AMARILLO, TX – Historically, DME suppliers have taken care of Medicare patients and have billed CMS directly. This is known as “Medicare fee-for-service” (or “Medicare FFS”). Also, historically, suppliers have taken care of state Medicaid patients and have billed state Medicaid programs directly (“Medicaid FFS”). All of this is changing. Today, about 35% of Medicare patients are covered by Medicare Managed Care Plans (commonly known as “Medicare Advantage Plans”) and about 70% of Medicaid patients are covered by Medicaid Managed Care Plans. These percentages are increasing.

Here is how a Medicare Advantage Plan works:

• An insurance company will create (and own) a subsidiary corporation (or LLC) that will sponsor the “Plan.” The Plan will sign a contract with CMS
• The contract will say that the Plan will be responsible for those Medicare patients who sign up with the Plan.
• The Plan will market to Medicare beneficiaries with the goal of persuading them to “sign up” with the Plan…as opposed to staying with Medicare FFS or signing up with a competing Medicare Advantage Plan.
• The Plan will create a “network” of health care providers: hospitals, physicians, labs, DME suppliers, home health agencies, etc. A provider will join the network by signing a contract with the Plan.
• When a Medicare patient sees a Plan provider, then the Plan provider will bill (and receive payment from) the Plan. The Plan, in turn, receives payment from CMS.
• The Plan’s goal is for the money it receives from CMS to be more than what the Plan pays providers…with the Plan “pocketing the spread.”

A Medicaid Managed Care Plan works essentially the same way:

• Less populated states may have only a couple of Medicaid Managed Care Plans.
• More populous states will have a number of Plans that compete with each other.

Challenges Facing Suppliers

As DME suppliers are being drawn into the Medicare and Medicaid Managed Care arenas, they are facing a number of challenges:

• A Plan may be “closed” to new DME suppliers. Essentially, the Plan says to the supplier that wants to be admitted into the Plan’s network: “We have enough DME suppliers to service our “covered lives. We don’t need you in our network.”
• A Plan will announce on e.g., 1/1/19 that (i) it has been paying $100 for Product A, (ii) it should have been paying only $80 for Product A, and (iii) therefore, the Plan will retroactively recoup the difference back to 12/31/17.
• The Plan’s contract will state that the supplier must take “assignment” from the covered life (i.e., the supplier cannot sell an item to the covered life for cash).
• The Plan’s contract will state that the supplier must adhere to the Plan’s manuals, policies and other written guidelines as amended from time to time. Said another way, the supplier must adhere to “outside” documents that are not part of the contract.
• The Plan’s contract will state that the Plan can amend the contract from time-to-time (including modifying the reimbursement) upon giving written notice to the supplier.
• The Plan’s contract will allow the Plan to terminate the contract without cause upon giving prior written notice to the supplier.
• The Plan will enter into a “sole source” contract with ABC Medical Equipment, Inc. This means that the Plan’s covered lives can only secure DME from ABC.

Part 1 of this 4-part series discusses (i) preparation for the negotiation process and (ii) some key contract provisions. Part 2 discusses other key contract provisions. Part 3 discusses (i) the remaining key contract provisions and (ii) how a supplier can properly gain access to another supplier’s third-party payor contract. Part 4 discusses (i) working towards state legislative remedies and (ii) steps that the supplier can take that are designed to persuade/pressure a Plan.

Documentation Review

If a contract requires that a supplier adhere to the Plan’s policies and procedures, the supplier must be allowed to review them prior to executing the contract.

Medical Records

The HIPAA privacy standards allow for broad sharing of information between suppliers and Plans for the purposes of receiving payment for services rendered. No business associate language is required.

Reimbursement

The most important clause in a contract is the reimbursement provision. Contracts should include a provision to renegotiate the reimbursement provision based on defined events. Suppliers should be realistically self-critical in evaluating their ability to fulfill the contract terms. The primary risk to the supplier lies in whether it understands clearly enough its costs to provide the products and services for which the supplier is contracting. Suppliers should carefully analyze the reimbursement provisions to determine whether the reimbursement amounts listed provide adequate compensation for the products and services provided.

Term

Suppliers may wish to enter into a contract for an initial term of one year with a longer renewal term so that they can have flexibility in addressing any shortfalls to the fee schedules that occur during the initial year. Suppliers should closely track contract renewal dates, as well as deadlines for modification.

Termination

Specifying the factors that may lead to termination, such as the failure of the Plan to make payment, is vital. Post-termination obligations are important. Regardless of the reason for the termination, the obligations to continue treating the Plan’s members should be clear, defined and time-limited. For example, a BCBS contract states: “This Agreement may be terminated without cause by a Party upon prior written notice to the other Party with termination to become effective 130 days after receipt of written notice. If the Agreement is so terminated, Blue Cross, at its discretion, may extend the terms of the current Agreement for a period of up to an additional 180 days, to allow Blue Cross proper notification of Subscribers and continuity of care practices.”

Onerous Termination Provisions

Suppliers that wish to terminate their relationship with a Plan have less leverage if they have agreed to onerous termination provisions. If the cost of contract termination is too high for the supplier, the supplier will have less leverage with which to press for fair and reasonable terms in negotiations to extend or replace the contract.

Subcontracting

A DME supplier, that is a party to a contract, may desire to subcontract out certain responsibilities to another supplier. Before doing so, the supplier (contracted with the Plan) should determine if the contract addresses subcontracting. For example, a BCBS contract states: “All subcontracts of Provider under this Agreement must be in writing. All subcontracts of Provider are subject to Blue Cross review and approval, upon request of Blue Cross. All subcontractors of Provider shall meet all applicable terms and conditions of this Agreement. Subcontracts shall not abrogate or alter Provider’s responsibilities under this Agreement.” As another example, an Amerigroup contract states: “Unless otherwise approved by Amerigroup in writing, Provider shall not use any subcontracted provider to furnish Covered Services to Covered Persons.”

Assignment

Assume that a supplier (that is contracted with a Plan) sells its assets to another supplier and, in so doing, desires to transfer (or “assign”) its contract to the purchaser. The seller must first review the contract to determine if it allows assignment. For example, a BCBS contract states: “This Agreement…shall not be assigned or transferred by Provider without the written consent of Blue Cross, such consent not to be unreasonably withheld.”

Appeals

Before the supplier signs a contract, the supplier should determine what the contract says about the Provider’s appeal rights. For example, a BCBS contract states: “The Provider and Subscriber shall have the right to appeal Utilization Review decisions through Blue Cross’ Utilization Review Process as set forth in the Provider Policy & Procedure Manual.”

Home Set-Ups

The DME supplier needs to determine if the contract requires the supplier to conduct home set-ups and training. For example, a BCBS contract states: “When appropriate or requested by the Subscriber, Provider will set up the DME at the Subscriber’s home and provide training to the Subscriber and his or her family.”

Voluntary Repayments

Some contracts will impose on the supplier the affirmative obligation to voluntarily repay claims that should never have been paid to the supplier in the first place. For example, a BCBS contract states: “Provider shall promptly report and return overpayment of any kind to Blue Cross.”

Collection of Copayments

Many contracts expressly require the supplier to make a “good faith” effort to collect copayments and deductibles. For example, a BCBS contract states: “Provider agrees to make a good faith effort to collect any deductible, coinsurance, and/or copayment amounts due from Subscribers. This provision shall not prohibit Provider from collecting a lesser amount on individual hardship cases as determined by Provider.”

We have now reached the end of our discussion of contract provisions. Now we will move to other important issues pertaining to managed care contracts.

Using Another Supplier’s Third-Party Payer Contract

A challenge faced by many DME suppliers is that Plans have “closed panels.” This means that the Plan 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 the contract 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 Plan. As a “workaround,” the DME supplier may want to enter into an arrangement with another DME supplier to gain access to the other DME supplier’s contract. For example, the two suppliers may want to do the following:

• Supplier A is a party to Contract 1. Supplier B is not a party to Contract 1.
• When a patient under Contract 1 wants to purchase a product from Supplier B, then 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 under Contract 1. Upon receipt of payment under Contract 1, Supplier A will (i) pay a large percentage (e.g., 92%) to Supplier B and (ii) retain the balance.

The problem with this arrangement is that it likely violates the federal anti-kickback statute (“Federal AKS”), the federal False Claims Act (“Federal FCA”), and their state counterparts. Here are how the Federal AKS and Federal FCA may come into the picture:

• Federal AKS – This statute makes it a felony for (i) Supplier A to give anything of value in exchange for receiving the referral of a patient covered by a government health care program and (ii) Supplier B to receive anything of value in exchange for referring (or arranging for the referral of) a patient covered by a government health care program. In the eyes of the Plan, the “supplier” is Supplier A: it is the party to the contract and it is billing and collecting under the contract. The kickback issue arises because (i) Supplier B is referring or arranging for the referral of the patient to Supplier A and (ii) Supplier A is, in turn, remitting e.g., 92% of the payment to Supplier B.
• Federal FCA – This statute prohibits Supplier A from submitting “false claims”…and Supplier B cannot conspire (or collaborate) with Supplier A for the submission of false claims. When Supplier A submits a claim to the Plan, Supplier A is representing that it is the supplier…that it took care of the patient and, therefore, deserves to be paid. In fact, this is not the case. The true supplier is Supplier B; it is the entity that does all of the work. All Supplier A does is submit a claim under the contract. Hence, the claim submitted is a false claim. And Supplier B will have collaborated with Supplier A in the submission of the false claim.

So now that we have talked about what Supplier A and Supplier B cannot do, let us talk about what they can do. If Supplier A and Supplier B desire to enter into a Subcontract Agreement (“SA”), then here are the steps they should take:

• Review the Contract – The parties need to review Supplier A’s contract to determine if it addresses subcontract arrangements. The contract may say nothing about whether or not Supplier A can subcontract out its responsibilities to Supplier B. If the contract is silent, then in order to avoid problems under the Federal AKS and Federal FCA, the SA should be structured as set out hereafter. On the other end of the spectrum, the contract may prohibit Supplier A from subcontracting out its services. The contract may very well take the middle road and provide for one of the following: (i) Supplier A can subcontract out its services but must first notify the Plan who the subcontractor will be; (ii) Supplier A can subcontract out not more than e.g., 20% of its services; (iii) Supplier A can subcontract out its services only if the Plan approves the subcontractor in advance; or (iv) Supplier A can only subcontract out specifically delineated services.
• 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 contract. Supplier B can gather information and documents and forward them to Supplier A…but it is Supplier A, not Supplier B, that must determine if the patient is to receive the product. If the patient later has a maintenance/repair need, then he needs to call Supplier A; Supplier A can, in turn, direct Supplier B to handle the repair/maintenance. Further, Supplier A will be obligated to pay Supplier B regardless of whether or not the Plan pays Supplier A. In other words, Supplier A’s obligation to pay Supplier B for its services is
• Inventory – Under the SA, 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. This can be accomplished in one of several ways: (i) Supplier A can purchase the inventory, take possession of it, and deliver it to Supplier B; (ii) Supplier A can purchase the inventory, not take possession of it, and direct the manufacturer to deliver the inventory (on behalf of Supplier A) to Supplier B; (iii) Supplier B can purchase the inventory; on a regular basis, Supplier A can purchase inventory from Supplier B and Supplier B can segregate Supplier A’s inventory in Supplier B’s warehouse; or (iv) Supplier B can purchase the inventory; when Supplier B is about to deliver the product to the patient’s home, then title will transfer to Supplier A and Supplier A will have the obligation to purchase the product from Supplier B.
• Supplier B’s Services – The SA 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. The most conservative course of action is as follows: (i) if Supplier A purchases inventory from Supplier B, then the purchase price must be fair market value (“FMV”) and must be pursuant to a price list attached to the SA; and (ii) Supplier A pays fixed annual compensation (e.g., $48,000 over the next 12 months) to Supplier B in which such compensation is the FMV equivalent of Supplier B’s services. If fixed annual compensation is not feasible, then a less conservative course of action is as follows: (i) if Supplier A purchases inventory from Supplier B, then the purchase price must be FMV and must be pursuant to a price list attached to the SA; and (ii) Supplier A pays a fixed fee per each unit of service provided by Supplier B, such compensation is the FMV equivalent of Supplier B’s services, and the compensation is set out in a fee schedule attached to the SA. If the parties want to strengthen their position that the compensation paid to Supplier B is FMV, then the parties can order an FMV evaluation and report from an independent third party.

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato 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].