AMARILLO, TX – Over the last 12 years, the DME industry has justifiably focused its attention on competitive bidding and audits. However, what has “snuck up” on the industry has been the increase in third party payor (“TPP”) contracts…and what such an increase means for the ability of DME suppliers to serve Medicare and Medicaid patients.
Today, approximately 35% of Medicare patients are not covered by traditional Medicare; rather, they are covered by Medicare Advantage Plans (“MAPs”). Likewise, today, approximately 70% of state Medicaid patients are not covered by traditional Medicaid; rather, they are covered by Medicaid Managed Care Plans (“MMCPs”). These percentages are increasing.
A challenge faced by many DME suppliers is that MAPs and MMCPs (collectively referred to as “Plans”) have “closed panels.” This means that the Plan concludes that it has a sufficient number of DME suppliers to serve the Plan’s enrollees (“covered lives”) and, therefore, does not allow any additional suppliers to serve the Plan’s enrollees. Let us assume that ABC Medical Equipment (“ABC”) is not allowed on Plan A:
- If ABC has existing patients who previously were covered by traditional Medicare/Medicaid but then switched to Plan A, then unless the patients elect to pay cash to ABC, ABC will no longer be able to service those patients.
- Likewise, if through its marketing efforts ABC generates new patients, but the patients are covered by Plan A, then unless the patients elect to pay cash to ABC, ABC will not be able to service the patients.
As a “workaround,” ABC may want to enter into a Subcontract Agreement (sometimes known as a “Patient Services Agreement”) with XYZ Medical Equipment (“XYZ”) … that is a contracted supplier under Plan A. Such a Subcontract Agreement (“SA”) will allow ABC to indirectly gain access to Plan A. However, in entering into an SA, here is what ABC and XYZ cannot do:
- When a Plan A patient wants to purchase a product from ABC, then ABC will take care of the patient.
- ABC will (i) handle intake, assessment and coordination of care (collectively referred to as “intake”), (ii) deliver and set up the equipment, and (iii) handle the subsequent maintenance and repairs.
- XYZ will submit a claim to Plan A. Upon receipt of payment from Plan A, XYZ will (i) pay a large percentage (e.g., 92%) to ABC and (ii) retain the balance.
The problem with this arrangement is that it likely violates the federal anti-kickback statute (“Federal AKS”), the federal False Claims Act (“Federal FCA”), and their state counterparts. Here are how the Federal AKS and Federal FCA may come into the picture:
- Federal AKS – This statute makes it a felony for (i) XYZ to give anything of value in exchange for receiving the referral of a patient covered by a government health care program and (ii) ABC to receive anything of value in exchange for referring (or arranging for the referral of) a patient covered by a government health care program. In the eyes of Plan A, the “supplier” is XYZ: it is the party to the Plan A contract and it is billing and collecting from Plan A. The kickback issue arises because (i) ABC is referring or arranging for the referral of the patient to XYZ and (ii) XYZ is, in turn, remitting e.g., 92% of the payment to ABC.
- Federal FCA – This statute prohibits (i) XYZ from submitting “false claims” and (ii) ABC from conspiring (or collaborating) with XYZ for the submission of false claims. When XYZ submits a claim to Plan A, XYZ is representing that it is the supplier…that it took care of the patient and, therefore, deserves to be paid. In fact, this is not the case. The true supplier is ABC; it is the entity that does all of the work. All XYZ does is submit a claim to Plan A. Hence, the claim submitted is a false claim. And ABC will have collaborated with XYZ in the submission of the false claim.
So now that we have talked about what ABC and XYZ cannot do, let us talk about what they can do. If ABC and XYZ desire to enter into a proper SA, then here are the steps they should take:
- Review the Plan A Contract – The parties need to review XYZ’s Plan A contract to determine if it addresses subcontract arrangements. The contract may say nothing about whether or not XYZ can subcontract out its responsibilities to ABC. If the Plan A contract is silent, then in order to avoid problems under the Federal AKS and Federal FCA, the SA should be structured as set out hereafter. On the other end of the spectrum, the Plan A contract may prohibit XYZ from subcontracting out its services. Or the contract may take the middle road and provide for one of the following: (i) XYZ can subcontract out its services but must first notify Plan A of the identity of the subcontractor; (ii) XYZ can subcontract out not more than e.g., 20% of its services; (iii) XYZ can subcontract out its services only if Plan A approves the subcontractor in advance; or (iv) XYZ can only subcontract out specifically delineated services.
- XYZ Must Retain a Level of Operational Responsibilities and Financial Risk – So that it can credibly assert that it is the “supplier,” XYZ must have a level of operational responsibilities and financial risk. For example, XYZ needs to handle the intake. This means that XYZ must determine if the patient qualifies for coverage under Plan A. ABC can gather information and documents and forward them to XYZ…but it is XYZ, not ABC, that must determine if the patient is to receive the product. If the patient later has a maintenance/repair need, then he needs to call XYZ; XYZ can, in turn, direct ABC to handle the repair/maintenance. Further, XYZ will be obligated to pay ABC regardless of whether or not Plan A pays XYZ. In other words, XYZ’s obligation to pay ABC for its services is absolute.
- Inventory – Under the SA, ABC will deliver the product to the patient “for and on behalf of XYZ.” At the time of delivery, title to the product needs to be in XYZ’s name. This can be accomplished in one of several ways: (i) XYZ can purchase the inventory, take possession of it, and deliver it to ABC; (ii) XYZ can purchase the inventory, not take possession of it, and direct the manufacturer to deliver the inventory (on behalf of XYZ) to ABC; (iii) ABC can purchase the inventory; on a regular basis, XYZ can purchase inventory from ABC, and ABC can segregate XYZ’s inventory in ABC’s warehouse; or (iv) ABC can purchase the inventory; when ABC is about to deliver the product to the patient’s home, then title will transfer to XYZ; and XYZ will have the obligation to purchase the product from ABC.
- ABC’s Services – The SA can provide that ABC’s services include the following: (i) deliver the product to the patient, educate the patient on how to use the product, and set the product up for the patient; (ii) obtain information and documents from the patient and his physician and transmit them to XYZ so that XYZ can conduct the intake; and (iii) at the direction of XYZ, provide maintenance and repair services to the patient. The labels on the products delivered to the patients need to reflect XYZ.
- Flow of Money – At the end of the day, ABC will be referring (or arranging for the referral of) patients to XYZ…and XYZ will be paying money to ABC. The most conservative course of action is as follows: (i) if XYZ purchases inventory from ABC, then the purchase price must be fair market value (“FMV”) and must be pursuant to a price list attached to the SA, and (ii) XYZ pays fixed annual compensation (e.g., $48,000 over the next 12 months) to ABC in which such compensation is the FMV equivalent of ABC’s services. If fixed annual compensation is not feasible, then a less conservative course of action is as follows: (i) if XYZ purchases inventory from ABC, then the purchase price must be FMV and must be pursuant to a price list attached to the SA, and (ii) XYZ pays a fixed fee per each unit of service provided by ABC; such compensation is the FMV equivalent of ABC’s services, and the compensation is set out in a fee schedule attached to the SA. If the parties want to strengthen their position that the compensation paid to ABC is FMV, then the parties can order an FMV evaluation and report from an independent third party.
AAHOMECARE’S EDUCATIONAL WEBINAR
The OIG is Loosening Up: Providing Free Services Within Legal Parameters
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C. & Markus P. Cicka, Esq., Brown & Fortunato, P.C.
Tuesday, August 20, 2019
2:30-3:30 p.m. EASTERN TIME
There are two legitimate reasons as to why a DME supplier desires to provide “value-added” services and products to its patients. First, doing so can improve the patient’s health and, hopefully, prevent a trip to the hospital. Secondly, providing value-added services and products helps distinguish the supplier from its competitors. In going down this path, the supplier needs to be aware that while it is acceptable to provide value-added services and products, it is not acceptable for the supplier to provide so much that it “crosses the line” to offering prohibited inducements. Doing so will violate the federal beneficiary inducement statute and the federal anti-kickback statute. This webinar will discuss how a DME supplier can provide value-added services and products while avoiding violating these two statutes. In particular, the webinar will focus on recent OIG guidance that encourages health care providers to provide free services and products to Medicare beneficiaries in which such services and products are designed to promote the beneficiaries’ health. In addition to discussing what the supplier can do in providing free products and services, the webinar will discuss what the supplier cannot do.
Register for The OIG is Loosening Up: Providing Free Services Within Legal Parameters on Tuesday, August 20, 2019, 2:30-3:30 p.m. ET, with Jeffrey S. Baird, Esq. and Markus P. Cicka, Esq., of Brown & Fortunato, PC.
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 September 12, 2019, at 11:00 a.m. Central. Kevin Brown, All-Star Medical, will present “Finding Your Retail Niche.” Participation in the Retail Work Group is free to AAHomecare members. For more information, contact Ashley Plauché Manager of Government Affairs, AAHomecare (email@example.com).
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 firstname.lastname@example.org.