AMARILLO, TX – Hospital managers are good at running a hospital but can be woefully inadequate in running a DME business. Years ago, a number of hospitals set up their own DME operations with the goal of generating profits. Most of these arrangements failed. More recently, hospitals are interested in owning…or being affiliated with…a DME operation for the purpose of working with discharged patients so that they do not become “frequent flyers.” In hospital parlance, a “frequent flyer” is a patient who is readmitted soon (e.g., within 30 days) after discharge.
Under the Hospital Patient Readmission Program, if a Medicare patient is (i) treated for a particular disease (e.g., COPD), (ii) discharged, and (iii) is readmitted for the same disease within 30 days after discharge, Medicare will financially penalize the hospital. Accordingly, hospitals are motivated to provide post-discharge aftercare services to patients so that they (i) remain as healthy as possible after discharge and (ii) are not readmitted soon after discharge.
A mechanism for the hospital to accomplish this is for the hospital to have a connection to a DME supplier. Often, patients are discharged with a physician’s order for DME (oxygen, nebulizer, NIV, soft goods, etc.). If the patient properly uses the DME, and if the patient takes other basic steps to stay health (taking drugs as prescribed, meeting with their physicians as scheduled, etc.), then the odds of the patient becoming a frequent flyer are reduced.
This is where the independent DME supplier comes in. The supplier can approach a hospital with a plan to (i) assist discharged patients with staying healthy and (ii) reduce the number of readmissions within 30 days. This article discusses alternative ways that an independent DME supplier can work with a hospital. Throughout this article, I will refer to the hospital as “St. Mary’s Hospital” (or “SMH”) and I will refer to the independent DME supplier as “ABC Medical Equipment” (or “ABC”).
Purchase Of Equity Interest In Hospital-Owned DME Supplier
Assume that SMH owns 100% of SMH Medical Equipment, Inc. (“SMHME”). SMHME will be a wholly owned subsidiary corporation of SMH. If SMH is a non-profit entity, in most instances, SMHME can be a for-profit entity.
- ABC will purchase some of the stock of SMHME. If I am representing ABC, my preference is for ABC to purchase greater than 50% of the stock. This will allow ABC to be the final decision maker regarding SMHME’s operations.
- It is highly unlikely that ABC will be responsible for any of SMHME’s liabilities (known or unknown) that arose before ABC purchased SMHME stock.
- ABC can provide a variety of services to SMHME. These can include (i) operational services, (ii) HR, (iii) IT, and (iv) billing. ABC and SMHME will sign agreements that memorialize the service agreement. SMHME will need to pay fair market value (“FMV”) compensation to ABC for the services.
- If a patient “walks into” SMHME and wants a product, but the patient is covered by a third-party payor (“TPP”) contract that ABC has…but that SMHME does not have…SMHME cannot take care of the patient and have ABC bill the TPP under ABC’s TPP contract. Rather, SMHME can refer the patient to ABC. The opposite is true. If a patient “walks into” ABC and wants a product, but the patient is covered by a TPP contract that SMHME has…but that ABC does not have…ABC cannot take care of the patient and have SMHME bill the TPP under the SMHME TPP contract. Rather, ABC can refer the patient to SMHME.
- ABC can approach SMHME’s TPPs and ask them to issue the same contracts to ABC.
- SMHME can approach ABC’s TPPs and ask them to issue the same contracts to SMHME.
- SMH needs to ensure patient choice regarding selecting DME suppliers.
- SMHME should market to the community so that SMHME’s dependence on SMH referrals decreases.
- Assume that ABC owns 60% of SMHME and SMH owns the other 40%. ABC will be entitled to 60% of the profits of SMHME and SMH will be entitled to 40% of the profits of SMHME.
- ABC and/or SMHME can have a loan closet arrangement (with an optional employee liaison component) with SMH.
ABC and SMH Set Up a New Legal Entity
- ABC and SMH set up a new legal entity (corporation or LLC) that I will call “Newco.” Assume that ABC owns 60% of Newco and SMH owns 40% of Newco.
- Newco will need to (i) become accredited, (ii) obtain a PTAN, (iii) obtain a Medicaid provider number, and (iv) secure TPP contracts.
- If SMHME (100% owned by SMH) exists, Newco can purchase SMHME’s assets, including patient files. The purchase price needs to be FMV.
- ABC can provide a variety of services to Newco. These can include (i) operational services, (ii) HR, (iii) IT, and (iv) billing. ABC and Newco will sign agreements that memorialize the service agreement. Newco will need to pay FMV compensation to ABC for the services.
- If a patient “walks into” Newco and wants a product, but the patient is covered by a TPP contract that ABC has…but that Newco does not have…Newco cannot take care of the patient and have ABC bill the TPP under ABC’s TPP contract. Rather, Newco can refer the patient to ABC. The opposite is true. If a patient “walks into” ABC and wants a product, but the patient is covered by a TPP contract that Newco has…but that ABC does not have…ABC cannot take care of the patient and have Newco bill the TPP under the Newco contract. Rather, ABC can refer the patient to Newco.
- ABC can approach Newco’s TPPs and ask them to issue the same contracts to ABC.
- Newco can approach ABC’s TPPs and ask them to issue the same contracts to Newco.
- SMH needs to ensure patient choice regarding selecting DME suppliers.
- Newco should market to the community so that Newco’s dependence on SMH referrals decreases.
- Assume that ABC owns 60% of Newco and SMH owns the other 40%. ABC will be entitled to 60% of the profits of Newco and SMH will be entitled to 40% of the profits of Newco.
- ABC and/or Newco can have a loan closet arrangement (with an optional employee liaison component) with SMH.
Management Agreement
SMH can own 100% of SMHME. ABC can manage SMHME on behalf of SMH. SMHME will pay FMV compensation to ABC for the management services. The “devil is in the details” regarding the structure of the management arrangement. It will need to comply with the OIG’s April 2003 Special Advisory Bulletin entitled “Contractual Joint Ventures.”
Loan Closet
Other names for “loan closet” are “consignment” and “stock and bill.” ABC can enter into a loan closet arrangement with SMH. The parties can include an employee liaison component with the loan closet.
ABC Purchases SMHME’s Assets and Rents Space From SMH
Assume that SMH owns 100% of SMHME. ABC can purchase the assets of SMHME. The purchase price will need to be FMV. SMHME will dissolve.
- ABC can (i) set up locations at SMH facilities and (ii) pay FMV rent to SMH.
- SMH will need to ensure patient choice.
- ABC will need to market to the community so that its SMH locations are not entirely dependent on referrals from SMH.
- ABC can enter into loan closet arrangements with SMH facilities.
Preferred Provider Agreement
Assume that SMHME does not exist. ABC can approach SMH and suggest that the parties enter into a Preferred Provider Agreement (“PPA”). The PPA will state that subject to patient choice, SMH will refer discharged patients to ABC. ABC will commit to provide “value-added” services to the patients with the goal of (i) maintaining the patients’ health and (ii) preventing the patients from being readmitted soon after discharge. The value-added services can include:
- ABC will communicate with the patient/caregiver on a regular basis with the goal of ensuring (i) that the patient is using the DME as prescribed, (ii) that the patient sees his physician as scheduled, (iii) that the patient takes his prescribed drugs as directed by the physician, (iv) that the patient eats healthy food, and (v) that the patient remains hydrated.
- ABC will (i) maintain a log of its interactions with the patient/caregiver and (ii) share the information with SMHME.
A goal for ABC will be to accumulate data showing that its value-added services are successful in decreasing the incidences of patients being readmitted soon after discharge.
AAHOMECARE’S EDUCATIONAL WEBINAR
Employee Retention Tax Credit: Benefits and Pitfalls
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato & Kianna L. Sitarski, Esq., Brown & Fortunato
Thursday, July 11, 2024
1:30-2:30 p.m. CENTRAL TIME
The COVID pandemic was unprecedented … and traumatic … for all of us. In response, the federal government passed laws – and issued regulations – designed to (i) provide “safety nets” to businesses, (ii) expand the provision of health care in the home, and (iii) assist families financially. A key provision is the Employee Retention Tax Credit that is designed to encourage employers, that are adversely affected by the pandemic, to keep employees on their payroll. Since its inception in 2020, the Employee Retention Credit has been modified by federal statute and IRS regulations to relieve financial struggles faced by employers. This webinar will discuss the history of the Employee Retention Credit, including eligibility and value of tax credits available for wages paid between March 2020 and December 31, 2021. The webinar will also discuss how to retroactively claim the Employee Retention credits and common pitfalls to avoid when the DME supplier is amending its tax filing. Lastly, the webinar will discuss how the DME supplier can avoid the scams that have arisen in conjunction with the Employee Retention Tax Credit.
Registration will soon be posted for Employee Retention Tax Credit: Benefits and Pitfalls on Thursday, July 11, 2024, 1:30-2:30 p.m. CT, with Jeffrey S. Baird, Esq., and Kianna L. Sitarski, Esq., of Brown & Fortunato.
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].