AMARILLO, TX – The DME industry, in its present form, has been around since the mid-1970s. Until approximately 15 years ago, the DME industry was almost exclusively a traditional Medicare fee-for-service (“FFS”) industry. The primary obligations of DME suppliers was to (i) take care of patients and (ii) figure out how to properly bill (and collect from) Medicare.

The traditional Medicare FFS model began changing about 15 years ago. Now, DME suppliers must not only satisfy traditional Medicare FFS requirements, but they must also satisfy requirements of Medicare Advantage Plans (“MAPs”). Today, over 50% of Medicare beneficiaries are covered by almost 4000 MAPs. This means that for DME suppliers to have access to half of their potential patient base, the suppliers must successfully navigate the managed care landscape. 

This article will discuss two important issues DME suppliers face as they operate in the managed care arena: (i) how to access a managed care contract when the MAP says the panel is closed and (ii) how to negotiate key provisions of a MAP contract.

Negotiating Strategies
Important negotiation strategies include the following:

Preparation – Research payor trends, reimbursement models, what competitors are doing, and unique services your company can offer.

Establishing Leverage – Highlight your company’s unique value proposition; showcase patient outcomes, quality metrics, and cost savings.

Focus on Important Contract Terms – Define clear terms for favorable pricing; negotiate clauses for rate adjustments, performance metrics, and dispute resolution.

Don’t Get Caught Up in the Chase – Don’t sign the contract just because you feel like you must have a contract; no contract is better than a bad contract; be prepared to walk away.

The DME supplier should present to the insurance company data analytics, including the following:

• Use data to demonstrate financial impact and/or clinical value; compare payor rates, market benchmarks, and peer performance.
• Identify gaps in care, inefficiencies, and opportunities for improvement.
• Show trends in reimbursements, denials, and underpayments.
• Highlight improvements in quality measures and cost efficiency
• Benchmarking Reports – Compare against regional/national averages.

With the goal of optimizing reimbursement rates, the DME supplier can present the following to the insurance company:

• Emphasize specialized services, customer satisfaction scores, innovations, and care models that differentiate your company from competitors.
• Identify inefficiencies and cost saving opportunities for the payor.
• Share data and co-develop care models and reimbursement structures.
• Show your company’s value – present well-researched proposals highlighting efficiency gains, reduced costs, access creation, and your company’s unique contributions to patient care.

Securing a Managed Care Contract
A challenge faced by many DME suppliers is that MAPs have “closed panels.” This means that the MAP tells the DME supplier: “We have enough DME suppliers on our provider/supplier panel. We don’t need you. Therefore, we will not sign a contract with you.” The end result for the DME supplier is that if a patient wants to obtain a product from the DME supplier, and if the patient is covered by a MAP for which the DME supplier is not on the panel, then the DME supplier must turn the patient away…unless, of course, the patient is willing to pay cash to the DME supplier without getting reimbursed by the MAP. When this occurs, what are the DME supplier’s options?

Squeaky Wheel Gets the Grease
There are scenarios in which a DME supplier simply wears the MAP down. That is, the supplier continually contacts the MAP until the MAP eventually relents…perhaps because another DME supplier drops off the MAP or the MAP determines that it needs additional DME suppliers.

Accepted onto a MAP in a Limited Capacity
Assume that the DME supplier has developed a niche pertaining to products and/or services. Assume that suppliers currently on the MAP’s panel do not have this niche expertise. Perhaps the DME supplier can convince the MAP to allow the supplier onto the MAP in the limited capacity to provide the niche products/services. Once the MAP becomes accustomed to using the supplier for the niche products/services, then it may be easier for the supplier to convince the MAP to allow the supplier to provide the full array of products/services.

Enlist the Help of the Local Hospital and/or Physician Group
Assume that a local hospital or physician group, loyal to the DME supplier, is on the MAP’s panel. The DME supplier can ask the hospital/physician group to contact the MAP and lobby for the supplier to be included on the panel.

Purchase All or a Portion of the Stock of a DME Supplier That is On the MAP
Assume that ABC Medical Equipment, Inc. (owned by John Smith) is on the MAP. Assume that XYZ Medical Equipment, Inc. is not on the MAP. XYZ can purchase 100% of Smith’s stock in ABC, resulting in ABC becoming a wholly-owned subsidiary of XYZ. This does not mean that XYZ is on the MAP. Rather, it means that XYZ can refer MAP patients to its subsidiary (ABC). ABC’s profits flow upstream…thereby allowing XYZ to financially benefit from the products/services provided to MAP patients.

Alternatively, XYZ can purchase e.g., 40% of Smith’s stock in ABC. XYZ can refer MAP patients to its affiliated company (ABC). As a 40% stockholder of ABC, XYZ will be entitled to 40% of any dividend distributions declared by ABC.

Subcontract Agreement
The DME supplier may desire to enter into the following type of arrangement with another DME supplier…which, as will be discussed below, is against the law:

• Supplier A is on the MAP’s provider/supplier panel. Supplier B is not on the panel.
• When a MAP patient wants to purchase a product from Supplier B, Supplier B will take care of the patient.
• Supplier B will (i) handle intake, assessment and coordination of care (collectively referred to as “intake”), (ii) deliver and set up the equipment, and (iii) handle the subsequent maintenance and repairs.
• Supplier A will submit a claim to the MAP. Upon receipt of payment from the MAP, Supplier A will (i) pay a large percentage (e.g., 92%) to Supplier B and (ii) retain the balance.

The problem with the above arrangement is that it violates the federal anti-kickback statute (“Federal AKS”), the federal False Claims Act (“Federal FCA”), and their state counterparts.

If Supplier A and Supplier B desire to enter into a Subcontract Agreement, which can also be called a Patient Services Agreement (“PSA”), then in order to be legally compliant, here are the steps they should take:

• Review the MAP Contract – The parties need to review Supplier A’s MAP contract to determine if it addresses subcontract arrangements.
• Supplier A Must Retain a Level of Operational Responsibilities and Financial Risk – So that it can credibly assert that it is the “supplier,” Supplier A must have a level of operational responsibilities and financial risk. For example, Supplier A needs to handle the intake. This means that Supplier A must determine if the patient qualifies for coverage under the MAP contract. 
• Inventory – Under the PSA, Supplier B will deliver the product to the patient “for and on behalf of Supplier A.” At the time of delivery, title to the product needs to be in Supplier A’s name. 
• Supplier B’s Services – The PSA can provide that Supplier B’s services include the following: (i) deliver the product to the patient, educate the patient on how to use the product, and set the product up for the patient; (ii) obtain information and documents from the patient and his physician and transmit them to Supplier A so that Supplier A can conduct the intake; and (iii) at the direction of Supplier A, provide maintenance and repair services to the patient. The labels on the products delivered to the patients need to reflect Supplier A.
• Flow of Money – At the end of the day, Supplier B will be referring (or arranging for the referral of) patients to Supplier A…and Supplier A will be paying money to Supplier B. Therefore, the arrangement needs to comply with (or substantially comply with) the Personal Services and Management Contracts safe harbor to the Federal AKS. Among other requirements, (i) the methodology for calculating the compensation must be set one year in advance and (ii) the compensation must be the fair market value equivalent of Supplier B’s services. 

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, a law firm based in Texas with a national health care practice. 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].