Changes in medicare’s rules about upgraded HME have attracted the attention of providers of power wheelchairs, as well as other HME, who wish to increase the range of options they can offer customers without giving up the convenience of assignment billing. However, the new rules present risks as well as opportunities. Power chair providers should understand the new upgrade requirements to avoid unpleasant surprises, such as Medicare audits.

The upgrade issue’s history began with the Balanced Budget Act of 1997. Before Congress enacted that statute, Medicare required that providers submit claims on an unassigned basis and collect the full payment from the beneficiary if that beneficiary wanted to purchase or rent equipment with features Medicare considered medically unnecessary. Medicare would then pay the fee schedule amount for a non-upgraded item to the beneficiary directly.

However, in the case of expensive equipment, such as power chairs, many beneficiaries found it difficult to pay the full cost of the item before they received the fee schedule amount from Medicare, thus creating accounts receivable problems for HME providers.

The Balanced Budget Act authorized the Secretary of Health and Human Services to issue regulations that would permit Medicare beneficiaries to choose to pay the increased cost of the purchase or rental of upgraded equipment, and still allow the provider to bill for the equipment on an assignment basis. Medicare would pay the fee schedule amount for the standard (nonupgraded) item, and the beneficiary would be responsible for the difference between the Medicare payment and the provider’s charge for the upgraded equipment. To prevent price gouging, the new rules also required that the provider’s charge be the same as or lower than the fee schedule amount, if any, for the upgraded equipment.

Using the ABN Form
The Centers for Medicare & Medicaid Services (CMS) published proposed regulations implementing these provisions on April 27, 2000. Although CMS has yet to issue those regulations in final form, it has covered some of the same territory through the issuance of two program memoranda. The first, issued on October 22, 2001, says that when a beneficiary requests an upgrade, the provider may bill for the upgraded equipment on an assignment basis and collect the difference from the beneficiary, provided the beneficiary has signed an Advance Beneficiary Notice (ABN) form. CMS believes the ABN form will protect beneficiaries from sales tactics that make an upgrade sound medically necessary.

Under the procedure outlined in the program memorandum, the beneficiary signs the ABN form agreeing to be responsible for the excess cost of the upgraded equipment. The ABN form used for this purpose is the new standard ABN-G. The provider then submits a claim for the upgraded equipment using modifier GA to indicate that there is a signed ABN on file.

However, after April 1 (the date by which the Durable Medical Equipment Regional Carriers, DMERCs, must implement necessary systems changes to accommodate upgrades), providers need to bill two line items per claim for upgraded equipment. On the first line, the provider will list the equipment actually distributed to the beneficiary. On the next line, the provider will list the (non-upgraded) item that was ordered by the physician.

How Free Upgrades Work
The week after the appearance of the ABN program memorandum, CMS issued a second memorandum, this one on the subject of providing upgrades for free. The program memorandum suggests that providers may wish to supply upgraded equipment without additional charge to reduce their cost of maintaining inventory by stocking only higher-level models of certain items, or to reduce their costs for replacement parts and repairs. When a provider supplies free upgrades, an ABN form is not required. He or she simply submits a bill for the nonupgraded item, and describes the upgraded item in Item 19 of Form HCFA-1500, or the HA0 (“Extra Narrative”) record if the claim is submitted electronically. Beginning on April 1, 2002, the claim for the nonupgraded item must be submitted using modifier GL.

The new policies apply to both assigned and unassigned claims, and to upgrades from one item to another within a single Healthcare Common Procedure Coding System (HCPCS) code or from one code to another. In the case of power chairs, providers billing on an assignment basis can offer beneficiaries the option of purchasing or renting a chair with additional features that increase comfort or convenience but that are not separately reimbursable and do not affect the chair’s coding or the fee schedule payment. However, CMS emphasizes that providers may not use the ABN form procedure to charge a beneficiary more for a chair on the basis that it is of “higher quality” than another model. The more expensive model must have components or features not present on the less expensive model.

For upgrades from one code to another, the new policy is ambiguous with respect to how similar the items must be. The program memorandum says that an upgrade must be “within the range of items or services which are medically appropriate for the beneficiary’s medical condition and the purpose of the attending physician’s order.” Some of the early commentary on the rules interpreted this statement to mean that a beneficiary could upgrade from one category of manual wheelchair to another, but not from a manual to a power chair. According to more recent guidance from CMS, however, an upgrade from a manual to a power wheelchair is permitted if the beneficiary is willing to pay the additional cost. CMS interprets the quoted provision to mean that a wheelchair may not be substituted for a cane, or a hospital bed for a wheelchair.

Providers should note that when the ordered item and the upgraded item are in different payment categories, the payment methodology for the nonupgraded item will be used. For an upgrade from a K0010 to a K0011 chair, for example, this provision does not have an effect, since both models are in the capped rental category. However, if the physician orders a power operated vehicle (E1230) and the beneficiary upgrades to a power wheelchair, the wheelchair would be reimbursed under the rules for “inexpensive or routinely purchased” items, since power operated vehicles are in that category rather than under the capped rental rules.

The program memorandum on free upgrades has received less attention than the ABN upgrade memorandum, but it also raises significant issues. The background section of the memorandum refers to use of free upgrades by providers who wish to streamline inventory or reduce spare-parts costs by stocking fewer items. However, the policy is not limited to those circumstances. It appears to permit providing a free upgrade for any reason.

A word of caution. The issuance of a program memorandum by CMS does not override the anti-inducement section of the Medicare statute, which imposes civil money penalties for the offering of any remuneration to a Medicare beneficiary that is likely to influence the beneficiary to order or receive a Medicare-covered item or service from a particular provider, practitioner, or supplier. Therefore, a provider still may not use the offer of a free upgrade to induce a beneficiary to choose it over another provider. If a provider advertised that he or she would supply upgraded equipment to beneficiaries at no charge, that provider would expose himself or herself to liability under the anti-inducement statute.

It is possible that as beneficiaries become aware of the upgrade provisions, a few of them may request free upgrades as a condition of their patronage. However, the price of this exchange could be a civil money penalty of $10,000 per item, plus possible exclusion from CMS programs.

For power chair providers who understand the new upgrade rules and use them judiciously, these provisions offer excellent opportunities to better service clients while improving profitability. However, anything less than scrupulous compliance with all applicable laws and rules can have serious consequences.

Tim Webster, JD, is an attorney with the Health Care Group of Brown & Fortunato, PC, Amarillo, Tex. He can be reached at (806) 345-6347; twebster@bf-law.com.