With reimbursement codes changing, sleep specialists need to know how to play by the legal rules when contracting with DME and CPAP businesses.

When I recently spoke with a sleep specialist, he stated that his company was willing to forgo any profit on a sleep study (they perform only split night studies) in order to be able to supply durable medical equipment (DME) or continuous positive airway pressure (CPAP) or bilevel PAP devices to patients. Thus, the contract they structured with several local and national insurance companies allowed them to perform a sleep study at such a reduced rate (in the $400 to $450 range) that they began to drive other laboratories out of business. Not to mention that their profits increased by more than 100% net from selling CPAP. How can they do this? Because in many insurance companies, the services and DME sections never communicate with each other, and one may not know what the other is doing. DME is big business, and it can be a large revenue stream for any sleep center/laboratory because of its potential low-cost structure.

There are significant legal regulations that will differ for certain types of situations (medical practices vs partnerships with nonphysician owners vs sole ownership by nonphysicians), in each state, and with each insurance company or government agency (Centers for Medicare & Medicaid Services [CMS]). Thus, it is imperative to review such situations with your health care attorney to be well within your legal boundaries when providing DME for your patients. If you are a Medicare provider, you should also be aware of Stark II laws against self-referral.

Stark II Laws
Recently, HCFA (now CMS) issued the final Phase I of Stark II regulations explaining the restrictions on physicians’ referrals to health care entities with which they have a financial relationship. These Stark II regulations will continue to be in a state of flux since Phase II of Stark II will be out soon as well. In other words, these regulations are the rules to play by for now, but they may change in the near future.

It is a important to remember that Stark II is a federal statute prohibiting a physician from making a referral to an entity for the furnishing of “designated health services [DHS]” covered by Medicare if the physician (or an immediate family member) has a financial relationship with that entity, unless an exception exists.1 This comes into play since one of the services covered under this statute is “DME and supplies.” Some centers, to avoid breaking Stark II regulations, do not accept any Medicare insurance for DME and force the Medicare patient to go through their preferred Medicare provider for these services. Remember, it is imperative to research this situation with a health care attorney.

Outsourcing and Protocols
Another approach may be to outsource your CPAP clinic to a home health care company. You pay them a fee for setup and equipment. This fee needs to be less than the fee you would charge an insurance company for this service, but not so low that the home health care company will lose money. And in turn, they can then have all of your Medicare CPAP setups, and insurance payment your practice does not take for DME services. If the home health care company cannot take the patient’s insurance and you cannot take the insurance, then have it be the company’s responsibility to find someone who can (basically the contracted company becomes a clearinghouse for you to save on front-office staff time).

If you are able to perform these services in your state, more than likely a protocol will have to be set up for these services. From a legal standpoint, it is often required to have a “freedom of choice form” for the patient. This is a form given to the patient that lists all of the local DME companies from which their insurance company has designated they may purchase their CPAP equipment and supplies. They are then to make an informed choice as to which company to use. It is not illegal to explain which company is owned by the physician’s corporation (check this by state), and the services your company provides

Medicare Covers Full-Face CPAP Masks
For the first time, Medicare included a separate code for full-face CPAP masks on its 2003 fee schedule. Under A7030, Medicare provides a ceiling reimbursement of $188.64 and a floor of $160.34. This addition will allow beneficiaries a more affordable way to obtain a full-face CPAP mask.

(follow up with people trained by you, better customer service, and lower prices). Have the patient complete the form recognizing your company as the one they want. It can be construed as influential if the physician is presenting this form and information to the patient, and it is often appropriate to have an office staff member give them the form at checkout or have the form faxed to them with a telephone call from your CPAP clinic coordinator.

If you are able to perform these services in your area of the country, based also on your business model and legal restrictions, the next step is realizing the cost structure of the DME and supplies. Once this is done, you will be able to set the fee schedule with insurance companies accordingly. The final step is to implement a “CPAP Clinic or Program,” which is a comprehensive program often staffed by a day technician, physician’s assistant, or nurse, which will allow a patient to ask questions, receive guidance, and eventually use CPAP effectively. Our manual “Business Practices of Sleep Centers” and “A Guide to Sleep Study Reimbursement and Ancillary Revenue Streams” both have an extensive chapter on these topics. In review of possible cost structures of a CPAP “clinic,” there are a number of expenses to keep in mind: business license; CPAP machines; masks including nasal pillows, full face masks, and regular nasal interfaces; hoses; filters; chin straps; humidifiers (heated and pass-over); cleaning supplies; administrative staff time for scheduling; technician time; office supplies (paper for handouts and printing costs); sales tax; telephone; utilities; rent; and postage.

The costs of these expenses will vary based on the volume of CPAP you supply, which vendor you decide to use, and the deal you strike with them.

This year, the CMS (on the DME side called the DMERC [durable medical equipment regional carrier]) decided to change many of the codes and add some new ones.

CPT Codes 2001 PaymentIB
(CF(1) – $38.26)
2002 Payment
(CF – $36.20)
2003 Payment
2003 RVUS
(CF – $36.78)
MSLT Global- 95805
Professional only- 26
Technical only- TC
$19.33 $710.95
PSG 95810
4 stages or more
Professional only- 26
Technical Only- TC
$21.29 $783.05
PSG w/CPAP 95811
Professional only- 26
Technical Only- TC
$21.96 $807.69

With this information in mind, one can now (if allowed by state law) approach each of the insurance companies that pay for sleep services to work out a plausible fee schedule and service contract. We interviewed several sleep laboratories/centers that provide DME and this is what we discovered: equipment (CPAP mask, hose, headgear, and filters) can be purchased for $400 to $650 for the unit (masks [including hoses, headgear, and filters] may be free with increased unit sales) with heated humidifier (add $150 to $250). Some places are using autotitrating CPAP (for better comfort and compliance), which has a unit cost of $650 to $800. Many of the major insurance companies are paying between $1,400 and $1,600 for initial setup, equipment, patient education, outcome reporting, and support for 6 months. Bilevel PAP units are much higher ($3,500), but so is the unit cost (bilevel PAP: $1,350-$1,600). Looking at this, we see a possible net profit (after payroll) of between $800 and $1,000. You can now see why some companies will be willing to forgo profit on the sleep study to be able to provide the CPAP.

Another important aspect to remember is that since these codes have recently been changed, we can expect an increase in both incorrect submissions and nonpayment by the managed care organizations since many must update their computers and all their contracts. If you read between the lines, you can see that they can then hold on to their money just a bit longer, which could mean a cash flow crunch for you.

Keeping all this information in mind, a CPAP or DME business can indeed be a significant revenue stream for any sleep laboratory as long as you know how to contract well and play by the legal rules.

What else is New
On February 13, 2003, the House and Senate passed a report, which among other things included the physician payment reversal. The partial reversal eliminates the scheduled 4.4% reduction (effective March 1, 2003) and imposes a subsequent 1.6% increase in payment. Thus we may extrapolate the previous year’s conversion factor as gaining 1.6% (from 36.20 to 36.78). There are still other issues to resolve and this measure has not been signed off into law by President Bush. The chart on page 36 reflects the current estimated CMS fees for sleep services. Remember, these are estimated and final results have not yet been posted.

Michael J. Breus, PhD, is a diplomate of the ABSM, and founder and senior partner, The Sleep Center Management Institute, Atlanta; www.sleepcentermanagement.com; he is also a member of Sleep Review’s Editorial Advisory Board.

1. Jenner and Block, LLC.The business practices of sleep center/labs legal update—healthcare fraud and abuse. Lecture presented at the 15th Annual APSS Meeting; June 5-10, 2001; Chicago.