AMARILLO, TX – A stock and bill arrangement is also known as a “loan closet” and a “consignment arrangement.” The arrangement works like this:
- A DME supplier will store items at a hospital, physician’s office, nursing home, or other type of facility at which patients receive treatment.
- A physician will prescribe DME for a patient.
- The facility employee will ask the patient if he/she has a preference for a DME supplier. If the patient does not express a preference, the employee will recommend the DME supplier that is storing items at the facility.
- If the patient selects the supplier, the facility employee will pull the item “out of the closet” and send the patient home with it.
- The facility employee will collect the necessary documents for the DME supplier to (i) conduct intake and (ii) bill the third-party payor (“TPP”).
Reducing the Risk of a Kickback or Stark Violation
The facility is a referral source to the DME supplier. If “anything of value” is flowing from the supplier back to the facility, the (i) federal physician self-referral statute (“Stark)” may be violated unless a Stark exception is met and/or (ii) federal anti-kickback statute (“AKS”) may be violated unless an AKS safe harbor is met.
- Stark – Stark prohibits physicians (as broadly defined) from referring Medicare or Medicaid patients for “designated health services” (“DHS”) to any entity with which the physician or an immediate family member has a financial (ownership or compensation) interest. DHS includes DME. Stark has a number of exceptions, several of which mirror AKS safe harbors.
- AKS – The AKS makes it a crime to knowingly and willfully offer, pay, solicit or receive “any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind” in return for (i) referring patients for services or equipment any part of which is reimbursable in whole or in part by a federal health care program (“FHCP”) or (ii) recommending, purchasing, leasing, or ordering an item or service reimbursable by an FHCP. Because of the breadth of the AKS, the Office of Inspector General (“OIG”) has published a number of safe harbors. If an arrangement meets all of the elements of a safe harbor, then as a matter of law the AKS is not violated. If an arrangement does not comply with a safe harbor, it does not mean that the AKS is violated. Rather, it means that the arrangement needs to be carefully analyzed in light of the language of the AKS, court decisions and OIG guidance.
Let us look at two examples of “value” flowing from the DME supplier to the facility.
- Facility’s Services – Assume that the facility provides services for which the DME supplier will pay compensation. The arrangement must comply with the (i) Personal Services and Management Contracts safe harbor to the AKS and (if the facility is a physician clinic) the Personal Services exception to Stark. Among other requirements, (i) there must be a written agreement with a term of at least one year, (ii) the methodology for calculating the compensation must be fixed one year in advance, and (iii) the compensation must be fair market value (“FMV”).
- Space Rental – Technically, the DME supplier can pay rent to the facility for use of the “closet.” The arrangement must comply with the (i) Space Rental safe harbor to the AKS and (if the facility is a physician clinic) the Space Rental exception to Stark. Among other requirements, (i) there must be a written lease agreement with a term of at least one year, (ii) the rental amount must be fixed one year in advance, and (iii) the rent must be FMV. From a practical standpoint, it does not make sense for the DME supplier to pay rent. To comply with the AKS safe harbor and Stark exception, the rent for a “closet” will need to be very low.
Equipment Placement Agreement
The DME supplier and facility are not required to have a written agreement memorializing the stock and bill arrangement. However, it is wise for the parties to have such an agreement, often referred to as an Equipment Placement Agreement (“EPA”). Key provisions in an EPA are:
- The facility cannot use the consigned inventory to (i) treat patients (allowing the facility to bill TPPs for such treatment) nor (ii) reduce expenses (i.e., instead of purchasing items to treat patients, the facility uses the consigned inventory to treat patients). Doing so constitutes “something of value” flowing from the DME supplier to a referral source (the facility) …thereby implicating the AKS and (possibly) Stark.
- If an item goes missing from the closet without an acceptable explanation to the DME supplier, the facility must purchase the missing item from the supplier. This is an important provision because if items go missing without explanation, an argument can be made that (i) a facility employee is absconding with the item and selling it on eBay or (ii) the facility is using the item to make money or reduce expenses. Without this type of provision, if an item goes missing without explanation, the AKS and (possibly) Stark may be triggered.
- Title to the consigned inventory remains in the DME supplier’s name until the item is physically handed to the patient.
- The services that the facility will provide to the DME supplier will be set out in the EPA. Such services can include (i) providing education and training to the patient/caregiver regarding use of the item and (ii) collecting documentation (e.g., delivery ticket, prescription, and clinical history notes).
- Patient complaints will be forwarded to the DME supplier.
- Written acknowledgement by the patient that he/she was given the option to select his/her DME supplier.
- As a general rule, the DME supplier will not compensate the facility for use of the “closet,” nor for the time the facility employee spends educating the patient about the product. If the DME supplier does compensate the facility, the compensation must comply with the appropriate safe harbor to the AKS and if the facility is a physician’s clinic, the compensation must comply with an exception to Stark.
Conclusion
Stock and bill arrangements are acceptable under the law…so long as they are not merely a subterfuge to funnel something of value to a referral source. It would be wise for the parties to execute an EPA that includes the provisions discussed above.
Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, a law firm with a national health care practice based in Texas. 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].