AMARILLO, TX – Approximately 50% of Medicare beneficiaries are covered by Medicare Advantage Plans (“MAPs”). This percentage will continue to increase. This means that for a DME supplier to have access to about half of all Medicare beneficiaries, the supplier must secure Medicare Advantage (“MA”) contracts. A challenge for DME suppliers is that many managed care panels are closed, meaning that the MAP will not extend a contract to the supplier. When a supplier is unable to access MA contracts, what are its options?
Purchasing an Interest in a Supplier That Has Contracts
Assume that ABC Medical Equipment, Inc. wants access to MA contracts offered by e.g., Humana, UHC and Aetna (collectively referred to as “Contracts”). Assume that the Contracts are closed to new DME suppliers. Assume that XYZ Medical Equipment, Inc. has the Contracts. If ABC could “wave its magic wand,” it would (i) purchase e.g., 10% of the stock of XYZ and then (ii) start billing (in ABC’s name) under the Contracts. Unfortunately, the law does not allow this.
Notwithstanding that ABC now has a 10% ownership interest in XYZ, ABC and XYZ are still separate legal entities…each with its own Tax ID #. The Contracts are in XYZ’s name, not in ABC’s name. This means that ABC cannot submit claims under the Contracts.
Perhaps ABC can (i) refer patients (covered by the Contracts) to XYZ and (ii) provide subcontracted services to XYZ. ABC and XYZ will need to be cautious in entering into this type of arrangement. This will be discussed later in this article.
Purchasing 100% of A Supplier That Has Contracts
Assume that ABC purchases 100% of the stock of XYZ, resulting in XYZ becoming a wholly owned subsidiary of ABC. Notwithstanding that ABC now owns 100% of XYZ, ABC and XYZ remain separate legal entities…each with its own Tax ID #. The Contracts remain in XYZ’s name. This means that ABC cannot submit claims under the Contracts.
It would be reasonable for ABC to approach Humana, UHC and Aetna and (i) point out that XYZ has the Contracts, (ii) point out that ABC now owns 100% of XYZ and, therefore, (iii) suggest that it makes sense for the Contracts to also be issued ABC. If this approach is unsuccessful, then ABC and its subsidiary can take the following steps:
- When patients (covered by the Contracts) come to ABC, ABC can refer them to its wholly owned subsidiary, XYZ.
- XYZ can service the patients and can bill (and collect under) the Contracts.
- Eventually, XYZ’s profits will flow up to its parent (ABC).
- ABC can provide subcontracted services to XYZ and vice versa. The recipient of the subcontracted services will need to pay fair market value (“FMV”) compensation for the services.
Subcontracting With Unrelated Supplier That Has the Contracts
Assume that ABC does not purchase any equity interest in XYZ. The two suppliers are entirely unaffiliated. The two companies may want to enter into a Subcontract Agreement that contains the following provisions:
- When a patient (covered by a Contract…”Contract Patient”) requests a product from ABC, ABC may (but is not obligated to) refer the Contract Patient to XYZ.
- XYZ is the DME supplier for the patient. In the eyes of Humana/UHC/Aetna, ABC does not exist.
- As the supplier, XYZ handles the intake, assessment and coordination of care. Said another way, XYZ determines whether or not the Contract Patient meets the Contract’s coverage requirements.
- If XYZ makes the decision to serve the Contract Patient, then XYZ may (but is not obligated to) ask ABC to provide subcontracted services for the Contract Patient. For example, ABC can (i) deliver the product to the Contract Patient and (ii) provide education and set-up services. If the Contract Patient subsequently has problems with the product, he will contact the supplier (XYZ). XYZ may (but is not required to) ask ABC to work with the Contract Patient to solve the problem.
- XYZ can deliver products to ABC (or direct XYZ’s manufacturer/distributor) to deliver products to ABC. ABC can deliver such products to Contract Patients. Alternatively, ABC can deliver its own products to the Contract Patients. If this occurs, XYZ will be required to purchase the products from ABC. Title to the products will need to pass from ABC to XYZ before delivery to the Contract Patient. XYZ will need to pay a fair market value (“FMV”) price for ABC’s products.
- Separate and apart from paying FMV prices to ABC for its products, XYZ will compensate ABC for its subcontracted services (e.g., delivery, education, set-up, repairs). The compensation cannot be percentage-based. Rather, the compensation must be the FMV equivalent of ABC’s subcontracted services. For example, the compensation can be fixed one year in advance (e.g., $120,000 over the next 12 months, or $10,000 per month). The compensation can be on an hourly basis. The compensation can be a set dollar amount for each type of subcontracted service rendered.
At the end of the day, ABC will be a referral source to XYZ. If XYZ is paying ABC for the referrals, then the AKS will be violated. For this reason, ABC and XYZ need to be conservative in setting up their subcontract arrangement. The arrangement needs to comply with (or substantially comply with) the Personal Services and Management Contracts Safe Harbor to the AKS. Among other requirements, (i) the SA must have a term of at least one year, (ii) the methodology for calculating the compensation must be set one year in advance, and (iii) the compensation must be the FMV equivalent of the subcontractor’s services.
One More Thing
Before XYZ enters into a subcontract with ABC, XYZ needs to review its Contracts to see what they say about subcontracting. A Contract may prohibit XYZ from entering into a subcontract arrangement. Or a Contract may allow XYZ to enter into a subcontract arrangement, but only upon giving prior written notice to the insurer. Or a Contract may allow XYZ to enter into a subcontract arrangement, but only if the insurer approves of the subcontractor in advance.
AAHOMECARE’S EDUCATIONAL WEBINAR
Six-Year Lookback Audits: What the Law Requires
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato and Denise M. Leard, Esq., Brown & Fortunato
Wednesday, September 27, 2023
1:30-2:30 p.m. CENTRAL TIME
The Affordable Care Act includes the 60-day overpayment rule that requires DME suppliers to refund overpayments within 60 days of identification. What many suppliers are not aware of is that if an overpayment is identified, either internally or externally, suppliers are mandated by law to perform a six-year lookback audit. If suppliers do not comply with this rule, they are at risk for false claim penalties. This webinar will (i) discuss the 60-day overpayment rule and the six-year lookback obligation; (ii) discuss steps that suppliers can take to reduce the risk of being subjected to the 60-day overpayment rule; and (iii) set out the steps the supplier should take to successfully fulfill its obligations under the rule.
Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Texas with a national health care practice. He represents pharmacies, infusion companies, HME companies, manufacturers, 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@example.com.