Moving the HME Industry Forward

General Healthcare

Broad Reach of Anti-Kickback Statute

March 28, 2016

AMARILLO, TX – The Medicare anti-kickback statute (AKS) makes it a felony to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce a person or entity to refer an individual for the furnishing or arranging for the furnishing of any Medicare-covered item or service, or to induce such person or entity to purchase or lease or recommend the purchase or lease of any Medicare-covered item or service.

Because the AKS is so broad, the Office of Inspector General (“OIG”) has adopted multiple “safe harbors” that provide immunity for arrangements that satisfy certain requirements. If an arrangement does not fall within a safe harbor, it does not mean that the arrangement violates the AKS; rather it means that the arrangement must be examined under (i) the language of the AKS, (ii) court decisions, and (iii) other published guidance.

One of the safe harbors is the “discount safe harbor.” It exempts from the definition of remuneration those discounts on items or services for which the federal government may pay, either fully or in part, under Medicare, Medicaid, or another federal health care program. “Discount,” as used in the safe harbor, refers to either (i) a reduction in the amount a buyer is charged for an item or service based on an arms-length transaction or (ii) a rebate, which is an amount that is described in writing at the time of the purchase but is paid at a later date. The safe harbor specifically excludes the following from the definition of a discount:

• cash payments or cash equivalents (except rebate checks);
• supplying one good or service without charge or at a reduced charge to induce the purchase of a different good or service, unless the goods and services are reimbursed by the same Federal Programs using the same methodology and the reduced charge is fully and appropriately disclosed to the Federal Programs;
• other remuneration, in cash or in kind not explicitly described by the safe harbor.

The safe harbor establishes distinct disclosure obligations for the different types of entities in a discount arrangement:  sellers (e.g. manufacturers), buyers (e.g. providers and suppliers that purchase goods or services), and offerors (e.g. parties who serve as middlemen and arrange for discounts between buyers and sellers).

The safe harbor’s obligations for buyers are further defined depending on whether the entity is (i) acting under a risk contract; (ii) reports costs on a cost report; or (iii) submits a claim or a request for payment is submitted for the discounted item or service and payment may be made, in whole or in part, under Medicare, Medicaid, or other federal health care programs.

The manufacturer and DME supplier must comply with specific standards in order to invoke the protection of the discount safe harbor. The “discount must be made at the time of the sale of the good or service or the terms of the rebate must be fixed and disclosed in writing to the buyer at the time of the initial sale of the good or service.” Additionally, the buyer must provide, “upon request by the Secretary or a State agency” an “invoice, coupon or statement” from the seller that “fully and accurately” reports such discount.

Over the last couple of years, the discount safe harbor has become increasingly important to DME suppliers and the manufacturers that sell products to the suppliers. This increase in importance arises out of three factors:
• Manufacturers are becoming more proactive in generating customers for their DME supplier clients.
• Manufacturers are competing with each other more aggressively to “lock in” DME suppliers as clients.
• There is a proliferation of whistleblower lawsuits. Whistleblowers and their attorneys look at manufacturers and, to a lesser extent, their DME supplier clients, as “deep pockets.”

Now let’s go back to the AKS. It is not limited to the classic scenario of the DME supplier providing “something of value” to a referring physician. The AKS also applies to arrangements (i) not involving physicians and (ii) where a Medicare patient “is not in sight.” Look at the language of the AKS: the AKS is violated if the manufacturer offers anything of value to a DME supplier to induce the supplier to purchase products from the manufacturer…in order for the DME supplier to eventually sell/rent the products to Medicare patients.

Said another way, if a manufacturer is providing items or services to a DME supplier free of charge, in order to induce the supplier to purchase Medicare-covered items from the manufacturer, then the AKS is violated…unless the arrangements falls within the discount safe harbor.

A recent example of this is the Respironics settlement. A Koninklijke Philips NV unit has agreed to pay $34.8 million to settle a whistleblower’s claims that Respironics provided free call center services to DME suppliers that bought Respironics sleep apnea masks. According to the lawsuit, this arrangement violated the AKS and resulted in the submission of false claims in violation of the federal False Claims Act.

The Department of Justice (DOJ) asserted that Respironics provided free call center services to DME suppliers, but only when the suppliers’ patients were using Respironics masks. According to the DOJ, Respironics would charge a per patient monthly fee to DME suppliers that sold competitors’ masks.

As part of the settlement, Respironics did not admit wrongdoing. “The payment of illegal remuneration in any form to induce patient referrals threatens public confidence in the health care system,” Principal Deputy Assistant Attorney General Benjamin C. Mizer said in a statement. “Americans deserve to know that when they are prescribed a device to treat a serious health care problem, the supplier’s judgment has not been compromised by illegal payments from equipment manufacturers.”

The federal government will receive $34.14 million, several state governments will split $660,000 and the whistleblower will take $5.38 million of the settlement amount.

Medicare reimburses patients about $1,890 for supplies needed to maintain the sleep masks annually, through supply replenishments four times a year, the whistleblower lawsuit alleges. The call centers were used to remind patients to order those replenishments.

In a statement, Respironics said that the settlement “allows Respironics to move forward with heightened clarity and transparency with the regulators and with its customers. Respironics continues to have a good-faith belief that the Fit for Life program offered a permissible bundled discount of Respironics’ masks and resupply services under the appropriate discount safe harbors. Respironics is proud of its commitment to compliance and has worked diligently to comply with the changing healthcare rules and laws.”

The lessons to be learned are:
• The AKS applies to all of the parties “up and down the food chain.” In the Respironics case, remuneration was not flowing to physicians.
• The AKS is broad. An arrangement that appears to be innocuous can appear, in the eyes of the government, to be nothing but a disguised kickback.
• The AKS and its safe harbors can be unclear. In the Respironics case, the parties believed that the arrangement complied with the discount safe harbor to the AKS. The government disagreed.
• If a DME supplier believes that it is directly or indirectly receiving “something of value” from a manufacturer, then the supplier needs to feel comfortable that the arrangement falls within a safe harbor to the AKS.

Jeff Baird will be presenting the following webinar:
Aggressively Moving Into the Retail Market While Avoiding Legal Pitfalls
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.
Tuesday, April 5, 2016
2:30-4:00 p.m. EASTERN TIME
A DME supplier can no longer survive while being dependent on Medicare fee-for-service.  With competitive bidding, stringent documentation requirements, lower reimbursement, post-payment audits, and the fact that Medicare is tightening its purse strings, Medicare fee-for-service should only be a component of the supplier’s total income stream.  There are 78 million Baby Boomers (people born between 1946 and 1964); they are retiring at the rate of 10,000 per day.  Boomers are accustomed to paying for things out-of-pocket.  The successful DME supplier will be focused on selling upgrades, utilizing ABNs, and selling items for cash.  These retail sales may take place in a store setting, or they may take place over the internet.  Even when Medicare is not the payor, there are a number of requirements that the DME supplier must meet.  This program will discuss the federal and state requirements that the DME supplier must meet as it sells DME at retail.  These requirements include state licensure, collection and payment of sales and/or use tax, qualification as a “foreign” corporation, obtaining a physician prescription, and complying with federal and state telemarketing rules.  In addition, the program will discuss how the supplier can sell Medicare-covered items at a discount off the Medicare allowable.

Register for Aggressively Moving Into the Retail Market While Avoiding Legal Pitfalls on Tuesday, April 5, 2016, 2:30-4:00 pm ET, with Jeffrey S. Baird, Esq., of  Brown & Fortunato, PC.

Contact Ika Sukh at if you experience any difficulties registering.
FEES: Member: $99.00    
Non-Member: $129.00

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