[Federal Register Volume 60, Number 237 (Monday, December 11, 1995)]
[Rules and Regulations]
[Pages 63440-63444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30065]



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DEPARTMENT OF HEALTH AND HUMAN SERVICES
42 CFR Part 424

[BPD-838-FC]
RIN 0938-AH19


Medicare Program; Additional Supplier Standards

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Final rule with comment.

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SUMMARY: This final rule with comment period conforms our regulations 
to changes made to section 1834 of the Social Security Act (the Act) by 
section 131 of the Social Security Act Amendments of 1994. Section 
1834(j) of the Act requires that suppliers meet additional standards 
related to compliance with State and Federal licensure requirements, 
maintaining a physical facility on an appropriate site, and proof of 
appropriate liability insurance. This final rule retains existing 
regulatory standards and incorporates the three additional standards 
specifically cited from the statute.

DATES: Effective Date: This rule is effective January 1, 1996.
    Comments: Comments will be considered if we receive them at the 
appropriate address, as provided below, no later than 5 p.m. on 
February 9, 1996.

ADDRESSES: Mail written comments (1 original and 3 copies) to the 
following address: Health Care Financing Administration, Department of 
Health and Human Services, Attention: BPD-838-FC, P.O. Box 26676, 
Baltimore, MD 21207.
    If you prefer, you may deliver your written comments (1 original 
and 3 copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue SW., 
Washington, DC 20201, or
Room C5-09-26, 7500 Security Boulevard, Baltimore, MD 21244-1850.

    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code BPD-838-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 309-G of 
the Department's offices at 200 Independence Avenue, SW, Washington, 
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m. 
(phone: (202) 690-7890).
    For comments that relate to information collection requirements, 
mail a copy of comments to: 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.

FOR FURTHER INFORMATION CONTACT: Larry Bonander, (410) 786-4479.

SUPPLEMENTARY INFORMATION:

I. Background

A. General

    The Medicare Part B program is a voluntary program that pays all or 
part of the costs for physicians' services, outpatient hospital 
services, certain home health services, services furnished by rural 
health clinics, ambulatory surgical centers, and comprehensive 
outpatient rehabilitation facilities, and certain other medical and 
hospital health services not covered by Medicare Part A.
    Medicare services are furnished by two types of entities, that is, 
providers and suppliers. The term ``provider'' as defined in our 
regulations at 42 CFR 400.202, means a hospital, a rural primary care 
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 a similar 
agreement 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)).
    In general, suppliers are individuals or entities that furnish 
certain types of medical and other health services under part B. There 
are different definitions of the term supplier and specific regulations 
governing different types of suppliers. Durable medical equipment, 
prosthetics, orthotics, and supplies (DMEPOS) encompasses the types of 
items included in the definition of ``medical equipment and supplies'' 
found at section 1834(j)(5) of the Act. In 

[[Page 63441]]
this rule, the term ``DMEPOS supplier'' refers to all individuals or 
entities that furnish these items.
    For purposes of DMEPOS supplier standards, the term ``supplier'' is 
currently defined in Sec. 424.57(a) as an entity or individual, 
including a physician or part A provider, which sells or rents part B 
covered items to Medicare beneficiaries, and which meets certain 
standards. We are retaining this definition for purposes of identifying 
those entities that must meet Medicare DMEPOS supplier standards in 
order to obtain a supplier number. Those individuals or entities that 
do not furnish DMEPOS items but only furnish other types of health care 
services, such as physicians' services or nurse practitioner services, 
would not be subject to these standards. Moreover, a supplier number is 
not necessary before Medicare payment can be made with respect to 
medical equipment and supplies furnished incident to a physician's 
service.
    For Medicare purposes, DMEPOS suppliers either accept or do not 
accept assignment. If a DMEPOS supplier accepts assignment, it agrees 
to accept the Medicare approved amount as payment in full for the 
covered item. Generally, Medicare pays 80 percent of the approved 
amount and the beneficiary is responsible for applicable coinsurance 
and any unmet Medicare deductible amounts. DMEPOS suppliers that have 
voluntarily agreed to enter into an agreement to accept assignment for 
all items are referred to as ``participating suppliers''. Participating 
DMEPOS suppliers are listed in directories available to Medicare 
beneficiaries and receive part B payment directly from the Medicare 
program. Nonparticipating DMEPOS suppliers may accept assignment on a 
case-by-case basis, and for these claims, receive payment directly from 
Medicare. If a beneficiary receives a service from a nonparticipating 
DMEPOS supplier on a nonassigned basis, however, payment is made to the 
beneficiary who in turn pays the DMEPOS supplier. This rule applies to 
all DMEPOS suppliers for all items furnished to Medicare beneficiaries 
regardless of whether they accept Medicare assignment or are Medicare 
participating suppliers.

Durable Medical Equipment

    Durable medical equipment (DME) is included in the definition of 
``medical and other health services'' as indicated by section 
1861(s)(6) of the Act. The term DME is defined at section 1861(n) of 
the Act. This definition, in part, excludes from coverage as DME, items 
furnished in skilled nursing facilities and hospitals. (Equipment 
furnished in those facilities is paid for as part of their routine or 
ancillary costs.) The term is also defined in Sec. 414.202 as meaning 
``equipment, furnished by a supplier or a home health agency that--
    (1) Can withstand repeated use;
    (2) Is primarily and customarily used to serve a medical purpose;
    (3) Generally is not useful to an individual in the absence of an 
illness or injury; and
    (4) Is appropriate for use in the home.'' Examples of DME include 
such items as blood glucose monitors, hospital beds, nebulizers, oxygen 
delivery systems, and wheelchairs.

Prosthetic Devices

    Prosthetic devices are also included in the definition of ``medical 
and other health services'' under section 1861(s)(8) of the Act. They 
are defined in this section of the Act as ``devices (other than dental) 
which replace all or part of an internal body organ (including 
colostomy bags and supplies directly related to colostomy care), 
including replacement of such devices, and including one pair of 
conventional eyeglasses or contact lenses furnished subsequent to each 
cataract surgery with insertion of an intraocular lens''. Other 
examples of prosthetic devices include cardiac pacemakers, cochlear 
implants, electrical continence aids, electrical nerve stimulators, and 
tracheostomy speaking valves.

Orthotics and Prosthetics

    Section 1861(s)(9) of the Act provides for the coverage of ``leg, 
arm, back, and neck braces, and artificial legs, arms, and eyes * * * 
'' under the term ``medical and other health services''. As indicated 
by section 1834(h)(4)(C) of the Act, these items are often referred to 
as ``orthotics and prosthetics.''

Supplies

    Section 1861(s)(5) includes ``surgical dressings, and splints, 
casts, and other devices used for reduction of fractures and 
dislocations;'' as one of the ``medical and other health services'' 
that is covered by Medicare. Other items that may be furnished by 
suppliers would include (among others):
    (1) Prescription drugs used in immunosuppressive therapy furnished 
to an individual who receives an organ transplant for which payment is 
made under this title, and that are furnished within a certain time 
period after the date of the transplant procedure as noted at section 
1861(s)(2)(J) of the Act.
    (2) Extra-depth shoes with inserts or custom molded shoes with 
inserts for an individual with diabetes as listed at section 
1861(s)(12) of the Act.
    (3) Home dialysis supplies and equipment, self-care home dialysis 
support services, and institutional dialysis services and supplies 
included at section 1861(s)(2)(F) of the Act.
    (4) Oral drugs prescribed for use as an anticancer therapeutic 
agent as noted at section 1861(s)(2)(Q) of the Act.
    (5) Self-administered erythropoietin (as described in section 
1861(s)(2)(O) of the Act).

B. DMEPOS Supplier Standards

    On June 18, 1992, we published a final rule with comment period (57 
FR 27290) that established in Sec. 424.57 certain business standards 
for entities seeking to qualify as Medicare suppliers of DMEPOS items. 
Currently, in order to obtain a Medicare billing number, a DMEPOS 
supplier is required to meet, and to certify that it meets, the 
following supplier standards:
    1. Respond to orders received by filling those orders from its own 
inventory or inventory from other companies with which it has 
contracted to fill such orders; or fabricating or fitting items for 
sale from supplies purchased under a contract.
    2. Be responsible for delivery of Medicare covered items to 
Medicare beneficiaries.
    3. Honor all warranties express and implied under applicable State 
law.
    4. Answer any questions or complaints a beneficiary has about the 
item or use of the item that was sold or rented to him or her, and 
refer beneficiaries with Medicare questions to the appropriate carrier.
    5. Maintain and repair items rented to beneficiaries directly or 
through a service contract with another company.
    6. Accept returns 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) from beneficiaries.
    7. Disclose consumer information to each beneficiary who rents or 
purchases items. This information consists of the supplier standards to 
which it must conform.
    8. Comply with the disclosure provisions in Sec. 420.206 
(Disclosure of persons having ownership, financial, or control 
interest).

C. Obtaining a DMEPOS Supplier Number for Identification and Billing 
Purposes

    Since November 1, 1993, every DMEPOS supplier that submits claims 
to a Durable Medical Equipment Regional Carrier (DMERC) is required to 
complete and return the Medicare 

[[Page 63442]]
Supplier Number Application (HCFA-192 Form) to the National Supplier 
Clearinghouse (NSC). The NSC distributes applications, verifies the 
data, issues numbers to approved suppliers, and maintains a national 
supplier file. The DMEPOS supplier must obtain a supplier number from 
the NSC before the DMERC will accept a claim. If the DMEPOS supplier 
attempts to file a claim before obtaining a supplier number the DMERC 
will reject the claim.
    Under this final rule, in order to obtain a Medicare supplier 
number, a DMEPOS supplier will be required to meet, and to certify that 
it meets, the supplier standards found in the new Sec. 424.57 as 
discussed in section II. of this rule. The DMEPOS supplier standards 
found in the new Sec. 424.57 include the supplier standards that are in 
the existing Sec. 424.57, and also the standards cited in section 
1834(j)(1)(B)(ii) (I) through (III) of the Act.
    The DMEPOS supplier's certification that supplier standards are met 
must be completed before a supplier number will be issued by the NSC. 
The DMEPOS supplier is accountable to complete the application 
accurately. Any deliberate misrepresentation or concealment of material 
information may subject the DMEPOS supplier to liability under civil 
and criminal laws. Every three years the DMEPOS supplier is required to 
recertify that it continues to meet the DMEPOS supplier standards.

II. Provisions of the Final Regulation

    Section 131 of the Social Security Act Amendments of 1994 (SSA '94, 
Pub. L. 103-432, enacted on October 31, 1994), added a new subsection 
(j) to section 1834 of the Act. Section 1834(j)(1)(B)(i) of the Act 
requires that for medical equipment and supplies furnished on or after 
October 31, 1994, and before January 1, 1996, the supplier must meet 
the current standards established in Sec. 424.57. Section 
1834(j)(1)(B)(ii) of the Act requires that for medical equipment and 
supplies furnished on or after January 1, 1996, the supplier must meet 
revised standards issued by the Secretary, after consultation with 
representatives of suppliers of medical equipment and supplies, 
carriers, and consumers.
    As a result of SSA '94, we are establishing additional DMEPOS 
supplier standards by revising paragraph (c) of Sec. 424.57 of the 
regulations. The revised standards include all of the standards that 
are in the existing Sec. 424.57 and those standards specifically 
required by section 1834(j)(1)(B)(ii) (I) through (III) of the Act.
    Beginning January 1, 1996, a supplier will be required to meet, and 
to certify that it meets, the existing standards discussed in section 
C. of this rule, and also the following additional standards. The 
supplier must--
    (1) Comply with all applicable State and Federal licensure and 
regulatory requirements;
    (2) Maintain a physical facility on an appropriate site; and
    (3) Have proof of appropriate liability insurance.
    We are issuing this final rule to incorporate those standards that 
Congress has explicitly identified and indicated should be used 
beginning January 1, 1996. In addition, our existing regulatory 
standards have already been subject to the notice and comment process, 
and both the public and the industry are familiar with those standards. 
Congress did not indicate any intention to relax those standards. 
Rather, we believe Congress' intent is to strengthen these standards to 
protect Medicare beneficiaries. This final rule will provide a base 
level of protection that will enable us to continue to process 
applications of individuals and entities who seek to become suppliers, 
and will provide a basis to revoke the numbers of suppliers who do not 
fulfill those standards according to our regulations at Sec. 405.874.
    The statute also gives the Secretary the authority to establish 
additional standards besides those included in the existing Sec. 424.57 
and those standards specifically cited in section 1834(j)(1)(B)(ii) (I) 
through (III). As directed by the statute, we have contacted or 
consulted with representatives of suppliers, carriers, and consumers 
concerning the need for additional supplier standards. These meetings 
were productive and we have received numerous comments that suggest 
that additional standards may be necessary in certain areas. We are 
currently considering these comments as we develop a proposed rule that 
would set forth additional substantive supplier standards. At this 
time, however, we are retaining our existing standards and only adding 
those standards specifically cited from section 1834(j) of the Act.

III. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, agencies are required to 
provide a 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     Whether the information collection is necessary and useful 
to carry out the proper functions of the agency;
     The accuracy of the agency's estimate of the information 
collection burden;
     The quality, utility, and clarity of the information to be 
collected; and
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques. Therefore, we are soliciting public comment on each of 
these issues for the information collection requirements discussed 
below.
    The following sections of this document contain information 
collection requirements as described below:
    The information collection requirements in Sec. 424.57 (``Special 
payment rules for items furnished by DMEPOS suppliers and issuance of 
DMEPOS supplier billing numbers''), in paragraph (c)(7), arise as a 
result of requiring all DMEPOS suppliers to give a copy of the DMEPOS 
supplier standards to each Medicare beneficiary with whom they do 
business. The National Supplier Clearinghouse will supply a copy to 
each enrolled supplier which may be photocopied. We estimate the public 
reporting burden for this collection of information to average 
approximately 20 minutes per year, including photocopying and handing 
out the standards, which totals approximately 46,200 hours.
    The information collection requirements in Sec. 424.57(c)(8) cross 
refers to Sec. 420.206 (``Disclosure of persons having ownership, 
financial, or control interest'') concern the information necessary for 
disclosure of ownership and control and the identities of managing 
employees. The respondents who will provide the information will be the 
DMEPOS suppliers. Public reporting burden for this collection of 
information is estimated to be 140,000 hours. We estimate that 140,000 
suppliers will complete the information which is estimated at one hour 
per supplier.
    We have submitted a copy of this final rule with comment period to 
OMB for its review of the information collection requirements in 
Sec. 424.57(c) (7) and (8). These requirements are not effective until 
they have been approved by OMB. A notice will be published in the 

[[Page 63443]]
Federal Register when approval is obtained.
    Organizations and individuals desiring to submit comments on the 
information collection and recordkeeping requirements should send them 
to the Health Care Financing Administration, Office of Financial and 
Human Resources, Management Planning and Analysis Staff, 7500 Security 
Boulevard, Baltimore, Maryland, 21244-1850 and to the Office of 
Management and Budget official whose name appears in the ADDRESSES 
section of this preamble.

IV. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, we are not 
able to acknowledge or respond to them individually. We will consider 
all comments we receive by the date and time specified in the ``DATES'' 
section of this preamble, and, if we proceed with a subsequent 
document, we will respond to the comments in the preamble to that 
document.

V. Waiver of Prior Notice With Comment Period and of Delayed Effective 
Date

    We ordinarily publish a notice of proposed rulemaking for a rule to 
provide a period of public comment prior to the effective date of the 
rule. This procedure can be waived, however, when an agency finds good 
cause that a notice and comment procedure is impracticable, 
unnecessary, or contrary to the public interest. Further, we generally 
provide for final rules to be effective no sooner than 30 days after 
the date of publication unless we find good cause to waive the delay.
    In the case of this rule, we find good cause to implement this rule 
as a final rule because the delay involved in the prior notice and 
comment procedures for these DMEPOS supplier standards would be 
contrary to the public interest. In SSA '94, Congress enacted numerous 
substantive provisions designed to protect Medicare beneficiaries from 
abusive practices by DMEPOS suppliers. These provisions establish 
limitations on the information DMEPOS suppliers may include on a 
certificate of medical necessity (section 1834(j)(2)), establish 
restrictions on the methods DMEPOS suppliers may use to contact certain 
Medicare beneficiaries (section 1834(a)(17)), and limit the Medicare 
beneficiary's liability if the DMEPOS supplier does not comply with 
these statutory requirements (section 1834(j)(4)). Congress has also 
established significant penalties, including civil money penalties, if 
DMEPOS suppliers violate particular statutory provisions (section 
1834(a)(18)(B)). Most importantly, for purposes of this regulation, 
Congress has indicated that beginning January 1, 1996, individuals or 
entities must meet at least three additional standards in order to 
obtain a Medicare supplier number.
    When considered as a whole, these legislative changes demonstrate 
that Congress has serious concerns about the business practices 
employed by certain DMEPOS suppliers, and that Medicare beneficiaries 
require additional protection from these practices. It would, 
therefore, be contrary to the public interest to delay establishing the 
specific additional criteria that Congress has identified by adhering 
to the normal notice and comment procedures. In addition, as noted 
previously, the Secretary has already established certain regulatory 
standards for DMEPOS suppliers that were developed in accordance with 
the notice and comment procedures. These standards are familiar to the 
public and the regulated DMEPOS supplier community and provide a base 
level of protection for Medicare beneficiaries. Congress has not 
indicated any intention to reduce or eliminate these existing 
standards. It is necessary to maintain these existing regulatory 
standards in order to protect the public interest and to further our 
efforts to prevent fraud and abuse in the Medicare program through 
Operation Restore Trust.
    As directed by statute, we have met with representatives of DMEPOS 
suppliers, the carriers, and consumers to consider whether additional 
standards are necessary. Although these meetings were productive, it 
was not possible to complete the full notice and comment procedure in 
order to have final rules in place before January 1, 1996. We are 
currently preparing a notice of proposed rulemaking reflecting our 
consultations with these entities and individuals and will publish that 
document in the near future. These final rules will be effective until 
altered by those regulations.
    We believe that it would be contrary to public interest to delay 
implementation of the revised standards pending the process of 
publishing both a proposed rule and a final rule. The three new 
standards are required to be included in any new standards promulgated 
by the Secretary, and are not discretionary. Moreover, the existing 
DMEPOS standards had been promulgated in accordance with the notice and 
comment provisions of the Administrative Procedure Act. Therefore, we 
find good cause to waive proposed rulemaking for the revised 
requirements set forth in Sec. 424.57 and to issue these regulations in 
final. However, we are providing a 60-day period for public comment, as 
indicated at the beginning of this rule, on the changes to Sec. 424.57. 
For the above reasons, we also find good cause to waive the delay in 
effective date of this rule.

VI. Regulatory Impact Analysis

    Consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612), we prepare a regulatory flexibility analysis unless we 
certify that a rule will not have a significant economic impact on a 
substantial number of small entities. For purposes of the RFA, all 
providers, physicians, and other suppliers are considered to be small 
entities. Individuals and States are not included in the definition of 
a small entity.
    In addition, 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, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 50 beds.
    We are not preparing analyses for either the RFA or section 1102(b) 
of the Act because we have determined, and we certify, that this rule 
will not have a significant economic impact on a substantial number of 
small entities or a significant impact on the operations of a 
substantial number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
final rule was not reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 424

    Emergency medical services, Health facilities, Health professions, 
Medicare.

    42 CFR Part 424 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. Paragraph (c) of Sec. 424.57 is revised to read as follows: 
    
[[Page 63444]]



Sec. 424.57  Special payment rules for items furnished by DMEPOS 
suppliers and issuance of DMEPOS supplier billing numbers.

* * * * *
    (c) Medicare does not issue a billing number to a supplier that 
submits claims for items listed in Sec. 421.210(b) of this subchapter 
until that supplier meets, and certifies that it meets, the following 
standards. The supplier--
    (1) In response to orders which it receives, fills those orders 
from its own inventory or inventory in other companies with which it 
has contracted to fill such orders or fabricates or fits items for sale 
from supplies it buys under a contract;
    (2) Is responsible for delivery of Medicare covered items to 
Medicare beneficiaries;
    (3) Honors all warranties express and implied under applicable 
State law;
    (4) Answers any questions or complaints a beneficiary has about the 
item or use of the item that was sold or rented to him or her, and 
refers beneficiaries with Medicare questions to the appropriate 
carrier;
    (5) Maintains and repairs directly or through a service contract 
with another company, items it has rented to beneficiaries;
    (6) Accepts returns 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) from beneficiaries;
    (7) Discloses consumer information to each beneficiary with whom it 
does business which consists of the supplier standards to which it must 
conform;
    (8) Complies with the disclosure provisions in Sec. 420.206.
    (9) Complies with all applicable State and Federal licensure and 
regulatory requirements;
    (10) Maintains a physical facility on an appropriate site; and
    (11) Has proof of appropriate liability insurance.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: November 22, 1995.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
[FR Doc. 95-30065 Filed 12-8-95; 8:45 am]
BILLING CODE 4120-01-P