Risky Business? Sleep, DMEPOS CPAP Arrangements

By Rachael Graham, CRT, RCP, RPSGT  

Rachael Graham is a Respiratory Care Practitioner and a Registered Polysomnography Technician. As a practitioner, she has experienced more than a dozen accreditation surveys. Rachael has also seen accreditation from the surveyor’s perspective. 

Posted: March 3, 2026

Obstructive sleep apnea (OSA) is widespread across all adult age groups. Both commercial insurers and Medicare cover testing and treatment for the condition, including CPAP devices and supplies.

A 2025 Medtrade article, CPAP Payment Prohibition by healthcare legal expert Jeffrey S. Baird, remains a valuable resource for its clear, in-depth analysis of an important federal rule that every sleep and DME professional should understand.

Sleep and DMEPOS connection

In the article, Baird, chairman of the Health Care Group at Texas law firm Brown & Fortunato, focuses on the two main diagnostic OSA testing methods: overnight, attended polysomnography in a sleep lab and home sleep testing (HST). He then explains how these tests often lead to CPAP prescriptions and possible operational links between sleep labs and DMEPOS suppliers, especially when working together to deliver CPAP therapy.

Business arrangements like “loan closets,” where CPAP devices and disposables are stored at a sleep lab for quick patient access, can improve patient convenience—but they can also raise serious legal concerns. If the DME supplier compensates the sleep lab for patient education or setup services, and Medicare patients are involved, the Medicare CPAP Payment Prohibition rule may come into play.

Medicare claims

Under 42 CFR §424.57, Medicare will not pay a CPAP claim if the DME supplier or an “affiliate” was directly or indirectly involved in providing the sleep test that diagnosed the patient, except when the test was an attended, facility-based polysomnogram. The law’s intent is to prevent financial interests from influencing testing decisions or interpretations, ensuring diagnoses are medically necessary.

Top takeaways

• No hospital loophole: The rule applies to all sleep labs, regardless of ownership.
• False Claims Act risk: Violations can trigger whistleblower lawsuits, leading to serious legal and financial consequences.
• Merger and acquisition implications: Noncompliant arrangements can significantly reduce a company’s valuation or jeopardize business deals.

The article goes further to deliver a real-world example on how a well-intentioned loan closet arrangement can violate the rule if compensation and HSTs for Medicare patients are involved. Importantly, compliance with other laws, like the Anti-Kickback Statute or Stark Law, do not shield a supplier from this prohibition.

Why ACHC recommends this read

As a leading accreditor for both sleep and DMEPOS providers, ACHC believes that understanding this prohibition is vital for protecting your organization’s compliance status, financial stability, and reputation. The article translates a complex regulation into practical guidance, helping providers better evaluate partnerships, avoid costly missteps, and uphold ethical, patient-centered care.