AMARILLO, TX – Historically, health care providers operated in “silos” with little collaboration among providers. This is changing. Medicare and commercial insurers are pushing hospitals, physicians, home health agencies, DME suppliers and other providers to work together with the goal of healing the patient…and keeping the patient healthy. It is this latter category – keeping the patient healthy – that is the impetus for this article.

Hospitalization is the most expensive form of health care. If providers can work together to keep patients out of the hospital, it is a win-win for everybody: the patient, the patient’s family, the hospital, and the third-party payer (“TPP”). Hospitals have a challenge in dealing with “frequent flyers.” These are Medicare patients who are (i) admitted for a particular disease (e.g., COPD), (ii) treated in the hospital, (iii) discharged, and (iv) then readmitted within 30 days. To encourage hospitals to decrease the incidents of frequent flyers, CMS implemented the Hospital Readmissions Reduction Program (“Program”) that financially penalizes hospitals for frequent flyers.

The Program has motivated hospitals to be more proactive in maintaining communication with Medicare patients (and their caregivers) upon the patients’ discharge. The goal of such communication is to encourage the patients to take rudimentary steps designed to keep them healthy. These steps can include encouraging the patients to (i) take their prescription medications, (ii) see their physicians at the appointed times, (iii) hydrate, and (iv) eat healthy food. The logistical question is how hospitals can maintain this communication upon the patient’s discharge. One way is for the hospital to work with a DME supplier. Unlike most other providers, the DME supplier (i) is in the patient’s home, (ii) interacts with the patient and his/her caregiver (often an adult child), and (iii) interacts with the patient’s treating physician. Because the hospital is a “referral source,” it is important that the arrangement with a DME supplier not violate the federal anti-kickback statute (“AKS”). Here are some options for a hospital and DME supplier to work together.

• Separate Legal Entity – “St. Mary’s Hospital” and ABC Medical Equipment (“ABC”) will form a separate legal entity (e.g., St. Mary’s Medical Equipment, Inc. or “SMME”). The percentage ownership of SMME can be broken down however the hospital and ABC decide. For the purposes of this article, assume that the ownership is 50-50.
• SMME will become accredited, obtain state DME licensure, obtain a PTAN, obtain a Medicaid provider number, and obtain commercial insurance contracts (Medicare Advantage, Medicaid Managed Care, and employer-sponsored group health insurance).
• The hospital will be entitled to 50% of SMME’s profits regardless of how many…or how few…referrals there are from the hospital to SMME.
• SMME will need to have its own employees, equipment, inventory, bank accounts, etc. The hospital and ABC can provide services to SMME…for which SMME will pay fair market value (“FMV”) compensation.
• Because the hospital is a referral source to SMME, the arrangement cannot be a “sweetheart deal” for the hospital. For example, if the initial capitalization is $300,000, the hospital will need to invest $150,000 up front.
• Equity Interest in ABC – The hospital can purchase an equity interest in ABC. For example, the hospital can purchase 10% of ABC. This will entitle the hospital to receive 10% of ABC’s profits. The hospital will need to pay FMV for the equity interest.
• Hospital Owns 100% of SMME – The hospital can set up and own 100% of SMME. ABC can provide services to SMME for which the hospital will pay FMV compensation.
• Preferred Provider Agreement (“PPA”) – The hospital and ABC can enter a PPA.
• Subject to patient choice, the hospital will refer patients to ABC.
• In addition to providing DME, ABC will work with the patient, the patient’s caregiver, and the patient’s physician…with the goal of the patient not having to be readmitted to the hospital anytime soon. If ABC can reduce the number of frequent flyers, the hospital will avoid financial repercussions.

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].