36:35 to watch
On the Claim to Fame DME podcast, hosts Alex and Wayne interview healthcare attorney Jeff Baird of Brown & Fortunato, who describes his firm’s nationwide work with DME suppliers and other providers across regulatory counseling, litigation defense, employment, and M&A.
Baird traces the DME industry’s growth from Medicare’s creation in 1965 through a largely unregulated period to increased fraud scrutiny, post-payment audits, competitive bidding since 2009, expanding managed care (with 54% of Medicare beneficiaries in Medicare Advantage), and heightened PTAN revocations for technicalities. He warns that upcoming competitive bidding for “soft goods” (urological supplies, braces, ostomy, CGMs) will likely leave only 6–8 Medicare contracts per category, forcing many small suppliers to recalibrate. He discusses private equity pressures creating compliance risk (including the Medicare CPAP payment prohibition), diversification via Medicare Advantage and retail cash models, the need for state licensure and sales tax awareness when shipping, and emphasizes retaining experienced DME counsel, focusing on niches, and engaging in industry advocacy.
Duration: 36:35
Guest: Jeff Baird, Chairman of the Health Care Group, Brown & Fortunato
Hosts: Alex and Wayne (Claim to Fame DME Podcast)
(1:37) Introduction — A Healthcare Specialty Firm Working in All 50 States
Jeff Baird chairs the health care group at Brown & Fortunato, a healthcare specialty firm of about 30 attorneys with offices in Dallas, Salt Lake City, and Amarillo, Texas, representing DME suppliers, pharmacies, infusion providers, hospitals, labs, and home health across all 50 states. His regulatory group helps providers make good decisions and avoid pitfalls. The firm also runs a litigation group that defends DOJ and OIG investigations — criminal or civil — and whistleblower suits; an employment group handling what Baird calls “the sex, drugs and rock and roll of law”; and a corporate M&A group that has closed hundreds of stock and asset acquisitions nationwide. “We may be attorneys, but we don’t take ourselves too seriously.”
(3:55) A Walk Through DME History: From Unregulated to Under the Microscope
Baird describes himself as a frustrated wannabe teacher — more than a thousand conference programs and webinars, and more than a thousand articles written. What keeps him engaged is how much the industry has changed, and he walks the arc from the beginning.
President Lyndon Johnson signed the Medicare Act in 1965, when 65 was a realistic retirement age because “a male worker would work till you’re 65, retire, and die at 66.” Today people live to 85 and need far more. The DME industry emerged in the mid-1970s, starting with local pharmacies putting equipment out for elderly customers, and grew from there.
Then came roughly twenty years of flying under the radar. Through the 70s, 80s, and into the mid-1990s the industry was essentially unknown and unregulated: “a 28-year-old legislative staffer would never walk into a DME store unless he was taking care of great Aunt Martha.” It was purely fee-for-service — Fred’s Medical Equipment in Abilene only needed to know how to take care of customers and how to bill Medicare. Managed care was something that happened to hospitals and doctors in New York and California.
That ended in the late 1990s. Bad actors committed healthcare fraud, concentrated in South Florida, Houston, parts of Chicago, and Los Angeles — wheelchairs, back braces, diabetic supplies — and it caught the attention of the press, DOJ, OIG, CMS, and Capitol Hill. Even though DME is only about 2% of total Medicare spend, the rise in claim submissions put the category under scrutiny. Post-payment audits followed: Medicare paying a claim, then returning a year later demanding documentation and recouping or offsetting against receivables if it wasn’t there.
Competitive bidding arrived around 2009 — “competitive bidding is a train wreck” — requiring companies to bid for contracts to bill Medicare for certain products, administered in a way Baird calls a nightmare.
Then managed care. Today about 54% of all Medicare beneficiaries are in Medicare Advantage plans, leaving 46% in traditional Medicare, and over 70% of Medicaid patients are in Medicaid managed care. Reaching more than half of prospective Medicare patients now requires a stack of managed care contracts, “many of which are really not sustainable in terms of reimbursement.”
The newest pressure is provider enrollment. A DME supplier needs a PTAN — its Medicare supplier number — to bill Medicare, and most commercial plans won’t even issue a contract without one. Baird reports Medicare contractors are now revoking PTANs “like popcorn” over hyper-technical issues. You can appeal and may well win in six months, “but by that time, I’m broke.”
Running underneath all of it is the constant: 78 million baby boomers born between 1946 and 1964, retiring at roughly 10,000 per day, living to 85 with bodies breaking down at 70. “The demand for DME is going to continue to go through the roof.”
(12:36) The Biggest Worry Right Now: Soft Goods Competitive Bidding
The latest iteration of competitive bidding targets soft goods — urological supplies, back and knee braces, ostomy, and continuous glucose monitors. It hasn’t happened yet, but it’s coming, and CMS is expected to offer only six to eight contracts per product category. Today thousands of DME companies supply these items; afterward, only six to eight will be able to bill Medicare fee-for-service for them. For the small mom-and-pop suppliers who make up most of the industry and who lean heavily on soft goods, winning one is “highly unlikely to the point of almost being impossible,” which forces a business model recalibration. Baird’s read on the intent: “Basically, what CMS is mandating is the Amazon model. Just have a few companies ship these things all over the country.”
(14:42) Private Equity and the Managed Care Squeeze
PE is entering healthcare broadly — physician practices, home health, DME, pharmacy — with the standard mandate to ramp earnings and flip in three to five years. “When you have a private equity group that’s focused on profits and doesn’t really understand health care, it can be a real challenge.” The managed care side compounds it: plans deliberately issue a limited number of contracts, so a supplier in Omaha asking Blue Cross for one is often told the panel in Nebraska is full.
(17:03) “Health Care Law, Then DME Law” — and the CPAP Payment Prohibition
Baird is direct about why DME trips up sophisticated buyers: “There are health care attorneys out there who are smarter than I am” with deep hospital experience, “but if they get sucked into this DME Alice in Wonderland universe, they quickly get lost because the law as it pertains to DME is just strange.” Much of it isn’t even written down; you learn it by immersion. A PE firm buying a hospital, pharmacy, or lab generally won’t stumble over regulatory issues. DME is different.
His worked example: a PE firm owns 70% of a CPAP-focused supplier, the founder retains 30% and still runs it, and the firm pushes hard on annual EBITDA — including developing relationships with home sleep testing labs. That risks running afoul of the Medicare CPAP payment prohibition, under which a supplier with any financial arrangement with a home sleep testing lab, direct or indirect, cannot receive Medicare CPAP patients from that lab. “Most people are unaware of the prohibition, and certainly PE firms are unaware of that.” The bind writes itself when those referrals are already carrying the EBITDA.
(20:01) The “Kumbaya Stage” — What Founders Should Expect After a Sale
Baird’s advice to anyone selling a majority interest is to make peace with leaving. At closing they pay you well and tell you they want you to keep running the company. “That’s the Kumbaya stage. Everybody loves each other. Then after a year, the real world intervenes and I’m out.” Be happy with the money and plan the next thing.
(21:18) Diversification: Medicare Advantage, Employer Plans, and the Retail Cash Market
Once a supplier accepts it won’t win a soft goods contract, the useful questions start. Competitive bidding applies only to traditional Medicare fee-for-service — not Medicare Advantage — so 54% of prospective patients sit outside it. Can you secure enough decent Medicare Advantage, Medicaid managed care, and employer-sponsored group health contracts to keep serving them?
The second question is cash. Baird makes the case as a customer, not just counsel: “Most baby boomers — I’m a baby boomer, we’re the Woodstock generation — we refuse to get old.” When his body breaks down, he doesn’t want to be relegated to the equipment Medicare will pay for: “I’m willing to flip up my Visa or my American Express… I want to pay for the Cadillac, not the Cavalier.” That market extends to high-end DME and to products insurance never covers, like home modifications and mother-in-law suites. The structural appeal is simple: “When you’re selling stuff for cash, you don’t have to worry about audits. You don’t have to worry about recoupments.”
(24:29) Shipping Nationwide: State Licensure and Sales Tax Most People Miss
Independents with strong interactive websites are already selling and shipping across the country — a supplier in Abilene that knows how to use the web can serve far beyond Abilene and San Angelo. But the regulatory tail follows. To be paid by Medicare fee-for-service a supplier needs accreditation, a PTAN, a surety bond, and a license from each state it ships into. And the licensure obligation doesn’t disappear on the cash side: “even if you get away from Medicare, you still have some of these other regulatory issues,” including state DME licensure and potential sales tax liability.
(26:00) Structuring the Cash Business: Set Up a Separate Entity
Baird’s concrete recommendation for suppliers entering retail cash: form a brand-new legal entity with its own tax ID — “call it ABC Retail, Inc.” — so the cash business isn’t carrying restrictions imposed by Medicare or commercial payers. The nuances still apply, including state licensure and one that catches people out: a cash-only entity with no Medicare supplier number must notify Medicare patients that it has no supplier number and they will never be reimbursed.
(27:35) Advice for Providers Buried by Regulation: Get the Right People
The first answer Baird flags as self-serving and gives anyway: “Your local business lawyer is not going to have a clue” about billing Medicare, Medicaid, the VA, Tricare, and commercial payers. That requires a healthcare attorney with real DME experience “that can handle all this voodoo stuff.” The second is to read the market honestly. Consolidation is real and there are enormous players, “but there’s always, always, always a place for a niche” — look for niches relatively impervious to regulatory churn.
(29:23) Four Pieces of Advice Before You Grow, Expand, or Sign
- Retain a healthcare attorney — “there are going to be some landmines out there that you can step on if you’re not careful.”
- If you want the soft goods market, accept you won’t be billing Medicare fee-for-service and plan to bill other payers, which still covers 54% or more of the Medicare population.
- Take retail cash seriously; even as a secondary line it can be an important component.
- On compliance, “let’s be paranoid.” You may get away with being loosey-goosey for a while, but a sale exposes everything: the buyer’s attorney performs due diligence, and if you’re not compliant in some area, “either the purchaser is going to walk or that whole EBITDA calculation is going to be greatly reduced.”
(31:32) The Next Decade: Suppliers Have to Own the Industry
Baird’s closing argument is against outsourcing advocacy. “DME suppliers cannot sit back and say AAHomecare, you handle it. State association, you handle it. No. All of us are stakeholders.” That means working alongside other suppliers and associations to lobby for state and federal regulatory change and for stronger protections against the insurers holding Medicare Advantage and Medicaid managed care contracts. The demand side is not the problem — it’s only going up. “The question becomes, how do we meet the demand of this ever-changing environment? And I think the answer is, let’s be smart and let’s absolutely be involved with other stakeholders.”
Rapid Fire Round
- Audit defense or contract review? Audit defense — “it’s a little more sexy. Contract review can be boring.”
- Medicare or commercial payer? Medicare. “I don’t like commercial insurance companies.”
- Biggest legal red flag? Paying 1099 independent contractors for marketing services — “that is a big kickback.”
- Most misunderstood healthcare law concept? The federal anti-kickback statute. Almost anybody can be a referral source: “Doctor, nurse, discharge planner, taxicab driver, potted plant.”
- Coffee or iced tea? Neither — Diet Mountain Dew.
- Texas barbecue or steakhouse? Texas everything — barbecue, steakhouse, Tex-Mex, country western swing, line dancing. “There are two types of people out there: those who are Texans and those who wish they were.”
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