AMARILLO, TX – DME suppliers live in the proverbial “glass house.” Their actions are monitored by federal governmental agencies, CMS contractors, state governmental agencies, third-party payors, and by employees who may end up being whistleblowers. In short, if a DME supplier is doing something it should not be doing, the chances are that someone will find out about it.

DME suppliers primarily serve the elderly. This means that much of the revenue to most suppliers comes from traditional Medicare and Medicare Advantage. As a result, DME supplier need to adhere to an array of federal laws designed to prevent fraud and protect the taxpayers’ money.

Some federal laws are criminal, meaning that a person can go to prison. Other federal laws are civil, meaning that a supplier can get hit with large fines and penalties. If a DME supplier’s actions violate a federal law, the claim (to a federal health care program) arising out of the actions can constitute a “false claim” under the Federal False Claims Act (“FCA”).

A whistleblower lawsuit is based on a violation of the FCA. Here is how it works:

• Assume that an employee of a DME supplier discovers that the supplier is engaging in fraudulent activities…resulting in the submission of false claims.
• In a perfect world, (i) the employee will share his concerns with the supplier’s Compliance Officer, (ii) under the Compliance Officer’s direction, the DME supplier will solve the problem, and (iii) the employee’s concerns will be validated.
• Unfortunately, we do not live in a perfect world. Even if the DME supplier has an accessible Compliance Officer, the employee may go straight to an attorney who specializes in bringing whistleblower (“qui tam”) lawsuits. On the opposite end of the spectrum, the DME supplier may ignore the concerns of the employee, thereby motivating the employee to hire a whistleblower attorney.
• Regardless of the motivation in doing so, if an employee files a whistleblower lawsuit, it will be filed in federal court “under seal.” This means that nobody, except the Department of Justice (“DOJ”) and court personnel, will know of the existence of the whistleblower lawsuit. The whistleblower (“relator”) will file the lawsuit in his/her own name “and in the name of the United States” against the DME supplier.
• While the lawsuit is under seal, an Assistant United States Attorney (“AUSA”) will review the lawsuit and oversee an investigation of the allegations contained in the lawsuit. This might take 6 to 12 months…or longer. If the AUSA determines that the lawsuit has merit, the DOJ may “intervene” and take the lawsuit over. If the DOJ does not intervene, the relator and his/her attorney may be able to pursue the lawsuit on their own.
• Because the whistleblower lawsuit is based on the FCA, if the relator is successful, the fines and penalties can be astronomical. More ominously, if the AUSA determines that the facts are egregious, the AUSA may hand his file to another AUSA to bring criminal charges against the DME supplier and its owners/officers. In fact, most criminal cases against DME suppliers arise from whistleblower lawsuits.

Because whistleblower lawsuits arise out of an alleged violation of one or more federal anti-fraud laws, it is important that DME suppliers understand and comply with such laws. The balance of this article summarizes the most important federal laws for DME suppliers.

Physician Self-Referral Statute (“Stark”) – This is a civil, not a criminal, statute. Stark states that if a physician (or an immediate family member) has a financial relationship with an entity providing designated health services (“DHS”), the physician may not refer Medicare/Medicaid patients to the entity unless a Stark exception is met. DHS includes DME.

• The Stark definition of “physician” includes dentists, chiropractors and similar providers. If ABC Medical Equipment, Inc. (“ABC”) intends to enter into an arrangement with a home health agency (not owned by a physician), Stark does not come into play; ABC needs to focus on the federal anti-kickback statute (see below). On the other hand, if ABC intends to enter into an arrangement with a physician (“Dr. Jones”), then ABC must comply with Stark.
• Assume that ABC is located in Omaha, Nebraska and Dr. Jones has an ownership in it. Dr. Jones cannot refer Medicare/Medicaid patients to ABC. On the other hand, if ABC is located in a small rural farming community, Dr. Jones can have an equity interest in ABC and can refer Medicare/Medicaid patients to ABC. The reason for this is that Stark has a “rural provider” exception that relaxes the Stark restrictions when the physician and ABC are located in a rural area and primarily service rural patients.
• Another exception is the Non-Monetary Compensation Exception (“NMCE”). This allows ABC to spend a certain amount each year on Dr. Jones for meals, rounds of golf, etc. In 2024, that amount is $507. There is an annual inflation adjustment. If Dr. Jones is part of a five physician group, ABC can spend up to $507 in 2024 for each of the five physicians. Interestingly, there is not a comparable exception or safe harbor to the federal anti-kickback statute (“AKS”). And so one might assert that while it is acceptable under Stark for ABC to spend up to $507 in 2024 on Dr. Jones, such expenditures violate the AKS. From a practical standpoint, if the NMCE is met, there should not be a problem under the AKS. The NMCE only applies when what is spent on behalf of Dr. Jones is for gifts, meals, entertainment, etc. ABC cannot offer cash/cash equivalents to Dr. Jones.

 Federal Anti-Kickback Statute – This is a criminal statute. 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 (e.g., Medicare, Medicare Advantage, Medicaid, Medicaid Managed Care, TRICARE), or to induce such person to purchase or lease or recommend the purchase or lease of any item or service reimbursable by a federal health care program.

• A referral source can be any person (e.g., physician, hospital discharge planner, taxi cab driver, custodian) or entity (e.g., lead generation company, home health agency).
• Courts have adopted the “one purpose” test: if “one purpose” behind paying a person/entity is to reward the person/entity for referrals, the AKS is violated notwithstanding that the primary purpose behind the payment is for legitimate services.
• For example, if ABC pays percentage commissions to a 1099 independent contractor marketing rep to “knock on the doors” of physicians…or hospitals…or long term care facilities…to generate federal health care program (“FHCP”) patients for ABC, then the AKS will be violated.

 Safe Harbors – Because of the breadth and scope of the AKS, the Office of Inspector General (“OIG”) has published a number of “safe harbors.”  If an arrangement meets the requirements of a safe harbor, then as a matter of law the arrangement does not violate the AKS. If an arrangement does not meet the requirements of a safe harbor, it does not mean that the arrangement automatically violates the AKS. Rather, the arrangement must be carefully scrutinized under the wording of the AKS, court decisions, and published guidance by the OIG. Set out are four of the most important safe harbors for DME suppliers:

• Employees – 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 an FHCP.
• 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 – Remuneration does not include a lessee’s payment to a lessor as long as a number of requirements are met, including the following:
• the lease agreement must be in writing and signed by the parties;
• the lease must specify the premises covered by the lease;
• 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;
• the term must be for not less than one year; and
• the aggregate rental charge must be set in advance, be consistent with fair market value (“FMV”), and must not take into account business generated between the lessor and the lessee.
• Personal Services and Management Contracts – Remuneration does not include any payment made to an independent contractor as long as a number of requirements are met, including the following:
• the agreement must be in writing and signed by the parties;
• the agreement must specify the services to be provided;
• the term of the agreement must be for not less than one year;
• the methodology for calculating 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
• the services performed must not involve a business arrangement that violates any state or federal law.

Beneficiary Inducement Statute – Like Stark, this is a civil (not criminal) statute. The beneficiary inducement statute imposes civil monetary penalties on a person or entity that offers or gives remuneration to any FHCP patient that the offeror knows or should know is likely to influence the recipient to order an item for which payment may be made under an FHCP. However, this statute does not prohibit the giving of incentives that are of “nominal value” (no more than $15 per item or $75 in the aggregate to any one beneficiary on an annual basis). The nominal gift needs to be something that can be “touched and felt.” It cannot be cash or a cash equivalent such as a gift card. Additionally, the value of the gift is its “retail” value to the public…not what it cost XYZ to purchase the gift.

Telephone Solicitation Statute – This is also a civil statute. It states that a DME supplier of a Medicare-covered item may not contact a Medicare beneficiary by telephone regarding the furnishing of a covered item unless:

• the beneficiary has given written permission for the contact;
• the supplier has previously provided the covered item to the beneficiary and the supplier is contacting the beneficiary regarding the covered item; or
• if the telephone contact is regarding the furnishing of a covered item other than an item already furnished to the beneficiary, the supplier has furnished at least one covered item to the beneficiary during the preceding 15 months.

The telephone solicitation statute essentially says the same thing as Supplier Standard #11.

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. The “ask” of the OIG is whether the arrangement may implicate the AKS. In response, the OIG will issue an advisory opinion concerning whether or not there is a likelihood that the arrangement will implicate the AKS. In issuing the opinion, the OIG will redact the names of the parties (e.g., will call them Party A and Party B). The OIG website contains all of the published advisory opinions.

Special Fraud Alerts and Special Advisory Bulletins – The OIG publishes Special Fraud Alerts and Special Advisory Bulletins that discuss business arrangements that the OIG believes may be fraudulent.

States – All states have enacted laws prohibiting kickbacks, fee splitting, patient brokering, and/or self-referrals. Some state anti-kickback statutes only apply when the payor is a government health care program (e.g., the state Medicaid program). Other state anti-kickback statutes apply regardless of the identity of the payor (e.g., they apply to commercial insurers and cash-pay patients).

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].

AAHOMECARE’S EDUCATIONAL WEBINAR

Cash-Only Retail: How to Succeed

Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato

Tuesday, April 16, 2024

1:30-2:30 p.m. CENTRAL TIME
The DME industry primarily serves the elderly. This means that most DME suppliers are dependent on traditional Medicare and Medicare Advantage for most of their revenue. But as DME suppliers know from experience, it can be challenging to be so tied to Medicare. This is where retail comes in. There are 78 million Baby Boomers who are retiring at the rate of 10,000 per day. Many Boomers are willing to pay cash for “Cadillac” items rather than being limited to the “Cavalier” items paid for by Medicare. This program will present the legal parameters within which DME suppliers can move into the retail space. The issues to be presented will include the following:

• Whether the retail business should be (i) under the supplier’s existing Tax ID # or (ii) operated by a separate legal entity.
• State DME licensure.
• Selling Medicare-covered items at a discount off the Medicare allowable.
• Obtaining physician prescriptions.
• Collection and payment of sales tax.
• Qualification as a “foreign” corporation.
• Required notification to a Medicare beneficiary even though the supplier does not have a PTAN.

Register for Cash-Only Retail: How to Succeed on Tuesday, April 16, 2024, 1:30-2:30 p.m. CT, with Jeffrey S. Baird, Esq., Brown & Fortunato.

Members:  $99
Non-Members:  $129