Avoiding Legal Pitfalls of HME Referrals

Steer clear of these practices when building referral networks

The lifeblood of any successful business is innovative marketing and building referral networks. However, unlike non-healthcare industries, the federal government has set out a number of restrictive guidelines that HME companies must follow.

Under the Medicare anti-kickback statute (42 U.S.C. § 1320a-7b), it is a felony for a provider to knowingly or willfully offer or pay any remuneration to induce a person to refer a person for the furnishing or arranging for the furnishing of any item for which payment may be made under a federal health care program, or the purchase or lease or the recommendation of the purchase or lease of any item for which payment may be made under a federal health care program.

The beneficiary inducement statute (42 U.S.C. § 1320a-7a (a)), imposes civil monetary penalties upon a provider that offers or gives remuneration to any Medicare beneficiary that the offeror knows, or should know, is likely to influence the recipient to order an item for which payment may be made under a federal or state health care program. This statute does not prohibit the giving of incentives that are of “nominal value.” The OIG defines nominal value as no more than $10.00 per item or $50.00 in the aggregate to any one beneficiary on an annual basis. Nominal value is based on the retail purchase price of the item.

Under the telephone solicitation statute (42 U.S.C. § 1395m(a)(17)), a DME supplier may not contact a Medicare beneficiary by telephone regarding the furnishing of a covered item unless: 1) the beneficiary has given written permission for the contact; 2) a supplier has previously provided the covered item to the beneficiary and the supplier is contacting the beneficiary regarding the covered item, or; 3) if the telephone contact is regarding the furnishing of the 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 Stark physician self-referral statute (42 U.S.C. § 1395nn)) provides that if a physician has a financial relationship with an entity providing designated health services (“DHS”), then the physician may not refer patients to the entity unless one of the statutory or regulatory exceptions applies. Designated health services include: 1) durable medical equipment; 2) parenteral and enteral nutrients; 3) prosthetics, orthotics and prosthetic devices and supplies, and; 4) outpatient prescription drugs, among others.

Safe harbor regulations issued under the anti-kickback statute provide “bright line” tests defining arrangements that do not violate the statute. If a business arrangement clearly falls within a safe harbor, then it is not violative of the anti-kickback statute. If the arrangement does not clearly fall within a safe harbor, then it must be examined in light of the anti-kickback statute and related court decisions to determine if it violates the statute.

A 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. In response, the OIG will issue an advisory opinion concerning whether or not there is likelihood that the arrangement will implicate the anti-kickback statute.

The OIG publishes Special Fraud Alerts and Special Advisory Bulletins that discuss business arrangements that the OIG believes may be abusive, and educate providers concerning fraudulent and/or abusive practices.

All states have enacted statutes prohibiting kickbacks, fee splitting, patient brokering, or self-referrals. Some state statutes apply only when the payor is a state health care program, while other statutes apply regardless of the identity of the payor.

Arrangements with Referral Sources

Preferred Provider Agreement (“PPA”): Pursuant to a PPA, the referral source (e.g., hospital or physician) must follow procedures to insure patient choice. If a patient expresses no preference for a DME company, then the referral source can recommend ABC Medical Equipment, Inc. (“ABC”), on the basis of the quality and timeliness of ABC’s services. The PPA is a simple document and allows either party to terminate it upon 30 days’ prior written notice.

Referral Source Leases Physical Space to ABC: ABC can establish a location on property owned by the referral source. ABC would enter into a lease agreement with the referral source that would comply with the Space Rental safe harbor to the Medicare anti-kickback statute. Among the other requirements, the lease payments would be fixed one year in advance and would not take into account any referrals from the referral source to ABC.

Medical Director Agreement: ABC can enter into a Medical Director Agreement with a referring physician (independent contractor). The arrangement will need to comply with the Personal Services and Management Contracts safe harbor to the Medicare anti-kickback statute, and with the Personal Services exception to Stark.

Joint Venture: As an example, a hospital and ABC would jointly own a DME operation (separate and apart from ABC’s operation) that would serve patients discharged from the hospital (subject, of course, to their right to choose a DME provider) as well as patients within the community. In structuring a joint venture with a referral source such as the hospital, it is critical that the joint venture not merely be a subterfuge to funnel remuneration to the referral source. If the joint venture is merely a vehicle to pay remuneration to the hospital, then the Medicare anti-kickback statute would be violated.

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