AMARILLO, TX – Health care providers, including DME suppliers, must play by a different set of rules than most non-health care businesses must play by. DME suppliers are primarily dependent on revenue from third-party payors (TPPs), such as traditional Medicare, Medicare Advantage, traditional Medicaid, Medicaid Managed Care, and employer-sponsored group health insurance.

TPPs possess the supplier’s future money (i.e., receivables in the pipeline). Each TPP has its own set of guidelines for DME suppliers to follow in order to get paid – and retain – money from the TPPs. Each TPP has the right to conduct post-payment audits and offset against receivables (owed to the supplier) if the TPP concludes that prior claims should not have been paid.

If the relationship between the DME supplier and the TPP is directly/indirectly connected to a federal health care program (FHCP), in addition to the TPP’s own guidelines, the DME supplier must comply with myriad federal fraud laws, such as (i) the federal anti-kickback statute (AKS), (ii) the federal physician self-referral statute (Stark), (iii) the federal beneficiary inducement statute, (iv) the federal telephone solicitation statute, (v) HIPAA, and (vi) the federal False Claims Act (FCA).

These statutes provide for a combination of criminal and civil penalties. It is the position of the Department of Justice (DOJ) that claims arising from violation of the AKS, Stark and the inducement statute constitute “false claims” in violation of the FCA.

Adding to this complexity are (i) the 60 Day Rule, (ii) the proliferation of whistleblowers, and (iii) the impact that compliance has on the value of the company.

60-Day Rule
“Back in the day,” when a DME supplier would discover that it had been paid for claims that the supplier should not have submitted, the supplier could feel relatively comfortable by “going and sinning no more.” That is, the supplier could feel that by correcting the problem from a “go forward” standpoint, the risk of liability to the supplier would be low. This feeling of safety changed with the passage of the Affordable Care Act (“ACA”), which included the 60 Day Rule.

A Final Rule, to go into effect on January 1, 2025, has modified key provisions of the 60 Day Rule. The original rule requires providers/suppliers to report and refund overpayments within 60 days of identification. Noncompliance can result in the claims becoming “false claims” under the federal False Claims Act (“FCA”). The original regulations stated that “identified” referred to when a provider/supplier determined…or should have determined “through the exercise of reasonable diligence” that it received an overpayment and had “quantified the amount of the overpayment.”

CMS noted that providers/suppliers could take up to six months when investigating a challenging overpayment and quantifying liability. Unfortunately, the Final Rule makes life more difficult for providers/suppliers. The Final Rule incorporates the FCA’s knowledge standard (i.e., identification occurs when a provider/supplier has actual knowledge of an overpayment or acts with “reckless disregard” or “deliberate ignorance” of a potential overpayment.

The Final Rule removes the quantification element of identifying an overpayment. When a provider/supplier “knowingly receives or retains an overpayment,” the 60-day clock to report/refund begins to run immediately…even if the overpayment amount has not been quantified. The 60-day clock to report/refund can be suspended up to 180 days while providers/suppliers attempt to identify “related overpayments” stemming from the same reason as the initially identified overpayment. Removal of the quantification requirement from the definition of “identified” and limiting the 180-day tolling period only to the investigation of “related overpayments” will be challenging for providers/suppliers.

Whistleblowers
Most criminal and civil cases brought by the DOJ result from whistleblower (qui tam) lawsuits.

Normally, a whistleblower is an insider – an employee – of the target company. The whistleblower will (i) become aware of fraudulent conduct by the target company and (ii) gather evidence proving the conduct. The whistleblower will file a lawsuit in federal court against the target company. The lawsuit will be based on the FCA.

The lawsuit will be in the name of the whistleblower and in the name of the United States. The lawsuit will be “under seal” while the DOJ (often with the help of other government agencies) investigates the allegations in the lawsuit. If the DOJ concludes that the lawsuit has merit, the DOJ will take the lawsuit over (it will “intervene”). If the DOJ declines to intervene, the whistleblower may be able to continue with the lawsuit on his/her own. If the DOJ concludes that the facts justify it, the DOJ will bring a parallel criminal investigation.

If the whistleblower action is successful, the whistleblower will receive approximately 20% of the judgment/settlement. Most whistleblower actions are settled. In addition to paying money, the target company will normally be required to enter into a Corporate Integrity Agreement with the OIG.

A functioning compliance program will reduce the risk of a DME supplier engaging in actions that give rise to a whistleblower action. Equally as important, a compliance program gives an employee an avenue to voice his/her concerns about actions by the DME supplier. Instead of hiring an attorney and filing a whistleblower lawsuit, the concerned employee can voice his/her concerns to the supplier’s Compliance Officer

Valuation of Company
A standard methodology to value a company is to utilize a “multiple of EBITDA.” EBITDA is an acronym for “earnings before interest, taxes, depreciation and amortization.” Essentially, EBITDA is the company’s net profit. A standard multiple range is 3 to 5. However, the multiple can be higher based on the uniqueness of the company’s business model. Assume that a private equity (“PE”) firm wants to purchase a DME supplier for 5 x EBITDA.

The PE firm will engage in “due diligence,” meaning that it will look at all aspects of the supplier’s operations. If during due diligence, the PE firm determines that a portion of the supplier’s claims submissions is based on fraudulent actions, the PE firm will likely either (i) walk away or (ii) greatly discount the supplier’s EBITDA. A functioning compliance program will reduce the risk of the DME supplier engaging in fraudulent activities…thereby reducing the risk of a potential buyer walking away or discounting the supplier’s EBITDA.

Department Of Justice Update
In September 2024, the DOJ updated its Evaluation of Corporate Compliance Program (“ECCP”) guidance. The ECCP sets out factors that federal prosecutors will look at in reviewing the compliance program of a provider/supplier facing a criminal enforcement action. Even if a provider/supplier is not the target of a criminal investigation, the ECCP provides helpful guidance regarding the quality of the provider’s/supplier’s compliance program.

The latest ECCP update contains the following additions:

• Access to Data/Resources for Compliance Functions – The compliance program should be sufficiently funded (and have sufficient resources) to be effective.
• Protecting/Incentivizing Whistleblowers – Providers/suppliers should encourage the internal reporting of misconduct.
• New Technology – Providers/suppliers should invest resources in managing risks associated with AI and other new technologies.
• Learning From Mistakes – Employees should be educated about mistakes made by (i) their employer and (ii) other companies in the industry.
• M & A – Compliance should be an integral part of transactions…during the pre-closing due diligence and post-closing integration of operations.

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