AMARILLO, TX – The “Greatest Generation” consisted of 23 million Americans. We now have 78 million “Baby Boomers” … those born between 1946 and 1964. Boomers are retiring at the rate of 10,000 per day. The life span of Boomers is greater than earlier generations. As Boomers age, the demand for health care will increase exponentially. At the same time, there is a limited amount of money to pay for this health care.

This is the proverbial “irresistible force” meeting the “immovable object.” Like other health care providers, DME suppliers are being squeezed. In order to succeed in today’s hyper-competitive environment, the supplier must establish its niche. It must “think outside the box.” The successful supplier must set itself apart from its competition.

One very important way to do this is for the supplier to enter into relationships with physicians, hospitals, pharmacies, home health agencies, long term care facilities, and other referral sources. In doing so, it is critical that the supplier comply with federal and state anti-fraud laws.

Legal Guidelines

Under the federal anti-kickback statute (“AKS”), it is a felony for a health care provider to knowingly and willfully offer or pay any remuneration to induce a person/entity to refer an individual for the furnishing or arranging for the furnishing of any item for which payment may be made under a federal health care program, or the purchase or lease or the recommendation of the purchase or lease of any item for which payment may be made under a federal health care program.

The Stark physician self-referral statute provides that if a physician has a financial relationship with an entity providing “designated health services,” then the physician may not refer Medicare/Medicaid patients to the entity unless a Stark exception applies. Designated health services include DME; parenteral and enteral nutrients; prosthetics, orthotics and prosthetic devices and supplies; out-patient prescription drugs; and rehab therapy services. One of the exceptions to Stark provides that a health care provider may provide non-cash equivalent items to a physician if such items do not exceed an annual amount established by CMS. For 2018, such amount is $407.

Safe Harbors

Because of the breadth of the Medicare anti-kickback statute (“AKS”), the OIG has published a number of “safe harbors.” A safe harbor is a hypothetical fact situation such that if an arrangement falls within it, then the AKS is not violated. If an arrangement does not fall within a safe harbor, then it does not mean that the arrangement violates the AKS.  Rather it means that the arrangement needs to be carefully scrutinized under the language of the AKS, applicable case law, and other published guidance. Five of the safe harbors are particularly relevant to DME suppliers.

• Small Investment Interest – For investments in small entities, “remuneration” does not include a return on the investment if a number of standards are met, including the following: (i) no more than 40% of the investment can be owned by persons who can generate business for or transact business with the entity, and (ii) no more than 40% of the gross revenue may come from business generated by investors.
• Space Rental Safe Harbor – Remuneration does not include a lessee’s payment to a lessor as long as a number of standards are met, including (i) the lease agreement must be in writing and signed by the parties; (ii) the lease must specify the premises covered by the lease; (iii) if the lease gives the lessee periodic access to the premises, then it must specify exactly the schedule, the intervals, the precise length, and the exact rent for each interval; (iv) the term must be for not less than one year; and (v) the aggregate rental charge must be set in advance, be consistent with fair market value, and must not take into account business generated between the lessor and the lessee.
• Equipment Rental Safe Harbor – Remuneration does not include any payment by a lessee of equipment to the lessor of equipment as long as a number of standards are met, including (i) the lease agreement must be in writing and signed by the parties; (ii) the lease must specify the equipment; (iii) for equipment to be leased over periods of time, the lease must specify exactly the scheduled intervals, their precise length and exact rent for each interval; (iv) the term of the lease must be for not less than one year; and (v) the rent must be set in advance, be consistent with fair market value, and must not take into account any business generated between the lessor and the lessee.
• Personal Services and Management Contracts Safe Harbor – Remuneration does not include any payment made to an independent contractor as long as a number of standards are met, including (i) the agreement must be in writing and signed by the parties; (ii) the agreement must specify the services to be provided; (iii) if the agreement provides for services on a sporadic or part-time basis, then it must specify exactly the scheduled intervals, their precise length and the exact charge for each interval; (iv) the term of the agreement must be for not less than one year; (v) the compensation must be set in advance, be consistent with fair market value, and must not take into account any business generated between the parties; and (vi) the services performed must not involve a business arrangement that violates any state or federal law.
• Employee Safe Harbor – Remuneration does not include any amount paid by an employer to an employee, who has a bona fide employment relationship with the employer, for employment in the furnishing of any item or service for which payment may be made, in whole or in part, under Medicare or under a state health care program.

Advisory Opinions

A health care provider may submit to the OIG a request for an advisory opinion concerning a business arrangement that the provider has entered into or wishes to enter into in the future. In submitting the advisory opinion request, the provider must give to the OIG specific facts. In response, the OIG will issue an advisory opinion concerning whether or not there is a likelihood that the arrangement will implicate the anti-kickback statute.

Fraud Alerts and Bulletins

From time to time, the OIG publishes Special Fraud Alerts and Special Advisory Bulletins that discuss business arrangements that the OIG believes may be abusive, and educate health care providers concerning fraudulent and/or abusive practices that the OIG has observed and is observing in the industry.

States

All states have enacted statutes prohibiting kickbacks, fee splitting, patient brokering, or self-referrals. Some state anti-fraud statutes only apply when the payer is a government health care program. Other state anti-fraud statutes that apply regardless of the identity of the payer.

W-2 Employee vs. 1099 Independent Contractor

The OIG has repeatedly expressed concern about percentage-based compensation arrangements involving 1099 independent contractor sales agents. In Advisory Opinion No. 06-02, the OIG stated that “[p]ercentage compensation arrangements are inherently problematic under the Anti-Kickback Statute, because they relate to the volume or value of business generated between the parties.”

A number of courts have held that marketing arrangements are illegal under the anti-kickback statute and are, therefore, unenforceable. For example, the 1996 Florida Medical Development Network case involved an agreement wherein a durable medical equipment supplier agreed to pay an independent contractor marketing company (the “Marketer”) a percentage of the DME supplier’s sales in exchange for marketing its products to physicians, nursing homes, and others. When the DME supplier breached the contract, the Marketer sued, and the DME supplier defended on the ground that the agreement was illegal under the anti-kickback statute. A Florida appeals court agreed and affirmed the trial court’s ruling, holding that the agreement was illegal and unenforceable because the Marketer’s receipt of a percentage of the sales it generates for the DME supplier violated the federal anti-kickback statute. In recent years, there have been a number of enforcement actions involving commission payments to independent contractors.

Additionally, the OIG has taken the position that even when an arrangement will only focus on commercial patients and “carve out” beneficiaries of federally-funded health care programs, the arrangement will still likely violate the anti-kickback statute.

Utilization of a Marketing Company

If a marketing company generates patients for a DME supplier, when at least some of the patients are covered by a government health care program, then the DME supplier cannot pay commissions to the marketing company. Such payment of commissions will violate the AKS. The only way that an independent contractor can be paid for marketing or promoting Medicare-covered items or services is if the arrangement complies with the Personal Services and Management Contracts safe harbor.

In Advisory Opinion No. 99-3, the OIG stated:

Sales agents are in the business of recommending or arranging for the purchase of the items or services they offer for sale on behalf of their principals, typically manufacturers, or other sellers (collectively, “Sellers”). Accordingly, any compensation arrangement between a Seller and an independent sales agent for the purpose of selling health care items or services that are directly or indirectly reimbursable by a Federal health care program potentially implicates the anti-kickback statute, irrespective of the methodology used to compensate the agent. Moreover, because such agents are independent contractors, they are less accountable to the Seller than an employee. For these reasons, this Office has a longstanding concern with independent sales agency arrangements.

In its response to comments submitted when the safe harbor regulations were originally proposed, the OIG stated:

[M]any commentators suggested that we broaden the [employee safe harbor] to apply to independent contractors paid on a commission basis. We have declined to adopt this approach because we are aware of many examples of abusive practices by sales personnel who are paid as independent contractors and who are not under appropriate supervision. We believe that if individuals and entities desire to pay a salesperson on the basis of the amount of business they generate, then to be exempt from civil or criminal prosecution, they should make these salespersons employees where they can and should exert appropriate supervision for the individual’s acts.

Expenditures for Physicians

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 supplier and the physician need to comply with the federal and state laws that govern these arrangements.

While the Stark non-monetary compensation exception allows a supplier to spend up to a set amount per year (e.g., $407 in 2018) for non-cash/non-cash equivalent items for a physician, the AKS 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 AKS.

In addition to complying with Stark and the AKS, 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 non-monetary compensation exception will avoid liability under state law.

And so the bottom line is that a 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 the annual amount set by CMS ($407 in 2018). For example, if a supplier wants a physician to accompany the supplier on a trip to a continuing education conference, in 2018 the supplier can safely subsidize up to $407 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 during the year.

While the Stark non-monetary compensation exception applies to expenditures on behalf of a physician, the exception does not apply to expenditures on behalf of the physician’s staff. In fact, Stark does not apply to the physician’s staff. Expenditures on behalf of the physician’s staff must be examined in light of the AKS.

Paying Physician to Provide Education Program

It is permissible for a DME supplier to pay a physician to present an education program if the following requirements are met:

• The program is substantive and valuable to the audience.
• The compensation paid to the physician is the fair market value equivalent of the time and effort the physician expended to (i) prepare for the program and (ii) present the program.

Collaboration With Hospital to Prevent Readmissions

Under the Hospital Readmissions Reduction Program, if a patient is readmitted after discharge within a certain period of time, for a particular disease, then the hospital can be subjected to future payment reductions for Medicare. The hospital can contract with a DME supplier to monitor/work with discharged patients so that they are not readmitted soon after being discharged.

Paying for a Facility’s HER

Many suppliers work with skilled nursing facilities (“SNFs”) and custodial care facilities (collectively referred to as “Facilities”). A Facility is a “referral source” to the supplier. Even though the Facility may give “patient choice,” if the supplier provides a product to a Facility patient, the law considers the patient to be a “referral” from the Facility. If the supplier gives “anything of value” to the Facility, then the supplier is at risk of being construed to be “paying for a referral” … hence, a “kickback.”

In order for a Facility to serve Medicare and Medicaid patients, federal law imposes a number of requirements on the Facility. These requirements cost the Facility money in order to comply. One such requirement is for the Facility to have a pharmacy perform a monthly drug regimen review (“DRR”) on each patient. Electronic medication administrative records (“eMARs”) are not required for DRR; hard copy records are acceptable. Nevertheless, a Facility may desire to utilize eMAR software (“Software”) for DRR and for other purposes. The Facility and a supplier (that receives referrals from the Facility) may wish to enter into an arrangement in which the supplier pays for the Software. It is at this juncture that the Facility and supplier find themselves on the proverbial “slippery slope.” Assume that the supplier receives referrals from the Facility and desires to pay for the Software. By virtue of paying for the Software, the supplier is providing “something of value” to the Facility … hence, the AKS is implicated.

The applicable safe harbor to this type of arrangement is the Electronic Health Records safe harbor (“EHR Safe Harbor”). It states than an entity may donate software and training services “necessary and used predominantly to create, maintain, transmit, or receive electronic health records” if the following 12 requirements are satisfied:

• The donation must be made to an entity engaged in delivery of health care by an entity (except for a laboratory company) that provides and submits claims for services to a federal health care program.
• The Software must be interoperable at the time it is provided to the recipient. Software is deemed to be interoperable if it has been certified by a certifying body authorized by the National Coordinator for Health Information Technology. Interoperable means that the Software is able to (i) “communicate and exchange data accurately, effectively, securely, and consistently with different information technology systems, software applications, and networks, in various settings,” and (ii) “exchange data such that the clinical or operational purpose and meaning of the data are preserved and unaltered.” The Software can be used for tasks like patient administration, scheduling functions, and billing and clinical support, but electronic health records purposes must be predominant.
• The donor cannot place a restriction on the use, compatibility, or interoperability of the item or service with other EHR systems.
• Receipt of items or services is not conditioned on doing business with the donor.
• Eligibility for, and the amount or nature of, the items or services provided is not based on the volume or value of referrals or other business generated between the parties.
• There must be a written, signed, agreement specifying: (i) the items and services; (ii) the donor’s cost of providing the items and services; and (iii) the amount of the recipient’s contribution.
• The recipient cannot already possess or have obtained items or services with similar capabilities as those provided by the donor.
• For items or services that can be used for any patient regardless of payer status, the donor does not restrict the recipient’s ability to use the items or services for any patient.
• The items and services do not include office staffing and are not used to conduct personal business or business unrelated to the recipient’s health care practice.
• The recipient must pay 15% of the donor’s cost for the items and services prior to receipt, and the donor cannot finance or loan funds for this payment.
• The donor’s cost for the items or services cannot be shifted to a federal health care program.
• Transfer of the items or service must occur on or before December 31, 2021.

If the arrangement does not comply with all of the elements of the EHR Safe Harbor, then the arrangement will need to be examined in light of the language of the AKS, court decisions, and other published guidance. An important guidance is the OIG’s December 7, 2012 Advisory Opinion No. 12-19, which addressed four proposed arrangements involving a pharmacy’s provision of items and services to Community Homes in which the pharmacy’s customers reside. The OIG opined that it would not impose administrative sanctions in connection with Proposals A – C, but would likely impose such sanctions against Proposal D. Under Proposal D, the pharmacy would provide to Community Homes a free sublicense for “Software Z” for use in connection with the pharmacy’s customers. In determining that Proposal D would likely result in administrative sanctions, the OIG pointed out the following: “Software Z is not interoperable. Data that a Community Home would create and store in Software Z, including MAR documentation, would not be readily transferable to other systems, resulting in Community Home data lock-in and, thereby, referral lock-in…[I]f a Community Home resident began receiving medications from the [donor pharmacy] and later decided to receive medications from another pharmacy, then the Community Home could face having to either transition that resident’s data to another system or assume the full payment for a Software Z sublicense. This situation could give rise to a significant incentive for the Community Homes to steer patients to the [donor pharmacy] rather than one of its competitor[s].”

Products to Long Term Care Facility (“LTCF”)

Separate and apart from providing EHR software, it is not uncommon for a LTCF to request a supplier to provide iPads, sheets and pillows, etc. Any of these products constitute “something of value” being delivered to a referral source … hence, the AKS is implicated. It is permissible for a supplier to deliver iPads to a LTCF only if (i) title to the iPads remains with the supplier and (ii) the LTCF can only use the iPads in its interactions with the supplier. The supplier cannot deliver items (such as sheets and pillows) that (i) are designed to save expenses for the LTCF and (ii) are not used exclusively to facilitate the services provided by the supplier.

Loan/Consignment Closets

A supplier may place inventory in a hospital or physician office.  The inventory must be for the convenience only of the hospital’s/physician’s patients and the hospital/physician cannot financially benefit, directly or indirectly, from the inventory. If a supplier pays rent for a space in which the consigned inventory is placed, then the arrangement should comply with the Space Rental safe harbor.

Preferred Provider Agreement

The supplier can enter into a Preferred Provider Agreement with a hospital whereby, subject to patient choice, the hospital will recommend the supplier to its patients who are about to be discharged. The supplier can enter into a similar type of Preferred Provider Agreement with a physician, home health agency, long term care facility, wound care center, or other type of provider.

Employee Liaison

A supplier may designate an employee to be on a facility’s premises for a certain number of hours each week. The employee may educate the facility staff regarding services the supplier can offer on a post-discharge basis. The employee liaison may not assume responsibilities that the facility is required to fulfill. Doing so will save the facility money, which will likely constitute a violation of the AKS.

Medical Director Agreement

A DME supplier can enter into an independent contractor Medical Director Agreement with a physician. The MDA must comply with the (i) Personal Services and Management Contracts safe harbor to the AKS and (ii) the Personal Services exception to the Stark physician self-referral statute. Among other requirements:

• The MDA must be in writing and have a term of at least one year.
• The physician must provide substantive services.
• The compensation to the physician must be fixed one year in advance and be the fair market value equivalent of the physician’s services.

Renting Space To/From a Physician or Other Referral Source

A supplier can rent space to/from a physician so long as the rental agreement complies with the (i) Space Rental safe harbor to the AKS and (ii) space rental exception to Stark. Among other requirements:

• The rental agreement must be in writing and have a term of at least one year.
• The rent must be fixed one year in advance and be fair market value.

A supplier can rent space to/from a non-physician referral source so long as the rental agreement complies with the Space Rental safe harbor to the AKS. See the preceding sub-bullets.

Joint Venture

A joint venture arises when two or more individuals/entities own something together.

A hospital and a supplier can jointly set up and own a DME supplier (“JV Supplier”) so long as the JV Supplier is not a “sweetheart deal” for the hospital. Ideally, the JV Supplier will comply with the Small Investment Interest safe harbor to the AKS. If the safe harbor cannot be met, then the requirements of the OIG’s 1989 Special Fraud Alert (“Joint Ventures”) and April 2003 Special Advisory Bulletin (“Contractual Joint Ventures”) must be met.

When forming a joint venture with a physician, then not only must the arrangement comply with (i) the Small Investment Interest safe harbor or (ii) the 1989 Special Fraud Alert/April 2003 Special Advisory Bulletin, but the arrangement must comply with Stark. If the JV Supplier is located in a rural area, then the physician can refer Medicare/Medicaid patients to the JV Supplier. If the JV Supplier is not located in a rural area, then the physician cannot refer Medicare/Medicaid patients to the JV Supplier.

Supplier Owned/Managed Physician Clinic

In some states, a DME supplier can own a physician clinic … and employ the physician. Other states will not allow a physician to be employed by a supplier. In those states (i) the medical practice will be owned by a legal entity (e.g., Professional Association or “P.A.”) owned by a physician; (ii) the physician will be employed by his/her P.A.; and (iii) the supplier will (i) rent the space to the P.A., (ii) rent furniture, fixtures and equipment to the P.A., and (iii) provide services to the P.A.

Working With Physicians in Rural Areas

In entering into an arrangement with a physician in a rural area, the supplier needs to focus on the rural provider exception. The rural provider exception states that an ownership interest by a physician in a rural provider is not considered a “financial relationship” under Stark. Rural providers are defined as those that furnish at least 75% of the designated health services (“DHS”) they provide to residents of a “rural area.” Thus, whether this exception applies depends on whether at least 75% of the patients that the supplier’s services are located within a “rural area.”

“Rural area” is defined as “an area that is not an urban area as defined in 42 CFR 412.62(f)(1)(ii) which states that “the term urban area means a Metropolitan Statistical Area (MSA) or New England County Metropolitan Area (NECMA), as defined by the Executive Office of Management and Budget … .” Therefore, any area that is not an MSA or a NECMA is considered to be a “rural area.” So long as no less than 75% of the services that the supplier furnishes is to patients in a rural area, the rural provider exception applies to the supplier, regardless of where the supplier is located.

The current list of MSAs can be found on the U.S. Census Bureau website. A town might fall within a Micropolitan Statistical Area, which is defined as an urban cluster of at least 10,000 but less than 50,000 people. In regards to whether a Micropolitan Statistical Area could be considered a “rural area” under the definition of Stark, the Stark II, Phase III implementation final rule states: “Micropolitan Statistical Areas are not within MSAs; thus, for purposes of the physician self-referral rules, Micropolitan Statistical Areas are not considered urban and are, therefore, rural areas. So long as the supplier satisfies the Stark “rural provider” exception, then a physician can have an ownership in the supplier and can refer Medicare, Medicare Advantage and Medicaid patients to the supplier.

Jeff Baird and Lisa Smith will present the following webinar:

AAHOMECARE’S EDUCATIONAL WEBINAR

Billing on a Nonassigned Basis

Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C. & Lisa K. Smith, Esq., Brown & Fortunato, P.C.

Tuesday, April 10, 2018

2:30-3:30 p.m. EASTERN TIME

On June 23, 2016, CMS published the July Fee Schedule for DME suppliers … and it is ugly. The rates encompass the expansion of competitive bid rates to non-CBAs. The cuts range between 45%-59% on common respiratory products, but reach 82% on TENS units and Enteral IV Poles. The bottom line is that Medicare will pay as little as possible for DME. In response, suppliers need to distance themselves from Medicare fee-for-service.

This webinar will discuss ways that the DME supplier can accomplish this. For example, the supplier can elect to be nonparticipating and provide DME on a non-assigned basis. Doing so raises a number of questions. For example:

1. What does it mean to bill non-assigned?
2. If the supplier bills an item non-assigned, then can the supplier set the price without limitations?
3. Can a supplier bill a rental item nonassigned?

Billing non-assigned ties into selling at retail. A DME supplier is engaged in “retail” when it sells an item for cash. The item sold may or may not be covered by Medicare … and the purchaser may or may not be a Medicare beneficiary. This webinar will discuss the legal parameters within which the supplier can engage in retail cash sales.

Register for Billing on a Nonassigned Basis on Tuesday, April 10, 2018, 2:30-3:30 pm ET, with Jeffrey S. Baird, Esq., and Lisa K. Smith, Esq., of  Brown & Fortunato, PC.

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 [email protected].