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[News] When the Payor Takes Control - Sleep medicine in 2012
When the Payor Takes Control

by Daniel B. Brown, Esq

Sleep medicine in 2012

The old canard that reimbursement drives the delivery of health care looks certain to apply to the changes overtaking sleep medicine in 2011 into 2012. Coming into vogue are lower reimbursement amounts, payment models mandating home sleep tests in lieu of in-lab services, and the first baby steps leading to potential payments for integrated sleep care programs. To protect the ultimate amounts paid, Medicare is ramping up its postpayment reviews and overpayment demands on sleep test providers.


After taking a cut in 2011, Medicare reimbursement for sleep looks to be fairly constant in 2012. Sleep reimbursement rates in Medicare's 2012 physician fee schedule are unchanged from last year.

The bigger challenge is how Congress will handle the significant cuts hanging over all Medicare services. In an effort to slow Medicare spending, Congress adopted a sustainable growth rate (SGR) formula in 1996 to limit or cut the fee schedules in reaction to certain growth variables. Congress has waived operation of the SGR for much of the last decade and for the first 2 months of 2012. A permanent fix to the annual SGR cuts remains as part of the ongoing Congressional budget debates.


Adopted by the Centers for Medicare and Medicaid Services (CMS) in 2007, the Physician Quality Reporting System (PQRS) is a quality reporting program that permits Medicare to gather and review practice service and outcomes data for certain chronic conditions and other procedure-related care. Medicare included sleep apnea as a measurement group for the first time in 2012.

To encourage participation, CMS offers Medicare incentives to physicians who volunteer to report certain care and performance measures. On the other hand, those who choose not to report their sleep apnea measures for calendar year 2013 will face reimbursement penalties in 2015.

Incentives are slight. Medicare will boost reimbursement of the professional service by 0.5% in 2012 if the measures are reported properly and show some quality performance consistent with the measures. The incentive doubles to 1% if the physician participates in a qualified "Maintenance of Certification" program. The program ensures that the participating physician has the fundamental diagnostic skills, medical knowledge, and clinical judgment to provide quality care in their specialty. Program participation requires an assessment of the physician and their practice indicating use of evidence-based medicine, surveys with patients, and policies addressing practice weakness identified in the initial assessment.

Even though reporting is voluntary, CMS adopted a rule last year imposing a 1.5% payment penalty in 2015 on those physicians who elect not to participate or do not successfully participate in PQRS during 2013. The penalty increases to 2% in subsequent years.

The opportunity to reap incentives or pay the penalties affects physicians (but not independent diagnostic testing facilities or IDTFs) who take and report on four specific sleep apnea measures:

* Severity Assessment at Initial Diagnosis
* Positive Airway Pressure Therapy Prescribed
* Assessment of Adherence to Positive Airway Pressure Therapy

The process for taking and reporting sleep apnea measures is detailed and fairly complex. Some answers appear on the CMS Web site at http://www.cms.gov/PQRS.


While reimbursement rates may be steady, a sea change in the number of portable tests billed may drive some structural changes for in-lab programs in 2012.

Last July, UnitedHealthcare in New Jersey and several of its East Coast affiliates announced a new coverage policy for reimbursement of Polysomnography and Portable Monitoring for Sleep Related Breathing Disorders. Central to the policy is a mandatory site-of-service preauthorization process. Because UnitedHealth believes portable sleep testing is more convenient and cost-effective, it will now pay for the full, in-laboratory PSG only if it first determines that the patient is ineligible for home sleep testing.

UnitedHealth will make the site-of-service (home or lab) determination in accordance with medical necessity criteria. The ordering physician is responsible for obtaining the preauthorization.

The new policy is expected to push the number of home tests well beyond the number of in-lab PSGs for lives covered by participating UnitedHealthcare plans. Of concern to local sleep labs is not only the loss of in-lab tests but also the loss of eligibility to provide the less-profitable home test to the UnitedHealth beneficiary.

As of July, UnitedHealthcare had contracted with VirtuOx to perform home sleep testing nationwide along with locally contracted sleep specialists. According to UnitedHealthcare, VirtuOx will deliver the device to the patient's home, provide instructions and phone support, and deliver the test result using its network of board-certified sleep-medicine physicians.

If a UnitedHealthcare patient requires PAP therapy following the sleep test, the new reimbursement regime does away with the familiar in-lab titration test in favor of APAP therapy. Again, the UnitedHealthcare program trims the source for PAP to a handful of national and locally contracted PAP vendors, including Lincare, American Homepatient, Walgreens, Rotech, and Apria Healthcare.

The perception that portable testing yields credible results at less cost will likely drive adoption of site-of-service preauthorizations by other commercial health insurers in the coming year. The sleep industry can expect expanding use of the portable test performed by a shrinking number of sleep test providers.


A key component of the Patient Protection and Affordable Care Act is the focus on medical outcomes derived from coordinated patient care. The law encourages health care providers to create a new type of health care entity called Accountable Care Organizations (ACOs). ACOs consist of doctors and other suppliers who agree to be held accountable for improving care while reducing health care spending. The more the ACO saves based on benchmarks, the more money the participants have available to share. Participants also share in losses should costs exceed the plan.

Sleep medicine is not targeted as an initial candidate for ACO treatment under the law. However, there is growing recognition of sleep apnea and other sleep disorders as chronic diseases requiring long-term coordinated care. The reimbursement environment contemplated by ACOs foresees coordinated payments for coordinated care of sleep apnea patients.

One model of an integrated sleep care center is a physician-supervised facility or practice offering both home and in-lab tests along with a variety of treatment options, just as PAP, oral appliances, or cognitive behavioral counseling. All services would be billed from the single facility or practice.

In September 2011, the American Academy of Sleep Medicine proposed to CMS accreditation standards for an Integrated Sleep Management Delivery Model. The AASM requested, in part, that CMS waive certain reimbursement impediments to the performance of integrated sleep care.


Despite the perceived clinical benefits of an integrated care program, integration won't be quick in coming. The biggest hurdle is CMS' emphasis on separating the referring physician from PAP therapy. CMS is focused on limiting the opportunity for doctors to overutilize sleep medicine tests and therapy, especially if the referring physician has some financial interest in the provider or the supplier of the test or the therapy.

To make integrated care work then, CMS will need to adopt significant changes to a raft of existing regulatory impediments. The specific waivers to existing legal rules include the following.

Legal Change No. 1: Stark Law and In-office Durable Medical Equipment (DME). CMS will need to waive Stark Law rules to permit a physician to bill Medicare and Medicaid for PAP equipment and supplies dispensed from the referring physician's own medical practice. The federal Stark law prohibits a physician's referral of Medicare or Medicaid PAP to an entity in which the physician has a financial interest. The prohibition currently extends to a physician's referral of Medicare or Medicaid PAP to their own patient for PAP from their own medical practice.

CMS could limit its waiver on this point to integrated sleep programs that achieve and maintain an acceptable accreditation credential as an integrated sleep disorders center. This status could help safeguard against abusive overutilization of sleep services.

Note that state laws might apply to prohibit a physician's financial interest in a PAP supplier even if there is no Medicare or Medicaid reimbursement.

Alternative: Stark Law and Bundled Rate Services. Another way to permit a physician to dispense Medicare or Medicaid PAP from their office under Stark would be to shoe-horn sleep therapy into a "bundled" or composite reimbursement rate for integrated sleep disorders services.

The Stark law currently recognizes that some services that would otherwise constitute designated health services, but that are paid by Medicare as part of a composite payment for a group of services as a separate benefit, are not designated health services. For example, physical therapy services are designated health services subject to Stark's referral prohibition. But physical therapy services that are provided as part of skilled nursing services (SNF) and then billed as part of a bundled SNF rate are not designated health services.

To curtail unrestricted billing of any future composite sleep service code, CMS could limit its use to integrated sleep disorders centers that obtain integrated care accreditation or some other recognized sleep medicine credential.

Legal Change No. 2:
Co-Location Prohibitions. Suppliers of Medicare PAP know that DME Supplier Standards prohibit a supplier from co-locating inside the office or premises of another Medicare-enrolled person or entity. Under current rules, then, a Medicare PAP or oral appliance supplier cannot establish a location inside an IDTF or physician practice enrolled in Medicare.

Co-locating the PAP or oral appliance supplier inside the sleep facility or practice with the treating physician is a key aspect of integrated sleep care. CMS would need to reexamine the co-location prohibition in order to encourage the development of integrated sleep centers.

Legal Change No. 3:
Affiliation Rule. Medicare's DME Supplier Standards also prohibit a supplier from dispensing Medicare PAP to a patient whose OSA diagnosis was obtained by a home sleep test performed by a person or entity affiliated with the DME supplier. CMS would need to reexamine this "affiliation rule" to involve the home sleep test fully in an integrated sleep program available to Medicare beneficiaries.

Legal Change No. 4: Anti-Kickback Rule. The federal Anti-Kickback Statute (AKS) makes it a felony for a person to solicit, accept, pay, or receive any direct or indirect remuneration in return for, or to induce, a recommendation, referral, or arrangement or a service reimbursed by a federal health care program. The Office of Inspector General of the US Department of Health and Human Services (OIG) has indicated that a physician's sharing Medicare or Medicaid revenues in return for referring PAP or other government-paid services or items could adversely impact the AKS.

In its Advisory Opinion No. 11-08 posted on June 21, 2011, the OIG addressed AKS sanctions for payments made by a Medicare DME supplier to an IDTF sleep lab. Under the arrangement, the IDTF would store the supplier's PAP and also would set up the supplier's patients in the sleep lab. The patient would interact with the IDTF's staff during the sleep test and perhaps with the referring physician as part of a PAP referral. Each lab patient received a so-called "freedom of choice" form indicating a selection of PAP suppliers, including the supplier who contracted with the IDTF.

The DME supplier paid the IDTF a fair market fee for the IDTF's staff setup time. The fee was paid on a "per-test" basis for patients who were ineligible for Medicare or Medicaid and on a flat monthly rate basis for Medicare or Medicaid beneficiaries.

The OIG concluded that, depending on the parties' intent to generate referrals, the arrangements could potentially generate prohibited remuneration under the AKS. First, the arrangements did not fit within any AKS safe harbor provision. Although failure to fit inside a safe harbor does not mean the arrangement is per se illegal, the OIG noted that the arrangements did not include sufficient safeguards against fraud and abuse.

In the eyes of the OIG, co-locating the PAP supplier with the sleep test provider might promote aggressive marketing through involvement of the IDTF's staff. The staff might, by personal contact, tacitly or directly influence the patient's selection of the PAP supplier as the DME provider of choice in light of the trust that patients place in health care professionals.

Personal contact between the patient suffering from sleep disorders and all of the health care professionals is a central tenet of an integrated sleep program. The breadth of the AKS and the OIG's current suspicion of financial interests among providers recommend against development of integrated sleep programs. Obtaining OIG's positive advisory guidance on the operation of an integrated sleep program under the AKS will be helpful to green light legal compliance of such programs.


Both the number of Medicare PAP suppliers, along with Medicare reimbursement for PAP, is expected to shrink by July 2013. On January 30, CMS will begin taking pricing bids from Medicare DME suppliers for the right to supply PAP equipment and supplies in most areas of the country. Medicare expects to achieve significant savings in the cost of PAP through this expansion of the competitive bidding process.


The fraud and abuse story in sleep this year is the spread of the postpayment audit. The Recovery Audit Contractors (RACs) and the Zone Protection Integrity Contractors (ZPICs) have expanded their reach beyond hospitals and other multifaceted health care facilities toward more bread and butter suppliers like physician practices and sleep labs.

The most frequent billing errors uncovered by the RACs and the ZPICs at IDTF sleep labs is the use of unlicensed or uncertified technologists. Failure to obtain and hold proper medical documentation for the sleep test also causes sleep test providers significant overpayment problems.

The upcoming year promises to hold challenges for the sleep industry on both the legal and business fronts. Adaptability remains the key to success in today's market.

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The above post may contain copyrighted material the use of which has not always been specifically authorized by the copyright owner. The material available is intended to advance the understanding of Sleep Apnea treatment and to advance the educational level of Sleep Apnea patients with regard to their health. Sometimes included is the full text of articles and documents rather than a simple link because outside links frequently "go bad" or change over time. This constitutes a "fair use" of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material in this post is distributed without fee or payment of any kind for research and educational purposes. If you wish to use copyrighted material from this post for purposes of your own that go beyond "fair use", you must obtain permission from the copyright owner.
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