AMARILLO, TX – A physician is a referral source to the DME supplier. The physician refers patients who are covered by a government health care program, who are covered by commercial insurance, or desire to pay cash.

If a supplier pays money to a physician for services, or provides meals, gifts and entertainment to a physician, or subsidizes a trip that the physician will take, then both the DME supplier and the physician need to comply with the federal and state laws that govern these arrangements.



The Medicare anti-kickback statute states that a health care provider (such as a DME supplier) cannot provide anything of value (money, golf clubs, trip to Cabo, etc.) to a person (such as a physician) or entity in exchange for referring, or arranging for the referral of, patients covered by a government health care program (e.g., Medicare, TRICARE, Medicare Advantage, Medicaid). Violation of the anti-kickback statute is a criminal offense. The payor and the payee are equally liable under the statute.

Courts have enumerated the “one purpose” test which states that if one purpose behind a payment to a referral source is intended to induce referrals, then the anti-kickback statute is violated notwithstanding that the primary purpose of the payment is to pay for legitimate services and notwithstanding that the payment is the fair market value equivalent of the referral sources’s services. Because the anti-kickback statute is so broad, the Office of Inspector General (“OIG”) has published a number of “safe harbors.”

A safe harbor is a fact situation. If the arrangement falls within the fact situation, then the compensation paid does not violate the anti-kickback statute. A relevant safe harbor is the “Personal Services and Management Contracts” safe harbor (“PSMC safe harbor”). This safe harbor contains a number of requirements, including the following: (i) the DME supplier and physician will enter into a written agreement with a term of at least one year; (ii) the supplier will pay the physician for legitimate services; (iii) the compensation will be set one year in advance (e.g., $6000 over the next 12 months) and will not take into account the expected volume of business between the parties; and (iv) the compensation will be the fair market value equivalent of the physician’s services.



The Stark physician self-referral statute states that if a physician (or immediate family member) has an ownership/compensation arrangement with a provider that furnishes “designated health services” (“DHS”), then the physician cannot refer patients, covered by Medicare or Medicaid, to the provider. A DME supplier falls within the definition of a provider that furnishes DHS. Unlike the anti-kickback statute, Stark imposes civil (not criminal) liability.

There are a number of exceptions to Stark. Two of the exceptions are (i) the non-cash/non-cash equivalent expenditure exception and (ii) the Personal Services exception. The non-cash/non-cash equivalent expenditure exception states that a provider can expend up to $380 per year on non-cash/non-cash equivalent items for a referring physician. The physician’s staff is not covered by this exception.

Non-cash/non-cash equivalent items include meals, trips, conference fees, Springsteen tickets, etc. Cash, gift cards, gift certificates and similar “cash equivalent” items do not fall within this exception. The Personal Services exception is similar to the PSMC safe harbor.

Most states have their own versions of the Medicare anti-kickback statute. Some state anti-kickback statutes apply only if the payor is the state’s Medicaid program. Other state anti-kickback statutes apply regardless of the payor; in other words, the statute will apply even if the payor is a commercial insurer. Separate from anti-kickback statutes, some states have physician self-referral statutes that are similar to Stark.

Lastly, each state has a version of a Medical Practices Act (MPA) which is a set of statutes that are specific to physicians. Many of the MPAs have physician-specific statutes that address “fee splitting,” “kickbacks,” “referral fees,” and “patient brokering.”

While Stark allows a DME supplier to spend up to $380 per year for non-cash/non-cash equivalent items for a physician, the Medicare anti-kickback statute does not include a similar exception. Nevertheless, if the Stark exception is met, it is unlikely that the government will take the position that the non-cash/non-cash equivalent items provided by the supplier to the physician violate the anti-kickback statute. In addition to complying with Stark and the anti-kickback statute, the DME supplier and the physician also need to comply with applicable state law.

Even though the supplier and the physician will need to confirm this, it is likely that compliance with the $380 Stark exception will avoid liability under state law.

And so the DME supplier can provide gifts, entertainment, trips, meals, and similar items to a physician so long as the combined value of all of these items do not exceed $380 in a 12 month period. For example, if a DME supplier wants a physician to accompany the supplier on a trip to a continuing education conference, then the supplier can safely subsidize up to $380 of the physician’s trip expenses.

The amount of the trip subsidy will be affected by other expenditures the supplier has made on behalf of the physician within the preceding 12 months.

Separate from furnishing gifts and entertainment, and subsidizing trips, the DME supplier can pay the physician for legitimate services. For example, if the supplier has a legitimate need for a Medical Director, then the supplier and physician can enter into a Medical Director Agreement that complies with both the PSMC safe harbor to the Medicare anti-kickback statute and the Personal Services exception to Stark.

Another legitimate way for money to exchange hands between a DME supplier and a physician is for the physician to rent space to the supplier or vice versa.

The rental agreement needs to comply with the Space Rental safe harbor to the Medicare anti-kickback statute. This safe harbor is similar to the PSMC safe harbor. Among other requirements, (i) the parties must execute a written lease agreement that has a term of at least one year; (ii) the rent paid must be fixed one year in advance (e.g., $48,000 over the next 12 months), and (iii) the rent must be fair market value. The rental arrangement needs to also comply with the Space Rental exception to Stark; this exception is similar to the Space Rental safe harbor to the anti-kickback statute.



The bottom line is that before a DME supplier pays money to a physician for services, or provides gifts and meals to a physician, or subsidizes a physician’s trip, the supplier needs to (i) examine the requirements of the Medicare anti-kickback statute, Stark, and applicable state statutes, and (ii) consult with an experienced health care attorney.

Baird will be presenting at Medtrade Spring 2014 in Las Vegas, where he will share his expertise, advice, and ideas. CLICK HERE to register for Medtrade Spring, held from March 10-12, 2014, at the Mandalay Bay Convention Center, Las Vegas.

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].