AMARILLO, TX – DME suppliers operate in a highly regulated environment. Suppliers must comply with (i) federal anti-fraud laws, (ii) state anti-fraud laws, (iii) supplier standards, (iv) accreditation requirements, and (v) guidance from Medicare, Medicaid and commercial insurers. If a supplier is doing something it should not be doing, then “someone knows about it.” That “someone” can be an employee, a competitor, a referral source, or a government program/contractor.

If a supplier violates one or more of the federal anti-fraud laws, then it can (i) have potential criminal liability, (ii) potential civil liability, and (iii) be subject to payment suspension and PTAN revocation. The risks are too high for the DME supplier to be cavalier regarding compliance with anti-fraud laws. It is important that on a day-to-day basis, the supplier (i) be aware of the applicable federal and state anti-fraud laws and (ii) be aware of whether it is in compliance with the laws. Following is a “Cliff Notes” version of federal anti-fraud guidance.

Federal Guidelines
Stark Physician Self-Referral Statute – Provides that if a physician has a financial relationship with an entity providing designated health services (“DHS”), then the physician may not refer patients to the entity unless one of the statutory or regulatory exceptions apply. DHS includes prescription drugs and DME.

• Note that while the AKS applies to physicians and taxi cab drivers, Stark only applies to physicians and comparable clinicians. 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, then 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 2020, that amount is $423. There is an annual inflation adjustment. If Dr. Jones is part of a five physician group, then ABC can spend up to $423 in 2020 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 $423 in 2020 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. Similar to the nominal value gift exception under the beneficiary inducement statute, the NMCE only applies when what is spent on behalf of Dr. Jones is for gifts, entertainment, travel, etc. ABC cannot offer cash/cash equivalents to Dr. Jones.

Anti-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:

• (i) the beneficiary has given written permission for the contact;
• (ii) a supplier has previously provided the covered item to the beneficiary and the supplier is contacting the beneficiary regarding the covered item; or
• (iii) 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 Anti-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.”

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, 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.

Safe Harbors – Because of the breadth and scope of the AKS, the Office of Inspector General (“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, then 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 hereafter are five of the most important safe harbors for DME suppliers:

• 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.
• 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:
• (i) the lease agreement must be in writing and signed by the parties;
• (ii) the lease must specify the premises covered by the lease;
• (iii) 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;
• (iv) the term must be for not less than one year; and
• (v) 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:
• (i) the lease agreement must be in writing and signed by the parties;
• (ii) the lease must specify the equipment;
• (iii) 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;
• (iv) the term of the lease must be for not less than one year; and
• (v) 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.
• Personal Services & 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:
• (i) the agreement must be in writing and signed by the parties;
• (ii) the agreement must specify the services to be provided;
• (iii) if the agreement provides for services on a sporadic or part-time basis, then it must specify exactly the scheduled intervals, their precise length and the exact charge for each interval;
• (iv) the term of the agreement must be for not less than one year;
• (v) 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
• (vi) 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.

Special Fraud Alerts and Special Advisory Bulletins – From time to time, 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 anti-kickback statute. 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). And so when analyzing an arrangement, the provider 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 based in Amarillo, Texas. He represents pharmacies, infusion companies, HME companies 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].