AMARILLO, TX – DME suppliers live in the proverbial “glass house.” Said another way, suppliers are highly regulated by federal and state governmental agencies. If a DME supplier is doing something it should not be doing, someone knows about it. Often, that “someone” is an employee who has access to the supplier’s emails and other documents. And that person is a potential whistleblower.

If a DME supplier is legally noncompliant and a government enforcement action ensues (either as a result of a whistleblower lawsuit or an investigation instigated by a government agency without the help of a whistleblower), the repercussions to the supplier can be severe.

As such, it is important that the DME supplier not “fall asleep at the wheel.” The supplier needs to always be aware of its legal compliance obligations…and comply with them. Set out below is a Cliff’s Note summary of some of the compliance obligations that DME suppliers must meet.

Waiver of Copayments
A DME supplier is required to exert a reasonable effort to collect copayments from patients. If a DME supplier routinely waives copayments, or advertises that it has a financial hardship waiver program, or advertises that if the patient meets certain requirements his/her copayment will be waived or reduced, the supplier is potentially liable under the AKS, federal beneficiary inducement statute, and federal False Claims Act. The DME supplier can implement a financial hardship waiver program, but cannot advertise the program’s existence. Rather, when the supplier provides a product, the supplier must expect the patient to pay the copayment. Only if the patient volunteers that he does not have the ability to pay the copayment can the supplier educate the patient about the financial hardship waiver program.

Sales Tax
All states impose sales taxes on certain products. A DME supplier must adhere to the sales tax requirements of the states into which the supplier sells products.

Offshore Subcontractors
In utilizing offshore subcontractors, a DME supplier must (i) ensure the security of PHI and (ii) determine if there are restrictions or prohibitions (on the use of such subcontractors) by third-party payors. For example, (i) some state Medicaid programs prohibit the use of offshore subcontractors and (ii) some commercial insurers require the DME supplier to obtain the prior approval by the insurers of the offshore subcontractors.

State DME Licensure
Most states require a DME supplier to have a license to sell products to residents of the state. Such licenses are product specific. If a DME supplier fails to secure a required DME license, the supplier will be in violation of the DME Supplier Standards.

Discounts and Rebates from Manufacturer
Discounts and rebates provided by the manufacturer to the DME supplier must comply with the Discount safe harbor to the AKS. If the discounts and rebates provided by the manufacturer are not based solely on the volume of purchases by the supplier but, rather, are also based on other actions by the supplier (e.g., converting patients from one manufacturer to another), the AKS is implicated.

Cooperative Marketing with Manufacturer
A DME supplier and a manufacturer can cooperatively market together on condition that the arrangement does not violate the AKS. In implementing a cooperative marketing program with a manufacturer, the DME supplier must ensure that both parties are contributing their pro rata share of the program’s expenses.

Cooperative Marketing with Affiliated Entity
As a “covered entity” under HIPAA, a DME supplier cannot disclose or use protected health information (“PHI”) unless HIPAA requirements are met. If the DME supplier communicates with its patients about services offered by an affiliated entity, such communications will violate HIPAA unless the supplier complies with HIPAA guidelines.

Marketing to Prospective Customers
In marketing to prospective customers who are covered by a federal health care program (“FHCP”), it is important that the DME supplier not offer anything of value to the prospective customers unless what is offered complies within an exception to the federal beneficiary inducement statute. This statute states that a DME supplier cannot offer anything of value to a prospective customer to persuade the prospective customer to purchase an FHCP-covered product from the supplier … unless an exception is met.

The nominal value exception allows the DME supplier to offer a gift to a prospective customer if the gift (i) has a retail value of $15 or less and (ii) is not cash or cash equivalent. The DME supplier can offer multiple gifts to a prospective customer on condition that the retail value of the gifts, in the aggregate, do not exceed $75 over a 12-month period.

Arrangements with Referring Physicians
If a DME supplier enters into an arrangement with a referring physician that results in the supplier providing anything of value to the physician, the arrangement must comply with the federal anti-kickback statute (“AKS”) and the federal physician self-referral statute (“Stark”).

If a DME supplier provides anything of value to a referring physician, the arrangement will violate the AKS unless the arrangement complies with (or substantially complies with) one of the safe harbors published by the Office of Inspector General (“OIG”). If an arrangement fully complies with a safe harbor, then the arrangement does not violate the AKS. If an arrangement does not fully comply with a safe harbor, it does not mean that the AKS if violated. Rather, it means that the parties to the arrangement must conduct an in-depth analysis in light of the wording of the AKS, OIG guidance, and court decisions.

Likewise, if a DME supplier provides anything of value to a referring physician, the arrangement will violate Stark unless the arrangement complies with a Stark exception. For example, under the Stark Non-Monetary Compensation exception, the DME supplier can spend up to $489 in 2023 on non-monetary/non-monetary equivalent gifts for a physician (e.g., meals, entertainment).

The physician’s staff do not fall under Stark, meaning that the Stark Non-Monetary Compensation exception does not apply to the staff. Meals to the staff must be examined under the AKS. There is no safe harbor that applies to meals for the staff. From a practical standpoint, if meals provided to the staff are modest in price and infrequent in nature, the risk is low that a government enforcement action will be brought against the arrangement under the AKS.

Arrangements with Non-Physician Referral Sources
Some people have the mistaken understanding that only a physician can be a “referral source.” A referral source can be any person or legal entity that directly/indirectly generates a patient for the DME supplier. If a DME supplier enters into an arrangement with a non-physician referral source that results in the supplier providing anything of value to the non-physician referral source, the arrangement must comply with the AKS. See the preceding discussion.

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. 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].