The New Year brings with it some challenging new laws and regulations that will impact the delivery of sleep medicine in 2013 and beyond. These include new fraud and abuse reviews, reimbursement changes, and new collaborations among sleep test providers and suppliers of sleep therapy products from PAP suppliers to licensed dentists.

Home Sleep Testing

Some of the mysteries surrounding home sleep testing (HST) are likely to be resolved in 2013. Chief among these is the relatively low utilization rate of HST in overall sleep testing across the country. This could change in 2013 as more and more commercial insurance carriers prefer HST for the detection of obstructive sleep apnea (OSA).

Labs are likely to face a two-front assault on commercial, in-lab polysomnography in 2013. One comes directly from insurance companies such as United Health Insurance. For example, in late 2011 United announced mandatory precertification for all sleep testing. To cut costs, members who meet certain medical criteria must undergo HST in lieu of the more expensive PSG to be eligible for coverage.

The other HST driver in the commercial insurance realm is the appearance of cost-cutting sleep service management plans developed by medical benefits administrators and marketed to major insurance carriers. Benefits administrators offer cost containment solutions to health insurance companies for specific service lines such as imaging, oncology, and, beginning in earnest in late 2012, sleep medicine.

At least three medical benefits administrators—MedSolutions, AIM Specialty Health, and CareCore—have announced alliances with major health insurance plans to provide comprehensive sleep medicine management services.

These benefits managers will assist their health plan clients to contract with local or national sleep labs for sleep testing. They will then perform utilization reviews to drive use of the more cost-efficient HST for plan members who present with certain clinically indicated conditions.

To extend the savings, some of these administrators will follow plan members through their OSA therapy regime. For example, administrators intend to track covered patients’ PAP compliance in real time using the telemetry capabilities built into newer models of PAP devices. Noncompliant members can be identified immediately for purposes of intervention or for denying further insurance coverage benefits.


The news here is more of the same. Reimbursement for sleep testing looks to remain fairly flat this year. An increase in use of the lower-cost HST in the absence of increased reimbursement could put pressure on stand-alone labs whose only service line is sleep testing.

Dental Sleep Medicine

One bright spot in the reimbursement trend in sleep medicine is the payment rate for oral appliance therapy (OAT). OAT is used to treat mild to moderate sleep apnea by positioning the patient’s jaw during sleep. Because the appliance is an item of durable medical equipment (DME) that requires a licensed dentist to fit and dispense, delivery models for OAT must thread their way through a complex legal framework touching on both the DME supplier and the practice of dentistry.

A threshold legal question in this context is whether dentists may test for and diagnose obstructive sleep apnea in their patients. The answer depends on the scope of the dentist’s practice under state law. Each state has a statute that defines the scope of dental practice. Almost all of these statutes limit the dentist’s medical authority to the patient’s oral cavity, teeth, gingiva, alveolar process, maxilla, mandible, or associated structures for the treatment of diseases of such structures.

The American Academy of Dental Sleep Medicine describes OSA as a medical condition rather than a dental condition. Because OSA is a medical condition affecting activity that is likely beyond those commonly referenced in state practice of dentistry laws, dentists are typically not authorized to diagnose OSA in their patients. In other words, it would be fine for a dentist to perform and charge for diagnostic tests to determine a dental diagnosis such as temporomandibular disorders, but testing for a medical condition such as OSA is another matter.

Because payors of OAT require a prior diagnosis of OSA as a condition to coverage, the dentist must have the patient see a sleep lab or sleep physician for a prior determination of OSA. Joining the dentist and the physician into one business for this purpose can be tricky under state corporate practice doctrines. For example, states like California and Colorado prohibit dentists from owning or practicing in medical practices with other health care providers such as physicians. Illinois, on the other hand, expressly permits dentists and physicians to form and hold shares in the same professional corporations where each practices his own profession.

In states where dentists and doctors must keep their practices apart, state laws will often prohibit the parties from collaborating financially as part of their respective sleep medicine services. For example, most states prohibit dentists from splitting dental fees with nondentists such as sleep doctors. Because OAT involves an item of durable medical equipment, some states have “little Stark Acts” that prohibit financial arrangements between a physician who refers DME to the entity (the dentist here) who performs the DME service. These state laws apply whether or not Medicare or Medicaid reimburses the dentist for the appliance. Any financial arrangement between the dentist and the sleep physician must be reviewed closely by health care counsel.

Fraud and Abuse Landscape

Unchanged in 2013 is the Stark law prohibition on physician dispensing of Medicare PAP to the doctor’s own patients. The American Academy of Sleep Medicine requested an enforcement waiver for Medicare PAP dispensed by board-certified sleep physicians. The Centers for Medicare and Medicaid Services denied the request, meaning that physicians’ sales of Medicare PAP to their patients from their practice remain a Stark law violation, unless the physicians meet the Stark law “Rural Provider” exception or unless they personally perform the PAP setup, PAP inventory, and resupply activity.

Government investigations into the delivery of sleep medicine will be beefed up this year as the Office of Inspector General (OIG) of the US Department of Health and Human Services added two new inquiry projects for sleep in 2013. Each year, the OIG publishes a Work Plan describing CMS payment issues that are seen to be inefficient, wasteful, or ripe for abusive practices. For 2013, the OIG has four projects directly involving Medicare reimbursement for sleep testing and sleep therapy.

Two are continuation projects that are looking into the 280% jump in the number of sleep tests billed to Medicare from 2001 ($62 million) to 2009 ($235 million). CMS reports that Medicare paid nearly $415 million for sleep tests in 2010 billed under CPT codes 95810 and 95811 alone.

The OIG will examine whether the jump is due to appropriate clinical testing or because of overutilization. It will review its extensive computer-based payment data and identify providers and suppliers whose growth in billing these codes appears to be outliers. The OIG might reach out directly to these or other sleep industry providers for copies of documentation of past services. Typically, these examinations are fact finding only and are not focused on enforcement.

The OIG will report their results to the Department of Health and Human Services. If the report shows evidence of program abuse, the OIG may recommend new regulations to address these situations. If the OIG finds that a particular provider or supplier is willfully avoiding the rules, the OIG can refer its findings to its own enforcement arm or to the Department of Justice.

PAP and PAP Suppliers. 2013 looks to be another challenging year for Medicare PAP suppliers. First is the green light for Round 2 of competitive bidding for Medicare PAP and PAP supplies. Despite the efforts of many DME suppliers and lobbyists, Congress did not take up alternatives to Medicare’s competitive bidding program. Competitive bidding will force the closure of Medicare PAP suppliers in many parts of the country and lower Medicare reimbursement for the device and supplies.

CMS also is focusing on how PAP suppliers order, ship, and dispense nonconsumable PAP supplies such as hoses, filters, masks, and other PAP resupply items. Medicare’s Program Integrity Manual has long said that automatic refilling of resupply items is not allowed. However, in 2012 CMS interpreted this to mean that suppliers must now actively monitor the patient’s utilization of supplies and dispense new supplies only if the specific replacement item genuinely needs replacement because it is no longer functional.

The difficulty for suppliers is how to document the nonfunctionality of an old item to support the patient’s need for a new item in the context of a postpayment audit. The DME Medicare Administrative Contractors (MACs) offered some guidance in answers to Frequently Asked Questions posted in August 2012. The MACs said an item can be considered nonfunctional and may be replaced when the supplier can document that the item is unusable for reasons such as damage, wear, soiling, or contamination that is unable to be removed with recommended cleaning.

This means that suppliers are required to confirm the condition of supplies with the patient before sending out replacements. The MACs say that if an item is still working and in good condition, then there is no need to replace it. For example, a leaky PAP mask may require a refitting instead of the shipment of a brand-new mask. Similarly, routine replacement of PAP supply items like filters and hoses at the times permitted in the MAC’s Local Coverage Determination for PAP may not be supportable if the items are cleaned and maintained according to the manufacturer’s recommendations. Documentation of the nonfunctionality of the items is key in all instances.

Along these lines, the OIG is opening two new investigations in 2013 to track sales of PAP resupply items to Medicare beneficiaries. One investigation will look into the PAP supplier’s compliance with medical necessity, frequency, and other coverage requirements. The other will examine the reasonableness of Medicare’s resupply schedule for payment of PAP supplies compared to the resupply schedule under the Veterans Administration, Medicaid, and the Federal Employees Health Benefits programs. The OIG wants to see if it can achieve savings by adopting alternative re-supply schedules to avoid wasteful spending.

New Trends to Consider in 2013

A few bright spots do call out for sleep labs in the upcoming year. One place to find both brand recognition and solid commercial carrier reimbursement for sleep testing is the local hospital or health system. Some hospitals and health care systems are exploring sleep testing as an attractive ancillary service as part of their goal to become the one-stop shop for patient needs in their marketplace. Existing sleep labs can examine partnering with hospitals for sleep testing or providing turnkey sleep lab management services for the local hospital.

Another trend worthy of review is the Accountable Care Organization or ACO. ACOs are separate legal entities usually consisting of groups of primary care and specialty physicians and local health care systems. The ACO oversees the overall care of the Medicare beneficiaries or the health plan members assigned to them. By channeling patient care through a single physician base, the ACO hopes to drive adoption of procedures that lower cost and drive better outcomes. As such, ACOs should have the capability to manage both the cost and quality of services along the continuum of care and across different institutional settings under a range of payment systems.

Providers and suppliers that provide services to the ACO are paid on a fee for service basis under Medicare Part A or Part B or through a commercial health plan program. If successful, ACO participants get paid some of the “Shared Savings” set aside in Medicare or funds otherwise provided in the program. On the other hand, if ACO participants fail to use or comply with ACO protocols or otherwise fail to show better health care outcomes, then the noncompliant actors face remedial adverse consequences.

CMS reported in July 2012 that it had 2.4 million Medicare beneficiaries participating in 88 Medicare ACOs. According to a November 2012 report from management consultant Oliver Wyman, 15 million non-Medicare patients are receiving care as part of a medical practice that participates in a Medicare ACO. Approximately 8 million to 14 million commercially insured patients also are participating in non-Medicare ACOs. Cigna and Aetna have announced their intention to operate over 100 ACOs each.

Sleep disorders testing and treatment can become part of the ACO’s standard menu of patient care protocols. If they have not already done so, sleep labs and sleep physicians can approach ACO organizers in their service location to become the sleep medicine solution for the ACO. These sleep providers could participate either as direct ACO participants or as outside service providers. Sleep test providers should expect some reimbursement flexibility as these organizations shift from pure fee for service to fees structured more in line with value and outcomes than volume. Unfortunately, because CMS continues to view DME suppliers with fraud and abuse suspicion, CMS does not permit DME suppliers to be participating members of Medicare ACOs. However, CMS does encourage DMEs to affiliate and participate with ACOs as part of coordinating a patient’s care.

Increased home sleep testing, flat reimbursement, and payment systems designed to squeeze savings from sleep medicine providers while demanding service value is what sleep medicine can look forward to in 2013. Reacting to these changes will be the challenge in the new year.


SR image BrownDanielDaniel B. Brown, Esq, is on the Editorial Advisory Board of Sleep Review magazine and is the managing shareholder of the Atlanta office of Brown, Dresevic, Gustafson, Iwrey, Kalmowitz and Pendleton, The Health Law Partners, LLC.