AMARILLO, TX – Increasingly, we are seeing hospitals and DME suppliers work together to take care of the hospital’s patients upon their discharge. These arrangements are driven by several factors:

• From the hospital’s standpoint, it is important for there to be a smooth (and efficient) transition for the patient being discharged and receiving follow-up care in the home. An efficient transition saves the hospital time and money.
• Also from the hospital’s standpoint, once a Medicare patient is discharged, the hospital does not want to see the patient readmitted within 30 days thereafter. The reason for this is because under the Hospital Patient Readmission Program, (i) if a Medicare patient is admitted to the hospital for a particular problem (e.g., COPD or congestive heart failure), (ii) if the patient is discharged, and (iii) if the patient is readmitted within 30 days after discharge for the same problem, then (iv) Medicare will reduce reimbursement to the hospital during the following year. The goal of this program is to motivate the hospital to take care of the Medicare patient the first time around…and avoid the situation in which the patient becomes a costly “frequent flyer.”
• From the DME supplier’s standpoint, if it can provide value-added services to the hospital (i.e., assisting with a smooth discharge and working with the post-discharge patient with the goal of preventing him from being a frequent flyer), then the arrangement will lock in a steady referral source.

A hospital and a DME supplier can memorialize a “preferred provider” arrangement in a written Patient Services Agreement (“PSA”). There are a number of important provisions in a PSA, including the following:

• Preferred Provider – Hospital appoints DME supplier as its preferred provider for furnishing of Services on a post-discharge basis to Patients who elect to receive such Services from DME supplier, and DME supplier accepts such appointment under the terms herein. Hospital will identify DME supplier as Hospital’s Preferred Provider of Services. In particular, Hospital will make such information known to its employees, medical staff, and Patients, PROVIDED HOWEVER, that nothing herein will be construed as compromising a Patient’s right to select his or her DME supplier of choice.
• Loan Closet (also known as Consignment Arrangement, Stock and Bill Arrangement and Equipment Placement Arrangement) – A list of DME to be provided by DME supplier to Hospital facility is listed in Exhibit A (the “Inventory”). DME supplier will replace items distributed from the Inventory from time to time. DME supplier may increase, decrease or change the quantity or kinds of DME in the Inventory as DME supplier deems appropriate, taking into consideration the preferences and usage patterns of the Hospital facility. Hospital will not distribute DME from the Inventory to any person other than to a Patient who has chosen to receive DME from the DME supplier. Hospital will not use the Inventory to provide any service at the Hospital facility or make any other use of the Inventory or permit any other person to make any other use of the Inventory, other than as expressly set forth in this Agreement.
• Notice to Patients – Hospital will inform Patients of the Services offered by DME supplier and the benefits of utilizing DME supplier for the Services. Hospital will also inform Patients of their right to choose the DME supplier of their choice.
• Patient Records – For each Patient who chooses to receive Services from the DME supplier, Hospital will provide DME supplier with complete and accurate patient intake information and such other information that is necessary for the DME supplier to provide Services to Patients.
• Chargeback – Hospital will pay DME supplier a Chargeback Amount in the amount of DME supplier’s cost plus __% under any of the following circumstances:
  • If DME supplier determines that any DME from the Inventory is missing for which the Hospital facility has not provided billing information.

• • If any DME from the Inventory is lost or damaged.

• • If any DME from the Inventory is used on a Hospital patient in such a way that the DME (i) falls under Part A of the Medicare program or (ii) falls under Hospital reimbursement by any other third-party payor.

• Employee Liaison – DME supplier will assign an employee of DME supplier to serve as the DME supplier liaison (“Liaison”). The Liaison will not perform any services that the Hospital is obligated to perform and will not have access to a Patient or a Patient’s medical records unless the patient has selected DME supplier to be his/her DME supplier. Among other duties, the Liaison will (i) educate the Hospital staff regarding how to properly instruct on the use of items from the Inventory; (ii) be available to answer questions posed by Hospital staff; and (iii) resolve concerns expressed by Hospital staff with respect to the DME in the Inventory.

AAHOMECARE’S EDUCATIONAL WEBINAR 

How Compliance Issues Affect a Company’s Valuation

Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato & Wayne van Halem, The van Halem Group

Tuesday, April 22, 2025

1:30-2:30 p.m. CENTRAL TIME
Every DME supplier must have a functioning compliance program. Such a program serves three functions. First, the compliance program establishes guardrails that, if followed, will result in the avoidance of serious legal problems. In a sense, the compliance officer is the “canary in the mine shaft.” He/she does not need to be an expert on compliance matters…but needs to know enough to recognize a potential problem. Second, if a problem does arise, a compliance program should be able to solve the problem before it turns into a recoupment, whistleblower action or government investigation. Third…and this is the focus of this program…a functioning compliance program will help the DME supplier maintain an accurate valuation. If a supplier wants to sell, or if it wants to secure a bank loan, the most important question is: “What is the DME supplier worth?” For example, a standard formulation for calculating a purchase price for a supplier is “3 to 5 x EBITDA.” EBITDA stands for “earnings before interest, taxes, depreciation and amortization.” Essentially, EBITDA is the DME supplier’s net profit. While the 3 to 5 x EBITDA is standard, the multiple can be higher (e.g., 7 to 8 x EBITDA) if the supplier is unique enough…and successful enough…to justify the higher multiple. If the DME supplier’s EBITDA is built on a false pretense (e.g., a business model that is not legally compliant), in a sale the EBITDA will be discounted…meaning that the seller will receive less than what it anticipated. Or the purchaser may simply walk away. This program will discuss (i) how a compliance program can be drafted and (ii) how a compliance program can be implemented in order to achieve three goals discussed above – and especially the goal of maintaining the supplier’s valuation.

Register for How Compliance Issues Affect a Company’s Valuation on Tuesday, April 22, 2025, 1:30-2:30 p.m. CT, with Jeffrey S. Baird, Esq. and Wayne van Halem.

Member Benefit
Non-Members: $129

Jeffrey S. Baird, JD, is Chairman of the Health Care Group at Brown & Fortunato, PC, a law firm with a national health care practice based in Texas. He represents pharmacies, infusion companies, HME companies, manufacturers 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].