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Tennessee Case – Warning to Supplier-Funded Telehealth Arrangements

June 6, 2016

AMARILLO, TX – In a recent Medtrade Monday article, I discussed how a DME supplier-funded telehealth arrangement runs the risk of violating the Medicare anti-kickback statute (AKS) which prohibits a DME supplier from giving anything of value to a person or entity in exchange for referring (or arranging for the referral of) patients covered by a government health care program. The AKS is a criminal statute.

With a standard telehealth arrangement, the telehealth company (e.g., TelaDoc) contracts with physicians to provide telehealth encounters with patients enrolled with the telehealth company. The physicians have their own practices. In addition to seeing their own patients in their offices, the physicians have telehealth encounters with patients generated by the telehealth company. The telehealth company pays the physicians for the patient encounters. The telehealth company receives its money from enrolled patients, employers, and health plans. In the standard arrangement, the telehealth company does not receive money from the DME suppliers, pharmacies, labs, and home health agencies that fill order the orders issued by the telehealth physicians.

Over the last 12 months, a number of supplier-funded telehealth arrangements have sprung up. These arrangements have resulted from the intersection of several factors:
• (A) Medicare pays well for back, ankle and knee braces;
• (B) braces are not covered by competitive bidding;
• (C) a large percentage of the elderly suffer back, knee and/or ankle pain;
• (D) lead generation companies have the capacity to generate thousands of “leads” for DME suppliers that specialize in providing braces;
• (E) while the leads are interested in receiving the braces, they are not particularly interested in driving to their local physicians’ offices to obtain an order; and so;
• (F) a telehealth arrangement is created that is funded by the brace suppliers.

Here is how it works:
• (A) the brace supplier pays money to the lead generation company;
• (B) the lead generation company pays some of the money to the telehealth company (and retains the balance);
• (C) the telehealth company pays some of the money to the telehealth physician (and retains the balance);
• (D) the telehealth physician has the virtual encounter with the patient and the physician issues an order for the brace;
• (E) the order goes to the brace supplier; and
• (F) the brace supplier provides the brace and gets paid by Medicare. The sole source of the telehealth company’s income is the brace supplier; the telehealth company is not receiving money from patients, employers and health plans. At the end of the day, the brace supplier is paying the ordering physician. Essentially, this arrangement is the same as if ABC Medical Equipment (on Main Street) sends a patient to Dr. Jones (on Elm Street), Dr. Jones visits with the patient and sends the order to ABC, and ABC pays Dr. Jones for his office visit with the patient. No one would dispute that the ABC – Dr. Jones arrangement is a kickback.

A recent Tennessee case sends a shot across the bow to supplier-funded telehealth arrangements. OPKO Health, Inc. and its owner, Jonathan Oppenheimer, agreed to pay $9.35 million to settle a whistleblower case in which the whistleblower alleged that, in violation of the AKS, the defendants helped fund referring physicians’ electronic health records systems.

According to the OIG: “This laboratory traded physicians free computer software for patient referrals. Such quid pro quo arrangements are kickbacks that stifle competition and steer business to the company offering the inducements.” According to the lawsuit, between June 2007 and January 2015, the defendants helped physicians purchase equipment from electronic health records systems vendors, but acted outside of the safe harbors to the AKS, and outside of the exceptions to Stark, that would have provided legal protection.

The Tennessee case is similar to the supplier-funded telehealth arrangements. In the Tennessee case, the lab (that was receiving orders from the physicians) was underwriting the physicians’ expenses by funding their electronic health records systems. In the supplier-funded telehealth arrangement, the DME supplier (that is receiving orders from the telehealth physicians) is directly or indirectly paying the physicians for the patient encounters.

Lisa Smith will be presenting the following webinar.
Oxygen: When do the 36 Months Start Over?
Presented by: Lisa K. Smith, Esq., Brown & Fortunato, P.C.
Monday, June 6, 2016
2:30-4:00 p.m. EASTERN TIME
When a DME supplier provides an oxygen concentrator to a Medicare beneficiary, Medicare will pay the supplier for the first 36 months and then the supplier will be obligated to service the beneficiary’s oxygen needs, for very little compensation, for the next 24 months. Occasions may arise when the beneficiary’s continuous use of the concentrator is interrupted. This interruption may be caused by one of the following: (i) the concentrator is lost, stolen, or damaged beyond repair; (ii) there is an extended break in need of greater than 60 days; (iii) the supplier sells its assets to another supplier; (iv) the supplier goes out of business; (v) the supplier files bankruptcy; or (vi) the beneficiary relocates outside the supplier’s service area. When one of these events occurs, and afterwards the beneficiary subsequently starts using a concentrator provided by the initial supplier or a concentrator provided by a new supplier, the question becomes: Can the 36 month rental period start over?

Register for Oxygen: When do the 36 Months Start Over? on Monday, June 6, 2016, 2:30-4:00 pm ET, with Lisa K. Smith, Esq., of  Brown & Fortunato, PC.
Please 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. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or