AMARILLO, TX – DME suppliers are highly regulated. They must comply with federal and state statutes and regulations, published guidance by federal and state regulatory and enforcement agencies, and requirements of third party payors such as Medicare Advantage Plans. This means that DME suppliers live in a “glass house.”

If a supplier is doing something it should not be doing, someone knows about it. That “someone” can be an existing employee, an ex-employee, a government enforcement/regulatory agency, a commercial insurer, or a competitor.

If, for example, an employee determines that the DME supplier is submitting false claims, or engaging in kickback arrangements, or is providing inducements to prospective customers, then hopefully the employee will report his/her concerns to the DME supplier’s compliance officer so that the supplier can take corrective action. And usually this is the case.

If the DME supplier does not take the employee’s concerns seriously and essentially brushes the employee off, then this may prompt the employee to contact an attorney who specializes in bringing whistleblower (qui tam) lawsuits. A whistleblower lawsuit is based on the federal False Claims Act (“FCA”). A claim can violate the FCA in a number of ways: (i) the supplier bills for a product not delivered; (ii) a claim arises out of a kickback arrangement; (iii) a claim arises out of an inducement arrangement; (iv) etc.

The whistleblower (also known as the “Relator”) will sue the DME supplier in his/her individual name “and in the name of the United States.” The lawsuit is filed in federal court and it goes “under seal.” This means that nobody knows about the lawsuit except for the government and the Relator.

A civil Assistant United States Attorney (“AUSA”), also known as a federal prosecutor, will be assigned the lawsuit. The AUSA will normally direct investigators (OIG and/or FBI) to investigate the allegations set out in the lawsuit. This investigation may take six months or it may take several years. If the AUSA concludes that the allegations set out in the whistleblower lawsuit are credible, then the Department of Justice (“DOJ”) may “intervene.” This means that the DOJ will take over the lawsuit and the Relator’s attorney can pretty much sit on the sidelines. It is at this time that the lawsuit is unsealed and is served on the DME supplier. If the DOJ decides not to intervene, normally the Relator and his/her attorney can pursue the lawsuit on their own.

The damages, fines and penalties under the FCA can be catastrophic. As such, whistleblower lawsuits are normally settled. Upon settlement, the Relator will receive a percentage of the total settlement amount (e.g., 20%).

If the civil AUSA concludes that the evidence shows that crimes occurred, then the civil AUSA will ask a criminal AUSA to review the evidence. If the criminal AUSA concludes that one or more crimes have been committed, then the DME supplier and/or its owners/executives may face criminal charges. In fact, most criminal cases arise out of whistleblower lawsuits.

All of this means that it is incumbent on the DME supplier to focus on running a legally compliant business. And the first step to accomplishing this is for the supplier to have a basic understanding of the federal fraud laws that govern DME suppliers.

Federal Guidelines

Physician Self-Referral Statute (“Stark”) – Provides that if a physician (or an immediate family member) has a financial relationship with an entity providing designated health services (“DHS”), then the physician may not refer Medicare/Medicaid patients to the entity unless a Stark exception is met. DHS includes DME.

• Note that while the AKS applies to physicians and taxi cab drivers, Stark only applies to physicians and his/her immediate family members. Note that the Stark definition of “physician” includes dentists, chiropractors and others. If ABC intends to enter into an arrangement with a home health agency (not owned by a physician), then Stark does not come into play; ABC needs to focus on the AKS. On the other hand, if ABC intends to enter into an arrangement with Dr. Jones, then ABC must comply with both the AKS and Stark.
• Assume that ABC is located in Dallas and Dr. Jones has an ownership in it. Dr. Jones cannot refer Medicare/Medicaid patients to ABC. On the other hand, if ABC is located in Bovina, Texas (a rural town), then Dr. Jones can have an equity interest in ABC and can refer Medicare/Medicaid patients to ABC. The reason for this is that Stark has a “rural provider” exception that relaxes the Stark restrictions when the physician and ABC are located in a rural area and primarily service rural patients.
• Another exception is the Non-Monetary Compensation Exception (“NMCE”). This allows ABC to spend a certain amount each year on Dr. Jones for meals, rounds of golf, etc. In 2023, that amount is $483. There is an annual inflation adjustment. If Dr. Jones is part of a five physician group, ABC can spend up to $483 in 2023 for each of the five physicians. Interestingly, there is not a comparable exception or safe harbor to the AKS. And so one might assert that while it is acceptable under Stark for ABC to spend up to $483 in 2023 on Dr. Jones, such expenditures violate the AKS. From a practical standpoint, if the NMCE is met, then there should not be a problem under the AKS. The NMCE only applies when what is spent on behalf of Dr. Jones is for gifts, meals, entertainment, etc. ABC cannot offer cash/cash equivalents to Dr. Jones.

Beneficiary Inducement Statute – Imposes civil monetary penalties upon a person or entity that offers or gives remuneration to any Medicare/Medicaid beneficiary that the offeror knows or should know is likely to influence the recipient to order an item for which payment may be made under a federal or state health care program. This statute does not prohibit the giving of incentives that are of “nominal value” (no more than $15 per item or $75 in the aggregate to any one beneficiary on an annual basis).

• The nominal gift needs to be something that can be “touched and felt.” It cannot be cash or a cash equivalent such as a gift card.
• Additionally, the value of the gift is its “retail” value to the public…not what it cost ABC to purchase the gift.

Federal Anti-Kickback Statute (“AKS”) – Makes it a felony to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce a person or entity to refer an individual for the furnishing or arranging for the furnishing of any item or service reimbursable by a federal health care program (e.g., Medicare, Medicare Advantage, Medicaid, Medicaid Managed Care, TRICARE), or to induce such person to purchase or lease or recommend the purchase or lease of any item or service reimbursable by a federal health care program.

• A referral source can be any person: physician, nurse, hospital discharge planner, respiratory therapist, taxi cab driver, or kindergarten teacher. A referral source can also be any type of entity: marketing company, lead generation company, home health agency, or pharmacy.
• A number of courts have adopted the “one purpose” test. This states that if “one purpose” behind paying a person/entity is to reward the person/entity for referrals, then the AKS is violated notwithstanding that the primary purpose behind the payment is for legitimate services.
• If ABC Medical Equipment, Inc. (“ABC”) pays percentage commissions to a 1099 independent contractor marketing rep to “knock on the doors” of physicians…or hospitals…or long term care facilities…to generate federal health care program (“FHCP”) patients for ABC, then the AKS will be violated.

Telephone Solicitation Statute – A DME supplier of a covered item may not contact a Medicare beneficiary by telephone regarding the furnishing of a covered item unless:

• the beneficiary has given written permission for the contact;
• the supplier has previously provided the covered item to the beneficiary and the supplier is contacting the beneficiary regarding the covered item; or
• if the telephone contact is regarding the furnishing of a covered item other than an item already furnished to the beneficiary, the supplier has furnished at least one covered item to the beneficiary during the preceding 15 months.

The Telephone Solicitation Statute essentially says the same thing as Supplier Standard #11. The National Supplier Clearinghouse (“NSC”) is aggressive in bringing enforcement actions (e.g., suspension/revocation of a PTAN) against DME suppliers that violate this statute. Note the first bullet, above. The written permission can be “blue ink” or “electronic.”

Safe Harbors – Because of the breadth and scope of the AKS, the OIG has published a number of “safe harbors.”  If an arrangement meets the requirements of a safe harbor, then as a matter of law the arrangement does not violate the AKS. If an arrangement does not meet the requirements of a safe harbor, it does not mean that the arrangement automatically violates the AKS. Rather, the arrangement must be carefully scrutinized under the wording of the AKS, court decisions, and published guidance by the OIG. Set out are five of the most important safe harbors for DME suppliers:

• Personal Services and Management Contracts – Remuneration does not include any payment made to an independent contractor as long as a number of standards are met, including the following:
• the agreement must be in writing and signed by the parties;
• the agreement must specify the services to be provided;
• the term of the agreement must be for not less than one year;
• the methodology for calculating the compensation must be set in advance, be consistent with fair market value, and must not take into account any business generated between the parties; and
• the services performed must not involve a business arrangement that violates any state or federal law.
• Employees – Remuneration does not include any amount paid by an employer to an employee, who has a bona fide employment relationship with the employer, for employment in the furnishing of any item or service for which payment may be made, in whole or in part, under Medicare or under a state health care program.
• Space Rental – Remuneration does not include a lessee’s payment to a lessor as long as a number of standards are met, including the following:
• the lease agreement must be in writing and signed by the parties;
• the lease must specify the premises covered by the lease;
• if the lease gives the lessee periodic access to the premises, then it must specify exactly the schedule, the intervals, the precise length, and the exact rent for each interval;
• the term must be for not less than one year; and
• the aggregate rental charge must be set in advance, be consistent with fair market value, and must not take into account business generated between the lessor and the lessee.
• Equipment Rental – Remuneration does not include any payment by a lessee of equipment to the lessor of equipment as long as a number of standards are met, including the following:
• the lease agreement must be in writing and signed by the parties;
• the lease must specify the equipment;
• for equipment to be leased over periods of time, the lease must specify exactly the scheduled intervals, their precise length and exact rent for each interval;
• the term of the lease must be for not less than one year; and
• the rent must be set in advance, be consistent with fair market value, and must not take into account any business generated between the lessor and the lessee.
• Small Investment Interest – For investments in small entities, “remuneration” does not include a return on the investment if a number of standards are met, including the following: (i) no more than 40% of the investment can be owned by persons who can generate business for or transact business with the entity, and (ii) no more than 40% of the gross revenue may come from business generated by investors.

Special Fraud Alerts and Special Advisory Bulletins – The OIG publishes Special Fraud Alerts and Special Advisory Bulletins that discuss business arrangements that the OIG believes may be abusive, and educate health care providers concerning fraudulent and/or abusive practices that the OIG has observed and is observing in the industry.

Advisory Opinions – A health care provider may submit to the OIG a request for an advisory opinion concerning a business arrangement that the provider has entered into or wishes to enter into in the future. The “ask” of the OIG is whether the arrangement may implicate the AKS. In submitting the advisory opinion request, the provider must give to the OIG specific facts. In response, the OIG will issue an advisory opinion concerning whether or not there is a likelihood that the arrangement will implicate the AKS. In issuing the opinion, the OIG will redact the names of the parties (e.g., will call them Party A and Party B). The OIG website contains all of the published advisory opinions.

States – All states have enacted statutes prohibiting kickbacks, fee splitting, patient brokering, or self-referrals. Some state anti-kickback statutes only apply when the payor is a government health care program (e.g., the state Medicaid program). Other state anti-kickback statutes apply regardless of the identity of the payor (e.g., they apply to commercial insurers and cash-pay patients). Most, perhaps all, states have laws addressing physician self-referrals. These laws are similar to the federal Stark law. And so when analyzing an arrangement, the DME supplier must not only look at federal laws, but must also look at applicable state laws.

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].