AMARILLO, TX – A common question asked by DME suppliers is whether they can subsidize a physician’s expenses. Examples include:

• May a DME supplier pay a physician’s out-of-pocket expenses to attend a continuing education conference?
• May a DME supplier purchase iPads for the physician’s employees to use at the physician’s office?

To answer these questions, we need to look at federal and state anti-fraud laws.

Federal Anti-Fraud Laws

The federal anti-kickback statute (“AKS”) prohibits a supplier from giving “anything of value” to a physician in exchange for the physician (i) referring federal health care program (“FHP”) patients to the supplier, (ii) arranging for the referral of FHP patients to the supplier, or (iii) recommending the purchase of a service or product from the supplier that is covered by an FHP. The term “anything of value” is quite broad and includes (i) payment of money, (ii) payment of expenses, and (iii) providing gifts.

A violation of the AKS is a criminal offense. But there are a number of “safe harbors” to the AKS. If an arrangement falls within a safe harbor, then as a matter of law, the AKS is not violated. If an arrangement does not fall within a safe harbor, that does not necessarily mean the AKS is violated; rather, it means that a thorough examination of the arrangement will need to be made under the wording of the AKS, court decisions, and other published legal guidance. There is not, however, a safe harbor that applies to the arrangements discussed above.

The federal Stark physician self-referral statute (“Stark”) prohibits a physician from referring Medicare and Medicaid patients, for designated health services (“DHS”), to a supplier with which the physician (or an immediate family member of the physician) has a financial relationship … unless the financial relationship fits within a Stark exception. The term “financial relationship” includes (i) an ownership interest by the physician (or an immediate family member of the physician) in the supplier and/or (ii) compensation (or anything else of value) from the supplier to the physician (or an immediate family member of the physician). DHS includes DME. Violation of Stark results in civil liability. There are a number of exceptions to Stark, including the Non-Monetary Compensation Exception (“NMC Exception”) that allows a supplier to spend, during 2018, up to $407 per calendar year on a physician in the form of items or services (not including cash or cash equivalents) provided that:

• the compensation is not determined in any manner that takes into account the volume or value of referrals or other business generated by the referring physician;
• the compensation may not be solicited by the physician or the physicians’ practice (including employees and staff members); and
• the compensation arrangement does not violate the AKS or any Federal or State law or regulation governing billing or claims submission.

This dollar amount is adjusted each year based on the Consumer Price Index.

State Anti-Fraud Laws

Each state has an anti-kickback statute that is similar to the AKS. Some state anti-kickback statutes only apply to referrals of patients of the state’s Medicaid program. Other state anti-kickback statutes apply even if the patient (i) is covered by a commercial insurer or (ii) is a cash-paying patient. And most states have a physician self-referral statute that is similar to Stark.

In addition, each state has a set of statutes and regulations that are specific to physicians. These physician-specific statutes and regulations may also address whether a supplier can pay the expenses of a physician.

Answers to Specific Questions

First Question: The first question is this: “May a DME supplier pay a physician’s out-of-pocket expenses to attend a conference?” If the physician refers Medicare and/or Medicaid patients to the supplier and the supplier has provided nothing of value to the physician during the current calendar year and the requirements of the NMC Exception are met, then Stark allows the supplier to pay (in 2018) up to $407 of the physician’s expenses to attend a conference. If the supplier has previously spent, for example, $100 on the physician during the current calendar year, then Stark allows the supplier to pay up to $307 of the physician’s expenses to attend a conference. Note that the supplier must pay the expenses directly to the conference, hotel, airline, etc. on the physician’s behalf and cannot pay the expenses to the physician, or provide a coupon or voucher to the physician since these would be considered “cash or cash equivalents.” There is not an AKS safe harbor that applies to this scenario. As such, technically, the supplier and physician can comply with Stark but still violate the AKS. From a practical standpoint, if the supplier and physician comply with the NMC Exception, then it is highly unlikely that a federal governmental enforcement agency will assert a violation of the AKS. Also from a practical standpoint, if the supplier and physician comply with the NMC Exception, it is unlikely that a state governmental enforcement agency will assert a violation of a state anti-fraud statute. If the supplier and physician ignore Stark and the supplier ends up paying, for example, $3,000 of the physician’s expenses to attend a conference, then (i) Stark will be violated; (ii) the AKS will almost certainly be violated; and (iii) one or more state statutes may be violated.

Second Question: The second question is this: “May a DME supplier purchase iPads for the physician’s employees to use in the course and scope of their employment by the physician?” In July 1997, the OIG published a letter from the Chief of its Industry Guidance Branch addressing the question of “whether the provision of free fax machines, free computers and free fax lines by a supplier of transtelephonic monitoring services to physicians who refer patients to such supplier implicates the Medicare and Medicaid anti-kickback statute.” In its letter, the OIG cited to commentary included in a final rule issued by the OIG in 1991, which promulgated safe harbors to the anti-kickback statute. In that commentary, the OIG contrasts situations in which (1) a computer is given to a physician that can only be used to print results of lab tests, and (2) a computer is given to a physician that the physician is free to use for a variety of purposes. With regard to the first situation, the OIG highlighted “that the computer has no independent value apart from the service being provided and that the purpose of the free computer is not to induce an act prohibited by the [anti-kickback] statute …” With regard to the second situation, the OIG highlighted that “the computer has a definite value to the physician, and, depending on the circumstances, may well constitute an illegal inducement.”

The letter goes on to state that the OIG is aware of arrangements in which free technology and equipment is provided “with a condition that such equipment is only to be used in connection with [the supplier’s] service. However, in determining whether a free or ‘loaner’ computer or fax machine constitutes illegal remuneration, the substance – – not the form – – of the transaction controls and any reasonably foreseeable ‘misuse’ of the equipment implicates the entity providing the equipment as well as the user.” In evaluating any arrangement in which free technology is given to a referral source, the OIG looks at the following factors in determining whether the arrangement might violate the anti-kickback statute:

1. The criteria used by the supplier of the equipment to determine which customers receive the equipment;
2. The ownership of the equipment;
3. The location and access to the equipment at the customer’s place of business;
4. The procedures used by the customer and supplier to police unauthorized use of the equipment;
5. The value added to the core service being provided by the additional general purpose equipment; and
6. The number and extent of similar arrangements with other parties.

Based on the OIG’s guidance, the preferred way for a supplier to reduce the kickback risk associated with the provision of a free iPad is to limit the functionality of the iPad so that it can only be utilized in conjunction with the supplier’s services. In other words, if the supplier furnishes an iPad in order to enable the recipient to submit orders and documentation, that is all the recipient should be able to do with the iPad. The recipient should not be able to access personal email accounts, surf espn.com, change a Facebook status, etc.

If, on the other hand, it is not possible to limit the functionality of an iPad, then each of the factors listed above should be used to develop ways to reduce the risk associated with the iPad. The following thoughts and comments related to a few of the factors should provide some assistance:

• Criteria used to determine who gets an iPad – While it may seem that a supplier would only want to incur the expense of providing order-simplifying technology like an iPad to those who refer a high number of patients or who order significant amounts of the supplier’s products, the OIG would be very likely to disfavor an arrangement in which the receipt of an iPad is tied to the number of referrals received or the amount of product ordered.
• Ownership of the iPad – It is advisable that the supplier retains ownership of each iPad.
• Location and access to iPads at the recipient’s place of business – The supplier might consider requiring each iPad recipient to sign a written agreement in which the recipient consents to follow certain rules related to the use of the iPads, such as the following: (i) the iPad is only to be used for submitting orders and documentation to the supplier, and (ii) the iPad must be left at the recipient’s facility every night.
• Procedures used to police unauthorized activity – The supplier might consider investing in installation of iPad usage monitoring software on each of the iPads it furnishes. This type of software is commercially available. While purchasing monitoring software and requiring an employee to spend some time at regular intervals to review iPad usage reports would impose some additional cost to the supplier, it could serve as an efficient way to reduce the risk associated with the iPad program.

Jeff Baird will be presenting the following webinar:

AAHOMECARE’S EDUCATIONAL WEBINAR

Aggressively Moving Into the Retail Market

Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.

Thursday, February 15, 2018

2:30-3:30 p.m. EASTERN TIME

A DME supplier can no longer survive while being dependent on Medicare fee-for-service. With competitive bidding, stringent documentation requirements, lower reimbursement, post-payment audits, and the fact that Medicare is tightening its purse strings, Medicare fee-for-service should only be a component of the supplier’s total income stream. There are 78 million Baby Boomers (people born between 1946 and 1964); they are retiring at the rate of 10,000 per day. Boomers are accustomed to paying for things out-of-pocket. And most Boomers want the “Cadillac” product – not the “Cavalier” product – so they can have an active lifestyle well into their 80s. The successful DME supplier will be focused on selling upgrades, utilizing ABNs, and selling “Cadillac” items for cash. These retail sales may take place in a store setting, through a kiosk, or over the internet. Even when Medicare is not the payor, there are a number of requirements that the DME supplier must meet. This program will discuss the federal and state requirements that the DME supplier must meet as it sells DME at retail. These requirements include (i) required notification to a Medicare beneficiary even though the supplier does not have a PTAN; (ii) selling Medicare-covered items at a discount off the Medicare allowable; (iii) state licensure; (iv) collection and payment of sales and/or use tax; (v) qualification as a “foreign” corporation; (vi) obtaining a physician prescription; and (vii) complying with federal and state telemarketing rules.

Register for Aggressively Moving Into the Retail Market on Thursday, February 15, 2018, 2:30-3:30 pm ET, with Jeffrey S. Baird, Esq., of Brown & Fortunato, PC.

FEES:

Member: $99.00

Non-Member: $129.00

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies 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].