AMARILLO, TX – In the past, most Medicare patients were covered by Medicare fee-for-service (“FFS”) and most Medicaid patients were covered by Medicaid FFS. These terms are commonly known as “traditional Medicare” and “traditional Medicaid.” This is changing. Today, (i) close to 40% of Medicare beneficiaries are covered by Medicare Advantage (“MA”) plans and (ii) over 70% of Medicaid beneficiaries are covered by Medicaid Managed Care (“MMC”) plans. MA plans and MMC plans essentially operate the same way. Let us use an MMC plan as an example.

An insurance company (e.g., Humana) will enter into a contract with e.g., Texas Medicaid. The contract will provide for the following: (i) Humana will take responsibility for health care coverage for those Texas Medicaid beneficiaries who sign up with Humana; (ii) Texas Medicaid will pay Humana for taking care of the Medicaid beneficiaries; (iii) Humana will enter into contracts with health care providers such as hospitals, physicians, pharmacies, DME suppliers and home health agencies; (iv) Humana will establish what it will pay the providers (instead of saying “take it or leave it,” Humana may be open to negotiating some of the reimbursement terms); (v) Humana will establish criteria for coverage, claims submissions and payments; (vi) the providers will bill Humana; (vii) Humana will pay the providers; and (viii) Humana will conduct post-payment audits. The same concept applies to MA plans. 

A challenge for DME suppliers is when a plan (MA, MMC, or “straight” commercial insurance) decides to “close” the plan to certain types of providers (e.g., DME suppliers). The plan might say: “We have a sufficient number of DME suppliers taking care of our covered lives. We do not need to add any additional DME suppliers to our provider panel.

Going back to our Humana/Texas Medicaid hypothetical, assume that Humana states that its panel is closed to DME suppliers. Assume that ABC Medical Equipment, Inc. (“ABC”) has a number of Humana patients but ABC is not on the Humana panel. An unattractive option for ABC is to simply turn the Humana patients away.

However, let us assume that XYZ Medical Equipment, Inc. (“XYZ”) is on the Humana panel. ABC would like to have access to XYZ’s Humana contract…while XYZ would like to have access to ABC’s Humana patients. How can the two companies work together? What the two companies cannot do is the following: (i) ABC takes care of its Humana patients (e.g., ABC provides the product, (ii) ABC handles the patient education and set-up, (iii) ABC collects the coverage documents, (iv) ABC handles post-delivery repairs and related problems, (v) XYZ bills Humana for the products delivered by ABC, and (vi) XYZ collects money from Humana and pays a percentage to ABC. This would constitute a kickback under the federal anti-kickback statute (“AKS”) as well as a violation of the Texas illegal remuneration statute. [Note that every state has an anti-kickback statute that is similar to the federal AKS. Some state AKSs only come into play when the payor is the state Medicaid program, while other state AKSs come into play if when the payor is a commercial insurer or a cash-pay patient.]

An option is for ABC and XYZ to enter into a “Subcontract Agreement,” which can also be called a Patient Services Agreement” (“Agreement”). Under such an Agreement:

• ABC can refer its Humana patients to XYZ.
• ABC will deliver the product to the Humana patient and will provide the education and set-up. XYZ’s label will be on the product.
• ABC will collect documentation from the patient and physician pertaining to the product. ABC will transmit the documentation to XYZ.
• XYZ will conduct intake. It will review the documentation and, if necessary, talk to the patient and/or his physician. If XYZ concludes that the patient meets the coverage criteria, then XYZ will accept the patient and submit a claim to Humana.
• During the initial set-up/education, ABC will instruct the patient that (i) XYZ is the patient’s supplier and (ii) if the patient has repair needs, or has questions about the product, then the patient should contact XYZ. If it wishes to do so, XYZ can instruct ABC to handle the repair or answer the patient’s questions.
• Purchase and ownership of the products…that will be delivered by ABC to Humana patients…can be handled in one of several ways: (i) XYZ will purchase the products from the manufacturers and have them delivered to ABC; (ii) on a regular basis, XYZ will purchase products from ABC and ABC will segregate the products in ABC’s warehouse area; or (iii) ABC will retain title to the product until it is about to be delivered to the Humana patient; just prior to delivery, XYZ will purchase the product from ABC, resulting in title transferring from ABC to XYZ; and at the time of delivery of the product to the patient, title will transfer from XYZ to the patient.
• XYZ will pay the following to ABC: (i) if XYZ purchases products from ABC, then XYZ will pay a commercially reasonable price that does not take into account referrals from ABC; and (ii) preferably, XYZ will pay fixed annual compensation to ABC that is the fair market value (“FMV”) equivalent of ABC’s services. Fixed annual (FMV) compensation is an important element of the Personal Services and Management Contracts safe harbor to the federal AKS.  Kickback risk increases if the compensation is on a “per unit of service” basis. This is because the compensation varies based on the volume of referrals from ABC to XYZ. If the compensation is on a per unit of service basis, then steps to reduce the kickback risk are: (i) the Agreement contains a detailed list of services to be provided by ABC to XYZ; (ii) XYZ is required to pay the compensation regardless of whether or not XYZ is paid by Humana for the product; and (iii) the compensation per unit of service is the FMV equivalent of the service. In terms of determining FMV, the Gold Standard is for ABC and XYZ to hire an independent valuation company to perform a fair market valuation of the services to be provided by ABC.

Before ABC and XYZ enter into an Agreement, XYZ needs to review its Humana contract to determine if the Humana contract addresses subcontracting. Some third party payor (“TPP”) contracts are silent about subcontracting; other TPP contracts prohibit subcontracting; some TPP contracts allow subcontracting on condition that XYZ gives prior notice to the TPP of the subcontract arrangement; and some TPP contracts allow subcontracting with certain restrictions (e.g., not more than 20% of XYZ’s claims submitted to the TPP can be based on a subcontract arrangement).

Assume that ABC and XYZ desire to enter into an Agreement. Key contract provisions include:

Background

• XYZ desires to contract with ABC to provide products and services to YYZ’s patients (“Patients”), and ABC desires to accept such arrangement.
• ABC has the experience, expertise, accreditation and licensure to provide the products and services in accordance with this Agreement.

Terms

In consideration of the mutual covenants contained herein, and other good and valuable consideration, ABC and XYZ agree as follows:

• ABC’s Services. ABC will provide the products and services described in Schedule A.
• ABC’s Representations, Warranties, and Covenants.

(a) ABC represents and warrants that:
(i) ABC, and all persons it employs or engages to provide products and perform services, has all qualifications, accreditations, certifications, and licenses required by federal, state, or local law or third party payor policy or rule (collectively, “Qualification”) to fully provide products and perform services.

(ii) Neither ABC nor any of its officers, directors, employees or contractors has ever been (1) convicted of a criminal offense related to health care or related to the provision of services paid for by a federal or state health care program (for example, Medicare and Medicaid); (2) assessed civil money penalties for an offense related to health care or related to the provision of services paid for by a federal or state health care program; (3) excluded from participation in any federal or state health care program; and/or (4) excluded by any federal agency from receiving federal contracts.

(iii) ABC has in place a compliance program with annual compliance training or will participate in XYZ’s compliance program and annual training.

(b) ABC covenants that:
(i) ABC will not employ or contract with any individual or entity that is excluded from participation in any federal or state health care program or excluded by any federal agency from receiving federal contracts. If ABC, or any of its officers, directors, employees, or contractors, becomes the subject of any of the actions described in this paragraph, ABC will give written notice thereof to XYZ within five days after the date of such action or knowledge of such action.

(ii) ABC will maintain all Qualifications for the duration of this Agreement. ABC will give XYZ written notice within five days of the loss, suspension, or any other adverse action regarding any Qualification.

(iii) All products and services will be provided in accordance with (1) all applicable laws and regulations; (2) XYZ’s protocols, policies and procedures (including but not limited to policies regarding safety, infection control, and practice); (3) operational specifications provided by equipment manufacturers and by XYZ; and (4) any standards or procedures imposed by the accreditation organization by which XYZ is accredited.  XYZ will provide a copy of XYZ’s applicable protocols, policies and procedures to ABC, and may modify any protocol, policy or procedure by providing 10 days notice to ABC.

(iv) ABC will cooperate with XYZ in the conduct of quality improvement activities;

(v) ABC will produce any document or information in its possession that XYZ reasonably requires in order to comply with a request from any third party payor, state or federal agency, or accreditation organization; and

(vi) ABC will maintain all documents and records necessary for it to provide the services.

• XYZ’s Responsibilities. When XYZ receives Patient Documents (as defined in 1.5 of Schedule A) from ABC, XYZ will take those steps set out in Schedule A.
• Purchase and Replacement of Products/Compensation.

(a) XYZ will purchase and replace products from ABC (i) in accordance with Section 1.7 and 2.3 of Schedule A, and (ii) in accordance with Schedule B.

(b)  As full compensation for the services, XYZ will pay ABC pursuant to Schedule C.

(c) Except as otherwise provided herein, ABC will be responsible for all expenses incurred by ABC in providing products and rendering services.

Schedule A – Products and Services

1. Consignment Arrangement

1.1. ABC has entered into, and will enter into in the future, consignment arrangements (“Arrangement” or “Arrangements”) with hospitals, physician offices, and other facilities (collectively referred to as “Facility” or “Facilities”).

1.2. Pursuant to an Arrangement, ABC will place products at the Facility.

1.3. Until title is transferred to XYZ as set out hereinafter, title to products in an Arrangement will be in ABC’s name.

1.4. When a Patient elects to purchase a product from XYZ and in response thereto, the Facility delivers the product to the Patient, then immediately prior to the delivery, title to the product will transfer to XYZ. Immediately upon delivery, title to the product will transfer to the Patient.

1.5. Prior to the delivery of a product from a Facility to a Patient, ABC will deliver (or cause to be delivered) to XYZ relevant Patient information and documents (collectively referred to as “Patient Documents”) in the form and manner required by XYZ, including, without limitation, (i) physician’s order, (ii) proof of delivery, (iii) evidence of medical necessity, (iv) documents required by third party payors (“TPPs”), and (v) documents necessary for XYZ to submit claims and receive TPP reimbursement.

1.6. Upon receipt of the Patient Documents, XYZ will (i) conduct intake, (ii) determine whether the Patient meets the coverage requirements of the TPP, and (iii) notify ABC within ___ hours thereafter whether XYZ accepts the Patient or rejects the Patient because the Patient does not meet the coverage requirements of the TPP.

1.7. Upon acceptance of a Patient, XYZ will be obligated to pay ABC for the product or replace the product, delivered to the Patient, in accordance with Schedule B. Upon rejection of a Patient, XYZ will have no obligation to pay ABC for the product or to replace the product.

2. Direct Delivery by ABC

2.1. When a Patient notifies ABC that the Patient has elected to purchase a product from XYZ, and if ABC elects to deliver the product to the Patient, then ABC will deliver the Patient Documents to XYZ.

2.2. Upon receipt of the Patient Documents, XYZ will (i) conduct intake, (ii) determine whether the Patient meets the coverage requirements of the TPP, and (iii) notify ABC within ___ hours thereafter whether XYZ accepts the Patient or rejects the Patient because the Patient does not meet the coverage requirements of the TPP. Within ___ hours following receipt by ABC of XYZ’s notification of its determination that the Patient meets the TPP coverage requirements, then ABC will mail, deliver, or cause to be delivered (collectively referred to as “Deliver or “Delivered”) the product to the Patient.

2.3. Upon acceptance of a Patient, XYZ will be obligated to pay ABC for the product or replace the product, delivered to the Patient, in accordance with Schedule B. Upon rejection of a Patient, XYZ will have no obligation to pay ABC for the product or to replace the product.

3. Other Services and Obligations

3.1. For those Patients described in “1.” and “2.” of Schedule A, ABC will provide education and training to the Patient and/or Patient’s caregiver on the operation and use of the product.

3.2. For those Patients described in “1.” and “2.” of Schedule A, ABC will provide XYZ’s contact information, to the Patient and/or Patient’s caregiver, and instruct the Patient and/or caregiver to contact XYZ directly regarding any complaint.

3.3. For those Patients described in “1.” and “2.” of Schedule A, at the request of XYZ, ABC will (i) repair malfunctioning or nonfunctioning products to a fully operational state, or (ii) replace a malfunctioning or nonfunctioning product if repair is not feasible.

3.4. For those Patients described in “1.” and “2.” of Schedule A, ABC will maintain the products according to the manufacturer’s recommended maintenance guidelines.

3.5. For those Patients described in “1.” and “2.” of Schedule A, at the request of XYZ, ABC will obtain documentation (as specified by XYZ) from the Patient’s physician.

3.6. Should ABC receive any Patient complaints regarding use of XYZ’s products, ABC will immediately forward to XYZ such complaints. ABC will maintain a log that records (i) the date of the complaint, (ii) the identity and contact information of the complainant, (iii) the nature of the complaint and (iv) date and time the complaint is forwarded to XYZ. ABC will make the log available to XYZ upon XYZ’s request.

3.7. ABC will document the services provided on forms provided by XYZ and will forward these forms to XYZ on a monthly basis as provided in Schedule C.

Schedule B – Purchase and Replacement of Products
At XYZ’s discretion, XYZ will either (i) replace the product delivered by ABC  to the Patient on behalf of XYZ or (ii) purchase the product, delivered by ABC to the Patient on behalf of XYZ, in which the price will be as set out in the most current Manufacturer’s Published Wholesale Price List that is available to XYZ on the web.

Payment or replacement of the product will occur on the last day of the month immediately following the month that the product was delivered to the Patient.

Schedule C – Compensation

1. In consideration for the services, XYZ will pay ABC a fixed annual fee of $__________, which such fee will be paid in equal monthly payments of $__________. The parties represent that the fixed annual fee is the fair market value equivalent of the services.
2. On or before the ___ of each month, ABC will deliver to XYZ the completed forms, as referenced in Section 3.7. of Schedule A, detailing the services rendered in the preceding month. XYZ will pay ABC by the later of (i) the last day of the month immediately following the month that services were rendered, or (ii) or 20 days after receipt of ABC’s completed forms.

AAHomecare’s Retail Work Group
The Retail Work Group is a vibrant network of DME industry stakeholders (suppliers, manufacturers, consultants) that meets once a month via video conference during which (i) an expert guest will present a topic on an aspect of selling products at retail, and (ii) a question and answer period will follow. The next Retail Work Group video conference is scheduled for July 11, 2019, at 11:00 a.m. Central. Christina Throndson, Forbin, will present “Taking Aim on Your Audience: What You Need to Know about Geotargeting.” Participation in the Retail Work Group is free to AAHomecare members. For more information, contact Ashley Plauché Manager of Government Affairs, AAHomecare ([email protected]).

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Texas. 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].