By Tim Jordan, RPSGT

Providing sleep therapy equipment from your lab can be a lucrative endeavor if done correctly.

With approximately 3,000 sleep labs in the United States and a steady growth rate, the business of sleep disorders is competitive. Lab owners, like any other business owners, are looking for new ways to maximize revenue. A way to increase revenue and provide a valued service to your patients is to dispense sleep therapy devices directly from your lab. However, there are several issues to consider before providing this service.

Importantly, the 2009 Proposed Rule for the Physician Fee Schedule contains a proposal to prohibit payment to the supplier of the CPAP device when such supplier, or its affiliate, is directly or indirectly the provider of the sleep test that is used to diagnose a Medicare beneficiary with obstructive sleep apnea (OSA).1 This means that sleep laboratories, whether hospital-based or freestanding, may not be permitted to dispense sleep therapy devices as of 2009. This proposed regulation does not represent much variance for sleep labs, which have always been concerned with Stark Law self-referral provisions for their Medicare and Medicaid clientele. However, there are still excellent opportunities for offering this service to self-pay patients or those covered by commercial insurance. These patients represent the majority of OSA patients placed on CPAP therapy.1

Aside from the financial benefits, dispensing sleep therapy devices has benefits for the patient as well. Consider the convenience of one-stop shopping for the diagnosis and treatment of sleep apnea. Many patients have established a relationship with the lab personnel and are more comfortable dealing with them for their CPAP needs.

With these benefits come added responsibilities. First, you will need adequate storage space to stock inventory of various CPAP units, masks, tubing, filters, and other accessories. A procedure for ordering supplies and maintaining inventory needs to be in place. Consult your sleep therapy sales representative for guidance on how to manage inventory and set up accounts for ordering equipment. Second, you will need a system for routine follow-up to ensure CPAP compliance and patient satisfaction. This usually includes the capability to download compliance information to a PC. Third, and perhaps most importantly, you need adequate staff to provide these services. Your staff needs to demonstrate competencies on the operation of the various therapy devices and modalities, the proper fitting of interfaces, and the use of accessories. Fourth, consult a health care attorney for guidance on your specific business plan and to determine whether the Stark and/or other state self-referral laws are applicable to your situation.

Many sleep labs that dispense sleep therapy devices provide this service only to patients who are privately insured or self-pay.


Your state may have licensure requirements to operate a durable medical equipment (DME) supplier business. You can find a list of the state licensure requirements at Local DME organizations can also provide licensing and certification requirement information. A list of state DME organizations can be found at These local organizations can be valuable resources for information about starting a new DME supplier business.


Some payors may require you become accredited by a national accrediting body, such as The Joint Commission. Be sure to clarify this requirement with payors when negotiating a contract. More information on Joint Commission accreditation is available at


To be reimbursed for DME products, you must obtain a supplier number. Medicare recently replaced the original Medicare supplier number with the new National Provider Identifier (NPI).5 You may apply for a NPI online at It generally takes about 60 days for the application to be processed.


When applying for a NPI, you will receive a package of information containing Medicare’s DME Supplier Standards. A copy of these standards is available at These standards help ensure that DME businesses are operated legitimately and that you are providing fair and reasonable service to your patients.


Before contracting with payors to negotiate contracts for sleep therapy services, it is important to understand your costs for providing these services, and the services and cost structures of competitors in your area. To negotiate effectively, you must distinguish your services from those of your competitors by cost, service, or both.

Coverage, Coding, and Payment for Sleep Therapy

There are three key aspects of reimbursement: coverage, coding, and payment. “Coverage” refers to whether a payor will cover the cost of a device. “Coding” involves the language used by providers to submit claims. Sleep labs are familiar with CPT codes for diagnostic procedures, but DME devices and supplies are billed with Healthcare Common Procedure Coding System codes (HCPCS). It is important to note that the existence of a billing code for a particular product or procedure does not guarantee that payment will be made. “Payment” refers to the amount the payor will reimburse for the service.


Coverage for a particular device or procedure is based on inclusion or exclusion criteria. CPAP is covered by Medicare for a patient who has been diagnosed with OSA. Medicare traditionally required that the patient was diagnosed in a facility-based laboratory and that the sleep study was attended by a technologist. Recently, Medicare expanded this requirement to include home-based, unattended studies.7

Medicare’s inclusion criteria for CPAP coverage include8:

  1. AHI ≥ 15 events per hour
  2. AHI from 5 to 14 events per hour with documented symptoms of:
    1. excessive daytime sleepiness, impaired cognition, mood disorders, or insomnia;
    2. documented hypertension, ischemic heart disease, or history of stroke.

Exclusion criteria for CPAP are any indications other than those listed.

Medicare has also published coverage intervals for accessory replacement as medically necessary.

Bilevel devices are covered if CPAP has been tried and proven ineffective.

In order to notify Medicare beneficiaries in advance that certain products and services are not covered, Medicare defines that the provider should use an Advance Beneficiary Notification (ABN).9 State Medicaid and non-Medicare payors may or may not have this same requirement. This document may not be routinely signed by every patient; rather the reason for noncoverage must be clearly defined and understood by the patient.


The following is a sample of CPAP and accessory HCPCS codes used by Medicare:

A complete list of these codes along with a state-specific fee schedule are available at


Medicare uses a “capped rental” system for reimbursement. The total payment over the rental period is used as a benchmark for other payors to determine their payment rate. Medicare’s allowable is the sum of 100% of their allowable rate for the first 3 months of rental, plus 75% of their allowable rate for subsequent months. Of the total allowable payment, Medicare pays 80% and the patient is responsible for the remaining 20% co-payment.

Medicare makes rental payments for 13 continuous months. After 13 months, payment stops and the patient owns the equipment.


Medicare covers replacement accessories in addition to the device itself. Interfaces, headgear, tubing, and other “single patient use” accessories are reimbursed on a cash basis, while humidifiers can be rented to or purchased by the patient. Consistent follow-up and patient communication will not only increase patient compliance, but will also maximize the necessary replacement of these accessories and maximize revenue for your business. You must be prepared to document the medical necessity of replacing accessories. Improperly billing Medicare is a violation of federal law and the penalties could be substantial.


Generally, non-Medicare payors do not rent sleep therapy devices for an extended period of time. Some purchase the units outright, and others rent the devices for 1 or 2 months to ensure patient compliance. Managed care and private payors contract with DME providers and negotiate their payment rates for devices and replacement accessories.

Entering into the DME business is not without its challenges. Many sleep labs have strong, mutually beneficial relationships with local DME providers. The loss of these relationships outweighs the potential benefits of providing these services. Other sleep labs simply do not have the staffing or resources to provide the DME services and the necessary patient follow-up. With the right amount of research, preparation, and a solid business plan, providing sleep therapy equipment and accessories may be a profitable endeavor, while providing a valuable service to your patients.

Tim Jordan, RPSGT, has a combined 16 years of experience in the sleep field as a technician, PSG installer/trainer, and PSG salesperson. He is currently working as a clinical specialist with Covidien Sandman™ sleep systems.


  1. Centers for Medicare and Medicaid Services. Federal Register, Vol 73, No. 130. Published July 7, 2008. Accessed July 11, 2008.
  2. Palmetto GBA. DMEPOS State License Directory. Published 2008. Accessed June 30, 2008.
  3. American Association for Homecare. State Associations. Accessed June 29, 2008.
  4. The Joint Commission. Published 2008. Accessed June 20, 2008.
  5. National Plan & Provider Enumeration System. Accessed June 21, 2008.
  6. Centers for Medicare and Medicaid Services. Quality Standards: Suppliers of Durable Medical Equipment, Prosthetics, Orthotics, and Supplies. Published August 14, 2006. Accessed June 30, 2008.
  7. Centers for Medicare and Medicaid Services. Decision Memo for Continuous Positive Airway Pressure (CPAP) Therapy for Obstructive Sleep Apnea (OSA) (CAG-00093R2). Published March 13, 2008. Accessed June 20, 2008.
  8. Centers for Medicare and Medicaid Services. Coverage Issues—Durable Medical Equipment. Published December 26, 2001. Accessed June 29, 2008.
  9. Centers for Medicare and Medicaid Services. Advance Beneficiary Notice. Published June, 2002. Accessed June 22, 2008.
  10. Centers for Medicare and Medicaid Services. Durable Medical Equipment, Prosthetics/Orthotics, and Supplies Fee Schedules. Published 1998. Updated January 2008. Accessed June 22, 2008.