

safeguard the Medicare program and its

beneficiaries from any instances of

fraudulent or abusive billing practices.

DATES: Effective Date: These regulations

are effective on December 11, 2000.

Comment Date: We will accept

comments on the policies discussed in

section IV of the SUPPLEMENTARY

INFORMATION section of this document.

Comments will be considered if we

receive them at the appropriate address,

as provided below, no later than 5 p.m.

on December 11, 2000.

ADDRESSES: Mail an original and 3

copies of written comments to the

following address only:

Health Care Financing Administration,

Department of Health and Human

Services, Attention: 6004–FC, P.O.

Box 8013, Baltimore, MD 21244–8013

Room 443–G, Hubert H. Humphrey

Building, 200 Independence Avenue,

SW., Washington, D.C. 20201, or

Room C5–16–03, 7500 Security

Boulevard, Baltimore, Maryland

21244–1850.

To ensure that mailed comments are

received in time for us to consider them,

please allow for possible delays in

delivering them.

Comments mailed to the above

addresses may be delayed and received

too late for us to consider them.

Because of staff and resource

limitations, we cannot accept comments

by facsimile (FAX) transmission. In

commenting, please refer to file code

HCFA–6004–FC. Comments received

timely will be available for public

inspection as they are received,

generally beginning approximately 3

weeks after publication of a document,

in Room 443–G of the Department’s

office at 200 Independence Avenue,

SW., Washington, DC, on Monday

through Friday of each week from 8:30

to 5 p.m. (phone: (202) 690–7890).

FOR FURTHER INFORMATION CONTACT:

Charles Waldhauser, (410) 786–6140.

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Register.

This Federal Register document is

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Office. The Website address is: http://

www.access.gpo.gov/nara/index.html

I. Background

A. General

Medicare services are furnished by

two types of entities, providers and

suppliers. The term ‘‘provider’’, as

defined in our regulations at 42 CFR

400.202, means a hospital, a critical

access hospital, a skilled nursing

facility, a comprehensive outpatient

rehabilitation facility, a home health

agency, or a hospice, that has in effect

an agreement to participate in Medicare.

A clinic, a rehabilitation agency, or a

public health agency that has in effect

a similar agreement but only to furnish

outpatient physical therapy or speech

pathology services, or a community

mental health center with a similar

agreement to furnish partial

hospitalization services, is also

considered a provider (see sections

1861(u) and 1866(e) of the Social

Security Act (the Act) concerning

definitions and provider agreements,

respectively).

Generally, a Medicare ‘‘supplier’’ is

an individual or entity that furnishes

certain types of medical and other

health items and services under

Medicare Part B. There are different

types of suppliers and thus, different

definitions of the term ‘‘supplier,’’ as

well as specific regulations governing

the different types of suppliers. A

supplier that furnishes durable medical

equipment, prosthetics, orthotics, and

supplies (DMEPOS) is one category of

supplier known as a DMEPOS supplier.

In current regulations at § 424.57(a)

concerning payment rules for items

furnished by DMEPOS suppliers, we

define the term ‘‘supplier’’ as an entity

or individual, including a physician or

Part A provider, that sells or rents Part

B covered items to Medicare

beneficiaries, and that meets certain

standards. The Part B covered items to

which the definition refers are

DMEPOS.

B. Legislative History

Section 131 of the Social Security Act

Amendments of 1994 (Public Law 103–

432, enacted on October 31, 1994) made

changes to section 1834 of the Act,

‘‘Special Payment Rules for Particular

Items and Services.’’ Specifically, it

added a new subsection (j) to section

1834 of the Act that established

additional requirements that a DMEPOS

supplier must meet in order to obtain a

supplier number. (A ‘‘supplier number’’

is the equivalent of a ‘‘billing number’’

that a supplier must have in order to

submit claims and receive payment for

items and services furnished under

Medicare.) In section

1834(j)(1)(B)(ii)(IV) of the Act, the

Congress also expressly delegated

authority to the Secretary to specify any

other requirements that a supplier must

meet.

II. Provisions of the Proposed

Regulations

On January 20, 1998, we published in

the Federal Register (63 FR 2926) a

proposed rule that would require

DMEPOS suppliers to meet additional

standards in order to submit claims and

receive payment. We issued the

proposal on the basis of section

1834(j)(1)(B)(ii)(IV) of the Act that

authorizes the Secretary to specify

additional requirements a DMEPOS

supplier must meet. We note that we

consulted with representatives of

medical equipment and supply

companies, carriers, and consumers

before issuing the proposal.

As we stated in the proposed rule, we

believe it was the Congress’ intent in

enacting section 131 of the Social

Security Act Amendments of 1994 to

Federal Register / Vol. 65, No. 197 / Wednesday, October 11, 2000 / Rules and Regulations 60367

strengthen existing standards in order to

protect the public interest. We also

stated our belief that the additional

standards we proposed would help

safeguard the Medicare program and

would serve to protect beneficiaries.

The major provisions of the proposed

rule are as follows:

A. Specific Requirements for Supplier

Standards

We proposed changes to clarify our

current policy concerning certification

and recertification for DMEPOS.

Specifically, we proposed that in order

to obtain a supplier number, a supplier

must complete an application certifying

that it meets the supplier standards

found in § 424.57(c). Additionally, we

proposed that when renewing an

application for a DMEPOS supplier

billing number, a supplier must recertify

that it meets all of the supplier

standards.

We proposed new standards and

revisions to existing standards relating

to the following subject areas:

• Compliance with Medicare

statutory provisions and applicable

regulations.

• Compliance with applicable Federal

and State licensure and regulatory

requirements.

• Misrepresentation of facts.

• Signature used on a supplier

number application.

• Providing requested information

and documentation.

• Scope of exclusions.

• Rental or purchase option.

• Warranties.

• Delivery.

• Reassignment of supplier numbers.

• Physical facility.

• Business telephone.

• Liability insurance.

• Telemarketing.

• Prescription drugs.

B. Additional Revisions

We also proposed to require that

DMEPOS suppliers obtain a surety

bond. We based this requirement on

section 1834(a)(16) of the Act which

requires DME suppliers to provide the

Secretary, on a continuing basis, with a

surety bond. We requested comments on

the advisability of exercising this

authority to impose a surety bond on all

suppliers of prosthetics, orthotics, and

supplies to the same extent as required

for suppliers of durable medical

equipment.

III. Analysis of and Responses to Public

Comments

We received 120 comments on the

proposed rule primarily from suppliers

of DMEPOS and organizations

representing various types of DMEPOS

suppliers. A summary of the comments

and our responses to them follow.

A. Payment Rules (Proposed § 424.57(b))

Comment: One commenter requested

that an exception be granted to the

effective date provision in a change of

ownership situation. The commenter

was referring to the statement in the

proposed rule that Medicare will not

pay for any Medicare covered items

provided by a DMEPOS supplier prior

to the date HCFA issues a DMEPOS

supplier number. The commenter

suggested that in the case of a change of

ownership, Medicare should pay for

covered services as of the date of

acquisition.

Response: We are aware of the change

of ownership issue. However, at this

time we are not prepared to include a

change of ownership provision in this

final regulation. We plan to address

change of ownership issues in a separate

rulemaking.

Comment: One commenter stated that

a supplier should not receive multiple

billing numbers for the same physical

location, regardless of how many tax ID

numbers they possess.

Response: This suggestion is

problematic, in that the Internal

Revenue Service (IRS) Employer

Identification Number (EIN) is the basic

identification number that we use to

distinguish between suppliers.

Suppliers also may obtain multiple EINs

for different lines of business.

We note that section 1834(j)(1)(D) of

the Act states that ‘‘The Secretary may

not issue more than one supplier

number to any supplier of medical

equipment and supplies unless the

issuance of more than one number is

appropriate to identify subsidiary or

regional entities under the supplier’s

ownership or control.’’ Therefore, we

encourage suppliers to request only one

supplier number per physical location.

However, we are not prepared at this

time to forbid multiple billing numbers

based on multiple EINs if we can

establish through a site visit or other

means that clearly distinct lines of

business are being conducted at a

location. In this final rule, we are

adding a new paragraph (b)(1) to

§ 424.57 to require suppliers to enroll

separate physical locations, other than

warehouses or repair facilities.

B. Supplier Standards (Proposed

§ 424.57(c))

1. General

Comment: One commenter suggested

that we require immediate

recertification of all suppliers based on

the new standards.

Response: This would create a heavy

administrative burden on both HCFA

and the suppliers. As we stated in the

proposed rule, we will not require all

DMEPOS suppliers to submit new

applications for billing numbers on the

date this regulation becomes effective,

but will require DMEPOS suppliers to

submit new applications as the old

numbers expire. Although we may not

routinely check to determine the

compliance of current suppliers with

new standards, it is important to note

that as of the effective date of this

regulation, December 11, 2000, all

DMEPOS suppliers must comply with

these standards. We may perform

random or focused reviews of

previously enrolled suppliers to

determine their compliance with the

new standards. We may revoke a

supplier number if we find evidence

that the standards are not satisfied.

Comment: One commenter stated that

physicians should be exempt from

supplier standards because they have to

meet similar standards in order to be

licensed.

Response: While physicians are

required to meet State licensing

requirements, these may vary by State,

and do not necessarily apply to

physicians while they are functioning as

suppliers. More importantly, standards

are different for physicians than

suppliers. Therefore, we decline to

exempt physicians from the

requirements.

2. Compliance With Medicare Statutory

Provisions and Applicable Regulations

(Proposed § 424.57(c)(1))

Comment: One commenter suggested

that HCFA provide a list of the

requirements that a supplier would

need in order to comply with this

standard.

Response: We have not accepted this

suggestion. The intent of this standard

is to ensure that the supplier meets all

Medicare requirements that may apply.

The standard is essentially a restatement

of section 1834(j)(1)(B)(ii)(I) of the Act.

We note that we do make extensive

efforts to educate suppliers on the

requirements they must meet through

manuals, bulletins, seminars, and other

means.

3. Compliance With Applicable Federal

and State Licensure and Regulatory

Requirements (Proposed § 424.57(c)(2))

Comment: One commenter stated the

standard requiring that a supplier must

operate its business and furnish

Medicare covered items in compliance

with all applicable Federal and State

licensure and regulatory requirements is

vague and excessive. Additionally, one

60368 Federal Register / Vol. 65, No. 197 / Wednesday, October 11, 2000 / Rules and Regulations

commenter stated that when Medicaid

requirements are stricter than

Medicare’s, we should use the Medicaid

requirements. One commenter also

suggested that we allow no exceptions

to State licensing requirements. One

commenter recommended that

consideration be given to waiving

Federal standards where applicable

State safeguards exist. The commenter

added that complying with layers of

rules adds confusion, cost, and diverts

resources from clinical functions to

administrative functions.

Response: This requirement is merely

a restatement of the law—see section

1834(j)(l)(B)(ii)(I) of the Act. While we

agree with the philosophy of requiring

suppliers to meet the highest possible

standards, it would introduce an

increased level of complexity and

administrative burden on providers

operating in more than one State to meet

different requirements in different

States in order for the supplier to bill

Medicare. For this reason, we have

declined to pursue this option. We will

take under consideration the possibility

of granting waivers, from parts of the

National Supplier Clearinghouse (NSC)

review process (for example, site visits),

to suppliers who are certified or

licensed by States with sufficiently

stringent requirements. We intend to

allow no exceptions to applicable State

licensing requirements.

4. Misrepresentation of Facts (Proposed

§ 424.57(c)(3))

The proposed standard states that a

supplier must not make, or cause to be

made, any false statement or

misrepresentation of a material fact on

an application for a billing number. A

supplier must provide complete and

accurate information in response to

questions on its application for a billing

number. Any changes in information

supplied on the application must be

reported within 35 days of the change.

Comment: One commenter stated that

this standard needs further clarification.

One commenter requested a definition

of ‘‘false statement’’ and

‘‘misrepresentation’’. Also, one

commenter suggested that the

application form use simple, clear

terminology to provide unambiguous

guidance as to the information required.

Response: This standard is now

located at § 424.57(c)(2). We are not

providing definitions of the terms ‘‘false

statement’’ and ‘‘misrepresentation’’.

These are not technical terms and carry

the common meaning normally

associated with them. We will continue

to develop the application form to be as

clear, simple and unambiguous as

possible. We note that we are revising

the time frame allowed to a supplier to

report changes to the information

supplied on the application form. We

are changing the proposed ‘‘35 days’’ to

‘‘30 days’’ to be consistent with the

standard established through the

application form. In addition to

revocation of the billing number, if the

supplier knowingly fills out the

application incorrectly (for example,

misrepresentation of facts or failure to

report critical information) the supplier

may be subject to civil and criminal

penalties for submitting a false

statement in connection with a health

care matter.

5. Signature Used on a Supplier Number

Application (Proposed § 424.57(c)(4))

Comment: One commenter suggested

that HCFA should clarify that the

signature does not have to be that of an

officer of the company, but of a

responsible official with first hand

knowledge of the requirements listed on

the application.

Response: We have not changed the

proposed language because we believe

that the specificity suggested by the

commenter is addressed in the

instructions for the DMEPOS

application form (Form HCFA–855S).

This standard is now located at

§ 424.57(c)(3). Those instructions

specify that the application must be

signed by an authorized representative

of the supplier. An authorized

representative is defined as ‘‘The

appointed official (for example, officer,

chief executive officer, general partner,

etc.) who has the authority to enroll the

entity in Medicare or other Federal

health care programs as well as to make

changes and/or updates to the

applicant’s status, and to commit the

corporation to Medicare or other Federal

health care program laws and

regulations.’’ We believe this

requirement protects the integrity of the

supplier’s information and makes the

supplier accountable for its dealings

with the Medicare program.

6. Providing Requested Information and

Documentation (Proposed

§ 424.57(c)(5)).

This section, as published in the

January 20, 1998 proposed rule, stated

that a supplier must agree to furnish to

HCFA all information or documentation

HCFA requires, including—

• Information or documentation

needed to process or adjudicate

Medicare claims;

• Upon request, copies of contracts

with third parties for furnishing

Medicare covered items to Medicare

beneficiaries;

• Upon request, documentation that it

has advised beneficiaries that they may

either rent or purchase inexpensive or

routinely purchased equipment and

about the purchase option for capped

rental equipment;

• Upon request, documentation that it

has advised Medicare beneficiaries

about Medicare covered items covered

under warranty;

• Upon request, documentation

demonstrating that it has delivered

Medicare covered items to Medicare

beneficiaries;

• Upon request, documentation that it

maintains and repairs directly, or

through a service contract with another

company, Medicare covered items

rented to beneficiaries;

• Upon request, proof of liability

insurance; and

• Any other information required by

this or other Medicare requirements.

Comment: Several commenters stated

that the intent of the requirement to

furnish copies of contracts (proposed

§ 424.57(c)(5)(ii)) is unclear. Several

commenters also objected to requiring

Health Maintenance Organizations

(HMO) and Managed Care Organizations

(MCO) contracts. Many commenters

stated that Medicare has no right to

‘‘Most Favored Nation’’ treatment. One

commenter requested clarification of the

requirement pertaining to contracts for

the delivery of items.

Response: Regarding the comments

concerning copies of contracts with

third parties for furnishing Medicare

covered items to Medicare beneficiaries,

we never intended to require

information that would lead to ‘‘Most

Favored Nation’’ treatment. (By ‘‘Most

Favored Nation’’ treatment we believe

the commenter is referring to a situation

in which the seller gives the purchaser

a better price than he or she gives any

of the seller’s other customers.) We

think the commenter believes that we

intend to gain special privileges for the

Medicare program. We only expect

assurance of the supplier’s compliance

with the provisions currently shown in

§ 424.57(c)(6). Medicare pays based on

the lower of the supplier’s actual change

or the fee schedule. We also do not

require copies of HMO/MCO contracts.

We have clarified this standard to

require only copies of contracts that a

supplier has with other entities that

deliver supplies to Medicare

beneficiaries on the supplier’s behalf or

that provide supplies to the supplier for

use in providing items to Medicare

beneficiaries. This would include

arrangements for providing

componentry. Note, however, that the

standard in proposed § 424.57(c)(3),

requires a contract if the supplier has no

Federal Register / Vol. 65, No. 197 / Wednesday, October 11, 2000 / Rules and Regulations 60369

inventory of its own. This standard is

now located at § 424.57(c)(4).

Comment: Several commenters

questioned the type of documentation

required by HCFA and whether

beneficiaries would have to sign the

documents. A number of commenters

suggested that we remove redundancy

by including the documentation

requirements in the specific standards

to which they apply.

Response: Neither the proposal nor

this final rule specifies that the

beneficiary has to sign documents under

this requirement. As suggested by the

commenters, we have moved most of

the documentation requirements to the

specific standards to which they apply,

for clarity and to eliminate redundancy.

Comment: With respect to the

standard requiring documentation

advising beneficiaries that they may

either rent or purchase inexpensive or

routinely purchased equipment, one

commenter objected to additional

documentation requirements and

paperwork because most beneficiaries

prefer to purchase inexpensive and

routinely purchased equipment. The

commenter believed that HCFA would

increase the cost of processing claims if

patients rented equipment up to the

purchase price, when by physician

order, other medical documentation, or

expected length of need, one would

anticipate usage beyond the months

required to reach the purchase price. In

addition, the standard would require

that the purchase option for capped

rental equipment must be given to the

beneficiary and documented. The

commenter stated that a conversation is

usually held with the beneficiary at the

time they receive a capped rental item,

in order to ensure that they understand

the equipment is owned by the supplier

until such time as the purchase option

is offered in the tenth month. At the

tenth month, the purchase option letter

is forwarded to the beneficiary, and

suppliers customarily make every effort

to communicate with the beneficiary

with regard to the purchase or

continued rental option. The commenter

believed that this section of the

standards is unnecessary because the

purchase option letter should fulfill the

need for this documentation.

Response: We have not specified any

additional documentation requirements

and paperwork. A purchase option letter

is one way to document compliance

with this requirement. The requirements

for the purchase option are spelled out

in § 414.229(d) of this part and in

section 1834(a)(7)(A) of the Act. It is not

the intent of this regulation to address

the purchase option requirement other

than to state that it must be met and

documented.

Comment: With respect to the

standard requiring documentation

advising beneficiaries about Medicare

covered items covered under warranty,

one commenter questioned whether the

supplier has to obtain a signed

statement to this effect from the

beneficiary, pointing out that it would

add to the cost of providing services to

Medicare patients.

Response: A signed statement by the

beneficiary is not necessary to comply

with this requirement. We will also

consider other documentation, such as

delivery logs and copies of warranty

information provided to beneficiaries.

Comment: With respect to the

standard requiring documentation that

the supplier has delivered Medicare

covered items to Medicare beneficiaries,

several commenters asked what is

considered reasonable documentation

for orthotic and prosthetic devices and

services because there are no delivery

slips as there are in DME.

Response: We believe it is reasonable

to require a receipt for delivery of an

orthotic or prosthetic device if they are

not routinely provided items.

Comment: With respect to the

standard requesting any other

information required by this or other

Medicare requirements, several

commenters stated that this requirement

needs limits, otherwise it will generate

meaningless paper. Several commenters

stated that we should follow the rules in

42 CFR 300 et. seq. concerning access to

records and contracts between suppliers

and subcontractors. One commenter

stated that we cannot argue that we are

entitled to greater access to information

and documentation from Part B

suppliers than from Part A suppliers’

subcontractors. One commenter

suggested that we add a requirement for

telephone logs showing contacts with

physicians, regarding physicians orders,

and with beneficiaries and that we

should require a list of delivery charges

billed to Medicare or the beneficiary.

One commenter stated that they had no

objection to this requirement as long as

the information required is referenced

in the Medicare Carriers Manual and the

DMERC supplier manual.

Response: We concur with much of

the comment and are clarifying this

requirement. Specifically, we are

requiring that a supplier must agree to

furnish to HCFA any information

required by this or other applicable

Medicare statute and regulations. We

believe the references to 42 CFR 300ff

should have been to 42 CFR 420.304,

which contain the procedures that the

Department of Health and Human

Services follows in obtaining access to

books, documents, and records in order

to verify the costs of subcontractor

services to a Medicare supplier.

Although the procedures are reasonable

for the purposes to which they are

addressed, we believe that the changes

we have made are a reasonable

accommodation to purposes addressed

in this regulation.

We disagree with the comment that

we are not entitled to greater access to

information from suppliers than from

suppliers’ subcontractors. The Congress

specifically gave us authority with

respect to DMEPOS suppliers in section

1834(j) of the Act.

Although we consider the

maintenance of telephone logs for

physician and beneficiary contacts good

business practice, we are not prepared

at this time to mandate their use

because there may be other means to

satisfy the requirements. We also are not

prepared to require information on

delivery charges. We will consider

referencing the information required in

the suggested manuals.

7. Scope of exclusions (Proposed

§ 424.57(c)(6))

Comment: With regard to the standard

prohibiting a supplier from contracting

with entities excluded from the

Medicare program, one commenter

stated that it may be necessary to

contract with excluded entities in some

situations—for example, if there is

limited availability. Several commenters

stated that it is unreasonable to expect

that health care suppliers be able to

accurately avoid such entities. They

have no source to obtain this

information and would, therefore, have

to rely solely on the word of the

subcontractor, which might not be

accurate. Therefore, such policing

activity should be the responsibility of

HCFA. One commenter questioned the

impact this requirement would have on

inventory on-hand and servicing items

under warranty.

Response: Information on excluded

entities is available from the

Government Printing Office and from

the HHS Office of Inspector General

(OIG). The OIG web site shows

sanctioned entities. The web site

address is: http//www.hhs.gov/progorg/

oig/cumsan/index.htm. Allowing an

excluded entity to contract with a

Medicare supplier and indirectly

receive Medicare funds because they are

a source of items of limited availability

would place the entity above the law

because of this scarcity. We believe that

the marketplace would soon adapt to fill

this need, or that suppliers can be

resourceful enough to find other

60370 Federal Register / Vol. 65, No. 197 / Wednesday, October 11, 2000 / Rules and Regulations

accommodations. We would also expect

suppliers to take reasonable steps to

determine if an entity with which they

have a contractual arrangement is

excluded or debarred. The standard is

now located at § 424.57(c)(4).

8. Rental or Purchase Option (Proposed

§ 424.57(c)(7))

Comment: One commenter suggested

that we revise the standard stating that

a supplier must advise beneficiaries that

they may either rent or purchase

inexpensive or routinely purchased

equipment and of the purchase option

for capped rentals. The commenter

suggested that the standard give

suppliers the discretion of making the

decision on whether to rent or purchase

based on the length of need estimated

by the ordering physician. A related

issue is that warranty information

should be provided to beneficiaries at

the time the title to an item transfers.

Including warranty information in the

explanation of capped rental may serve

to further confuse beneficiaries.

Additionally, several commenters

suggested that we clarify that this

standard applies only to the inexpensive

or routinely purchased and capped

rental DME categories—and not other

items, such as home dialysis supplies

and equipment.

Response: This standard is merely a

reinforcement of our regulations at

§ 414.229(d) which refer to the purchase

option on capped rental items, and the

statute, at section 1834(a)(7) of the Act

referring to payment for other items of

DME. Since it is the beneficiary’s

decision whether to rent or purchase

items, the supplier must explain the

ramifications of this decision to the

beneficiary at the required points in

time to help the beneficiary make an

informed decision. We are clarifying the

standard in this final rule to state that

it applies only when DME items are

provided. This standard is now located

at § 424.57(c)(5).

9. Warranties (Proposed § 424.57(c)(8))

This proposed standard states that a

supplier must honor all warranties,

expressed and implied under applicable

State law. A supplier must not charge

the beneficiary or the Medicare program

for the repair or replacement of

Medicare covered items or for services

covered under warranty.

Comment: One commenter suggested

that the supplier be required to give the

beneficiary a list of the warranty periods

for all products sold by that supplier.

This provides the beneficiary with full

disclosure and ensures basic supplier

compliance with the standard. One

commenter suggested that warranty

information be provided to beneficiaries

at the time the title to an item transfers.

Another commenter requested that this

documentation be provided as part of

the delivery document, rather than a

separate notice.

Response: With regard to the

suggestion about providing a complete

list of warranties, we think that this

requirement is too onerous for larger

suppliers. We do not specify at what

point in time the warranty information

is to be provided—at the time of

delivery or at time of transfer of title

both seem to be reasonable points of

time. This standard is located at

§ 424.57(c)(6).

Comment: One commenter suggested

that this standard covers equipment

components only. The commenter noted

that the cost of repair or replacement

not only includes the cost of the actual

component(s), but also the extensive

labor to remove the old units, install the

new, refit and possibly realign the

device. In addition, the commenter

stated that the warranty from the

manufacturer covers only the

component costs. A related comment

stated that, while the warranty

provisions that were set forth in the

proposed rule may make sense for offthe-shelf items, they create anomalies

for customized devices. Medicare fees

for orthotics and prosthetics devices

include evaluation, fitting, costs of

components, and repairs due to normal

wear and tear for 90 days when not

necessitated by changes in the residual

limb or the patient’s functional

capabilities. Medicare fees do not

include professional service charges for

repairs beyond 90 days even though the

manufacturer’s warranty for parts may

exceed 90 days. The commenter

suggested that it is in the best interest

of the Medicare program to pay the

labor cost to replace a component part

of a device rather than replace the entire

device; therefore, the rules should

clarify that the professional service costs

to evaluate, fit, disassemble and

reassemble an orthotic or prosthetic

component covered under a

manufacturer’s warranty is a covered

service.

Response: Medicare does not cover

maintenance and servicing of

equipment when such services are

covered under warranty. Medicare does

not make separate payment for ‘‘fees’’

charged to process warranty items,

paperwork, etc. These fees have been

built into the reimbursement rate. We

do make payments for maintenance and

servicing of equipment after the

warranty has expired.

10. Delivery (Proposed § 424.57(c)(9))

This proposed standard stated that a

supplier must be responsible for the

delivery of Medicare covered items to

beneficiaries. A supplier must provide

beneficiaries with necessary information

and instructions on how to use

Medicare covered items safely and

effectively.

Comment: One commenter stated that

the capability of providing proof of

delivery exists only when someone is at

a beneficiary’s home to sign for each

delivery. They recommended, instead,

that proof of delivery may be

maintained by drivers in their

individual daily ‘‘log worksheets,’’ as

well as in the bills of lading for the

supplies and equipment that are

delivered. One commenter suggested

that we include persons who are hearing

impaired or have other disabilities. One

commenter stated that, in some

situations, instructions on how to use

Medicare covered items are provided by

physicians or other facilities (an ESRD

facility, for example), so that the

supplier is not directly responsible. One

commenter urged that we coordinate

any further developments of these

standards with the Food and Drug

Administration (FDA), insofar as they

involve product information that is

made available to the public. One

commenter stated that instructions often

are verbal rather than written, so that

documentation in the medical record

should suffice.

Response: It is our intention that all

beneficiaries, including beneficiaries

who are hearing impaired, or have other

disabilities, always receive the

necessary information to safely and

effectively use the items they receive.

We recognize that this may be

accomplished through different means.

This requirement can be satisfied as

long as the supplier can establish that

the necessary training/instructions have

been delivered at an appropriate time

and in an appropriate manner. We are

modifying the language of this standard

to clarify that a supplier must document

that it, or other qualified parties, has

provided the beneficiaries with

necessary information and instructions

at an appropriate time. This standard is

now located at § 424.57(c)(12). When

questions arise on the use of products,

we consult with the FDA.

11. Repairs (Proposed § 424.57(c)(11))

Comment: One commenter stated that

the standard stating that a supplier must

maintain and repair directly, or through

contract, Medicare covered items it has

rented to beneficiaries does not address

the issue of whether a supplier may

Federal Register / Vol. 65, No. 197 / Wednesday, October 11, 2000 / Rules and Regulations 60371

function under the manufacturer’s

warranty and meet the standard, that is,

instead of repairing the item, the

supplier simply replaces the product

and returns the item in need of repairs

to the manufacturer. Another

commenter questioned how this was to

be documented and what level of repair

is needed.

Response: We are modifying this

standard, now located at § 424.57(c)(14),

to allow suppliers to replace items and

to clarify that the level of repair should

be sufficient that the item functions as

required and intended.

12. Return of Items (Proposed

§ 424.57(c)(12))

This proposed standard states that a

supplier must accept returns from

beneficiaries of substandard (less than

full quality for the particular item) or

unsuitable items (inappropriate for the

beneficiary at the time it was fitted and/

or sold).

Comment: One commenter suggested

that the supplier should be required to

maintain a log of all returns from

beneficiaries of substandard or

unsuitable items. This would be helpful

to ensure compliance with the standard.

Another commenter suggested that the

standard needed a time limit. One

commenter stated that, if an item is

ordered by a physician and used by the

beneficiary, a supplier should not be

required to accept returns if the

beneficiary no longer wants the item for

reasons other than quality.

Response: While we agree that such a

log would be helpful in verifying

compliance, we believe that such a

mechanism is not the only method for

ensuring compliance. Therefore, we

have not modified this standard. This

standard is located at § 424.57(c)(15).

With regard to the comments regarding

time limits and reasons for return, this

standard has been in place since

December 11, 1995 with few problems.

Since the revision suggested regarding

time limit contained no suggestion for a

time limit, and we received no other

suggestions, we are retaining the

requirement without change. We also

believe the requirement is clear enough

with regard to the intent that it is the

quality or suitability of the item that

must determine whether it should be

returnable. If necessary, we will address

this last issue through program

instructions.

13. Physical Facility (Proposed

§ 424.57(c)(16))

This proposed standard states that a

supplier must maintain a physical

facility on an appropriate site. The

physical facility must contain space for

storing business records including the

supplier’s delivery, maintenance, and

beneficiary communication records. For

purposes of this requirement, a post

office box or commercial mailbox is not

considered a physical facility.

Comment: One commenter suggested

that all suppliers need to be in

compliance with the Americans with

Disabilities Act and be beneficiary

accessible. The requirement should

apply to both commercial business and

residential locations. The commenter

also stated that the standard should

require that the business have a sign and

have hours of operation posted.

Response: Medicare suppliers must

meet all laws and regulations that might

apply to them, including any applicable

provisions of the Americans with

Disabilities Act. This is provided for

under the standard at § 424.57 (c)(1),

which requires that suppliers operate

their business in compliance with all

applicable Federal and State licensure

and regulatory requirements. The

requirements apply whether the

supplier is located at a commercial

location or a residence, because it is still

a business. In response to the comment

concerning the posting of a sign and

hours of operation, we are adding to this

final rule a statement at § 424.57(c)(8),

that the supplier location must be

accessible during reasonable business

hours to beneficiaries and to HCFA, and

must maintain a visible sign and posted

hours of operation.

Comment: One commenter suggested

that this standard should restate the

guidance established in title XVIII of the

Act that only one supplier number is

allowed per location, regardless of

whether multiple Tax Identification

Numbers are obtained. This would

eliminate numerous questionable

supplier operations in which several

supplier numbers are located at the

same address. Another commenter

suggested that HCFA develop protocols

for conducting an on-site inspection of

every entity that submits an initial

application for a supplier number prior

to approving the application. One

commenter stated that some suppliers

have no physical facility where they

treat clients, placing the commenter at

a competitive disadvantage because he

had a large and ongoing investment in

real estate, tools, supplies, equipment,

etc. Several commenters suggested that

HCFA exempt national concerns with

central sites for record storage from this

requirement, or more clearly define the

objectives underlying this requirement

as a performance specification, and

allow companies to satisfy the

government’s needs in other ways. One

commenter stated that warehouses

should not be covered by the standards.

Response: As previously noted in

describing our changes to § 424.57(c)(6),

section 1834(j)(1)(D) of the Act states

that the Secretary may not issue more

than one supplier number to any

supplier of medical equipment and

supplies unless the issuance of more

than one number is appropriate to

identify subsidiary or regional entities

under the supplier’s ownership or

control. We are adding a sentence to

state that in the case of a multi-site

supplier, records may be maintained at

a centralized location. A supplier must

demonstrate a legitimate need for

additional numbers. With regard to the

physical site requirement, it is not our

intention to ensure that no entities have

competitive advantage over others. This

is a natural by-product of the

marketplace and business environment.

Our intention is to ensure that we do

business with legitimate entities who

can provide safe and effective service to

Medicare beneficiaries. We recognize

that some suppliers may have multiple

sites from which they do business, and

may maintain records at one central site.

Such suppliers may supply evidence of

such recordkeeping, as long as the

central site is an enrolled Medicare

supplier site or represents a central

function of a larger corporation of which

the supplier is a part. We note that

locations serving simply as warehouses

are not subject to these standards.

14. Business Telephone (Proposed

§ 424.57(c)(17))

This proposed standard states that a

supplier must maintain a primary

business telephone at the physical

facility. This telephone number must be

listed under the name of the business

and in the business portion of the local

telephone company directory. The

exclusive use of a beeper number,

answering service, pager, facsimile

machine, car phone, or an answering

machine may not be used as the primary

business telephone.

Comment: Several commenters

strongly supported the standard

requiring a supplier to maintain a

business telephone at the physical

facility where it does business. One

commenter, however, noted that some

suppliers maintain centralized customer

service lines. A strict interpretation of

the proposed standard would preclude

this practice. Likewise, many suppliers

maintain warehouse locations that are

not used for retail customers. These

types of locations should not be subject

to the telephone standard because

appropriately trained customer service

representatives would not be available

60372 Federal Register / Vol. 65, No. 197 / Wednesday, October 11, 2000 / Rules and Regulations

to respond to the public’s questions.

The commenters suggested that HCFA

should modify the proposed regulation

to state that the telephone standard

would not apply in the above scenarios.

One commenter noted that telephone

directories are normally published

annually, contracts for inclusion are

made several months in advance.

Therefore, unless the regulations allow

adequate time for suppliers to comply

with the requirement, they will not be

able to meet the standard.

Response: We recognize the practices

of large organizations with regard to

centralized telephone service as well as

centralized records. Therefore, we are

modifying the standard now at

§ 424.57(c)(9) to permit the use of toll

free numbers that may not be listed in

the business portion of the local

telephone directory. Documentation of a

paid application for a telephone listing

will be considered to meet this

requirement. However, the telephone

number itself must be in place and

available through the telephone

company’s directory services

(information).

15. Liability Insurance (Proposed

§ 424.57(c)(18))

This proposed standard states that a

supplier must have a comprehensive

liability insurance policy that covers

both the supplier’s place of business

and any and all customers and

employees of the supplier.

Comment: One commenter suggested

that, if we feel that minimum coverage

of $500,000 is adequate for most

businesses, then state it clearly as part

of the standard requiring that suppliers

have a comprehensive liability

insurance policy. Experience has

indicated that most suppliers and many

agents are confused by the lack of such

guidance. Another commenter suggested

that $300,000 was adequate for the types

of businesses under consideration.

Several commenters supported this

requirement and some suggested that

suppliers of custom devices should be

required to have professional and

product liability insurance to protect the

patient and themselves. One commenter

stated that national, publicly traded

companies with large assets maintain

adequate insurance and reinsurance

coverages through multiple carriers, but

that coverage necessarily includes selfinsured retentions. The commenter

further stated that HCFA should make it

clear that corporations with assets in

excess of some fixed amount should not

be required to change their insurance

profile to satisfy this requirement.

Another commenter stated that HCFA’s

general description of the required

‘‘comprehensive liability insurance

policy’’ is inadequate. The commenter

felt that it is necessary for a seller and

supplier of medical equipment to have

a Comprehensive General Liability

Insurance Policy plus coverage for

product liability and completed

operations. The commenter, a national

group of home medical equipment

supply companies, stated that more than

80 percent of the claims it had received

during the last 11 years involved alleged

product deficiencies or failures.

Response: We are revising this

standard, now at § 424.57(c)(10), to

require a comprehensive liability

insurance policy of at least $300,000.

We agree that partial self insurance is an

acceptable means of meeting this

requirement for publicly traded

companies with sufficient assets.

However, we are not able at this time to

sufficiently define how this would be

accomplished. We are also revising this

standard to refer to product and

operation liability and clarifying that

the insurance must remain in force at all

times. In addition, we have revised the

language to allow suppliers with

multiple sites to procure an umbrella

policy for each tax ID number.

16. Telephone Contact (Proposed

§ 424.57(c)(19))

This proposed standard states that a

supplier of a Medicare covered item

must agree not to contact a beneficiary

by telephone regarding the furnishing of

a Medicare covered item to the

individual unless certain specified

situations apply.

Comment: One commenter suggested

that we add an exception to this

standard. Specifically, the commenter

suggested that we permit telephone

contact if the supplier receives a referral

from a medical professional involved in

the patient’s care.

Response: While this may be

reasonable in some situations, we find

it problematic in that it may have

unintended consequences as a loophole

by allowing suppliers to purchase

‘‘referrals’’ (client lists) from medical

professionals. This standard is located

at § 424.57(c)(11).

17. Prescription Drugs (Proposed

§ 424.57(c)(20))

This proposed standard states that

only a supplier that is licensed by the

State to dispense the drug may bill for

a drug used as a Medicare covered

supply with durable medical equipment

or prosthetic devices. A supplier of

drugs must bill and receive payment for

the drug in its own name.

Comment: One commenter requested

that we clarify that physicians may

dispense and bill for drugs if permitted

by the State. One commenter requested

that we clarify that it is not necessary to

have a pharmacy license in order to

dispense drugs in connection with

ESRD. One commenter requested that

we clarify that suppliers may dispense

oxygen with a prescription, consistent

with FDA requirements. Several

commenters supported this requirement

completely.

Response: We are revising the

standard, now at § 424.57(b)(4) to reflect

that physicians may dispense and bill

for drugs if authorized to do so under

State law. There is no exception to the

licensure requirement for dispensing

drugs furnished in connection with

ESRD.

C. Surety Bonds (proposed § 424.57(e))

We received many comments on the

proposed surety bond provisions. Most

of the commenters were opposed to the

provisions citing costs as their major

objection. Because we have decided to

make extensive changes to this

requirement and build on our

experience with surety bond

requirements for home health agencies,

as well as a General Accounting Office

Study of Medicare surety bonds, we

have decided not to incorporate the

provisions related to surety bonds in

this final rule. Rather, we will issue the

surety bond provisions as a proposed

rule at a future date and will consider

the comments in the development of

that rule.

D. Other Comments

Comment: One commenter suggested

that we require that suppliers be

certified by appropriate national

certification bodies, including the Board

for Certification in Pedorthics, before

they are eligible to dispense therapeutic

shoes for diabetics.

Response: This is a good suggestion.

Because of the potential impact on the

supplier community and the need for

public opportunity to comment, we will

consider it for future revisions.

Comment: One commenter suggested

that we implement a specialty code for

pedorthics.

Response: This can be done

administratively, without a regulation. If

deemed feasible, we will consider it.

Comment: One commenter stated that

no physician or hospital should own, in

whole or in part, a DME supplier. This

is a common practice and is strictly selfreferral, which leads to corruption.

Response: Although the supplier

standards do not address the issue of

whether a physician may have an

ownership interest in a DME supplier,

the physician self-referral provisions in

Federal Register / Vol. 65, No. 197 / Wednesday, October 11, 2000 / Rules and Regulations 60373

section 1877 of the Act do address this

issue. Under the physician self-referral

provisions, a physician may not refer a

Medicare or Medicaid patient for any

‘‘designated health services’’ listed in

section 1877(h)(6) of the Act to an entity

with which the physician or an

immediate family member of the

physician has a financial relationship,

unless an exception applies. Designated

health services include, but are not

limited to, DME and supplies;

parenteral and enteral nutrients (PEN);

equipment and supplies; and

prosthetics; orthotics, and prosthetic

devices and supplies. A financial

relationship may be through an

ownership or investment interest or a

compensation relationship. There are

certain exceptions that apply to

ownership interests. Some exceptions

apply to compensation relationships,

and some exceptions apply to both

ownership and compensation. The

physician referral prohibition also has

an effect on Federal health care

programs (including Medicaid and

Medicare). For additional information

about physician referral issues, please

contact Joanne Sinsheimer at (410) 786–

4620.

The current supplier standards do not

address the issue of whether a hospital

should own a DME supplier. We may

consider this suggestion in future

revisions because of the potential

impact on the supplier community and

the need for public opportunity to

comment.

We want to draw your attention to the

possibility that, based on the facts in

each case, referrals may be prohibited

under the anti-kickback statute. This

statute applies to those who knowingly

and willfully offer, pay, solicit, or

receive remuneration to induce the

furnishing of items or services paid for,

in whole or in part, by any Federal

health care program, including

Medicare or Medicaid. For further

information about the anti-kickback

statute, please contact the Office of the

Inspector General for HHS at (202) 619–

0335.

Comment: One commenter suggested

that HCFA ensure that the application

form itself uses simple, clear

terminology to provide unambiguous

guidance as to the information required.

The Form HCFA–855 should be

reviewed by the OIG prior to issuance

to ensure that the use of vague and

ambiguous terminology is minimized

and that instructions are clear.

Response: The Form HCFA–855 was

reviewed by OIG prior to issuance. In

addition, we are in the process of

revising the Form HCFA–855. We will

solicit input from all concerned parties,

via a Federal Register notice prior to

requesting the Office of Management

and Budget’s (OMB) approval of the

revised form. We will consider detailed

recommendations related to the revised

Form HCFA–855.

Comment: One commenter stated that

we should submit this rule to the

Congress for a 60-day review in

accordance with the Contract with

America Advancement Act (P.L. 104–

121).

Response: We are submitting a report

to Congress for this rule pursuant to the

congressional review procedures

established by the Contract with

America Advancement Act. We note

that OMB has determined that this rule

is not a major rule as defined by the Act.

Comment: One commenter stated that

the proposed rule did not categorize the

range of DMEPOS services and items. In

addition, we did not provide in Table 2

a breakdown distribution by service or

item speciality.

Response: The range of DMEPOS

services and items are stipulated in

various sections of the Act. The

preamble of the proposed rule makes

references to some of the sections of the

Act. We do not have the data to provide

a national geographic distribution of

each type of service or item furnished

by DMEPOS suppliers.

E. Orthotics/Prosthetics

Comment: Several commenters stated

that orthotics and prosthetics suppliers

should be licensed or certified. They

believed that the provision of custom

orthotic and prosthetic devices should

be limited to facilities that are

accredited by, or practitioners certified

by, the American Board for Certification

in Orthotics and Prosthetics or that meet

equivalent educational and performance

standards. One commenter suggested

that we allow accreditation by the

American Board for Certification in

Orthotics and Prosthetics to serve as the

equivalent of meeting the Medicare

provider standards. One commenter

stated that orthotics and prosthetics

suppliers should be required to

document each case in writing; should

be required to give treatment

alternatives in writing to each customer;

should be required to give written cost

estimates to each customer; and should

be required to give a one year guarantee.

Several commenters stated that orthotics

and prosthetics suppliers should be

required to have a bond. Several

commenters suggested that orthotics

and prosthetics suppliers should have

separate standards from other suppliers.

Response: We will consider these

suggestions in future revisions because

of the potential impact on the supplier

community and the need for public

opportunity to comment.

IV. Request for Comment on Certain

Supplier Standards

The Balanced Budget Act of 1997

(BBA) requires the Secretary to establish

service standards for home oxygen

suppliers. The U.S. General Accounting

Office (GAO), in Report GAO/HEHS–

99–56: Access to Home Oxygen

Equipment, states that such service

standards ‘‘such as the frequency of

maintenance visits and the level of

patient education*** would define

what Medicare is paying for in the home

oxygen benefit and what beneficiaries

should expect from suppliers.’’ We

solicit comments as to what should

comprise such supplier standards.

In addition, section 1861(s)(12) of the

Act permits Medicare payment for extradepth shoes with inserts or custom

molded shoes with inserts for an

individual with diabetes, if, among

other things, the shoes are fitted and

furnished by a podiatrist or other

qualified individual (such as a

pedorthist or orthotist, as established by

the Secretary). We solicit comments as

to what standards should be established

for suppliers of such shoes and the

qualifications to require of the fitting

individual.

The Office of the Inspector General in

a report titled ‘‘Medicare Orthotics’’

(OEI–02–95–00380) recommended that

HCFA ‘‘consider stricter standards for

who is allowed to bill for orthotics, such

as requiring professional credentials for

orthotics suppliers.’’ We solicit

comments as to what standards should

be established for suppliers of Medicarecovered orthoses. We also solicit

comments as to whether similar

standards should be applied to

prostheses.

We also welcome comments as to

whether and what kind of standards

should apply for home infusion therapy,

durable medical equipment such as

wheelchairs, or any other item provided

under the DMEPOS benefit.

V. Provisions of the Final Regulations

We are adopting the provisions set

forth in the proposed rule with the

exceptions noted in the Analysis of and

Responses to Public Comments (section

III. above) as well as the following

change.

Throughout § 424.57, we are changing

most of the references to ‘‘billing

number’’ to ‘‘billing privileges’’, noting

in § 424.57(b)(2) that billing privileges

must be conveyed along with a billing

number.

Also, we reiterate that although we do

not intend to require suppliers with

60374 Federal Register / Vol. 65, No. 197 / Wednesday, October 11, 2000 / Rules and Regulations

current numbers to immediately certify

to HCFA their compliance with these

revised standards (they will do so when

they reapply), it is important to note

that as of the effective date of this

regulation, all DMEPOS suppliers must

comply with the standards as revised.

We may revoke a supplier number if we

find evidence that the standards are not

satisfied.

VI. Collection of Information

Requirements

This final regulation contains

requirements that are subject to review

by the Office of Management and

Budget (OMB) under the Paperwork

Reduction Act of 1995 (44 U.S.C.

Chapter 35). However, all have been

approved by OMB. The OMB approval

numbers associated with these approved

requirements are 0938–0717, DMEPOS

Supplier Standards: Additional

Information Collection Requirements,

for which the approval expires on April

30, 2001, and 0938–0685, Medicare

Carrier Provider/Supplier Enrollment

Application, for which the approval

expires on September 30, 2001.

If you comment on these information

collection and recordkeeping

requirements, please mail copies

directly to the following:

Health Care Financing Administration,

Office of Information Services,

Information Technology Investment

Management Group, Attn: John Burke,

Room N2–14–26, 7500 Security

Boulevard, Baltimore, MD 21244–

1850.

Office of Information and Regulatory

Affairs, Office of Management and

Budget, Room 10235, New Executive

Office building, Washington, DC

20503, Attn: Allison Herron Eydt,

HCFA Desk Officer.

VII. Regulatory Impact Analysis

We have examined the impacts of this

final rule under Executive Order 12866,

the Unfunded Mandate Act of 1995, and

the Regulatory Flexibility Act. Executive

Order 12866 directs agencies to assess

all costs and benefits of available

regulatory alternatives and, when

regulation is necessary, to select

regulatory approaches that maximize

net benefits. In addition, a Regulatory

Impact Analysis (RIA) must be prepared

for major rules with economically

significant effects ($100 million or more

annually).

The costs associated with this rule are

as follows:

• Liability insurance requirement

(§ 424.57(c)(10)). We estimate that only

10 percent of DMEPOS suppliers do not

already have liability insurance that

meets this requirement. Based on

Medicare data as of May 1999, 10

percent of the total DMEPOS suppliers

is approximately 6,600 suppliers. We

note that commenters on the proposed

rule gave varying estimates of the cost

of liability insurance. The range

commenters suggested was between

$1300 and $1800 annually. Using the

highest estimate received ($1,800

annually), results in an approximate

additional liability insurance cost of

$11.9 million annually (6,600 times

$1,800) to the DMEPOS industry due to

this rule.

• Primary business telephone listed

under the name of the business locally

or toll-free for beneficiaries requirement

(§ 424.57(c)(9)). We estimate that only 1

percent of DMEPOS suppliers do not

already meet this requirement. Based on

Medicare data as of May 1999, we

determined that one percent of

DMEPOS suppliers is 660 suppliers.

Therefore, 660 times the approximate

$600 annual cost of telephone service

results in an additional cost of $0.4

million annually.

Total Cost = $11.9 Million + $0.4 =

$12.3 million annually.

The Unfunded Mandates Reform Act

of 1995 requires (in section 202) that

agencies prepare an assessment of

anticipated costs and benefits before

issuing any rule that may result in an

expenditure in any one year by State,

local, or tribal governments, in the

aggregate, or by the private sector, of

$100 million. This final rule has no

consequential effect on State, local, or

tribal governments.

Consistent with the Regulatory

Flexibility Act, we prepare a Regulatory

Flexibility Analysis (RFA) unless we

certify that a rule will not have a

significant economic impact on a

substantial number of small entities. For

purposes of the Act, suppliers with

annual sales of $5 million or less are

considered to be small entities.

(Individuals and States are not included

in the definition of a small entity.) The

RFA is to include a justification of why

action is being taken, the kinds and

number of small entities which the rule

will affect, and an explanation of any

considered meaningful options that

achieve the objectives and would lessen

any significant adverse economic

impact on the small entities.

We believe that our standards will

help bar fraudulent suppliers from

participating in the Medicare program

and provide an added level of

protection to Medicare beneficiaries.

Therefore, we expect to have an impact

on an unknown number of persons and

entities who will effectively be

prevented from practicing their aberrant

billing activities. The vast majority of

suppliers will not be significantly

affected by this rule. The reduction in

program overpayments and the added

level of protection to beneficiaries that

we expect to achieve as a result of this

rule justifies the relatively small burden

the rule would impose on all small

entities.

The following analysis, together with

the rest of this preamble, explains the

rationale for and purposes of the rule,

details the estimable costs and benefits

of the rule, analyzes alternatives, and

presents the measures we propose to

minimize the burden on small entities.

A. Rationale and Purposes

We expect this rule to deter some

entities that supply DME to Medicare

beneficiaries from abusive billing

practices or defrauding the Medicare

program. For example, abusive practices

include refusing to honor

manufacturers’ warranties or improperly

installing equipment in Medicare

beneficiaries’ homes.

Fraudulent practices include billing

the Medicare program for supplies that

were not furnished. In a surprisingly

large number of instances, when either

the beneficiaries or HCFA attempted to

contact suppliers alleged to have

committed abuses, it was difficult to

reach them because they did not have a

fixed address or had closed the business

and fled. Our experience has been that

the market has failed to address these

problems because of the motivation for

unseemly profits, inadequate control by

gatekeepers, and insufficient

information on the part of Medicare

beneficiaries to detect abuse. This

market failure makes it necessary for

HCFA to impose standards on DME

suppliers and establish safeguards that

enable the Medicare program to better

protect beneficiary interests.

B. Characteristics of Suppliers

The single most striking characteristic

of Medicare DMEPOS suppliers is their

diversity. DMEPOS suppliers fill a

business need and do it in a variety of

ways. Some suppliers set out from the

beginning to establish a business

furnishing DMEPOS items; others

evolve into being suppliers. For

example, a firm dealing with the oxygen

needs of the medical community may

add a department that provides oxygen

services and supplies as a medical

supply as a logical extension of an

existing business.

Similarly, a retail rental store may add

wheelchairs or hospital beds and a

pharmacy may add walkers to an

inventory of otherwise unrelated

commodities and use existing

Federal Register / Vol. 65, No. 197 / Wednesday, October 11, 2000 / Rules and Regulations 60375

advertisements to announce the

availability of these items.

Based on the small size of some

businesses, it is more characteristic that

suppliers furnish a limited number of

items in greater demand than to

maintain a large inventory of items

covering the gamut of covered DMEPOS

items. Thus, the only things any two

suppliers may have in common is their

provision of DMEPOS items and their

understanding that the activity will

meet the needs of the business.

Suppliers are in a position to direct

their marketing activities to optimize

their most profitable revenue sources,

and in seeking to meet patient demand,

can choose to provide only those items

that meet their business objectives.

For purposes of the RFA, a small

entity is one with annual revenues of

less than $5 million. Medicare data

indicates that more than 95 percent of

all DMEPOS suppliers generate billings

of less than $350,000 in Medicare

revenues annually, and 99 percent less

than $5 million.

C. Geographic Distribution of Suppliers

Individual patients may receive their

durable medical equipment, supplies,

and prosthetics either from a local

supplier or from a regional or national

concern that functions much like a mail

order catalogue distribution center. As

shown in Table 1, which is based on

Medicare data as of May 1999, suppliers

locate in areas where there is greatest

demand, leaving other areas to be served

by catalog, mail order or drop

shipments. No States appear to be under

served, and competition exists in large

population areas, leading us to believe

that the imposition of some additional

standards will not have adverse effects

on competition or on the availability of

an adequate number of suppliers to

meet patients’ needs.

TABLE 1

State

Number of

suppliers

per State

Number of

beneficiary

per State

Beneficiary

per supplier

AK ............................................................................................................................................................ 140 5500 39

AL ............................................................................................................................................................. 1960 151600 77

AR ............................................................................................................................................................ 1207 92400 77

AZ ............................................................................................................................................................ 1518 73100 48

CA ............................................................................................................................................................ 9612 469800 49

CO ............................................................................................................................................................ 1383 64200 46

CT ............................................................................................................................................................ 1552 79700 51

DC ............................................................................................................................................................ 167 10800 65

DE ............................................................................................................................................................ 274 17400 63

FL ............................................................................................................................................................. 7894 491200 62

GA ............................................................................................................................................................ 3180 186400 59

HI ............................................................................................................................................................. 345 16700 48

IA .............................................................................................................................................................. 1733 98400 57

ID ............................................................................................................................................................. 603 33500 56

IL .............................................................................................................................................................. 4212 268000 64

IN ............................................................................................................................................................. 2731 163800 60

KS ............................................................................................................................................................ 1386 76300 55

KY ............................................................................................................................................................ 2008 126200 63

LA ............................................................................................................................................................. 1996 115900 58

MA ............................................................................................................................................................ 2175 125200 58

MD ........................................................................................................................................................... 1837 102600 56

ME ............................................................................................................................................................ 636 38500 60

MI ............................................................................................................................................................. 3196 295600 92

MN ........................................................................................................................................................... 2001 105100 53

MO ........................................................................................................................................................... 2363 156100 66

MS ............................................................................................................................................................ 1094 96700 88

MT ............................................................................................................................................................ 608 28000 46

NC ............................................................................................................................................................ 3472 235000 68

ND ............................................................................................................................................................ 388 22200 57

NE ............................................................................................................................................................ 1026 48300 47

NH ............................................................................................................................................................ 520 24800 48

NJ ............................................................................................................................................................. 3291 172700 52

NM ........................................................................................................................................................... 539 34300 64

NV ............................................................................................................................................................ 553 27900 50

NY ............................................................................................................................................................ 6152 404700 66

OH ............................................................................................................................................................ 5101 294000 58

OK ............................................................................................................................................................ 1576 96700 61

OR ............................................................................................................................................................ 1316 61400 47

PA ............................................................................................................................................................ 5749 325900 57

RI ............................................................................................................................................................. 455 22000 48

SC ............................................................................................................................................................ 1666 124400 75

SD ............................................................................................................................................................ 458 23800 52

TN ............................................................................................................................................................ 2494 171600 69

TX ............................................................................................................................................................ 7021 408700 58

UT ............................................................................................................................................................ 690 36000 52

VA ............................................................................................................................................................ 2864 163300 57

VT ............................................................................................................................................................ 275 13600 49

WA ........................................................................................................................................................... 2268 107900 48

WI ............................................................................................................................................................. 2356 146200 62

WV ........................................................................................................................................................... 947 64400 68

WY ........................................................................................................................................................... 294 13300 45

60376 Federal Register / Vol. 65, No. 197 / Wednesday, October 11, 2000 / Rules and Regulations

TABLE 1

State

Number of

suppliers

per State

Number of

beneficiary

per State

Beneficiary

per supplier

Total .................................................................................................................................................. 109,782 .................... ....................

We note that the purpose of Table 1

is to illustrate the locations that provide

durable medical equipment and

supplies to Medicare beneficiaries.

Many of these entities are members of

chain organizations. While Table 1

indicates there are more than 109,000

suppliers, due to the affiliation of some

suppliers with chains, as of May 1999,

there were only 65,528 unique billing

numbers. Hence, although in several

sections of this preamble we mention

65,528 billing numbers, this reference

and Table 1, which describes the more

than 109,000 actual locations, describe

the same universe of suppliers.

According to an industry source,

Medicare accounts for approximately 40

percent of the average DMEPOS

supplier’s revenue. The approximate

percentage amounts for other revenue

sources are 25 percent private

insurance, 15 percent Medicaid, 10

percent institutional, and 10 percent

private credit and cash sales. For

calendar year 1997, Medicare program

allowed charges amounted to $6.7

billion for DMEPOS items. We believe

that for most suppliers any additional

costs imposed by our standards would

be outweighed by the benefits gained by

continuing to be a Medicare DMEPOS

supplier.

These standards should not result in

changes in the number of legitimate

business suppliers, because, as set forth

below and elsewhere in this preamble,

most requirements are logical

extensions of good business practices

that we believe currently are being met

by the vast majority of suppliers.

D. Discussion of Alternatives

We believe it was the intent of the

Congress to strengthen DMEPOS

supplier standards to protect

beneficiaries and ensure the integrity of

the Medicare program. Therefore, we

proposed expanded supplier standards,

using as our statutory basis section

1834(j)(1)(B)(ii)(III) of the Act for

liability insurance and section

1834(j)(1)(B)(ii)(IV) of the Act, which

states that the supplier must meet such

other requirements as the Secretary may

specify. This final rule will provide a

basis to better screen applicants and to

revoke the supplier numbers of those

who do not meet these standards.

For purposes of this impact statement,

we have divided the supplier standards

into the following two broad categories:

statutory requirements and good

business practices.

1. Statutory requirements

Liability Insurance—The statutory

authority for § 424.57(c)(10) is section

1834(j)(1)(B)(ii)(III) of the Act. This rule

requires a supplier to have

comprehensive liability insurance,

including product liability and

completed operations in the case of a

supplier that makes its own items, that

covers the supplier’s place of business

and any and all customers and

employees. Based on comments

received on the proposed rule, we are

requiring a minimum of $300,000 in

coverage. Based on discussions with

industry experts, we estimate that

approximately 10 percent of all

suppliers do not currently carry liability

insurance. Based on comments received,

we estimate the cost per year for a

supplier to carry liability insurance in

the amount of $300,000 would be no

more than approximately $1,800. We

believe that the $1,800 cost per supplier

does not represent a significant

economic impact on the estimated 10

percent of suppliers not currently

carrying liability insurance. We also

believe that it is good business practice

to carry such insurance, as indicated by

the fact that 90 percent or more of

suppliers already do so.

2. Good Business Practices

Most of the supplier standards in this

final rule deal directly with business

practices. We do not believe that these

standards will result in a significant

impact on any sizeable number of

legitimate suppliers. For these

additional standards, the economic

impact on most suppliers is negligible,

although the benefits to the program and

to the beneficiary will be greater. For

example, the requirement at

§ 424.57(c)(6) that a supplier must not

charge Medicare for repair or

replacement of Medicare covered items

or for services covered under warranty,

coupled with the requirement that the

supplier provide documentation, upon

request, that it has advised Medicare

beneficiaries about Medicare covered

items covered under warranty, should

result in claims for repairs, parts or

replacement being made against the

warranty, thus decreasing the monies

paid by Medicare. The monies paid out

by the program and the beneficiary also

may decrease as a result of the

requirement that the supplier inform the

beneficiary of the rental or purchase

option and the copay implications

involved. More beneficiaries may elect

to purchase their equipment, instead of

renting for long periods of time.

In most instances, these standards do

not exceed the usual business practices

necessary for any retail business to

succeed. In other words, we believe that

a supplier that expects to conduct a

successful business would already have

in place procedures to meet these

standards. We did not develop

alternatives because we consider the

final supplier standards to be basic

requirements that a business would

have to meet in order to provide

satisfactory customer service and

manage properly its inventory.

Under § 424.57(c)(9), a supplier is

required to maintain a telephone that is

used primarily for business purposes at

its physical facility and is listed under

the name of the business locally or tollfree for beneficiaries. In order to accept

inquiries from potential customers,

maintain relationships with current

customers, and conduct business with

contractors in today’s business market,

it is necessary that virtually every

business have telephonic access.

Beneficiaries also need access to their

supplier in case they have a problem

with or questions about their DMEPOS

items.

We believe that this standard is

currently met by nearly all legitimate

businesses. However, we believe

approximately one percent of DMEPOS

suppliers currently do not meet the

fixed telephone requirement. The

estimated cost per year for any supplier

to establish and maintain a telephone

line to conduct business would be

approximately $600 ($50 a month).

Thus, the aggregate cost is negligible.

We believe the benefits of full time

access to the supplier will far exceed the

minor economic impact on a supplier.

This requirement will help

beneficiaries contact their suppliers in

Federal Register / Vol. 65, No. 197 / Wednesday, October 11, 2000 / Rules and Regulations 60377

the event of equipment problems and

failures, and to resolve questions.

Telephonic access to a supplier is also

crucial so that the Durable Medical

Equipment Regional Carriers may call

and obtain additional information to

process and pay claims.

E. Conclusion

As indicated elsewhere in this

preamble, to the extent that we are

imposing a burden, it is a necessary one.

The public interest is best served by

establishing safeguards that prevent

suppliers from taking advantage of the

current minimal supplier standards. It is

by design that these standards would

have the greatest impact on those

suppliers that need to change the most.

We believe that the loss of a few

suppliers as a result of these supplier

standards, for example those who

operate out of a van or who do not

provide a value added service, is far

outweighed by the benefits of protecting

the health and safety of beneficiaries

and preserving the Medicare Trust

Fund.

F. Rural Hospital Impact Statement

Section 1102(b) of the Act requires us

to prepare a regulatory impact analysis

if a rule may have a significant impact

on the operations of a substantial

number of small rural hospitals. Such

an analysis must conform to the

provisions of section 604 of the RFA.

For purposes of section 1102(b) of the

Act, a small rural hospital is a hospital

that is located outside of a Metropolitan

Statistical Area and has fewer than 50

beds. We are not preparing a rural

impact statement since we have

determined, and certify, that this

proposed rule will not have a significant

impact on the operations of a substantial

number of small rural hospitals.

VIII. Federalism

We have reviewed this final rule

under the threshold criteria of Executive

Order 13132, Federalism and we have

determined that it does not significantly

affect the rights, roles, and

responsibilities of States.

List of Subjects in 42 CFR Part 424

Emergency medical services, Health

facilities, Health professions, Medicare.

42 CFR chapter IV is amended as set

forth below:

PART 424—CONDITIONS FOR

MEDICARE PAYMENT

1. The authority citation for part 424

continues to read as follows:

Authority: Secs. 1102 and 1871 of the

Social Security Act (42 U.S.C. 1302 and

1395hh).

2. Section 424.57 is revised as

follows:

§ 424.57 Special payment rules for items

furnished by DMEPOS suppliers and

issuance of DMEPOS supplier billing

privileges.

(a) Definitions. As used in this

section, the following definitions apply:

DMEPOS stands for durable medical

equipment, prosthetics, orthotics and

supplies.

DMEPOS supplier means an entity or

individual, including a physician or a

Part A provider, which sells or rents

Part B covered items to Medicare

beneficiaries and which meets the

standards in paragraph (c) of this

section.

Medicare covered items means

medical equipment and supplies as

defined in section 1834(j)(5) of the Act.

(b) General rule. A DMEPOS supplier

must meet the following conditions in

order to be eligible to receive payment

for a Medicare-covered item:

(1) The supplier has submitted a

completed application to HCFA to

furnish Medicare-covered items

including required enrollment forms.

(The supplier must enroll separate

physical locations it uses to furnish

Medicare-covered DMEPOS, with the

exception of locations that it uses solely

as warehouses or repair facilities.)

(2) The item was furnished on or after

the date HCFA issued to the supplier a

DMEPOS supplier number conveying

billing privileges. (HCFA issues only

one supplier number for each location.)

This requirement does not apply to

items furnished incident to a

physician’s service.

(3) HCFA has not revoked or excluded

the DMEPOS supplier’s privileges

during the period which the item was

furnished has not been revoked or

excluded.

(4) A supplier that furnishes a drug

used as a Medicare-covered supply with

durable medical equipment or

prosthetic devices must be licensed by

the State to dispense drugs (A supplier

of drugs must bill and receive payment

for the drug in its own name. A

physician, who is enrolled as a

DMEPOS supplier, may dispense, and

bill for, drugs under this standard if

authorized by the State as part of the

physician’s license.)

(5) The supplier has furnished to

HCFA all information or documentation

required to process the claim.

(c) Application certification

standards. The supplier must meet and

must certify in its application for billing

privileges that it meets and will

continue to meet the following

standards. The supplier:

(1) Operates its business and

furnishes Medicare-covered items in

compliance with all applicable Federal

and State licensure and regulatory

requirements;

(2) Has not made, or caused to be

made, any false statement or

misrepresentation of a material fact on

its application for billing privileges.

(The supplier must provide complete

and accurate information in response to

questions on its application for billing

privileges. The supplier must report to

HCFA any changes in information

supplied on the application within 30

days of the change.);

(3) Must have the application for

billing privileges signed by an

individual whose signature binds a

supplier;

(4) Fills orders, frabicates, or fits items

from its own inventory or by contracting

with other companies for the purchase

of items necessary to fill the order. If it

does, it must provide, upon request,

copies of contracts or other

documentation showing compliance

with this standard. A supplier may not

contract with any entity that is currently

excluded from the Medicare program,

any State health care programs, or from

any other Federal Government

Executive Branch procurement or

nonprocurement program or activity;

(5) Advises beneficiaries that they

may either rent or purchase inexpensive

or routinely purchased durable medical

equipment, and of the purchase option

for capped rental durable medical

equipment, as defined in § 414.220(a) of

this subchapter. (The supplier must

provide, upon request, documentation

that it has provided beneficiaries with

this information, in the form of copies

of letters, logs, or signed notices.);

(6) Honors all warranties expressed

and implied under applicable State law.

A supplier must not charge the

beneficiary or the Medicare program for

the repair or replacement of Medicare

covered items or for services covered

under warranty. This standard applies

to all purchased and rented items,

including capped rental items, as

described in § 414.229 of this

subchapter. The supplier must provide,

upon request, documentation that it has

provided beneficiaries with information

about Medicare covered items covered

under warranty, in the form of copies of

letters, logs, or signed notices;

(7) Maintains a physical facility on an

appropriate site. The physical facility

must contain space for storing business

records including the supplier’s

delivery, maintenance, and beneficiary

communication records. For purposes of

this standard, a post office box or

commercial mailbox is not considered a

60378 Federal Register / Vol. 65, No. 197 / Wednesday, October 11, 2000 / Rules and Regulations

physical facility. In the case of a multisite supplier, records may be

maintained at a centralized location;

(8) Permits HCFA, or its agents to

conduct on-site inspections to ascertain

supplier compliance with the

requirements of this section. The

supplier location must be accessible

during reasonable business hours to

beneficiaries and to HCFA, and must

maintain a visible sign and posted hours

of operation;

(9) Maintains a primary business

telephone listed under the name of the

business locally or toll-free for

beneficiaries. The supplier must furnish

information to beneficiaries at the time

of delivery of items on how the

beneficiary can contact the supplier by

telephone. The exclusive use of a beeper

number, answering service, pager,

facsimile machine, car phone, or an

answering machine may not be used as

the primary business telephone for

purposes of this regulation;

(10) Has a comprehensive liability

insurance policy in the amount of at

least $300,000 that covers both the

supplier’s place of business and all

customers and employees of the

supplier. In the case of a supplier that

manufactures its own items, this

insurance must also cover product

liability and completed operations.

Failure to maintain required insurance

at all times will result in revocation of

the supplier’s billing privileges

retroactive to the date the insurance

lapsed;

(11) Must agree not to contact a

beneficiary by telephone when

supplying a Medicare-covered item

unless one of the following applies:

(i) The individual has given written

permission to the supplier to contact

them by telephone concerning the

furnishing of a Medicare-covered item

that is to be rented or purchased.

(ii) The supplier has furnished a

Medicare-covered item to the individual

and the supplier is contacting the

individual to coordinate the delivery of

the item.

(iii) If the contact concerns the

furnishing of a Medicare-covered item

other than a covered item already

furnished to the individual, the supplier

has furnished at least one covered item

to the individual during the 15-month

period preceding the date on which the

supplier makes such contact.

(12) Must be responsible for the

delivery of Medicare covered items to

beneficiaries and maintain proof of

delivery. (The supplier must document

that it or another qualified party has at

an appropriate time, provided

beneficiaries with necessary information

and instructions on how to use

Medicare-covered items safely and

effectively);

(13) Must answer questions and

respond to complaints a beneficiary has

about the Medicare-covered item that

was sold or rented. A supplier must

refer beneficiaries with Medicare

questions to the appropriate carrier. A

supplier must maintain documentation

of contacts with beneficiaries regarding

complaints or questions;

(14) Must maintain and replace at no

charge or repair directly, or through a

service contract with another company,

Medicare-covered items it has rented to

beneficiaries. The item must function as

required and intended after being

repaired or replaced;

(15) Must accept returns from

beneficiaries of substandard (less than

full quality for the particular item or

unsuitable items, inappropriate for the

beneficiary at the time it was fitted and

rented or sold);

(16) Must disclose these supplier

standards to each beneficiary to whom

it supplies a Medicare-covered item;

(17) Must comply with the disclosure

provisions in § 420.206 of this

subchapter;

(18) Must not convey or reassign a

supplier number;

(19) Must have a complaint resolution

protocol to address beneficiary

complaints that relate to supplier

standards in paragraph (c) of this

section and keep written complaints,

related correspondence and any notes of

actions taken in response to written and

oral complaints. Failure to maintain

such information may be considered

evidence that supplier standards have

not been met. (This information must be

kept at its physical facility and made

available to HCFA, upon request.);

(20) Must maintain the following

information on all written and oral

beneficiary complaints, including

telephone complaints, it receives:

(i) The name, address, telephone

number, and health insurance claim

number of the beneficiary.

(ii) A summary of the complaint; the

date it was received; the name of the

person receiving the complaint, and a

summary of actions taken to resolve the

complaint.

(iii) If an investigation was not

conducted, the name of the person

making the decision and the reason for

the decision.

(21) Provides to HCFA, upon request,

any information required by the

Medicare statute and implementing

regulations.

(d) Failure to meet standards. HCFA

will revoke a supplier’s billing

privileges if it is found not to meet the

standards in paragraphs (b) and (c) of

this section. (The revocation is effective

15 days after the entity is sent notice of

the revocation, as specified in § 405.874

of this subchapter.)

(e) Renewal of billing privileges. A

supplier must renew its application for

billing privileges every 3 years after the

billing privileges are first granted. (Each

supplier must complete a new

application for billing privileges 3 years

after its last renewal of privileges.)

(Catalog of Federal Domestic Assistance

Program No. 93.773, Medicare—Hospital

Insurance; and Program No. 93.774,

Medicare—Supplementary Medical

Insurance Program)

Dated: December 15, 1999.

Nancy-Ann Min DeParle,

Administrator, Health Care Financing,

Administration.

Approved: March 29, 2000.

Donna E. Shalala,

Secretary.

Editorial Note: This document was

received at the Office of the Federal

Register September 29, 2000.

[FR Doc. 00–25495 Filed 10–10–00; 8:45 am]

BILLING CODE 4120–01–P

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 73

[DA 00–2205, MM Docket No. 00–76; RM–

9809]

Digital Television Broadcast Services;

Urbana, IL

AGENCY: Federal Communications

Commission.

ACTION: Final rule.

SUMMARY: The Commission, at the

request of The University of Illinois

Board of Trustees, licensee of

noncommercial education Station

WILL–TV, substitutes DTV Channel *9

for DTV Channel *33 at Urbana, Illinois.

See 65 FR 30599, May 12, 2000. DTV

Channel *9 can be allotted to Urbana at

coordinates (40–02–18 N. and 88–40–

10W.) with a power of 30, HAAT of 302

meters, and a DTV service population of

1005 thousand. With this action, this

proceeding is terminated.

DATES: Effective November 16, 2000.

FOR FURTHER INFORMATION CONTACT: Pam

Blumenthal, Mass Media Bureau, (202)

418–1600.

SUPPLEMENTARY INFORMATION: This is a

synopsis of the Commission’s Report

and Order, MM Docket No. 00–76,

adopted September 29, 2000, and

released October 2, 2000. The full text

of this Commission decision is available