AMARILLO, TX – Historically, the relationship between manufacturers and DME suppliers was viewed as “vendor-purchaser.” The supplier would purchase products from the manufacturer … and that was it. Over the years, this relationship has shifted to more of a cooperative relationship. Manufacturers and DME suppliers understand that they are dependent on each other. The manufacturer understand that it needs financially stable DME suppliers to purchase the manufacturer’s products. And the supplier recognizes that it needs a financially stable manufacturer to provide quality products at a fair price.

Increasingly, manufacturers and suppliers are working together to promote the sale (by the DME supplier) of the manufacturer’s products. This is a win-win goal for both. Generally speaking, it is acceptable for manufacturers and DME suppliers to work together but as if often the case, the “devil is in the details.” It is important that the cooperative arrangement not morph into a violation of the federal anti-kickback statute (“AKS”).

Applicable Law
The 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 item or service reimbursable by a federal health care program (“FHCP”) (e.g., Medicare, Medicare Advantage, Medicaid, Medicaid Managed Care, TRICARE), or to induce a person to purchase, lease, or recommend the purchase or lease of any item or service reimbursable by an FHCP. A number of federal appellate courts have adopted the “one purpose” test that states that if one purpose of a payment is to induce referrals, then it violates the AKS regardless of whether the payment is fair market value for otherwise legitimate services rendered.

The federal False Claims Act (“FCA”) states that any person or entity who knowingly presents to a federal health care program a fraudulent claim for payment, or knowingly uses a false record or statement to obtain payment from a federal program, is subject to potential criminal liability and/or civil monetary penalties. If a claim (submitted to an FHCP) arises out of a kickback arrangement, then the claim will be construed to be a “false claim” in violation of the FCA.

Because of the breadth of the AKS, the Office of Inspector General (“OIG”) has adopted “safe harbors” that provide immunity from the AKS if certain requirements are met. If an arrangement does not fit within a safe harbor, it does not mean that the arrangement violates the AKS. Rather, it means that the parties to the arrangement need to conduct a careful analysis in light of the language of the AKS, case law, and OIG guidance. Two safe harbors are particularly relevant to arrangements between manufacturers and DME suppliers:

• Personal Services and Management Contracts Safe Harbor – This safe harbor permits payments to referral sources as long as a number of requirements are met. Two of the most important requirements are that (i) payments must be pursuant to a written agreement with a term of at least one year and (ii) the methodology for calculating the compensation must be set in advance, the compensation must be consistent with fair market value, and the compensation must not be determined in a manner that takes into account the volume or value of any referrals or business generated between the parties.
• Discount Safe Harbor – This safe harbor is specific to arrangements between manufacturers and companies that purchase from the manufacturers. On condition that certain requirements are met, this safe harbor permits discounts on items or services for which the federal government may pay, either fully or in part, under an FHCP. The term “discount” refers to either (i) a reduction in the amount a buyer is charged for an item or service based on an arm’s 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: (i) cash payments or cash equivalents (except rebate checks); (ii) supplying one good or service without 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; and (iii) 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., 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 for the discounted item or service and payment may be made, in whole or in part, under an FHCP. A DME supplier must comply with specific standards in order to invoke the protection of the discount safe harbor. First, 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.” Second, 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.

Arrangements to Avoid
Payments/Gifts by Manufacturer to ABC’s Sales Reps – The manufacturer offers payments, normally in the form of percentage commissions, to ABC’s sales reps as a reward for promoting the sale of the manufacturer’s products. Alternatively, the manufacturer offers gifts (e.g., a trip to Cabo) to ABC’s sales reps as a reward for promoting the sale of the manufacturer’s products. This arrangement implicates the AKS because (i) the manufacturer is providing “something of value” to ABC (payments and gifts to ABC’s sales reps) and (ii) ABC is, in turn, promoting the sale of the manufacturer’s products … that an FHCP will eventually pay for.

Referrals Tied to the Purchase of the Manufacturer’s Products – Assume that the manufacturer advertises its products through television commercials, print ads, and the manufacturer’s website. Assume that the advertisements include (i) a toll-free number for the prospective customers to call the manufacturer and (ii) a place on the website that allows the prospective customer to contact the manufacturer. Assume that the manufacturer forwards these leads only to those DME suppliers that commit to provide the manufacturer’s products to the leads. This arrangement implicates the AKS because (i) the manufacturer is providing “something of value” to ABC (forwarding of leads, including FHCP patient leads) and (ii) ABC is, in turn, committing to only sell the manufacturer’s products to the leads … some of which an FHCP will eventually pay for.

Manufacturer Provides Services, At No Charge, to the Supplier – The manufacturer provides services, at no charge, to the supplier. For example, the manufacturer may (i) provide “call center” services in which the manufacturer calls the supplier’s customers (on behalf of the supplier) to determine if the customers need a refill of the manufacturer’s products and/or (ii) provide billing services (or billing consulting services) to the supplier. The arrangement implicates the AKS because (i) the manufacturer is providing “something of value” to ABC (free services) and (ii) ABC is, in turn, purchasing the manufacturer’s products … that an FHCP will eventually pay for.

Manufacturer Provides Services, At Below FMV, to the Supplier – Same as the preceding paragraph except that the supplier pays the manufacturer for the services. However, the payment by the supplier is below FMV. The arrangement implicates the AKS because (i) the manufacturer is providing “something of value” to ABC (services at below FMV) and (ii) ABC is, in turn, purchasing the manufacturer’s products … that an FHCP will eventually pay for.

Rebates and Discounts Tied to Conversions – The manufacturer offers rebates and discounts to ABC that are tied to the number of FHCP patients who, at the prompting of ABC, switch (or “convert”) from products made by other manufacturers to products made by the manufacturer offering the rebates/discounts to ABC. This arrangement implicates the AKS because (i) the manufacturer is providing “something of value” to ABC (rebates and discounts) and (ii) ABC is, in turn, converting patients to purchase the manufacturer’s products … that an FHCP will eventually pay for.

Manufacturer Provides Free Advertising for Supplier – Normally, a television commercial, print ad, or website, paid for by a manufacturer, will only promote the manufacturer and its products. The manufacturer’s ad typically makes no mention of a particular DME supplier. Assume, however, that a manufacturer pays for an ad that not only promotes the manufacturer and its products, but also promotes ABC Medical Equipment, Inc. (“ABC”). Assume further that ABC pays nothing to the manufacturer for the ad. This arrangement implicates the AKS because (i) the manufacturer is providing “something of value” to ABC (free advertising) and (ii) ABC is, in turn, purchasing products from the manufacturer … that an FHCP will eventually pay for.

Manufacturer Provides Advertising for Supplier and Supplier Pays Less Than Fair Market Value – Same as the preceding paragraph except that ABC pays the manufacturer for the advertising, but the payments are less than fair market value (“FMV”). This arrangement implicates the AKS because (i) the manufacturer is providing “something of value” to ABC (advertising for a cost that is below FMV) and (ii) ABC is, in turn, purchasing products from the manufacturer … that an FHCP will eventually pay for.

Acceptable Arrangements
Discounts and Rebates Tied to Volume of Purchases – The manufacturer and supplier enter into an agreement in which the manufacturer provides properly-disclosed discounts and rebates to the supplier that are tied only to the volume of the manufacturer’s products purchased by the supplier. The arrangement complies with the Discount safe harbor to the AKS.

Referrals by the Manufacturer Not Tied to Purchases – The manufacturer advertises its products on television, in print media, and on its website. As a result, the prospective customers (“leads”) contact the manufacturer about the manufacturer’s products. The manufacturer forwards the leads to DME suppliers. In so doing the manufacturer does not require the suppliers to sell the manufacturer’s products to the leads.

Cooperative Marketing Agreement – The manufacturer and DME supplier enter into an arrangement in which the manufacturer advertises its products and the supplier’s ability to provide the products. The supplier pays the manufacturer for the supplier’s pro rata share of the expenses of the advertisements.

Payment by the Supplier of FMV Compensation to the Manufacturer for Services – The manufacturer provides a variety of services to the DME supplier. These services might include: (i) call center services in which the manufacturer calls the supplier’s customers (on behalf of the supplier) to determine if they need a refill of the supplier’s products; (ii) fulfillment services in which the manufacturer ships products (on behalf of the supplier) to the supplier’s customers; (iii) billing services in which the manufacturer submits claims to third party payors on behalf of the supplier; and (iv) consulting services in which the manufacturer provides expertise to the supplier on a number of matters. The supplier pays FMV compensation to the manufacturer for these services.

AAHOMECARE’S EDUCATIONAL WEBINAR

Changes to Stark and the Kickback Statute:  What They Mean to DME Suppliers

Presented by:

Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.

Tuesday, February 16, 2021

1:30-2:30 p.m. CENTRAL TIME
The federal Stark physician self-referral statute (“Stark”) and the federal anti-kickback statute (“AKS”) came into existence when health care was primarily operating under a fee-for-service (“FFS”) model that did not encourage provider collaboration nor tie reimbursement to achieving certain metrics. The FFS model has proven to be costly and inefficient. As a result, third party payors (including Medicare) are pushing health care delivery into a collaborative/value-based model that does (i) encourage provider collaboration and (ii) ties reimbursement, at least in part, to the achievement of certain metrics. Because of the shift of health care away from FFS towards a collaborative/value-based approach, CMS and the OIG recognized the need to modify Stark and the AKS. The goal of the modifications is to ensure that these two statutes do not unnecessarily impede the transition to collaborative/value-based care. The world of provider collaboration and value-based compensation results in referrals of patients among providers, sharing of risk by providers, and (among certain conditions) the sharing of value-based reimbursement. These activities ran up against the restrictions contained in Stark and the AKS. That is why, on November 20, 2020, CMS and the OIG issued a final rule that modified these two statutes. These modifications include (i) three new safe harbors to the AKS; (ii) modifications to existing AKS safe harbors; (iii) four new Stark exceptions; and (iv) modifications to existing Stark regulations and definitions.

By attending the webinar you will:

• Understand the modifications to Stark and the AKS.
• Learn how to structure value-based arrangements to comply with the new Stark exceptions and AKS safe harbors.
• Understand how the modifications to the Personal Services and Management Contracts safe harbor to the AKS provide flexibility in structuring arrangements with referral sources.
• Understand how the modifications to the Stark definition of commercial reasonableness expands the possibilities for joint ventures and service agreements.

Register for Changes to Stark and the Kickback Statute:  What They Mean to DME Suppliers

Tuesday, February 16, 2021, 1:30-2:30 p.m. CT, with Jeffrey S. Baird, Esq. of  Brown & Fortunato, PC.

Members:  $99
Non-Members:  $129

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, 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. Mr. 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].