AMARILLO, TX – There are approximately 78 million Baby Boomers (born between 1946 and 1964) who are retiring at the rate of 10,000 per day. Following close behind is a similar number of Millennials. Unlike earlier generations, most Boomers and Millennials are going to live well into their 80s. Unfortunately (and in my opinion, unfairly) as we age, our bodies break down…resulting in the need for myriad health care services.
DME suppliers play an important part in taking care of aging Boomers and Millennials. Suppliers provide respiratory products (oxygen, CPAPs, etc.), bent metal (wheelchairs, etc.) and “soft goods.” This article focuses on soft goods.
I will arbitrarily include in the soft goods category products such as wound care (e.g., surgical dressings), urinary (e.g., catheters), ostomy, incontinence, and orthotics (e.g., back and knee braces). [Back and knee braces do not really fall into the “soft goods” category, but as will be seen below, in terms of fraudulent marketing, braces fall into the same category as catheters, etc.] Federal and state health care programs (Medicare, Medicaid, TRICARE, etc.) pay for soft goods.
Billions of dollars flow from federal health care programs (“FHCPs”) to health care providers and suppliers. It is human nature for individuals to “stick their hand” into this revenue stream and try to grab some of the dollars. This is where greed…and fraud…enter the picture.
Federal and state legislatures have enacted a number of laws intended to protect taxpayer money from being fraudulently spent. For example, the federal anti-kickback statute (“federal AKS”) makes it a felony for a person/entity to (i) give anything of value in exchange for referral of an FHCP patient, (ii) “arrangement for” the referral of an FHCP patient, or (iii) recommending the purchase/rental of a product or service reimbursable by an FHCP. All states have their own version of the federal AKS.
This brings us to “marketers.” Marketers have no “skin in the game.” They are not accredited, they do not have PTANs, they are not parties to commercial insurance contracts, and they do not have professional licenses. If a DME supplier enters into a fraudulent arrangement with a marketer, too often it is the DME supplier that pays the price (recoupment, PTAN revocation, perhaps facing a criminal investigation)…while the marketer “slinks away into the night.” This imposes on the DME supplier the obligation to only enter into marketing arrangements that are legally compliant. The supplier cannot rely on the marketer to present a legally-compliant arrangement.
Set out below is a recent Department of Justice (“DOJ”) press release addressing a fraudulent marketing arrangement.
A Miami Beach, Florida, man admitted his role in a durable medical equipment health care fraud scheme, U.S. Attorney Philip R. Sellinger announced today.
Christopher Vehovec, 31, of Miami Beach, Florida, pleaded guilty before U.S. District Judge Michael A. Shipp in Trenton federal court on Aug. 28, 2024, to an information charging him with one count of conspiracy to commit health care fraud.
According to documents filed in the case and statements made in court:
Vehovec and his conspirators solicited and received kickbacks and bribes in exchange for providing durable medical equipment (DME) companies with completed doctors’ orders for medically unnecessary DME, such as orthotic braces. Vehovec and his conspirators utilized the service of telemedicine companies to obtain these prescriptions for DME, and the DME orders were subsequently fraudulently billed to Medicare and other health care benefit programs.
Vehovec and his conspirators caused losses to Medicare and other health care benefit programs of at least $4.2 million.
The charge of conspiracy to commit health care fraud is punishable by a maximum potential penalty of 10 years in prison and a fine of $250,000, or twice the gross profit or loss caused by the offense, whichever is greatest. Sentencing is scheduled for Feb. 27, 2025.
U.S. Attorney Sellinger credited special agents of the FBI, under the direction of Special Agent in Charge James E. Dennehy in Newark, and the Department of Health and Human Services-Office of Inspector General, under the direction of Special Agent in Charge Naomi Gruchacz with the investigation leading to the guilty plea.
The government is represented by Assistant U.S. Attorney DeNae Thomas of the Health Care Fraud Unit in Newark.
Takeaways for DME Suppliers
The above press release states that (i) the marketer entered a guilty plea and (ii) his sentencing will occur in late February. It is almost certain that the marketer is providing information to the government that assists the government in pursuing the DME suppliers that paid kickbacks to the marketer. The hope of the marketer is that his cooperation and “substantial assistance” will motivate the government to recommend to the sentencing judge to “be lenient” on the marketer. It is almost certain that the “big fish” the government is pursuing are the DME suppliers that paid the kickbacks to the marketer.
The press release discusses orthotics braces. For the purposes of this article, we can substitute other products for braces (e.g., intermittent catheters and CGMs).
If a DME supplier intends to contract with an individual marketing rep (“Rep”), a safe course of action is for the Rep to be a bona fide part-time or full-time employee of the supplier. There is a “safe harbor” to the federal AKS that states that compensation to a bona fide employee, who engages in marketing, does not violate the federal AKS. A safe approach is for the supplier to pay a base salary to the W2 employee Rep plus discretionary bonus payments if the employee meets certain benchmarks. The benchmarks might include: (1) Is the employee a team player? (2) Does the employee submit required reports on time? (3) Does the employee comply with the DME supplier’s policies and procedures? (4) How much business did the employee generate for the supplier?
If the DME supplier wants its relationship with the Rep to be a 1099 independent contractor, then the relationship is not protected by the Employee safe harbor. Therefore, the arrangement needs to comply with the Personal Services and Management Contracts (PSMC”) safe harbor to the federal AKS. Among other requirements, (i) the agreement must be in writing and have a term of at least one year, (ii) the methodology for calculating the compensation to the Rep must be fixed one year in advance, and (iii) the compensation must be fair market value. The safest way to pay the Rep is either (i) fixed annual compensation (e.g., $36,000 per year or $3000 per month) or (ii) hourly.
If the DME supplier enters into an arrangement with a marketing company (as opposed to an individual), then the arrangement cannot be employer-employee. Rather, the arrangement is a 1099 independent contractor relationship…meaning that it must comply with the PSMC safe harbor.
If a Rep proposes to provide complete patient orders (with a physician’s signature) to the DME supplier, the supplier needs to be wary. This is particularly so if the physician orders ostensibly arise out of telehealth encounters between the patient and the physician. Government enforcement agencies (e.g., the Department of Justice and the Office of Inspector General) look skeptically at (i) Reps providing complete physician orders and (ii) physician prescriptions arising from telehealth encounters. From the government’s viewpoint, the problems are these:
* How did the Rep gain the patient’s information? Was there a “bait and switch” in which the Rep approaches an elderly patient and talks about “free stuff”…only to result in the patient receiving products that he/she does not want or need?
* Did a valid telehealth encounter really occur? Did the telehealth encounter comply with (i) requirements/guidelines of the third-party payor, (ii) federal law, and (iii) state law?
* If Medicare witnesses a spike in claims from a DME supplier for a particular product (e.g., CGMs, catheters, back braces), the supplier will be audited by a Medicare contractor…and the audit may result in a referral to the Department of Justice and Office of Inspector General.
Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm with a national health care practice based in Texas. 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 protected].
AAHOMECARE’S EDUCATIONAL WEBINAR
Negotiating Managed Care Contracts
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato & Laura Williard, American Association for Homecare
Tuesday, November 5, 2024
1:30-2:30 p.m. CENTRAL TIME
Approximately 50% of Medicare beneficiaries are signed up with Medicare Advantage Plans (“MAPs”), while approximately 70% of Medicaid beneficiaries are signed up with Medicaid Managed Care Plans (“MMCPs”). These percentages are increasing. MAPs and MMCPs work essentially the same way: (i) the government health care program contracts with a “Plan” that is owned by an insurance company; (ii) the Plan signs up patients; (iii) the Plan signs contracts with hospitals, physicians, DME suppliers and other providers; and (iv) the government program pays the Plan that, in turn, pays the providers. In order to serve MAP and MMCP patients, DME suppliers must sign managed care contracts. In so doing, the supplier needs to be careful. Not only must the contract provide sufficient reimbursement to the supplier, but the contract will have some “trap” provisions that may be harmful to the supplier. This program will discuss the most important provisions that are contained in managed care contracts, such as covered services, medical necessity, passive amendments, incorporation of collateral documents, set-off, remedy for delay in payment, and payment forfeiture for late claims. The program will discuss how the supplier can negotiate with Plans; and the discussion will point out the provisions that are often non-negotiable and the provisions that are open to negotiation.
Register for Negotiating Managed Care Contracts on Tuesday, November 5, 2024, 1:30-2:30 p.m. CT, with Jeffrey S. Baird, Esq. and Laura Williard.
Members: $99
Non-Members: $129