Medicare Program; Establishing Additional Medicare Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Supplier Enrollment Safeguards, 52629-52649 [2010-21354]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 75, Number 166 (Friday, August 27, 2010)]
[Rules and Regulations]
[Pages 52629-52649]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-21354]



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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 424

[CMS-6036-F]
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: Final rule.

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SUMMARY: This final rule will clarify, expand, and add 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: These regulations are effective on September 27, 2010.

FOR FURTHER INFORMATION CONTACT: Barry Bromberg, (410) 786-9953 for 
general issues, on-site inspections, maintaining ordering and referring 
documentation, and hours of operation.
    Kimberly McPhillips, (410) 786-5374 for issues related to 
compliance with applicable laws, appropriate sites, direct 
solicitation, oxygen suppliers, and prohibition on sharing a practice 
location.

SUPPLEMENTARY INFORMATION:

I. Background

A. General Overview

    Medicare services are furnished by two types of entities, 
providers, and suppliers. At Sec.  400.202, the term ``provider'' is 
defined as a hospital, a critical access hospital (CAH), a skilled 
nursing facility (SNF), a comprehensive outpatient rehabilitation 
facility (CORF), 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 final 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 in section 
1834(j)(5) of the Act.
    In FY 2007, the Medicare program spent more than $10 billion for 
DMEPOS supplies, and in March 2008, there were 113,154 individual 
DMEPOS suppliers. However, due to the affiliation of some DMEPOS 
suppliers with chains, there were 65,984 unique billing numbers. The 
largest concentrations 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 20 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 ``durable medical equipment'' is defined at section 
1861(n) of the Act. This definition, in part, excludes from coverage as 
DMEPOS, items furnished in SNFs and hospitals. Also, the term DMEPOS is 
included in the definition of ``medical and other health services'' in 
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) of the Act, 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.

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    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; (2) process enrollment 
application in timely and accurate manner; and (3) take the necessary 
actions to revoke enrolled suppliers who no longer meet supplier 
standards.

B. 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 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 final 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 4312 of the Balanced Budget Act of 1997 (BBA) 
(Pub. L. 105-33) amended section 1834 of the Act to require that 
certain Medicare supplies of durable medical equipment, prosthetics, 
and supplies (DMEPOS) to furnish CMS with a surety bond in an amount 
not less than $50,000.
     Section 4313 of the BBA 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(a) of the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173) 
amended section 1866 of the Act by adding a new subsection (j)(1) to 
require the Secretary to establish a process for the enrollment of 
providers of services and suppliers.
     Section 302(a)(1) of MMA amended the Act to require the 
Secretary to develop quality standards for DMEPOS suppliers.
     Section 154(b) of the MIPPA amended the Act to establish a 
deadline for DMEPOS accreditation.
    Section 6405(a) of the Affordable Care Act (ACA) requires that in 
order for payment for services to be made, a physician who orders DME 
for individuals must be a Medicare participating physician enrolled 
under section 1866(j) of the Act or an eligible professional under 
section 1848(k)(3)(B) of the Act that is enrolled under section 1866(j) 
of the Act.
    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.

II. Provisions of the Proposed Rule

    In the January 25, 2008 Federal Register (73 FR 4503), we published 
a proposed rule that clarified, revised, and added to the DMEPOS 
supplier standards in Sec.  424.57.
    In Sec.  424.57(c)(1), we proposed 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).
    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 required or that any changes have occurred in the State 
licensing requirements. 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 Sec.  424.57(c)(7), we proposed to clarify the supplier standard 
for maintaining a physical facility on an appropriate site. Specially, 
we proposed to clarify the term, ``appropriate site.'' In addition, we 
stated that an ``appropriate site'' applies to ``closed door'' 
businesses, (such as pharmacies/suppliers providing services only to 
beneficiaries residing in a nursing home). We also solicited 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 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

[[Page 52631]]

positioned so that it is visible to the public, including customers 
using wheelchairs.
    In Sec.  424.57(c)(8), we proposed to clarify this provision by 
revising (c)(8) to 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.
    In Sec.  424.57(c)(9), we proposed 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. 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. Therefore, we revised 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 as the primary business phone 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.''
    In Sec.  424.57(c)(10), we proposed 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. In addition, we proposed that a 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 Sec.  424.57(c)(11), we proposed to revise this supplier 
standard to clarify that suppliers cannot 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. We also proposed that 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.
    In Sec.  424.57(c)(12), we proposed to revise the provision to 
clarify its intent. Specifically, we proposed that a DMEPOS supplier: 
(1) Is responsible for maintaining proof of the delivery in the 
beneficiary's file; (2) must furnish information to beneficiaries at 
the time of delivery of items as to how the beneficiary can contact the 
supplier by telephone; (3) must provide the beneficiary with 
instructions on how to safely and effectively use the equipment or 
contract this service to a qualified individual; (4) is responsible for 
providing instruction on the safe and effective use of the equipment 
that should be completed at the time of delivery; and (5) must document 
that this instruction has taken place. Our proposal was based on the 
belief 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.
    In Sec.  424.57(c)(27), we proposed a new standard that specified 
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. We believe that this standard would help to 
protect Medicare beneficiaries and promote quality in the furnishing of 
oxygen.
    In Sec.  424.57(c)(28), we proposed 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. 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.
    In Sec.  424.57(c)(29), we proposed a new standard that specifies 
that the supplier is prohibited from sharing a practice location with 
another Medicare supplier. In addition, we solicited 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 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 believe that 
allowing 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. Since we are aware that physicians 
and other licensed nonphysician practitioners

[[Page 52632]]

may obtain their own DMEPOS supplier number and furnish DMEPOS from 
their office, we solicited 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.
    In Sec.  424.57(c)(30), we proposed a new supplier standard that 
would require a DMEPOS supplier to be 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 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 in order to attract, retain, 
and serve 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. 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 in order to attract, retain, and 
serve Medicare beneficiaries. 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.
    In Sec.  424.57(c)(31), we proposed to add a new supplier standard 
that specified that a DMEPOS supplier could not have Internal Revenue 
Service (IRS) or a State taxing authority tax delinquency. We also 
proposed 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 proposed to redesignate the current text as 
paragraph (d)(1) and proposed adding a new paragraph that specified 
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 proposed 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 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 legal adverse action or felony conviction 
precludes participation in or payment from the Medicare program.

III. Analysis of and Responses to Public Comments

    In the January 25, 2008 Federal Register (73 FR 4503), we published 
a proposed rule that clarified, revised, and added to the DMEPOS 
supplier standards in Sec.  424.57.
    We received 208 timely comments in response to the proposed rule. 
In this section of the final rule we present a summary of our proposals 
and address the comments received on these proposals.

A. Clarifications and Revisions of Existing DMEPOS Supplier Standards

1. Licensure Requirements
    In Sec.  424.57(c)(1), we proposed 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). These licensed services 
include but are not limited to supplying oxygen or a general DMEPOS 
license.
    Comment: A commenter believes the NSC should maintain and make 
available, a list of each State's licensing requirements.
    Response: The National Supplier Clearinghouse (NSC) does maintain 
information regarding State licensure laws for DMEPOS suppliers on its 
Web site (see https://www.palmettogba.com/nsc). However, the DMEPOS 
supplier is ultimately responsible for determining what business, 
product and other applicable licenses are required for his or her 
business, regardless of the accuracy of the information provided on the 
NSC Web site. We also believe it is the business owner's responsibility 
to be aware of any changes in the State licensing requirements for his 
or her business. During the enrollment and reenrollment process the NSC 
verifies that the DMEPOS supplier is in compliance with all applicable 
State licensing requirements.
    Comment: Several commenters supported requiring DMEPOS suppliers to 
be licensed for all services they provide and that DMEPOS suppliers 
should not be allowed to contract out for these services. In addition, 
one commenter stated that the changes proposed to the licensure 
requirement for Medicare suppliers are necessary and beneficial.
    Response: We agree and are revising Sec.  424.57(c)(1)(ii)(C) to 
address the commenters' concern regarding contracting out of services. 
In addition, this requirement applies to the competitive bidding 
program as governed by part 414, subpart F.
    Comment: A commenter believes that because of the complexity of 
State licensing requirements, it is too severe to revoke all billing 
numbers when licensing requirements are not met in only one State.
    Response: 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, and that exception 
does not conflict with Federal law. Moreover, while a DMEPOS supplier 
can enroll using a single tax identification number (TIN) for one or 
more practice locations, a DMEPOS supplier also may obtain different 
TINs for each practice location. If the DMEPOS supplier makes the 
business decision to enroll multiple practice locations under the same 
TIN, a revocation by the NSC of this TIN will necessitate the 
revocation of related businesses associated with that TIN.
    Comment: One commenter stated that restricting licensed 
professionals to W-2 employees likely will increase overall operating 
expenses and requested that we clarify that licensed professionals may 
be hired as either part-time or full-time employees.
    Response: We agree and have revised Sec.  424.57(c)(1)(ii) to 
clarify that the licensed professionals must be part-time or full-time 
employees.
    Comment: A commenter stated that Sec.  424.57(c)(1)(ii) as written, 
would allow DMEPOS suppliers to contract with nonlicensed individuals 
to avoid contracting with licensed individuals. In addition, it would 
not be financially feasible for all DMEPOS suppliers to have licensed 
professionals on staff, and therefore, CMS should allow contracting for 
services as long as they are in compliance with State requirements.

[[Page 52633]]

    Response: We do not believe that this provision is written in such 
a way as to allow DMEPOS suppliers to contract with nonlicensed 
individuals to avoid employing part-time or full-time W-2 employees. In 
addition, we believe that a DMEPOS supplier who does not have a 
licensed individual on staff (part-time or full-time) as a W-2 employee 
would be in violation of Sec.  424.57(c)(1). Moreover, while we are 
concerned with the financial burden placed on small businesses, we 
recognize that a certain amount of capital is required to establish and 
maintain a business. To this end, we believe that enrolled DMEPOS 
suppliers should be required to meet State licensing qualifications, 
rather than subcontracting to a third-party agent who may or may not be 
qualified. Moreover, since we cannot ensure with any degree of 
certainty, the qualifications of a subcontracted individual or his or 
her compliance with Federal, State, and local licensure requirements, 
we believe the Medicare program and its Medicare beneficiaries would be 
better served if we could verify that a DMEPOS supplier meets the 
applicable State licensing requirements for a DMEPOS supplier's chosen 
specialty.
    Comment: One commenter questioned whether CMS considers a co-
employment arrangement with a Professional Employment Organization to 
be compliant or noncompliant with this proposed rule.
    Response: We would consider a co-employment arrangement with a 
professional employment organization to be compliant with this proposed 
rule provided any licensed services are performed by an individual who 
receives a W-2 with the DMEPOS supplier's legal business name on it. 
For situations of co-employment, the W-2 also may have the legal 
business name of the professional employment organization, but this 
must be in addition to the DMEPOS supplier's legal business name.
    Comment: A commenter requested that physical therapy clinics be 
exempt from the requirement for State certification that applies to 
DMEPOS suppliers because it will affect patient access to necessary 
care if the physical therapy clinic in which an individual was being 
treated was not certified as a DMEPOS supplier and that it is an 
unnecessary burden to apply the same rules to licensed health care 
professionals as supplier companies.
    Response: We believe that enrolled DMEPOS suppliers should meet all 
applicable State licensing requirements. We do not believe it is an 
unnecessary burden to apply the same rules to licensed health care 
professionals as supplier companies; in fact, to do otherwise would 
allow different regulatory and compliance standards to emerge. Finally, 
many of the rules of licensed health care professionals and many of the 
rules of the supplier companies are not duplicative or consecutive; 
rather, they are cumulative.
    Comment: Several commenters believe that the licensing requirement 
provision is too restrictive and should be revised to state that 
properly licensed personnel are available to furnish the offered 
services. In addition, these commenters stated that the current 
language is too broad and would include administrative staff.
    Response: This final regulation states that a DMEPOS supplier must 
be in compliance with Federal, State, and local laws and requirements. 
It also states a DMEPOS supplier cannot contract with an individual or 
other entity to provide licensed services. This requirement only would 
apply to a DMEPOS supplier's administrative staff if the administrative 
staff member is also responsible for providing a licensed service for 
the DMEPOS supplier. Moreover, we are promoting a State's prerogatives 
on licensure by imposing this requirement only in States where there 
are no such rules for contracting for licensed services. Rather, we are 
hoping to diminish the chance of fraudulent practices by requiring that 
a DMEPOS supplier directly furnish licensed services.
    Comment: One commenter believes disallowing contracting with 
individuals or entities is unfair to the small supplier.
    Response: While we are concerned with the potential financial 
burden that this change imposes on small businesses, and we will 
monitor the impact of this requirement on small businesses. We believe 
that small DMEPOS suppliers should meet the applicable State licensing 
requirements for the services they provide.
    Comment: One commenter recommended that rather than restricting the 
practice of contracting with licensed personnel, CMS should require the 
supplier to purchase additional insurance to cover the licensed person.
    Response: We believe that a DMEPOS supplier must meet the 
applicable State licensing requirements for the services they provide 
to Medicare beneficiaries. In addition, while we agree that additional 
insurance may provide additional protection for the supplier, it does 
not help to ensure that a Medicare beneficiary is receiving quality 
products and instruction from a licensed individual and we will allow 
contracting for licensed services only when the State where the item or 
service is supplied permits a DMEPOS supplier to contract for licensed 
services. Moreover, we believe that DMEPOS suppliers participating in 
competitive bidding must maintain all applicable State licenses for the 
products and services they are bidding on or furnishing in each 
competitive bidding area. In addition, we believe that it is the 
responsibility of DMEPOS suppliers participating in competitive bidding 
to ensure that any subcontractor obtains and maintains all appropriate 
State licenses in the area where they are providing services. We 
maintain that DMEPOS suppliers awarded a competitive bidding contract 
and that are subcontracting will be allowed on a phase-in basis for 
licenses services and licensed professionals participating in 
competitive bidding.
    Comment: One commenter believes that this regulation is in conflict 
with some State licensing requirements, as some States permit DMEPOS 
suppliers to comply with its State licensing requirements by 
contracting with an individual or other entity to provide the licensed 
service. In addition, the commenter states a Federal regulation cannot 
supersede the historic police powers of the State unless it was the 
clear and manifest purpose of the Congress (see Downhaur v. Somani).
    Response: We agree with this commenter because, State licensing 
laws and regulations on the licensure of DMEPOS suppliers govern how 
DMEPOS suppliers furnish items within a particular State. Therefore, we 
maintain that a DMEPOS supplier can contract for licensed services only 
when the State where the licensed service is being provided allows for 
this sort of arrangement consistent with Sec.  424.57(c)(1)(ii)(C).
    Comment: A commenter does not believe that CMS should be in the 
business of professional licensing.
    Response: It is important to note that we require the DMEPOS 
supplier to be State licensed, not to obtain a license from CMS. This 
change will help to ensure that DMEPOS suppliers are meeting State 
licensing requirements.
    Comment: Several commenters recommended that the provision of not 
contracting out licensed services and the W-2 employee provisions of 
this standard only apply when not addressed by State licensing 
requirements.
    Response: We agree with these commenters. We believe that DMEPOS 
suppliers must meet all applicable State licensing requirements and 
that this

[[Page 52634]]

standard will only apply when not addressed by State licensing 
requirements.
    Comment: Several commenters do not believe it should matter if the 
service is furnished by a W-2 employee or a 1099 contractor so long as 
both are properly licensed with no adverse legal action current or 
pending.
    Response: We agree with these commenters because a DMEPOS supplier 
is accountable for meeting the applicable State licensing requirements, 
and by requiring that W-2 employees or a 1099 contractor (when allowed 
by State law) of the supplier are appropriately licensed, the NSC can 
verify that a DMEPOS supplier is meeting all applicable State licensing 
requirements.
    Comment: One commenter stated that they are opposed to the 
revisions in Sec.  424.57(c)(1) because it would prevent all but the 
largest DMEPOS suppliers from bidding on contracts under the DMEPOS 
competitive bidding program because smaller businesses would not be 
able to hire staff all the potential licensed professionals as W-2 
employees.
    Response: We want to clarify that the employment requirement will 
not apply to contract suppliers participating in the competitive 
bidding program and we have reflected this intention in Sec.  
424.57(c)(1)(ii)(B).
    Comment: Several commenters believe that the proposed rule 
conflicts with the rules for participation in the competitive bidding 
program, as the competitive bidding program itself allows items and 
services in a product category to be supplied directly or through a 
subcontractor and provides safeguards to allow subcontracting.
    Response: We agree with these commenters, and have revised Sec.  
424.57(c)(1)(ii)(B) to reflect that the employment requirement for the 
furnishing of licensed services does not apply to contract suppliers 
participating in the competitive bidding program.
    Comment: One commenter stated that this regulation conflicts with 
CMS' accreditation standards which permit contracting for licensed 
services, so long as the DMEPOS supplier complies with State licensure 
laws and is ultimately responsible for the services provided by a 
contractor.
    Response: We have amended Sec.  424.57(c)(1) to permit contracting 
for licensed services, so long as the State where the licensed services 
are being performed allow for such contracting and the DMEPOS supplier 
complies with State licensure laws and is ultimately responsible for 
the services provided by a contractor. The supplier standards in Sec.  
424.57 are separate from the quality standards which are used by 
accrediting organizations. This regulation does not conflict with our 
accreditation standards listed at Sec.  424.57(c)(22) through (c)(25).
    Comment: A commenter stated that the proposed rule is unnecessary 
because many of the DMEPOS suppliers must be accredited by September 
30, 2009 on top of already having to meet the State licensure 
requirements. Moreover, supplier's ability to use subcontractors for 
the purpose of assuring service throughout a competitive bidding area 
would be limited which could disadvantage the small suppliers compared 
to large suppliers.
    Response: We disagree with these commenters because a DMEPOS 
supplier is accountable for meeting the applicable State licensing 
requirements, and by requiring DMEPOS suppliers to employ individuals 
who are appropriated licensed, the NSC can verify that a DMEPOS 
supplier is meeting all applicable State licensing requirements.
    Comment: Several commenters stated that the standard to prohibit a 
DMEPOS supplier from contracting with an individual or other entity to 
provide the licensed service places an unfair burden on small suppliers 
who at times must contract with licensed personnel or provide specific 
services to the supplier's patients. Also, this requirement makes it 
seem like CMS is singling out DMEPOS suppliers by not allowing them the 
use of staffing agencies when demand is great. In addition, the 
commenter believes that this standard would restrict suppliers that 
have full time respiratory therapists from hiring temporary licensed 
respiratory therapists during times of vacation, illness or increased 
staffing needs, and have a detrimental effect on patient's access to 
care and restrict respiratory therapists from performing duties in the 
patient's home.
    Response: We believe that a DMEPOS supplier must be licensed to 
provide licensed services, and therefore, we are not adopting any 
exceptions to this provision except where a State permits contracting 
for licensed services. In addition, many small businesses currently 
have an owner or W-2 employee who is licensed to provide a service that 
requires a State licensure. We believe that the changes we are adopting 
in this final regulation will not have a detrimental effect on 
patient's access to care and do not restrict respiratory therapists 
from performing duties in the patient's home. Finally, as stated 
previously, we are clarifying that DMEPOS supplier may hire a licensed 
W-2 employee on a part-time or full-time basis and we will permit 
contracting for licensed services, so long as the State permits 
contracting for licensed services and the DMEPOS supplier complies with 
State licensure laws and is ultimately responsible for the services 
provided by a contractor.
    Comment: One commenter asks how disallowing the contracting of 
licensed individuals could affect competitive bidding, given that a 
supplier is required to submit a bid for all of the oxygen modalities.
    Response: When allowed under State law, we will permit contracting 
for licensed services, so long as the DMEPOS supplier complies with 
State licensure laws and is ultimately responsible for the services 
provided by a contractor. In order for a DMEPOS supplier to be able to 
participate in the DMEPOS competitive bidding program, the supplier 
must comply with all of the DMEPOS supplier standards and be enrolled 
in the Medicare program as a DMEPOS supplier.
    Comment: One commenter asked if this rule is requiring all oxygen 
suppliers to directly provide liquid oxygen since CMS competitive 
bidding rules allow for contracting in certain areas.
    Response: No, all oxygen suppliers do not need to directly provide 
liquid oxygen. A supplier can use a qualified subcontractor to deliver 
oxygen. If the supplier is not in a competitive bidding area and does 
not furnish liquid oxygen as part of their business model and the 
prescription specifically indicates that the physician is ordering 
liquid oxygen, the supplier would either need to get approval from the 
ordering physician to furnish a different modality or refer the 
beneficiary to another supplier. If a physician orders liquid oxygen in 
areas that fall under competitive bidding, then the oxygen supplier 
must supply liquid oxygen.
    Comment: A commenter stated that the proposed rule would result in 
different Federal requirements for hospital-based DMEPOS suppliers 
based solely on the location of the supplier and further disadvantage 
hospitals because hospitals generally use independent contractors to 
perform its services.
    Response: We disagree with this commenter because all DMEPOS 
suppliers, including those based at hospitals or operated by other 
providers, are required to meet State licensing requirement for the 
services they provide. This change will enable CMS or our designated 
contractor to verify that the supplier is meeting the

[[Page 52635]]

applicable State licensing requirements for the services that it 
furnishes.
2. Physical Facility--Appropriate Site
    In Sec.  424.57(c)(7), we proposed to clarify the supplier standard 
for maintaining a physical facility on an appropriate site. Specially, 
we proposed to clarify the term, ``appropriate site.'' In addition, we 
stated that an ``appropriate site'' applies to ``closed door'' 
businesses (such as pharmacies/suppliers providing services only to 
beneficiaries residing in a nursing home). We also solicited 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.
    Comment: One commenter recommended that a minimum square footage 
requirement be established so the suppliers cannot qualify for 
participation in the Medicare program with unsuitable locations. This 
commenter stated that square footage should be adequate to store the 
necessary inventory.
    Response: We appreciate this comment and have adopted a minimum 
square footage requirement of 200 square feet in Sec.  424.57(c)(7). We 
agree with this commenter that a DMEPOS supplier must maintain a 
minimum area of space for inventory, storage, and including patient 
records.
    Comment: Several commenters stated that the variability between 
suppliers and services provided are too great to set a minimum number 
of square feet required to attain a supplier number.
    Response: We appreciate these comments and considered them in 
establishing minimum square footage requirements within Sec.  
424.57(c)(7).
    Comment: A number of commenters opposed the establishment of a 
specific square footage requirement for supplier' physical locations.
    Response: Since many DMEPOS suppliers who do not have a minimum 
square footage have been determined in the past to be fraudulent 
suppliers or have provided less than sufficient services to Medicare 
beneficiaries, we believe that a minimum square footage requirement is 
necessary to ensure that DMEPOS suppliers are operating a legitimate 
business. However, based on public comments, we were concerned that 
establishing a minimum square footage requirement of 500 square feet 
may impose an undue burden for some suppliers. Accordingly, based on 
public comments and our review of existing supplier operations, we are 
adopting a minimum square footage of 200 square feet per practice 
location. We believe that 200 square feet represents the smallest 
practice location that can be used to meet the supplier standards in 
Sec.  424.57. Specifically, we would expect that most practice 
locations have space for inventory, storage, including patient records, 
a desk and chairs, and in most cases a restroom for employees and 
customers.
    Comment: One commenter recommended that we clarify that DMEPOS 
suppliers may continue to utilize centralized business centers to house 
beneficiary and other business records and centralized customer call 
centers are permissible under this revised standard.
    Response: We believe that it is necessary to have prompt access to 
delivery, maintenance, and beneficiary records at the supplier's 
facility where the beneficiary receives services. This enables the 
beneficiary to promptly obtain necessary information and for CMS and 
our agents to perform a review of the records. We agree that the use of 
a centralized business center by a multisite supplier to house these 
records when the information in the records can be furnished to the 
beneficiary or CMS and our agents, or both. For example, the supplier 
location could use a computer terminal to access the records which are 
being stored off site. Then, it could express mail the documents 
requested.
    Comment: A commenter stated that it is not economically feasible 
for a small supplier to maintain a storefront.
    Response: We do not require that a DMEPOS supplier maintain a 
storefront, and if the DMEPOS supplier chooses to maintain a 
storefront, it may be coupled with its storage space for DMEPOS. 
However, if the supplier is in a commercial building, the sign can be 
posted at the entrance of the building. We believe that it is essential 
for our beneficiaries and site reviewers to be able to promptly locate 
the supplier. Therefore, the signage must be readily visible to the 
general public. We understand the concerns that additional costs may be 
incurred for small businesses. However we believe that the majority of 
our DMEPOS suppliers already meet this requirement. Additionally, those 
DMEPOS suppliers with less than the 200 square foot minimum space and 
who have entered into a long term lease before the publication of this 
final rule will have time to transition into a new location, as 
explained later in this rule.
    Comment: Several commenters stated that they do not support CMS' 
proposal to micromanage a supplier's business operation by dictating 
size, hours, staffing, and access via a single standard without 
exception for the specific services being furnished.
    Response: We believe that the provisions of Sec.  424.57(c)(7) are 
designed to ensure that DMEPOS suppliers conform to generally accepted 
business practices employed by quality suppliers.
    Comment: Several commenters believe it would be in CMS's best 
interest to retain the current policy which allows for a central record 
storage location for multi-State DME suppliers.
    Response: We agree that multistate DME suppliers can maintain 
central record storage locations and have amended the regulations text 
in Sec.  424.57(c)(7)(i) to reflect this concern.
    Comment: One commenter stated that there can be a problem with the 
requirement of external signage when it conflicts with local zoning 
ordinances.
    Response: We believe that prospective suppliers of DMEPOS and 
existing suppliers of DMEPOS must understand and comply with the 
supplier standards found in this section. Accordingly, prospective 
suppliers of DMEPOS should ensure that their practice location meets 
the requirements found in Sec.  424.57(c)(7) and the other supplier 
standards found in this section prior to buying or entering into a 
leasing arrangement for a given practice location. For example, if the 
owner of prospective supplier of DMEPOS knows or should have known that 
local zoning ordinances preclude the establishment of home-business in 
a residential neighborhood, then the prospective supplier of DMEPOS 
should make the business decision to: (1) Obtain a waiver to the local 
zoning ordinance in advance of submitting their enrollment application 
to the NSC; or (2) select a different practice location that will 
ensure the supplier's compliance with the requirements specified in 
Sec.  424.57(c)(7).
    Comment: One commenter stated that it may not be possible to 
fulfill the signage requirement because the owner of the building may 
not allow the posting of the sign, and that the patients that they see 
are by appointment only so posting a sign with office hours is not 
necessary.
    Response: As previously stated, we believe that prospective 
suppliers of DMEPOS and existing suppliers of DMEPOS must understand 
and comply with the supplier standards found in this section. 
Accordingly, prospective suppliers of DMEPOS should ensure that their 
practice location meets the requirements found in Sec.  424.57(c)(7) 
and the other supplier standards found in this section prior to buying 
or entering into a leasing arrangement for a given practice location. 
Accordingly,

[[Page 52636]]

we disagree with this commenter, and believe that it is essential that 
the beneficiaries and CMS agents can clearly see where the supplier is 
located and the supplier's hours of operation. If the building owner 
will not allow the posting of hours of operation, then the DMEPOS 
supplier should consider the supplier site to be inappropriate for a 
business that serves Medicare beneficiaries. Even for suppliers that 
take appointments, we believe that proper signage and posted hours are 
required for proper beneficiary information.
    Comment: One commenter believes it is not always possible to give 
the NSC prior notice to a change in the hours of operation.
    Response: While we understand that suppliers have 30 days to notify 
the NSC of change in posted business hours, we do not believe that 
legitimate suppliers routinely change their posted hours of operation 
frequently. Moreover, there is nothing in our current rules or within 
this final regulation which precludes a DMEPOS supplier from notifying 
the NSC prior to or at the time a change of posted business hours are 
implemented.
    Comment: A commenter stated that size and space requirements are 
already established in the accreditation process, and therefore, are 
unnecessary as a separate supplier standard.
    Response: Since the requirements included within accreditation 
standards set forth in Sec.  424.57(c)(21) through Sec.  424.57(c)(25) 
and quality standards are independent of the supplier standards in 
Sec.  424.57, we believe that it is appropriate to establish a minimum 
square footage requirement to assist us in determining whether a DMEPOS 
supplier is operating a legitimate business as neither of the 
aforementioned sets of standards include a provision for minimum square 
footage.
    Comment: One commenter requested what defines a permanent, durable 
sign and noted that sometimes it may be necessary to have permanent 
signage attached to the glass panel of a facility.
    Response: While we have not defined what constitutes a permanent 
durable sign, there is no requirement that a permanent sign be or not 
be attached to a glass panel.
    Comment: Several commenters suggested that an exemption should be 
granted when it is necessary for the office to be temporarily closed 
during posted office hours to account for holidays, natural disasters, 
short-term closures, patient deliveries, emergencies, and other 
unforeseen occurrences.
    Response: We note that we have always made exceptions concerning 
posted hours for disasters and emergencies and Federal and State 
holidays. However, while we recognize that personal emergencies do 
occur, we believe that suppliers should be available during posted 
business hours. Moreover, we believe that a DMEPOS supplier should do 
its best to plan and staff for temporary absences.
    Comment: One commenter believes the minimum square footage 
requirement causes potential issues for orthotic and prosthetic 
suppliers since the lab area is separate from the patient area and is 
often located off-site. The patient interaction area is most important, 
but since this area can be as small as 80 square feet, the size 
requirement should not be imposed as to orthotic and prosthetic 
suppliers.
    Response: We agree with the concerns raised by this commenter and 
have adopted an exception to Sec.  424.57(c)(7) for State-licensed 
orthotic and prosthetic personnel in private practice as one of the 
exceptions to this provision.
    Comment: One commenter suggests that rather than mandating a 
certain amount of square footage, an alternative could be a rule 
indicating that the office space must consist of an ADA accessible 
reception area, a minimum of one examination room and a restroom, 
unless there is a common area restroom.
    Response: We believe that it would be very difficult for us to 
develop specifications for these items. Moreover, we believe that doing 
so would likely be more restrictive for some types of suppliers.
    Comment: One commenter notes that in most leased spaces, especially 
in medical buildings, the signage locations are predetermined, and 
therefore, the commenters do not believe a quality standard should 
mandate signage on the exterior of the building.
    Response: We believe that the sign must be visible at the main 
entrance of the facility and visible to the public. Therefore, in a 
public medical building, the sign could be posted in the main lobby 
entrance if access to the lobby is available to the general public.
    Comment: One commenter recommended that if CMS does set minimum 
square footage requirements that we give suppliers time for the 
expiration of current leases and to obtain a new location or 
``grandfather'' locations already in use.
    Response: We agree with this commenter and will establish a 3-year 
phase-in period for those existing suppliers of DMEPOS who have signed 
leases, including long-term leases, on or before the publication date 
of this final rule. We believe that this phase-in period will provide 
small businesses with sufficient time to identify a practice location 
that meets the minimum square footage requirement. We will make this 
requirement effective for existing DMEPOS suppliers 3 years from the 
effective date of this regulation. However, we do not believe that it 
is appropriate to establish a similar requirement for prospective 
suppliers of DMEPOS, including those suppliers who have a pending 
enrollment application with the NSC. Consequently, we expect 
prospective DMEPOS suppliers to comply with this requirement as of the 
effective date of this regulation. As prospective DMEPOS suppliers seek 
billing privileges after the effective date of this regulation, we 
expect them to comply with this requirement in order to be enrolled in 
Medicare.
    Comment: One commenter is concerned that the minimum square footage 
requirement may be over interpreted as a means to shut down legitimate 
suppliers (for example, a legitimate supplier being 25 feet short after 
the rule becomes effective but having a 5-year lease to fulfill).
    Response: We proposed the minimum square footage as a basis for 
ensuring that legitimate suppliers are meeting the supplier standards 
in Sec.  424.57 and that these suppliers are providing quality products 
and services to Medicare beneficiaries. As stated previously, we will 
impose this requirement on those suppliers who have entered into 
leases, including long-term leases, on or before the date of 
publication of this final rule. Accordingly, we maintain that DMEPOS 
suppliers who had entered into lease arrangements of 1 year or less 
must come into compliance with this provision at the end of their 
current lease. Similarly, DMEPOS suppliers who have entered into 
leasing arrangements of more than 1 year but less than 3 years must 
come into compliance with this standard at the end of their current 
lease; and that all existing DMEPOS suppliers must come into compliance 
with this standard within 3 years of the effective date of this final 
rule.
    Finally, while we are establishing a transition period for 
implementation of this requirement for DMEPOS suppliers already 
enrolled in the Medicare program, we are not adopting a transition 
period for DMEPOS suppliers enrolling a new practice location, 
reactivating the billing privileges for a DMEPOS supplier previously 
enrolled in the Medicare program or for DMEPOS suppliers changing their 
existing

[[Page 52637]]

practice location or selling their existing practice location.
    Comment: One commenter notes that licensing and accrediting bodies 
inspect suppliers' facilities to assure the supplier has a legally 
defined means of providing care. The commenter believes that Medicare 
should have no role in determining the appropriateness of a supplier's 
facility.
    Response: While we agree that licensing and accreditation are 
essential elements for ensuring quality of care, we disagree with the 
commenter that CMS or our designated contractor should have no role in 
determining the appropriateness of a supplier's facility. Since the 
implementation of the DMEPOS supplier standards in October of 2000, we 
have played an important role in determining the appropriateness of a 
supplier's facility via regulation at Sec.  424.57.
    Comment: One commenter questioned why the square footage matters if 
a supplier meets all requirements and has Medicare beneficiaries coming 
to the supplier's physical location where products are stocked and 
provided.
    Response: We maintain that an appropriate amount of square footage 
is generally necessary to ensure that the facility can meet its 
obligations to a beneficiary which include an area for the beneficiary 
to sit, or room for a wheelchair and room for it to turn/move around, 
as well as room for stock and for the equipment necessary for running a 
business. In addition, in the past many suppliers with very minimal 
square footage have been determined to be fraudulent or have provided 
inferior service to Medicare beneficiaries.
    Comment: One commenter questioned whether it is CMS' intent to 
require suppliers to be a retail-type business by mandating minimum 
square footage which needlessly drives up the cost of doing business 
for nonretail suppliers.
    Response: While ``closed door'' businesses are eligible to 
participate in the Medicare program, we believe that it is necessary to 
include a minimum square footage into what is considered an appropriate 
site. We understand there may be concern that this requirement may 
cause a change in business practices for smaller suppliers and could 
possibly result in increased costs. However, we believe that most 
DMEPOS suppliers are already meeting this standard.
    Comment: A commenter stated that the minimum square footage 
requirement is not appropriate because the Federal rule would preempt 
State or local land use or supplier laws already in place and will not 
take into account the supplier's operations or the needs of the 
beneficiaries being serviced.
    Response: We disagree with this commenter. While we are not 
preempting State and local land use laws, we are establishing criteria 
to enroll in the Medicare program as a DMEPOS supplier. We believe that 
this revised criterion will help to ensure that Medicare beneficiaries 
receive quality services from quality suppliers.
    Comment: A commenter stated that the minimum square footage 
requirement is unnecessary for suppliers' facilities that are not 
intended for beneficiary access and that this proposed standard blurs 
the distinction between a classic retail establishment and a service 
facility dedicated to the provision of supplies and equipment to 
patients in their homes. In addition, the commenter requests that CMS 
consider different business models for supplier standards, including 
suppliers that provide quality items and services to beneficiaries, but 
do not operate facilities intended to be stores for in-person access.
    Response: We disagree with this commenter. Since most DMEPOS 
suppliers are not solely service facilities, we believe that these 
enrolled suppliers must provide reasonable access for Medicare 
beneficiaries in the event that a beneficiary has a problem or requires 
prompt service. It is also essential that CMS or our agents have access 
during posted hours of operations to ensure that the supplier continues 
to meet the supplier standards in Sec.  424.57.
    Comment: A commenter suggests that CMS consider that the 
appropriate size of a facility is based on the services provided, the 
size of the organization and the status of the location.
    Response: We appreciate this comment and have considered these 
factors in adopting a minimum square footage requirement for DMEPOS 
suppliers. As noted previously, we maintain that an appropriate amount 
of square footage is generally necessary to ensure that the facility 
can meet its obligations to a beneficiary