AMARILLO, TX – DME suppliers operate in a highly regulated environment. They 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 DME 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 agency/contractor.

If a DME 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 supervision and PTAN revocation. The risks are too high for the 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.

Part I summarized federal and state anti-fraud laws. Parts II – V discuss specific fraud landmines to avoid.

Paying For a Facility’s HER

Many DME suppliers work with skilled nursing facilities (“SNFs”) and custodial care facilities (collectively referred to as “Facilities”). A Facility is a “referral source” to the supplier. Even though the Facility may give “patient choice,” if the supplier provides a product to a Facility patient, the law considers the patient to be a “referral” from the Facility. If the supplier gives “anything of value” to the Facility, then the supplier is at risk of being construed to be “paying for a referral” … hence, a “kickback.” In order for a Facility to serve Medicare and Medicaid patients, federal law imposes a number of requirements on the Facility. These requirements cost the Facility money in order to comply. One such requirement is for the Facility to have a pharmacy perform a monthly drug regimen review (“DRR”) on each patient.

Electronic medication administrative records (“eMARs”) are not required for DRR; hard copy records are acceptable. Nevertheless, a Facility may desire to utilize eMAR software (“Software”) for DRR and for other purposes. The Facility and a DME supplier (that receives referrals from the Facility) may wish to enter into an arrangement in which the supplier pays for the Software. It is at this juncture that the Facility and supplier find themselves on the proverbial “slippery slope.” Assume that the supplier receives referrals from the Facility and desires to pay for the Software. By virtue of paying for the Software, the supplier is providing “something of value” to the Facility … hence, the AKS is implicated. The applicable safe harbor is the Electronic Health Records safe harbor (“EHR Safe Harbor”). It states than an entity may donate software and training services “necessary and used predominantly to create, maintain, transmit, or receive electronic health records” if the following 12 requirements are satisfied:

• The donation must be made to an entity engaged in delivery of health care by an entity (except for a laboratory company) that provides and submits claims for services to a federal health care program.
• The Software must be interoperable at the time it is provided to the recipient. Software is deemed to be interoperable if it has been certified by a certifying body authorized by the National Coordinator for Health Information Technology. Interoperable means that the Software is able to (i) “communicate and exchange data accurately, effectively, securely, and consistently with different information technology systems, software applications, and networks, in various settings,” and (ii) “exchange data such that the clinical or operational purpose and meaning of the data are preserved and unaltered.” The Software can be used for tasks like patient administration, scheduling functions, and billing and clinical support, but electronic health records purposes must be predominant.
• The donor cannot place a restriction on the use, compatibility, or interoperability of the item or service with other EHR systems.
• Receipt of items or services is not conditioned on doing business with the donor.
• Eligibility for, and the amount or nature of, the items or services provided is not based on the volume or value of referrals or other business generated between the parties.
• There must be a written, signed, agreement specifying: (i) the items and services; (ii) the donor’s cost of providing the items and services; and (iii) the amount of the recipient’s contribution.
• The recipient cannot already possess or have obtained items or services with similar capabilities as those provided by the donor.
• For items or services that can be used for any patient regardless of payer status, the donor does not restrict the recipient’s ability to use the items or services for any patient.
• The items and services do not include office staffing and are not used to conduct personal business or business unrelated to the recipient’s health care practice.
• The recipient must pay 15% of the donor’s cost for the items and services prior to receipt, and the donor cannot finance or loan funds for this payment.
• The donor’s cost for the items or services cannot be shifted to a federal health care program.
• Transfer of the items or service must occur on or before December 31, 2021.

As noted above, the Software can be used for services beyond the Facility’s DRR as long as (i) the Software is not used primarily for personal business or business unrelated to the Facility’s clinical operations, and (ii) the supplier does not restrict the Facility from otherwise using the Software or from interfacing with other electronic prescribing or electronic health records systems. If the arrangement does not comply with all of the elements of the EHR Safe Harbor, then the arrangement will need to be examined in light of the language of the AKS, court decisions, and other published guidance. An important guidance is the OIG’s December 7, 2012 Advisory Opinion No. 12-19, which addressed four proposed arrangements involving a pharmacy’s provision of items and services to Community Homes in which the pharmacy’s customers reside. The OIG opined that it would not impose administrative sanctions in connection with Proposals A – C, but would likely impose such sanctions against Proposal D. Under Proposal D, the pharmacy would provide to Community Homes a free sublicense for “Software Z” for use in connection with the pharmacy’s customers. In determining that Proposal D would likely result in administrative sanctions, the OIG pointed out the following: “Software Z is not interoperable. Data that a Community Home would create and store in Software Z, including MAR documentation, would not be readily transferable to other systems, resulting in Community Home data lock-in and, thereby, referral lock-in … [I]f a Community Home resident began receiving medications from the [donor pharmacy] and later decided to receive medications from another pharmacy, then the Community Home could face having to either transition that resident’s data to another system or assume the full payment for a Software Z sublicense. This situation could give rise to a significant incentive for the Community Homes to steer patients to the [donor pharmacy] rather than one of its competitor[s].”

Medical Director Agreement

A DME supplier can enter into an independent contractor Medical Director Agreement with a physician. The MDA must comply with the (i) Personal Services and Management Contracts safe harbor and (ii) the Personal Services exception to the Stark physician self-referral statute. Among other requirements:

• The MDA must be in writing and have a term of at least one year.
• The physician must provide substantive services.
• The compensation to the physician must be fixed one year in advance and be the fair market value equivalent of the physician’s services.

Sham Telehealth Arrangements

DME suppliers are aggressively engaged in marketing and it is not uncommon for a supplier to ship products to patients residing in multiple states. In particular, over the last several years we have seen a noticeable increase in the sale of orthotics (e.g., back braces) across state lines. When a supplier is marketing to patients in multiple states, the supplier may run into a “bottleneck.” This involves the patient’s local physician. A patient may desire to purchase a product from the out-of-state supplier but it is too inconvenient for the patient to drive to his physician’s office. Or if the patient is seen by his local physician, the physician may decide that the patient does not need the product and so the physician refuses to sign an order. Or even if the physician does sign an order, he may be hesitant to send the order to an out-of-state supplier. In order to address this challenge, some suppliers are entering into arrangements that will get them into trouble. This has to do with “telehealth” companies. A typical telehealth company has contracts with many physicians who practice in multiple states. The telehealth company contracts with, and is paid by (i) self-funded employers that pay a membership fee for their employees, (ii) health plans, and (iii) patients who pay a per visit fee.

Where a supplier will find itself in trouble is when it aligns itself with a telehealth company that is not paid by employers, health plans and patients – but rather – is directly or indirectly paid by the supplier. Here is an example: supplier purchases leads from a marketing company … the marketing company sends the leads to the telehealth company … the telehealth company contacts the leads and schedules audio or audio/visual encounters with physicians contracted with the telehealth company … the physicians write orders for products…the telehealth company sends the orders to the supplier … the marketing company pays compensation to the telehealth company for its services in contacting the leads and setting up the physician appointments … the telehealth company pays the physicians for their patient encounters … the supplier mails the product to the patient … the supplier bills (and gets paid by) a government program.

There can be a number of permutations to this example, but you get the picture. Stripping everything away, the supplier is paying the ordering physician. To the extent that a supplier directly or indirectly pays money to a telehealth physician, who in turn writes an order for a product that will be sold by the supplier, the arrangement will likely be viewed as remuneration for a referral (or remuneration for “arranging for” a referral). If the payer is a federal health care program, then the arrangement will likely violate the AKS. If the payer is the state Medicaid program, then the arrangement will likely violate both the AKS and the state anti-kickback statute. If the payer is a commercial insurer, then the arrangement may violate a state statute.

Sham Insurance Policies to Waive Copayments

Sham Insurance Policies

Depending on the product, the third party reimbursement to the supplier may be high. If the copayment is 20%, then this will result in a high copayment. Many patients cannot afford a high copayment. In an attempt to “solve” the copayment problem, the supplier may be tempted to enter into a “sham” insurance arrangement. This arrangement will normally take one of two forms.

Scenario One

In one scenario, the patient will pay a minimal “premium” (e.g., $10) to the supplier. In exchange, the supplier represents to the patient that he/she has purchased an “insurance policy” to cover the copayment.

Scenario Two

In the second scenario, the supplier will pay an upfront fee to the “insurance company” (“ABC”). ABC will, in turn, issue an “insurance policy” to the supplier. The supplier will collect little to no copayments from its patients. If the supplier is subjected to an audit/investigation and if the auditor/investigative agency asks to see if the supplier is collecting copayments from a list of named patients, then ABC will pay money to the supplier that constitutes all or a portion of the copayments the named patients should have paid.

Sham Insurance Policies

Both of these arrangements are subterfuges—or ruses—in an attempt not to impose a large copayment obligation on the patient. These arrangements are “shams” on their face. One of the reasons these are not true insurance products is because an insurance policy must be issued by a licensed insurance company. To be licensed as an insurance company, the supplier or ABC must meet many requirements imposed on insurance companies. One important requirement is that the insurance company must show the state that it has a minimum level of capital reserves.

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. 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].