AMARILLO, TX – Approximately (i) 35% of all Medicare patients are covered by Medicare Advantage Plans (“MAPs”) and (ii) 70% of all state Medicaid patients are covered by Medicaid Managed Care Plans (“MMCPs”). These percentages are increasing.

A MAP and MMCP essentially operate the same way. The MAP, owned by an insurance company, contracts with CMS. Pursuant to the CMS contract, the MAP will (i) cover Medicare beneficiaries (“Medicare Covered Lives”) and (ii) contract with health care providers and suppliers to take care of the Medicare Covered Lives. CMS pays the MAP and the MAP pays the provider/supplier.

The same concept is true with an MMCP. The MMCP, owned by an insurance company, contracts with the state Medicaid program. Pursuant to the Medicaid contract, the MMCP will (i) cover Medicaid beneficiaries (“Medicaid Covered Lives”) and (ii) contract with health care providers and suppliers to take care of the Medicaid Covered Lives. The state Medicaid program pays the MMCP and the MMCP pays the provider/supplier. The MAP and MMCP contracts will collectively be referred to as “Third Party Payer Contracts” or “TPP Contracts.”

A challenge faced by many DME suppliers is that MAPs and MMCPs (collectively referred to as “Plans”) have “closed panels.” This means that the Plan tells the DME supplier: “We have enough DME suppliers on our provider/supplier panel. We don’t need you. Therefore, we will not sign a TPP Contract with you.” The end result for the DME supplier is that if a Medicare Covered Life or Medicaid Covered Life (collectively referred to as “patient”) wants to obtain a product from the DME supplier, and if the patient is covered by a TPP Contract for which the DME supplier is not on the panel, then the DME supplier must turn the patient away…unless, of course, the patient is willing to pay cash to the DME supplier without getting reimbursed by the Plan.

As a workaround, the DME supplier may desire to enter into the following type of arrangement with another DME supplier:

• Supplier A is a party to a TPP Contract. Supplier B is not a party to the TPP Contract.
• When a patient under the TPP Contract wants to purchase a product from Supplier B, then Supplier B will take care of the patient.
• Supplier B will (i) handle intake, assessment and coordination of care (collectively referred to as “intake”), (ii) deliver and set up the equipment, and (iii) handle the subsequent maintenance and repairs.
• Supplier A will submit a claim under the TPP Contract. Upon receipt of payment under the TPP Contract, Supplier A will (i) pay a large percentage (e.g., 92%) to Supplier B and (ii) retain the balance.

The problem with this arrangement is that it violates the federal anti-kickback statute (“Federal AKS”), the federal False Claims Act (“Federal FCA”), and their state counterparts. Here are how the Federal AKS and Federal FCA come into the picture:

• Federal AKS – This statute makes it a felony for (i) Supplier A to give anything of value in exchange for receiving the referral of a patient covered by a government health care program and (ii) Supplier B to receive anything of value in exchange for referring (or arranging for the referral of) a patient covered by a government health care program. In the eyes of the Plan, the “supplier” is Supplier A: it is the party to the TPP Contract and it is billing and collecting under the TPP Contract. The kickback issue arises because (i) Supplier B is referring or arranging for the referral of the patient to Supplier A and (ii) Supplier A is, in return, remitting e.g., 92% of the payment to Supplier B.
• Federal FCA – This statute prohibits Supplier A from submitting “false claims”…and Supplier B cannot conspire (or collaborate) with Supplier A for the submission of false claims. When Supplier A submits a claim to the Plan, Supplier A is representing that it is the supplier…that it took care of the patient and, therefore, deserves to be paid. In fact, this is not the case. The true supplier is Supplier B; it is the entity that does all of the work. All Supplier A does is submit a claim under the TPP Contract. Hence, the claim submitted is a false claim. And Supplier B will have collaborated with Supplier A in the submission of the false claim.

So now that we have talked about what Supplier A and Supplier B cannot do, let us talk about what they can do. If Supplier A and Supplier B desire to enter into a Subcontract Agreement, which can also be called a Patient Services Agreement (“PSA”), then here are the steps they should take:

• Review the TPP Contract – The parties need to review Supplier A’s TPP Contract to determine if it addresses subcontract arrangements. The TPP Contract may say nothing about whether or not Supplier A can subcontract out its responsibilities to Supplier B. On the other end of the spectrum, the TPP Contract may prohibit Supplier A from subcontracting out its services. The TPP Contract may take the middle road and provide for one of the following: (i) Supplier A can subcontract out its services but must first notify the Plan of who the subcontractor will be; (ii) Supplier A can subcontract out not more than e.g., 20% of its services; (iii) Supplier A can subcontract out its services only if the Plan approves the subcontractor in advance; or (iv) Supplier A can only subcontract out specifically delineated services.
• Supplier A Must Retain a Level of Operational Responsibilities and Financial Risk – So that it can credibly assert that it is the “supplier,” Supplier A must have a level of operational responsibilities and financial risk. For example, Supplier A needs to handle the intake. This means that Supplier A must determine if the patient qualifies for coverage under the TPP Contract. Supplier B can gather information and documents and forward them to Supplier A…but it is Supplier A, not Supplier B, that must determine if the patient is to receive the product. If the patient later has a maintenance/repair need, then he needs to call Supplier A; Supplier A can, in turn, direct Supplier B to handle the repair/maintenance. Further, Supplier A will be obligated to pay Supplier B regardless of whether or not the Plan pays Supplier A. In other words, Supplier A’s obligation to pay Supplier B for its services is absolute.
• Inventory – Under the PSA, Supplier B will deliver the product to the patient “for and on behalf of Supplier A.” At the time of delivery, title to the product needs to be in Supplier A’s name. This can be accomplished in one of several ways: (i) Supplier A can purchase the inventory, take possession of it, and deliver it to Supplier B; (ii) Supplier A can purchase the inventory, not take possession of it, and direct the manufacturer to deliver the inventory (on behalf of Supplier A) to Supplier B; (iii) Supplier B can purchase the inventory; on a regular basis, Supplier A can purchase inventory from Supplier B and Supplier B can segregate Supplier A’s inventory in Supplier B’s warehouse; or (iv) Supplier B can purchase the inventory; when Supplier B is about to deliver the product to the patient’s home, then title will transfer to Supplier A and Supplier A will have the obligation to purchase the product from Supplier B.
• Supplier B’s Services – The PSA can provide that Supplier B’s services include the following: (i) deliver the product to the patient, educate the patient on how to use the product, and set the product up for the patient; (ii) obtain information and documents from the patient and his physician and transmit them to Supplier A so that Supplier A can conduct the intake; and (iii) at the direction of Supplier A, provide maintenance and repair services to the patient. The labels on the products delivered to the patients need to reflect Supplier A.
• Flow of Money – At the end of the day, Supplier B will be referring (or arranging for the referral of) patients to Supplier A…and Supplier A will be paying money to Supplier B. The most conservative course of action is as follows: (i) if Supplier A purchases inventory from Supplier B, then the purchase price must be fair market value (“FMV”) and must be pursuant to a price list attached to the PSA; and (ii) Supplier A pays fixed annual compensation (e.g., $48,000 over the next 12 months) to Supplier B in which such compensation is the FMV equivalent of Supplier B’s services. If fixed annual compensation is not feasible, then a less conservative course of action is as follows: (i) if Supplier A purchases inventory from Supplier B, then the purchase price must be FMV and must be pursuant to a price list attached to the PSA; and (ii) Supplier A pays a fixed fee per each unit of service provided by Supplier B, such compensation is the FMV equivalent of Supplier B’s services, and the compensation is set out in a fee schedule attached to the PSA. If the parties want to strengthen their position that the compensation paid to Supplier B is FMV, then the parties can order an FMV evaluation and report from an independent third party.

Key provisions in the PSA may include:

Background

• Supplier A desires to contract with Supplier B to provide products and services to Supplier A’s patients (“Patients”), and Supplier B desires to accept such arrangement.
• Supplier B has the experience, expertise, accreditation and licensure to provide the products and services in accordance with this Agreement.

Terms
In consideration of the mutual covenants contained herein, and other good and valuable consideration, Supplier B and Supplier A agree as follows:

• Supplier B’s Services. Supplier B will provide the products and services described in Schedule A.
• Supplier B’s Representations, Warranties, and Covenants.
• Supplier B represents and warrants that:
• Supplier B, and all persons it employs or engages to provide products and perform services, has all qualifications, accreditations, certifications, and licenses required by federal, state, or local law or third party payor policy or rule (collectively, “Qualifications”) to fully provide products and perform services.
• Neither Supplier B nor any of its officers, directors, employees or contractors has ever been (1) convicted of a criminal offense related to health care or related to the provision of services paid for by a federal or state health care program (for example, Medicare and Medicaid); (2) assessed civil money penalties for an offense related to health care or related to the provision of services paid for by a federal or state health care program; (3) excluded from participation in any federal or state health care program; and/or (4) excluded by any federal agency from receiving federal contracts.
• Supplier B has in place a compliance program with annual compliance training or will participate in Supplier A’s compliance program and annual training.
• Supplier B covenants that:
• Supplier B will not employ or contract with any individual or entity that is excluded from participation in any federal or state health care program or excluded by any federal agency from receiving federal contracts. If Supplier B, or any of its officers, directors, employees, or contractors, becomes the subject of any of the actions described in this paragraph, Supplier B will give written notice thereof to Supplier A within five days after the date of such action or knowledge of such action.
• Supplier B will maintain all Qualifications for the duration of this Agreement. Supplier B will give Supplier A written notice within five days of the loss, suspension, or any other adverse action regarding any Qualification.
• All products and services will be provided in accordance with (1) applicable laws and regulations; (2) Supplier A’s protocols, policies and procedures (including but not limited to policies regarding safety, infection control, and practice); (3) operational specifications provided by equipment manufacturers and by Supplier A; and (4) any standards or procedures imposed by the accreditation organization by which Supplier A is accredited.  Supplier A will provide a copy of Supplier A’s applicable protocols, policies and procedures to Supplier B, and may modify any protocol, policy or procedure by providing 10 days notice to Supplier B.
• Supplier B will cooperate with Supplier A in the conduct of quality improvement activities;
• Supplier B will produce any document or information in its possession that Supplier A reasonably requires in order to comply with a request from any third party payor, state or federal agency, or accreditation organization; and
• Supplier B will maintain all documents and records necessary for it to provide the services.
• Supplier A’s Responsibilities. When Supplier A receives Patient Documents (as defined in Section ___ of Schedule A) from Supplier B, Supplier A will take those steps set out in Schedule A.
• Purchase and Replacement of Products/Compensation.

(a) Suppler A will purchase and replace products from Supplier B (i) in accordance with Section ___ and Section ___ of Schedule A, and (ii) in accordance with Schedule B.

(b)  As full compensation for the services, Supplier A will pay Supplier B pursuant to Schedule C.

(c) Except as otherwise provided herein, Supplier B will be responsible for all expenses incurred by Supplier B in providing products and rendering services.

Schedule A – Products and Services

• Consignment Arrangement.

• Supplier B has entered into, and will enter into in the future, consignment arrangements (“Arrangement” or “Arrangements”) with hospitals, physician offices, and other facilities (collectively referred to as “Facility” or “Facilities”).
• Pursuant to an Arrangement, Supplier B will place products at the Facility.
• Until title is transferred to Supplier A as set out hereinafter, title to products in an Arrangement will be in Supplier B’s name.
• When a Patient elects to purchase a product from Supplier A and in response thereto, the Facility delivers the product to the Patient, then immediately prior to the delivery, title to the product will transfer to Supplier A. Immediately upon delivery, title to the product will transfer to the Patient.
• Prior to the delivery of a product from a Facility to a Patient, Supplier B will deliver (or cause to be delivered) to Supplier A relevant Patient information and documents (collectively referred to as “Patient Documents”) in the form and manner required by Supplier A, including, without limitation, (i) physician’s order, (ii) proof of delivery, (iii) evidence of medical necessity, (iv) documents required by third party payors (“TPPs”), and (v) documents necessary for Supplier A to submit claims and receive TPP reimbursement.
• Upon receipt of the Patient Documents, Supplier A will (i) conduct intake, (ii) determine whether the Patient meets the coverage requirements of the TPP, and (iii) notify Supplier B within ___ hours thereafter whether Supplier A accepts the Patient or rejects the Patient because the Patient does not meet the coverage requirements of the TPP.
• Upon acceptance of a Patient, Supplier A will be obligated to pay Supplier B for the product or replace the product, delivered to the Patient, in accordance with Schedule B. Upon rejection of a Patient, Supplier A will have no obligation to pay Supplier B for the product or to replace the product.
• Direct Delivery by Supplier B.

• When a Patient notifies Supplier B that the Patient has elected to purchase a product from Supplier A, and if Supplier B elects to deliver the product to the Patient, then Supplier B will deliver the Patient Documents to Supplier A.
• Upon receipt of the Patient Documents, Supplier A will (i) conduct intake, (ii) determine whether the Patient meets the coverage requirements of the TPP, and (iii) notify Supplier B within ___ hours thereafter whether Supplier A accepts the Patient or rejects the Patient because the Patient does not meet the coverage requirements of the TPP. Within ___ hours following receipt by Supplier B of Supplier A’s notification of its determination that the Patient meets the TPP coverage requirements, then Supplier B will mail, deliver, or cause to be delivered (collectively referred to as “Deliver or “Delivered”) the product to the Patient.
• Upon acceptance of a Patient, Supplier A will be obligated to pay Supplier B for the product or replace the product, delivered to the Patient, in accordance with Schedule B. Upon rejection of a Patient, Supplier A will have no obligation to pay Supplier B for the product or to replace the product.
• Other Services and Obligations.
• For those Patients described in Section ___ and Section ___ of Schedule A:
• Supplier B will provide education and training to the Patient and/or Patient’s caregiver on the operation and use of the product;
• Supplier B will provide Supplier A’s contact information, to the Patient and/or Patient’s caregiver, and instruct the Patient and/or caregiver to contact Supplier A directly regarding any complaint;
• at the request of Supplier A, Supplier B will (1) repair malfunctioning or nonfunctioning products to a fully operational state, or (2) replace a malfunctioning or nonfunctioning product if repair is not feasible;
• Supplier B will maintain the products according to the manufacturer’s recommended maintenance guidelines; and
• at the request of Supplier A, Supplier B will obtain documentation (as specified by Supplier A) from the Patient’s physician.
• Should Supplier B receive any Patient complaints regarding use of Supplier A’s products, Supplier B will immediately forward to Supplier A such complaints. Supplier B will maintain a log that records (i) the date of the complaint, (ii) the identity and contact information of the complainant, (iii) the nature of the complaint and (iv) date and time the complaint is forwarded to Supplier A. Supplier B will make the log available to Supplier A upon Supplier A’s request.
• Supplier B will document the services provided on forms provided by Supplier A and will forward these forms to Supplier A on a monthly basis as provided in Schedule C.

Schedule B – Purchase and Replacement of Products

• At Supplier A’s discretion, Supplier A will either (i) replace the product delivered by Supplier B to the Patient on behalf of Supplier A or (ii) purchase the product, delivered by Supplier B to the Patient on behalf of Supplier A, in which the price will be as set out in the most current Manufacturer’s Published Wholesale Price List that is available to Supplier A on the web.
• Payment or replacement of the product will occur on the last day of the month immediately following the month that the product was delivered to the Patient.

Schedule C – Compensation

• In consideration for the services, Supplier A will pay Supplier B a fixed annual fee of $__________, which such fee will be paid in equal monthly payments of $__________. The parties represent that the fixed annual fee is the fair market value equivalent of the services.
• On or before the ___ of each month, Supplier B will deliver to Supplier A the completed forms, as referenced in Section ___. of Schedule A, detailing the services rendered in the preceding month. Supplier A will pay Supplier B by the later of (i) the last day of the month immediately following the month that services were rendered, or (ii) or 20 days after receipt of Supplier B’s completed forms.

AAHomecare’s Retail Work Group

The Retail Work Group is a vibrant network of DME industry stakeholders (suppliers, manufacturers, consultants) that meets once a month via video conference during which (i) an expert guest will present a topic on an aspect of selling products at retail, and (ii) a question and answer period will follow. The next Retail Work Group video conference is scheduled for January 9, 2020, at 11:00 a.m. Central. Jeffrey Baird, Brown & Fortunato, will present “Store Pricing & Considerations as a Retail/Insurance Hybrid Supplier.” Participation in the Retail Work Group is free to AAHomecare members. For more information, contact Ashley Plauché Manager of Government Affairs, AAHomecare ([email protected]).

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Texas. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or [email protected].