[Federal Register Volume 73, Number 17 (Friday, January 25, 2008)]
[Proposed Rules]
[Pages 4503-4513]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-1346]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 424

[CMS-6036-P]
RIN 0938-AO90


Medicare Program; Establishing Additional Medicare Durable 
Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) 
Supplier Enrollment Safeguards

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

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SUMMARY: This proposed rule clarifies, expands, and adds to the 
existing enrollment requirements that Durable Medical Equipment and 
Prosthetics, Orthotics, and Supplies (DMEPOS) suppliers must meet to 
establish and maintain billing privileges in the Medicare program.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on March 25, 2008.

ADDRESSES: In commenting, please refer to file code CMS-6036-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to http://www.regulations.gov. Follow the 
instructions under the ``Comment or Submission'' tab and enter the file 
code to find the document accepting comments.
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address ONLY: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-6036-P, P.O. Box 8012 Baltimore, MD 21244-8012.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address only: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-6036-P, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to one of the following addresses. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410) 786-4696 or (410) 786-1161 in advance to 
schedule your arrival with one of our staff members. Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 
20201; or 7500 Security Boulevard, Baltimore, MD 21244-1850.

(Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by mailing your 
comments to the addresses provided at the end of the ``Collection of 
Information Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: August Nemec, (410) 786-0612.

SUPPLEMENTARY INFORMATION: Submitting Comments: We welcome comments 
from the public on all issues set forth in this rule to assist us in 
fully considering issues and developing policies. You can assist us by 
referencing the file code CMS-6036-P and the specific ``issue 
identifier'' that precedes the section on which you choose to comment.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in

[[Page 4504]]

a comment. We post all comments received before the close of the 
comment period on the following Web site as soon as possible after they 
have been received: https://www.cms.hhs.gov/eRulemaking. Click on the 
link ``Electronic Comments on CMS Regulations'' on that Web site to 
view public comments.
    Comments received timely will be available for public inspection as 
they are received, generally beginning approximately 3 weeks after 
publication of a document, at the headquarters of the Centers for 
Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, 
Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 
p.m. To schedule an appointment to view public comments, phone 1-800-
743-3951.

I. Background

    Medicare services are furnished by two types of entities, providers 
and suppliers. At Sec.  400.202, ``provider'' is defined as a hospital, 
a critical access hospital (CAH), a skilled nursing facility, a 
comprehensive outpatient rehabilitation facility, a home health agency 
(HHA), or a hospice that has in effect an agreement to participate in 
Medicare, or 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 that has in effect a similar agreement 
but only to furnish partial hospitalization services. The term 
``provider'' is also defined in sections 1861(u) and 1866(e) of the 
Social Security Act (the Act).
    For purposes of the DMEPOS supplier standards, the term 
``supplier'' is defined in Sec.  424.57(a) as an entity or individual, 
including a physician or Part A provider, that sells or rents Part B 
covered DMEPOS items to Medicare beneficiaries that meet the DMEPOS 
supplier standards. This proposed rule applies to all DMEPOS suppliers 
and amends the DMEPOS supplier standards set forth at Sec.  424.57(c). 
Those individuals or entities that do not furnish DMEPOS items but 
furnish other types of health care services only (for example, 
physician services or nurse practitioner services) would not be subject 
to this requirement. A supplier that furnishes durable medical 
equipment, prosthetics, orthotics, and suppliers (DMEPOS) is one 
category of supplier. Other supplier categories may include, for 
example, physicians, nurse practitioners, and physical therapists. If a 
supplier, such as a physician or physical therapist, also provides 
DMEPOS to a patient, then the supplier is also considered to be a 
DMEPOS supplier. The term ``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 FY 2007, the Medicare program spent more than $10 billion for 
DMEPOS supplies, and in April 2007, there were 116,471 individual 
DMEPOS suppliers. However, due to the affiliation of some DMEPOS 
suppliers with chains, there were 65,984 unique billing numbers. The 
largest concentration of DMEPOS suppliers were located in five States: 
California (approximately 9 percent), Texas (approximately 7 percent), 
Florida (approximately 7 percent), New York (approximately 6 percent) 
and Pennsylvania (approximately 5 percent). We believe that 
approximately 30 percent of the DMEPOS suppliers are located in rural 
areas throughout the United States and that the vast majority of DMEPOS 
suppliers are small entities (based on Medicare reimbursement alone).
    The term DMEPOS is defined at section 1861(n) of the Act. This 
definition, in part, excludes from coverage as DMEPOS, items furnished 
in skilled nursing facilities and hospitals. Also, the term DMEPOS is 
included in the definition of ``medical and other health services'' 
found at section 1861(s)(6) of the Act. Furthermore, the term is 
defined in Sec.  414.202 as equipment furnished by a supplier or a HHA 
that--
     Can withstand repeated use;
     Is primarily and customarily used to serve a medical 
purpose;
     Generally is not useful to an individual in the absence of 
an illness or injury; and
     Is for use in the home.
Examples of DMEPOS supplies include items such as blood glucose 
monitors, hospital beds, nebulizers, oxygen delivery systems, and 
wheelchairs.
    Prosthetic devices are included in the definition of ``medical and 
other health services'' under section 1861(s)(8) of the Act. Prosthetic 
devices 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.
    Section 1861(s)(9) of the Act provides for the coverage of ``leg, 
arm, back, and neck braces, and artificial legs, arms, and eyes, 
including replacement of required because of a change in the patient's 
physical condition.'' As indicated by section 1834(h)(4)(C) of the Act, 
these items are often referred to as ``orthotics and prosthetics.'' 
Under section 1834(h)(4)(B), prosthetic devices do not include 
parenteral and enteral nutrition nutrients and implantable items 
payable under section 1833(t) of the Act.''
    Section 1861(s)(5) of the Act includes ``surgical dressings, 
splints, casts, and other devices used for reduction of fractures and 
dislocation'' 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):
     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.
     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.
     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.
     Oral drugs prescribed for use as an anticancer therapeutic 
agent as specified in section 1861(s)(2)(Q) of the Act.
     Self-administered erythropoietin as described in section 
1861(s)(2)(O) of the Act.
    The National Supplier Clearinghouse (NSC) is the Center for 
Medicare & Medicaid Services' (CMS) designated national enrollment 
contractor for DMEPOS suppliers. The primary functions of the NSC are 
to: (1) Ensure that only qualified suppliers of DMEPOS are enrolled or 
remain enrolled in the Medicare program, and (2) take the necessary 
actions to revoke enrolled suppliers who no longer meet supplier 
standards.

A. Statutory Authority

    Various sections of the Act and the regulations require providers 
and suppliers to furnish information concerning the amounts due and the 
identification of individuals or entities that furnish medical services 
to beneficiaries before payment can be

[[Page 4505]]

made. The following is an overview of the sections that grant this 
authority.
     Sections 1102 and 1871 of the Act provide general 
authority for the Secretary of Health and Human Services (the 
Secretary) to prescribe regulations for the efficient administration of 
the Medicare program. Under this authority, this proposed rule will 
require the collection of information from providers and suppliers for 
the purpose of enrolling in the Medicare program and granting 
privileges to bill the program for health care services furnished to 
Medicare beneficiaries.
     Sections 1814(a), 1815(a), and 1833(e) of the Act require 
the submission of information necessary to determine the amounts due a 
provider or other person.
     Section 1834(j)(1)(A) of the Act states that no payment 
may be made for items furnished by a supplier of medical equipment and 
supplies unless such supplier obtains (and renews at such intervals as 
the Secretary may require) a supplier number. In order to obtain a 
supplier billing number, a supplier must comply with certain supplier 
standards as identified by the Secretary.
     Section 1842(r) of the Act requires CMS to establish a 
system for furnishing a unique identifier for each physician who 
furnishes services for which payment may be made. To complete this, we 
need to collect information unique to that physician.
     Section 1862(e)(1) of the Act states that no payment may 
be made when an item or service was at the medical direction of an 
individual or entity that is excluded in accordance with sections 1128, 
1128A, 1156, or 1842(j)(2) of the Act.
     Section 4313 of the Balanced Budget Act of 1997 (BBA) 
(Pub. L. 105-33) amended sections 1124(a)(1) and 1124A of the Act to 
require disclosure of both the Employer Identification Number (EIN) and 
Social Security Number (SSN) of each provider or supplier, each person 
with ownership or control interest in the provider or supplier, any 
subcontractor in which the provider or supplier directly or indirectly 
has a 5 percent or more ownership interest, and any managing employees 
including Directors and Board Members of corporations and non-profit 
organizations and charities. The ``Report to Congress on Steps Taken to 
Assure Confidentiality of Social Security Account Numbers as Required 
by the Balanced Budget Act'' was signed by the Secretary and sent to 
the Congress on January 26, 1999. This report outlines the provisions 
of a mandatory collection of SSNs and EINs effective on or after April 
26, 1999.
     Section 31001(i)(1) of the Debt Collection Improvement Act 
of 1996 (DCIA) (Pub. L. 104-134) amended section 7701 of 31 U.S.C. by 
adding paragraph (c) to require that any person or entity doing 
business with the Federal Government must provide their Tax 
Identification Number (TIN).
     Section 936(j)(1)(A) of the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173) 
amended the Act to require the Secretary to establish a process for the 
enrollment of providers of services and suppliers.
    We are authorized to collect information on the Medicare enrollment 
application (that is, the CMS-855, (Office of Management and Budget 
(OMB) approval number 0938-0685)) to ensure that correct payments are 
made to providers and suppliers under the Medicare program as 
established by Title XVIII of the Act.

B. Historical Enrollment Initiatives

    For many years, concern about easy entry into the Medicare program 
by unqualified or even fraudulent providers or suppliers has led us to 
increase our efforts to establish more stringent controls on provider 
and supplier entry into the Medicare program. The following is a 
summary of the regulations that we have published to ensure that only 
qualified providers and suppliers are participating in the Medicare 
program.
    In the October 11, 2000 Federal Register, we published the 
Additional Supplier Standards final rule with comment period where we 
listed the durable medical equipment, prosthetics, orthotics, and 
supplies (DMEPOS) suppliers. In this rule, we established additional 
standards that a DMEPOS supplier must comply with in order to receive 
and maintain a Medicare billing number. This final rule with comment 
period outlined the supplier requirements to ensure that suppliers of 
DMEPOS are qualified to furnish DMEPOS items and to help safeguard the 
Medicare program and its beneficiaries from fraudulent or abusive 
billing practices.
    In the April 21, 2006 Federal Register, we published the 
Requirements for Providers and Suppliers to Establish and Maintain 
Medicare Enrollment final rule. This final rule implemented section 
1866(j)(1)(A) of the Act. In this final rule, we required that all 
providers and suppliers (other than physicians or practitioners who 
have elected to ``opt-out'' of the Medicare program) must complete an 
enrollment form and submit specific information to CMS in order to 
obtain Medicare billing privileges. This final rule also required that 
all providers and suppliers must periodically update and certify the 
accuracy of their enrollment information to receive and maintain 
billing privileges in the Medicare program. These statutory provisions 
include requirements meant to protect beneficiaries and the Medicare 
Trust Funds by trying to prevent unqualified, fraudulent or excluded 
providers and suppliers from providing items or services to Medicare 
beneficiaries or billing the Medicare program or its beneficiaries.
    In the April 10, 2007 Federal Register (72 FR 17992), we published 
Competitive Acquisition for Certain Durable Medical Equipment, 
Prosthetics, Orthotics, and Supplies (DMEPOS) final rule implemented 
section 302 of the MMA and established DME competitive bidding. In 
addition, it created incentives for suppliers to provide quality items 
and services while at the same time providing Medicare with reasonable 
prices for payment. This final rule also incorporated provisions from 
section 5101 of the Deficit Reduction Act of 2005, which concerns 
beneficiary ownership of certain DMEs.

II. Provisions of the Proposed Rule

    To ensure that DMEPOS suppliers understand how CMS interprets the 
DMEPOS supplier standards, we are revising certain supplier standards 
specified in Sec.  424.57(c). We are also proposing several new DMEPOS 
supplier standards. We believe that these revisions and additions would 
help to ensure that legitimate DMEPOS suppliers are furnishing items of 
DMEPOS to Medicare beneficiaries.

A. Proposed Clarifications and Revisions of Existing DMEPOS Supplier 
Standards

    The supplier standard at Sec.  424.57(c)(1) states, ``Operates its 
business and furnishes Medicare-covered items in compliance with all 
applicable Federal and State licensure and regulatory requirements.''
    The purpose of this standard is to ensure that DMEPOS suppliers 
obtain and maintain the necessary State licenses required to furnish 
the services provided to Medicare beneficiaries. In addition, we 
believe that each DMEPOS supplier is responsible for determining what 
licenses are required to operate a DMEPOS supplier's business. While 
the NSC maintains information regarding State licensure laws, we do not 
believe that the NSC is responsible for notifying any supplier of what 
licenses are

[[Page 4506]]

required or that any changes have occurred in the State licensing 
requirements. Further, we do not believe that there are any exceptions 
to State licensing requirements, unless the State in which the DMEPOS 
supplier furnishes services provides for such an exception. If a State 
requires a specific license to furnish certain services, we believe 
that a DMEPOS supplier cannot contract with an individual or other 
entity to provide these licensed services, but rather, the DMEPOS 
supplier could hire the individual as a W-2 employee. The owner of the 
supplier, or full-time W-2 employee, must obtain and maintain this 
licensing requirement. We are proposing to revise this supplier 
standard by adding language to clarify that a DMEPOS supplier must be 
licensed to provide licensed service(s) and cannot contract with an 
individual or entity to provide the licensed service(s). We believe 
that we are enrolling DMEPOS suppliers, not third party agents that 
subcontract their operations to suppliers that are not enrolled or 
cannot enroll in the Medicare program. Therefore, to ensure that only 
qualified suppliers are enrolled or maintain enrollment in the Medicare 
program, we maintain that a DMEPOS supplier must be licensed to provide 
licensed service(s) and cannot contract with an individual or entity to 
provide the licensed service(s).
    In general, to ensure compliance, the NSC verifies that DMEPOS 
suppliers meet the supplier standards in Sec.  424.57, comply with 
State business and product licensing requirements, and meet applicable 
local zoning requirements.
    The supplier standard at Sec.  424.57(c)(7) specifies that the 
DMEPOS supplier maintains a physical facility on an appropriate site 
and that the physical facility must contain space for storing business 
records including the supplier's delivery, maintenance, and beneficiary 
communication records. We are proposing to revise this standard to 
require that DMEPOS suppliers maintain business records for 7 years 
after the claim has been paid and to clarify the term, ``appropriate 
site.'' An appropriate site includes, but is not limited to, the 
following features:
     The supplier location must be accessible during posted 
business hours to beneficiaries and to CMS, and must maintain a visible 
sign and posted hours of operation. We believe that all DMEPOS 
suppliers must have a permanent, durable sign that is visible at the 
main entrance of the facility and positioned so that it is visible to 
the public, including customers using wheelchairs.
     The supplier location must be accessible during posted 
hours of operation to beneficiaries and to CMS, and must maintain a 
permanent visible sign in plain view and posted hours of operation. We 
believe that DMEPOS suppliers must have its hours of operation posted 
and in plain view and that suppliers submit changes to their posted 
hours of operation in advance of any change by notifying the NSC via 
the Medicare enrollment application. If the supplier's place of 
business is located within a building complex, the sign must be visible 
at the main entrance of the building where the place of business is 
located.
     The supplier's place of business must be staffed during 
the supplier's posted hours of operation. The supplier's place of 
business must be accessible to the public, CMS, the NSC and any of its 
agents during the supplier's posted hours of operation regardless of 
whether beneficiaries routinely visit the facility.
     The supplier's place of business may be a ``closed door'' 
business, such as pharmacies or suppliers providing services only to 
beneficiaries residing in a nursing home, that complies with all 
applicable Federal, State, and local laws and regulations.
    A supplier is not in compliance with this standard if no one is 
available during the posted hours of operation.
    In addition, we believe that an ``appropriate site'' applies to 
``closed door'' businesses, (such as pharmacies/suppliers providing 
services only to beneficiaries residing in a nursing home) and are 
responsible for being in compliance with all applicable Federal, State, 
and local laws and regulations. We believe that ``closed door'' 
businesses must comply with all the requirements of Sec.  424.57(c)(7), 
and all DMEPOS supplier standards. Additionally, the facility has to be 
accessible to beneficiaries, CMS or its agents regardless of whether 
beneficiaries routinely visit the facility.
    We are soliciting comments on whether we should establish a minimum 
square footage requirement to the definition of an appropriate site and 
what, if any, appropriate exceptions would apply to a minimum square 
footage requirement.
    The supplier standard at Sec.  424.57(c)(8) states, ``Permits CMS, 
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 posted business hours to beneficiaries and to 
CMS, and must maintain a visible sign and posted hours of operation.'' 
We are proposing to revise (c)(8) to limit the provision to on-site 
inspection. The proposed revision would read as follows: ``Permits CMS, 
the NSC, or agents of CMS or the NSC to conduct on-site inspections to 
ascertain supplier compliance with the requirements of this section.'' 
If the NSC or its agents are unable to perform a site visit during a 
supplier's posted business hours, the NSC would deny billing privileges 
for prospective applicants or would revoke the billing privileges of 
DMEPOS suppliers enrolled in the Medicare program.
    The supplier standard at Sec.  424.57(c)(9) states, ``Maintains a 
primary business telephone listed under the name of the business 
locally or toll-free for beneficiaries. The exclusive use of a beeper 
number, answering service, pager, facsimile machine, car phone, or an 
answering machine can not be used as the primary business telephone for 
purposes of this regulation.'' We are proposing to revise this supplier 
standard to exclude the use of cell phones and beepers/pagers as a 
method of receiving calls or using ``call forwarding'' to forward a 
call to a cell phone or beeper/pager from the public or beneficiaries 
during the supplier's posted hours of operation. Therefore, we are 
proposing to revise this standard to read, ``Maintains a primary 
business telephone that is operating at the appropriate site listed 
under the name of the business locally or toll-free for beneficiaries. 
The use of cellular phones, beeper numbers, and pagers is prohibited. 
Additionally, DMEPOS suppliers are prohibited from forwarding calls 
from the primary business telephone listed under the name of the 
business to a cellular phone, or a beeper/pager. The exclusive use of 
answering machines, answering services or facsimile machine (or 
combination of these options) cannot be used as the primary business 
telephone during posted operating hours.'' We maintain that DMEPOS 
suppliers who are utilizing cell phones, call forwarding, beeper 
numbers, pagers, answering services or other methods to receive 
telephone calls in a location other than the place of business for 
business calls during their posted hours of operations are not in 
compliance with this standard and that DMEPOS suppliers who exclusively 
use answering machines or answering services during their posted hours 
of operations are not in compliance with this standard.
    The supplier standard at Sec.  424.57(c)(10) states, ``has a 
comprehensive liability insurance policy in the amount of at least 
$300,000 that covers both the supplier's

[[Page 4507]]

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.'' We are proposing to revise this provision to specify that the 
DMEPOS supplier has a comprehensive liability insurance policy in the 
amount of at least $300,000 per incident that covers both the 
supplier's place of business and all customers and employees of the 
supplier and ensures that insurance policy must remain in force at all 
times. The DMEPOS supplier must list the NSC as a certificate holder on 
the policy and notify the NSC in writing within 30 days of any policy 
changes or cancellations. 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. DMEPOS suppliers are 
responsible for providing the contact information of an individual 
employed with the underwriter.'' While the NSC routinely verifies 
comprehensive insurance coverage with an insurance agent, it may be 
necessary to contact the underwriter to verify the policy's coverage. 
Specifically, the NSC may need to verify insurance coverage with an 
underwriter when: (1) Self-insurance is used; or (2) when the NSC 
believes that the insurance agent is misrepresenting the terms and 
conditions of coverage. This would not preclude the use of self-
insurance to demonstrate compliance with the comprehensive liability 
insurance policy as long as CMS or the NSC can verify the policy and 
its coverage provisions with an independent underwriter. Therefore we 
are also proposing that to add a provision stating that self-insurance 
may be used to demonstrate compliance with the comprehensive liability 
insurance policy as long as CMS or the NSC can verify the policy and 
its coverage provisions with an independent underwriter.
    DMEPOS suppliers are responsible for providing the contact 
information of an individual employed with the underwriter, who can 
verify coverage. To ensure that coverage is actually issued and the 
policy is in effect, we believe that the NSC should be able to verify 
policy coverage with an insurance agent, or when necessary, the 
underwriter, since this is the company affording coverage. This 
proposed revision would not preclude the use of self-insurance to 
demonstrate compliance with the comprehensive liability insurance 
policy as long as CMS or its designated contractor can verify the 
policy and its coverage provisions with an independent underwriter.
    Moreover, we propose that a DMEPOS supplier obtain the appropriate 
liability coverage prior to submitting its Medicare enrollment 
application and supporting documentation to the NSC. (When a policy is 
issued, up to 90 days may pass before the underwriter receives 
notification that the policy has been issued by the insurance agent or 
broker.) In addition, we believe if the NSC is unable to verify the 
issuance and validity of liability insurance with an insurance agent, 
or when necessary, an underwriter at the time of filing, then the NSC 
should deny Medicare billing privileges without further action, 
including an onsite review. Accordingly, the NSC must be able to verify 
the issuance and validity of a DMEPOS liability insurance policy on the 
day a prospective DMEPOS supplier submits a Medicare enrollment 
application to the NSC for review. If the NSC is unable to verify the 
issuance and validity of a liability insurance policy with an insurance 
agent, or when necessary, the underwriter for a DMEPOS supplier 
enrolled in the Medicare program, then the NSC may revoke the billing 
privileges of that supplier.
    In addition, we believe that it is the responsibility of the DMEPOS 
supplier to list the NSC as a certificate holder on the policy. By 
listing the NSC as a certificate holder on the policy, the NSC would be 
able to verify coverage with the underwriter. A DMEPOS supplier who 
fails to list the NSC as a certificate holder on the policy may have 
their enrollment application denied or billing privileges revoked 
because the NSC may not be able to verify the issuance and validity of 
the policy. Finally, we believe that it is the DMEPOS supplier's 
responsibility to: (1) Ensure that insurance policy must remain in 
force at all times and provide coverage of at least $300,000 per 
incident; and (2) notify the NSC in writing within 30 days of any 
policy changes or cancellations.
    The supplier standard at Sec.  424.57(c)(11) states, ``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; and (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.'' We are proposing to revise this supplier standard to clarify 
that suppliers can not directly solicit patients, which includes, but 
is not limited to, a prohibition on telephone, computer e-mail or 
instant messaging, coercive response internet advertising on sites 
unrelated to DMEPOS products, or in-person contacts. The DMEPOS 
supplier may only contact the Medicare beneficiary under the current 
provisions at Sec.  424.57(c)(11)(i) through (iii). We believe that if 
CMS or the NSC through on-site inspection obtains or develops evidence 
that a DMEPOS supplier has made prohibited contacts with Medicare 
beneficiaries in violation of the provisions found in this section that 
CMS or the NSC may revoke that supplier's billing privileges, and may 
determine if such billing may be for fraudulent or unnecessary 
supplies.
    The supplier standard at Sec.  424.57(c)(12) currently states that 
the supplier 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. We are proposing to revise paragraph (c)(12) provision to 
clarify its intent. A DMEPOS supplier--
     Is responsible for maintaining proof of the delivery in 
the beneficiary's file;
     The supplier must furnish information to beneficiaries at 
the time of delivery of items as to how the beneficiary can contact the 
supplier by telephone;
     Must provide the beneficiary with instructions on how to 
safely and effectively use the equipment or contract this service to a 
qualified individual;
     Is responsible for providing instruction on the safe and 
effective use of the equipment that should be completed at the time of 
delivery; and

[[Page 4508]]

     Must document that this instruction has taken place.
    We believe that a DMEPOS supplier is solely responsible for 
delivery of Medicare-covered items and for instruction on the use of 
those items. While we believe that a DMEPOS supplier may choose to 
contract out the delivery of Medicare-covered items to another 
individual or entity, the DMEPOS supplier has ultimate responsibility 
for ensuring delivery in accordance with this standard and for 
maintaining all necessary documentation to demonstrate that the 
beneficiary received the Medicare-covered item and appropriate 
instructions for its use. We believe that our revised interpretation of 
this section will help to ensure that instructions for the safe and 
appropriate use of products will be given to beneficiaries.

B. Proposed New DMEPOS Supplier Standards

    At Sec.  424.57(c)(27), we are proposing a new standard that 
specifies that the DMEPOS supplier must obtain oxygen from a State-
licensed oxygen supplier. To ensure that DMEPOS suppliers meet and 
maintain this standard, we believe that DMEPOS suppliers who are 
supplying oxygen must contract with a supplier licensed by the State to 
provide them with oxygen. Obviously, this standard does not apply when 
the State does not license oxygen suppliers. We understand that in 
certain areas, DMEPOS suppliers may obtain oxygen from oxygen suppliers 
in other States. However, when a DMEPOS supplier is located in a State 
where licensure is required, then they must obtain their oxygen from a 
state-licensed oxygen supplier, regardless of which State the oxygen 
supplier obtained their licensure. For example in State A, a license is 
required when supplying oxygen. If a DMEPOS supplier located in State A 
is supplying oxygen, they must get their oxygen from a state-licensed 
oxygen supplier. To extend this example, in State B, where no license 
is required for an oxygen supplier, a DMEPOS supplier may obtain their 
oxygen from a non-licensed supplier within State B, or a licensed 
supplier (in a State where you must have a State license to supply 
oxygen), or from a non-State-licensed supplier outside of State B 
(where there is no State license required for supplying oxygen). We 
believe that this standard would help to protect Medicare beneficiaries 
and promote quality in the furnishing of oxygen.
    At Sec.  424.57(c)(28), we are proposing a new supplier standard 
that states that the supplier is required to maintain ordering and 
referring documentation, including the National Provider Identifier, 
received from a physician, nurse practitioner, physician assistant, 
clinical social worker, or certified nurse midwife, for 7 years after 
the claim has been paid. Since all DMEPOS supplies are ordered and 
referred by physicians, nurse practitioners, physician assistants, 
clinical social workers, or certified nurse midwives, we believe that 
it is essential that DMEPOS suppliers maintain documentation regarding 
the specific individual who ordered or referred a Medicare beneficiary 
for DMEPOS. In addition, we are codifying the requirement to maintain 
ordering and referring documentation for 7 years as required in 
Publication 100-08, Chapter 5, Section 8.
    We maintain that a DMEPOS supplier should retain the necessary 
ordering and referring documentation received from physicians, nurse 
practitioners, physician assistants, clinical social workers, or 
certified nurse midwives to assure themselves that coverage criterion 
for an item has been met. If the information in the patient's medical 
record does not adequately support the medical necessity for the item, 
the supplier is liable for the dollar amount involved unless a properly 
executed Advance Beneficiary Notice of possible denial has been 
obtained.
    At Sec.  424.57(c)(29), we are proposing a new standard that 
specifies that the supplier is prohibited from sharing a practice 
location with another Medicare supplier. DMEPOS suppliers may not share 
a practice location with any other Medicare supplier, including a 
physician/physician group or another DMEPOS supplier. We believe that 
allowing DMEPOS suppliers to commingle practice locations, operations, 
staff, inventory and other aspects of supplier's operations constitutes 
a significant risk to the Medicare program. Moreover, to allow a DMEPOS 
supplier to commingle its practice location with another DMEPOS 
supplier effectively limits the ability of CMS and the NSC to ensure 
that each DMEPOS supplier meets all of the supplier standards specified 
at Sec.  424.57. Finally, we do not believe that legitimate DMEPOS 
suppliers routinely share practice locations with another Medicare 
supplier.
    Since we are aware that physicians and other licensed nonphysician 
practitioners may obtain their own DMEPOS supplier number and furnish 
DMEPOS from their office, we are soliciting comments on whether we 
should establish an exception to this space sharing proposal for 
physicians and nonphysician practitioners and the circumstances which 
warrant an exception.
    At Sec.  424.57(c)(30), we are proposing a new supplier standard 
that specifies, ``Is open to the public a minimum of 30 hours per week, 
except for those DMEPOS suppliers who are working with custom-made or 
fitted orthotics and prosthetics.'' We are proposing this new standard 
because the NSC has found that a number of existing DMEPOS suppliers 
have posted restrictive or limited business hours, and in some cases, 
have posted business hours that are so restrictive that it makes it 
nearly impossible for a NSC to conduct on onsite visit or for a 
beneficiary or the public to obtain DMEPOS services. Since we question 
the legitimacy of any DMEPOS supplier with posted operating hours of 
less than 4 hours a day, we are proposing to establish a minimum number 
of operational hours for DMEPOS suppliers. Moreover, we believe that 
most legitimate DMEPOS suppliers are open to the public at least 30 
hours per week. We believe that most legitimate DMEPOS suppliers are 
open to the public for more than 40 hours per week and that all 
legitimate DMEPOS would need to be open a minimum of at least 30 hours 
per week (either 6 hours a day, 5 days a week or 5 hours a day, 6 days 
a week) in order to attract, retain and serve Medicare beneficiaries. 
We believe that a minimum number of operating hours will help to ensure 
that DMEPOS suppliers are open to the public and are able to serve the 
needs of Medicare beneficiaries. Given that Medicare beneficiaries may 
not be able to find transportation during limited operating hours, the 
DMEPOS supplier must be open and available for periods long enough for 
beneficiaries to readily access their facility. To ensure that DMEPOS 
suppliers are able to report any change in their posted business hours, 
we are proposing to revise the CMS-855S Medicare enrollment application 
to accommodate this proposed change.
    At Sec.  424.57(c)(31), we propose adding a new supplier standard 
that specifies, ``Does not have an Internal Revenue Service (IRS) or a 
State taxing authority tax delinquency.'' Currently, we do not consider 
whether a DMEPOS supplier that is seeking enrollment or one that is 
currently enrolled in the Medicare program has an IRS or a State taxing 
authority tax delinquency. To ensure that Medicare payments are only 
being made to organizations and individuals who have satisfied existing 
tax debts, we will have a basis to revoke the billing privileges of a 
DMEPOS supplier, including physicians and nonphysician

[[Page 4509]]

practitioners who are also enrolled as a DMEPOS supplier, that has 
failed to comply with this standard.
    The Government Accountability Office (GAO) found that over 21,000 
of the physicians, health professionals, and suppliers paid under 
Medicare Part B during the first 9 months of calendar year 2005 had tax 
debts totaling over $1 billion. The GAO report titled, ``Medicare, 
Thousands of Medicare Part B Providers Abuse the Federal Tax System 
(GAO-07-587T)'' found abusive and potentially criminal activity, 
including failure to remit to IRS individual income taxes or payroll 
taxes or both withheld from their employees.
    Moreover, we are proposing to revise the Medicare enrollment 
application (that is, CMS-855S) to require that DMEPOS suppliers: (1) 
Certify that the supplier does not have an IRS or a State taxing 
authority tax delinquency; and (2) consent to having CMS or its 
designated contractor verify that the information submitted by a DMEPOS 
supplier regarding a tax delinquency is correct and accurate as 
determined by the IRS or State taxing authority. We believe that this 
change will allow CMS and its designated contractors to verify that the 
information submitted by a DMEPOS supplier is accurate.
    We would propose to define a ``tax delinquency'' as meaning an 
amount of money owed to the United States or a State: A conviction or 
civil judgment for tax evasion, a criminal or civil charge of tax 
evasion, or the filing of a tax lien.
    In Sec.  424.57(d), we would redesignate the current text as 
paragraph (d)(1). We would add a new paragraph (d)(2) specifying that 
``CMS, the NSC, or CMS designated contractor establishes a Medicare 
overpayment from the date of an adverse legal action or felony 
conviction (including felony convictions within the 10 years preceding 
enrollment or revalidation of enrollment) that precludes payment.'' In 
addition, we are proposing that any overpayment assessed by CMS or its 
designated contractor due to a lack of reporting would follow the 
existing rules governing Medicare overpayments set forth at Sec.  
405.350 et seq.
    We believe that proposed Sec.  424.57(d)(2) is necessary because 
some DMEPOS suppliers fail to report adverse legal actions and felony 
convictions to the NSC within the 30 days of the reportable event. 
Since it is essential that DMEPOS suppliers notify the NSC of all 
adverse legal actions and felony convictions within 30 days of the 
reportable event, we believe that it is essential to establish this new 
provision. This new provision would allow the CMS, the NSC, or a 
designated Medicare contractor the authority to assess and collect an 
overpayment from the time of the reportable event. In addition, the 
CMS, the NSC, or a designated CMS contractor would revoke the DMEPOS 
supplier's Medicare billing privileges, in accordance with Sec.  
424.57(d)(1), if the adverse legal action or felony conviction 
precludes participation in or payment from the Medicare program.

III. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA), 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 PRA requires 
that we solicit comments 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.
    We are soliciting public comment on each of the following issues 
pertaining to the information collection requirements contained in this 
proposed rule.
    Section II.A. of this proposed rule provides proposed 
clarifications and revisions of the existing DMEPOS supplier standards. 
The following is a discussion of the information collection 
requirements contained in the Sec.  424.57(c) that are clarified and 
revised by this proposed rule.
    Section II.A. of this proposed rule provides proposed 
clarifications of the information collection requirements contained in 
Sec.  424.57(c)(1). The standard at Sec.  424.57(c)(1) states that a 
supplier must operate its own business and furnish Medicare-covered 
items in compliance with all applicable Federal and State licensure and 
regulatory requirements. As stated in section II.A. of this proposed 
rule, the purpose of this standard is to ensure that DMEPOS suppliers 
obtain and maintain the necessary State licenses required to furnish 
services provided to Medicare beneficiaries. While there is burden 
associated with complying with this standard, we believe it is exempt 
from the PRA as stated in 5 CFR 1320.3(b)(3). A collection of 
information conducted or sponsored by a Federal agency that is also 
conducted or sponsored by a unit of State, local, or tribal government 
is presumed to impose a Federal burden except to the extent that the 
agency shows that such State, local, or tribal requirement would be 
imposed even in the absence of a Federal requirement.
    In addition, we believe the burden associated with the maintenance 
of the required documentation is exempt from the PRA as stated in 5 CFR 
1320.3(b)(2), to the extent that the time, effort, and financial 
resources necessary to comply with collection of information that would 
be incurred by persons in the normal course of their activities. 
Maintaining State license documentation is part of usual and customary 
business practices.
    In Sec.  424.57(c)(12)(ii) we propose to specify that a supplier 
must furnish information to beneficiaries at the time of delivery of 
items on how the beneficiary can contact the supplier by telephone. The 
burden associated with complying with the standard is the time and 
effort required for the supplier to provide its contact information to 
beneficiary at the time of delivery of the Medicare-covered item(s). 
While the burden is subject to the PRA, we believe it is exempt under 5 
CFR 1320.3(b)(2) to the extent that the time, effort, and financial 
resources necessary to comply with collection of information that would 
be incurred by persons in the normal course of their activities.
    In Sec.  424.57(c)(32), we are proposing that each supplier must 
report changes in hours of operation to the NSC 15 calendar days prior 
to the proposed change. The burden associated with this requirement is 
the time and effort associated with notifying the NSC of the change in 
hours of operation. We estimate that 1,000 suppliers will be subject to 
this requirement. The estimated time required to report the information 
to the NSC is 10 minutes. The estimated total annual burden associated 
with this requirement is 167 hours.
    Section 424.57(c)(10)(iii) states that with respect to liability 
insurance, it is the responsibility of the DMEPOS supplier to, 
``promptly notify the NSC in writing of any policy changes or 
cancellations.'' The burden associated with this requirement is the 
time and effort associated with drafting and submitting notification to 
the NSC of any policy changes or cancellations. While this burden is 
subject to the PRA, we believe it is exempt under 5 CFR 1320.3(h)(6). 
Facts or opinions collected from a single person or entity are not

[[Page 4510]]

subject to the PRA. The aforementioned information collection request 
will be reviewed on a case by case basis, as they submitted individual 
DMEPOS suppliers.
    Section 424.57(c)(12) states that a supplier, ``Must be responsible 
for the delivery of Medicare-covered items to beneficiaries and 
maintain proof of delivery.'' In addition, the supplier must, 
``Document that it or another qualified party has at an appropriate 
time, provided beneficiaries with information and instructions on how 
to use the Medicare-covered items safely and effectively.'' This 
standard imposes reporting and recordkeeping requirements.
    The burden associated with this section is the time and effort 
required to: Document the delivery of the Medicare-covered item; 
document the provision of information or instructions to the 
beneficiary by the supplier itself or another qualified party; maintain 
the documentation of delivery of the Medicare-covered items and the 
necessary information and instructions. The burden associated with 
these requirements is subject to the PRA. However, we believe it is 
exempt under 5 CFR 1320.3(b)(2) to the extent that the time, effort, 
and financial resources necessary to comply with collection of 
information that would be incurred by persons in the normal course of 
their activities.
    If you comment on any of these information collection and 
recordkeeping requirements, please mail copies directly to the 
following:

Centers for Medicare & Medicaid Services, Office of Strategic 
Operations and Regulatory Affairs, Regulations Development Group Attn.: 
William Parham, CMS-6036-P Room C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850; and
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, New Executive Office Building, Washington, DC 
20503. Attn.: Carolyn Lovett, CMS Desk Officer, CMS-6036-P, [email protected]. Fax (202) 395-6974.

IV. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, 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, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

V. Regulatory Impact Statement

    We have examined the impact of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on 
Federalism, and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts; and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year). This rule 
does not reach the economic threshold and thus is not considered a 
major rule.
    To ensure that Medicare is making correct payments to only 
legitimate DMEPOS suppliers, we implemented a comprehensive payment and 
enrollment strategy. This strategy includes developing and implementing 
the statutorily mandated competitive bidding program, making revisions 
to the National Supplier Clearinghouse contract, implementing a DMEPOS 
demonstration project, and publishing a proposed rule that would 
require DMEPOS suppliers to obtain a surety bond.
    We began implementation of the statutorily mandated competitive 
bidding program (72 FR 17992) for DMEPOS suppliers on April 10, 2007. 
Competitive bidding changes the way that Medicare pays for certain 
DMEPOS categories under Part B of the Medicare program by using bids 
submitted by DMEPOS suppliers to establish payment amounts. Beginning 
in 2007, we initiated and began implementation of the program which 
initially involves ten product categories in the first Metropolitan 
Statistical Areas. We have received bids and anticipate contract awards 
in 2008. In addition, DMEPOS suppliers will be required to submit bids 
for all items within a product category for which they are bidding. The 
product categories and bid items may vary by competitive bidding area 
(CBAs). For 2007, using 2005 data and the item selection criteria in 
the competitive bidding regulation, we selected the following items for 
competitive bidding: (1) Oxygen supplies and equipment; (2) standard 
power wheelchairs, scooters, and related accessories; (3) complex 
rehabilitative power wheelchairs and related accessories; (4) mail-
order diabetic supplies; (5) enteral nutrients, equipment, and 
supplies; (6) continuous positive airway pressure (CPAP) devices, 
respiratory assist devices (RADs), and related accessories; (7) 
hospital beds and related accessories; (8) negative pressure wound 
therapy (NPWT) pumps and related accessories; (9) walkers and related 
accessories; and (10) support surfaces (group 2 and 3 mattresses and 
overlays).
    The statute requires that competition under the program begin in 10 
of the largest Metropolitan Statistical Areas (MSAs) and then expand to 
70 additional MSAs during the second phase of implementation. 
Additional competitive bidding areas will then be phased in over time. 
The final rule requires a formula-driven methodology for selecting the 
80 MSAs for the first two phases of implementation and it will be 
sometime after 2008 before DMEPOS suppliers will participate in the 
competitive bidding initiative in these 80 MSAs and only for the 
product categories that are included in the first two phases of 
implementation.
    It is important to note while competitive bidding will reduce the 
number of DMEPOS suppliers eligible for payment of selected product 
categories, competitive bidding will not totally prevent unscrupulous 
DMEPOS suppliers from gaining entry into the program and fraudulently 
billing for any of those products. Accordingly, it is essential that we 
further develop and implement administrative and regulatory changes 
which prevent unscrupulous DMEPOS suppliers from enrolling or 
maintaining their enrollment in the Medicare program. To this end, we 
have implemented the following administrative changes and are seeking 
comments on mandated DMEPOS surety bonding requirements.
    As part of our administrative change, we revised the contract with 
the National Supplier Clearinghouse (NSC) in FY 2008 and are currently 
recompeting this contract through full and open competition. The 
revised contract requires that the NSC conduct and increase the number 
of site visits to ensure that DMEPOS suppliers are in compliance with 
the provisions found at Sec.  424.57. We are also expanding the funding 
for NSC operations to support the increased number of sites visits. 
These expanded measures will help to ensure that only legitimate DMEPOS 
suppliers are enrolled or maintain

[[Page 4511]]

enrollment in the Medicare program. In addition, we announced plans on 
June 28, 2007, to implement a 2-year demonstration involving DMEPOS 
suppliers. The goal of this initiative is to strengthen our ability to 
detect and prevent fraudulent activity and will focus specifically on 
DMEPOS suppliers in South Florida and the Los Angeles metropolitan 
area. Based on the findings of this initiative, we will determine if 
the administrative processes and procedures used in this demonstration 
should be expanded to other parts of the country.
    On August 1, 2007, we published a proposed rule (72 FR 42001) which 
would implement Section 4312(a) of the Balanced Budget Act of 1997 
(BBA) by requiring all Medicare DMEPOS suppliers to furnish CMS with a 
surety bond. The public comment period for this proposed rule closed on 
October 1, 2007, and CMS is currently reviewing these comments.
    Accordingly, while the activities described above will promote 
compliance with the existing supplier standards and reduce payments for 
suppliers selected under competitive bidding, these activities do not 
supply CMS and the NSC with the needed authority to deny or revoke 
billing privileges to those DMEPOS suppliers that pose a significant 
risk to the program. Therefore, we believe that the provisions of this 
proposed rule are essential in expanding upon and strengthening the 
supplier standards in order to ensure that only legitimate suppliers 
are enrolled or maintain enrollment in the Medicare program.
    The RFA requires agencies to analyze options for regulatory relief 
for small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and government agencies. 
Most hospitals and most other providers and suppliers are small 
entities, either by nonprofit status or by having revenues of $6.5 to 
$31.5 million in any one year. Individuals and States are not included 
in the definition of a small entity.
    We are not preparing an analysis for the RFA because we because we 
are certifying that this rule will not have a significant economic 
impact on a substantial number of small entities. We have determined 
that the RFA is reasonable given that the provisions contained in this 
proposed rule are primarily procedural and do not require DMEPOS 
suppliers to incur additional operating costs. We also believe that the 
regulatory impact of this proposed rule is negligible and not 
calculable. We maintain that this proposed rule would not have an 
adverse impact on a significant number of small entities because we 
believe that these suppliers are operating on standard business 
practices and therefore are already in compliance with these proposed 
standards. Since we believe that a significant number of small entities 
currently meet each of the revised or new proposed standard, we do not 
have information available to calculate the economic impact of any 
individual or combination of proposals would have on small entities. 
This proposed rule would merely clarify, expand, and update our current 
policy found in the DMEPOS supplier standards currently covered under 
Sec.  424.57. Therefore, we anticipate a minimal economic impact, if 
any, on small entities. We are soliciting public comment regarding any 
specific impacts that these proposed provisions will have on suppliers. 
To encourage such comments we are providing the public with the 
relevant data that we possess on DMEPOS suppliers.
    The following table examines the allowed charges to the unique 
billing numbers (a DMEPOS supplier may have multiple locations, for 
example, a chain organization, but use only one unique billing number), 
the vast majority of DMEPOS suppliers are small entities (based on 
Medicare reimbursement alone).

   Table 1.--Total Number of Suppliers Arranged by Allowed Charges for
                            Dates of Service
     [January through December 2005 based on Unique Billing Numbers]
------------------------------------------------------------------------
                                                             Number of
                                             Number of        DMEPOS
                                             suppliers       suppliers
             Allowed charge                 reimbursed      reimbursed
                                              for DME       for non-DME
                                                               only
------------------------------------------------------------------------
$0......................................           2,016           4,655
$0.01-$999..............................           2,544           6,624
$1,000-$2,499...........................           2,099           4,993
$2,500-$4,999...........................           2,285           4,459
$5,000-$9,999...........................           2,964           4,153
$10,000-$24,999.........................           4,568           4,328
$25,000-$49,999.........................           3,378           2,100
$50,000-$99,999.........................           2,780           1,245
$100,000-$499,999.......................           5,955           1,191
$500,000-$999,999.......................           1,762             220
$1,000,000-$4,999,999...................           1,345             105
$5,000,000 or more......................             208               7
                                         -------------------------------
    Total...............................          31,904          34,080
------------------------------------------------------------------------

    In reviewing the table above, the term, durable medical equipment 
(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). Also, the term 
DME is included in the definition of ``medical and other health 
services'' at section 1861(s)(6) of the Act. Furthermore, the term is 
defined in Sec.  414.202 as equipment furnished by a supplier or a HHA 
that--
     Can withstand repeated use;
     Is primarily and customarily used to serve a medical 
purpose;
     Generally is not useful to an individual in the absence of 
an illness or injury; and
     Is appropriate for use in the home.

Examples of DMEPOS supplies include items such as blood glucose 
monitors, hospital beds, nebulizers, oxygen delivery systems, and 
wheelchairs.

[[Page 4512]]

    Conversely, suppliers of non-DME only refers to items or services 
furnished by prosthetics, orthotist, and supplies found in section 
1861(s)(5) of the Act.
    As of April 2007, there were 116,471 individual DMEPOS suppliers. 
However, due to the affiliation of some DMEPOS suppliers with chains, 
there were only approximately 65,984 unique billing numbers (31,904 + 
34,080). We believe that approximately 30 percent of the 116,000 DMEPOS 
suppliers are located in rural areas.
    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. This 
analysis must conform to the provisions of section 603 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 100 beds. We are not preparing an 
analysis for section 1102(b) of the Act because we have determined that 
this proposed rule will not have a significant impact on the operations 
of a substantial number of small rural hospitals. We understand that a 
large number of DMEPOS suppliers fall into this category, however these 
proposed provisions are procedural in nature and we expect that 
legitimate DMEPOS suppliers are already meeting these provisions.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in expenditure in any 1 year by State, 
local, or tribal governments, in the aggregate, or by the private 
sector, of $120 million. That threshold is currently approximately $127 
million. This rule does not mandate expenditures by State, local, or 
tribal governments, in the aggregate, or by the private sector of $127 
million and therefore no analysis is required.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. Since this regulation does not impose any costs on State 
or local governments, the requirements of E.O. 13132 are not 
applicable.
    We anticipate that this rule would codify certain procedural 
policies contained in the Program Integrity Manual (PIM) that DMEPOS 
suppliers already are supposed to adhere to, and that legitimate DMEPOS 
suppliers should already be meeting. By establishing the standards in 
this rule, we are establishing our authority to deny or revoke the 
Medicare billing privileges of DMEPOS suppliers that have failed to 
comply with one or more of these supplier standards.
    We have considered alternatives to all of the proposed provisions, 
however only one of the provisions considered lends itself to other 
options. Initially, we considered establishing a 40-hour requirement 
for a DMEPOS supplier's hours of operation since most businesses are 
open to the public for a minimum of 40 hours each week.
    To reduce the burden associated with this provision, but also 
establish a minimum requirement for the hours of operation, we relaxed 
the initial 40-hour requirement to 30 hours per week because we believe 
that this is the minimum amount of time that a DMEPOS supplier is 
required to be open and legitimately operate as a business. We did not 
consider the alternative of not proceeding with the proposed provisions 
because we believe that they are necessary to ensure that only 
legitimate DMEPOS suppliers are enrolling and maintaining enrollment in 
the Medicare program.
    As a result of not having quantifiable data, we cannot effectively 
derive an estimate for the monetary impacts of these provisions. 
Accordingly, we are seeking public comment so that the public may 
provide any data available that provides a calculable impact or any 
alternative to the proposed provisions.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 424

    Emergency medical services, Health facilities, Health 
professionals, Medicare, Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services would amend 42 CFR chapter IV 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).

Subpart D--To Whom Payment is Ordinarily Made

    2. Section 424.57 is amended by--
    A. Adding in paragraph (a) the definition of ``tax delinquency'' in 
alphabetical order.
    B. Revising paragraph (c) introductory text and (c)(1).
    C. Revising paragraphs (c)(7) through (c)(12) and (c)(15).
    D. Adding new paragraphs (c)(26) through (c)(31).
    E. Revising paragraph (d).
    The additions and revisions read as follows:


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

* * * * *
    Tax delinquency means an amount of money owed to the United States 
taxing authority from any individual, entity organization, association, 
partnership or corporation and it can be evidenced through the 
following measures brought by either the United States or a State: a 
conviction or civil judgment for tax evasion, a criminal or civil 
charge of tax evasion, or the filing of a tax lien.
* * * * *
    (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:
    (1) Operates its business and furnishes Medicare-covered items in 
compliance with the following applicable laws:
    (i) Federal regulatory requirements that specify requirements for 
the provision of DMEPOS and ensure accessibility for the disabled.
    (ii) State licensure and regulatory requirements. If a State 
requires licensure to furnish certain items or services, a DMEPOS 
supplier must be licensed to provide the item or service and cannot 
contract with an individual or other entity to provide the licensed 
services.
    (iii) Local zoning requirements.
* * * * *
    (7) Maintains a physical facility on an appropriate site that 
contains space for storing business records (including the supplier's 
delivery, maintenance, and beneficiary communication records) and 
retain the necessary ordering and referring documentation received from 
physicians, nurse practitioners, physician assistants, clinical social 
workers, or certified nurse midwives to assure themselves that coverage 
criterion for an item has been met, to facilitate an on site inspection 
by CMS or the NSC of the supplier's business records or ordering and 
referring documentation. An appropriate site

[[Page 4513]]

includes, but is not limited to, the following:
    (i) Is in a location that is accessible to the public, Medicare 
beneficiaries, CMS, NSC, and its agents. (The location must not be in a 
gated community or other area where access is restricted.)
    (ii) Is accessible and staffed during posted hours of operation.
    (iii) Maintains a permanent visible sign in plain view and posts 
hours of operation. If the supplier's place of business is located 
within a building complex, the sign must be visible at the main 
entrance of the building.
    (iv) May be a ``closed door'' business, such as pharmacies or 
suppliers providing services only to beneficiaries residing in a 
nursing home, that complies with all applicable Federal, State, and 
local laws and regulations. ``Closed door'' businesses must comply with 
all the requirements in Sec.  424.57(c)(7).
    (8) Permits CMS, the NSC, or agents of CMS or the NSC to conduct 
on-site inspections to ascertain supplier compliance with the 
requirements of this section.
    (9) Maintains a primary business telephone that is operating at the 
appropriate site listed under the name of the business locally or toll-
free for beneficiaries. The use of cellular phones, beeper numbers, and 
pagers is prohibited. Additionally, DMEPOS suppliers are prohibited 
from forwarding calls from the primary business telephone listed under 
the name of the business to a cellular phone, or a beeper/pager. The 
exclusive use of answering machines, answering services or facsimile 
machine (or combination of these options) cannot be used as the primary 
business telephone during posted operating hours.
    (10) Has a comprehensive liability insurance policy and meets the 
following insurance-related requirements:
    (i) The comprehensive liability insurance is at least $300,000 per 
incident that covers both the supplier's place of business and all 
customers and employees of the supplier. If the supplier manufactures 
its own items, the insurance must also cover product liability and 
completed operations. Self insurance may be used to demonstrate 
compliance with the comprehensive liability insurance as long as CMS or 
the NSC can verify the policy and its coverage provisions with an 
independent underwriter. Failure to maintain required insurance at all 
times beginning with the date of filing will result in denial or 
revocation of the supplier's billing privileges retroactive to the date 
the insurance lapsed. DMEPOS suppliers are responsible for providing 
the contact information of an individual employed with the underwriter.
    (ii) List the NSC as a certificate holder on the policy.
    (iii) Notify the NSC in writing within 30 days of any policy 
changes or cancellations.
    (11) Agree not to directly solicit patients, which includes, but is 
not limited to, a prohibition on telephone, computer e-mail or instant 
messaging, coercive response internet advertising on sites unrelated to 
DMEPOS products, or in-person contacts. The DMEPOS supplier may only 
contact the Medicare beneficiary when supplying a Medicare-covered item 
and only when one or more of the following applies:
    (i) The individual has given written permission to the supplier to 
contact them 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) Has met the following delivering and beneficiary instruction 
requirements:
    (i) Maintains proof of the delivery in the beneficiary's file.
    (ii) Furnishes information to the beneficiary at the time of 
delivery of items on how the beneficiary can contact the supplier by 
telephone.
    (iii) Provides the beneficiary with instructions on how to safely 
and effectively use the equipment or contract this service to a 
qualified individual.
    (iv) Completes and documents beneficiary instruction on the safe 
and effective use of the equipment at the time of delivery or other 
appropriate time.
* * * * *
    (26) [Reserved]
    (27) Must obtain oxygen from a State-licensed oxygen supplier 
(applicable only to those suppliers in States that require oxygen 
licensure.)
    (28) Is required to maintain ordering and referring documentation, 
including the National Provider Identifier, received from a physician, 
nurse practitioner, physician assistant, clinical social worker, or 
certified nurse midwife, for 7 years after the claim has been paid.
    (29) Is prohibited from sharing a practice location with any other 
Medicare supplier.
    (30) Is open to the public a minimum of 30 hours per week, except 
for those DMEPOS suppliers who are working with custom made or fitted 
orthotics and prosthetics.
    (31) Does not have an Internal Revenue Service (IRS) or a State 
taxing authority tax delinquency.
    (d) Failure to meet standards. (1) Revocation. CMS revokes 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 Sec.  405.874 of this subchapter.
    (2) Overpayments associated with adverse legal action and felony 
convictions. CMS, the NSC or a CMS-designated contractor establishes a 
Medicare overpayment from the date an adverse legal action or felony 
conviction (including felony convictions within the 10 years preceding 
enrollment or revalidation of enrollment) that precludes payment.

    Authority: (Catalog of Federal Domestic Assistance Program No. 
93.773, Medicare--Hospital Insurance; and Program No. 93.774, 
Medicare--Supplementary Medical Insurance Program).

    Dated: May 31, 2007.
Leslie V. Norwalk,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: August 21, 2007.
Michael O. Leavitt,
Secretary.

    Editor's note: This document was received by the Office of the 
Federal Register on January 22, 2008.
[FR Doc. E8-1346 Filed 1-24-08; 8:45 am]
BILLING CODE 4120-01-P