Patients discharged from hospitals remain one of the most important customer bases for home care companies, so it is vital that providers be given a fair
by Neil B. Caesar

Patients discharged from hospitals remain one of the most
important customer bases for home care companies, so it is vital
that providers be given a fair opportunity to compete for them.

Discharge planning activities have begun to come under
Department of Justice scrutiny. There are many areas for potential
abuse, and most can affect home care companies. For HMEs
considering a greater presence within hospitals, let's go over some
ideas both for expanding the company role within a hospital and for
challenging inappropriate relationships by competitors.

Compliance dangers can arise from a variety of discharge
activities. Some examples include referrals to a hospital-owned or
-affiliated home care company; discharge planners who favor one
company over all others, regardless of options or patient choice;
home care company personnel who are given special treatment within
the hospital, such as access to patient rooms or office space;
special assistance given to discharge planning personnel by
“helpful” home care companies, such as paperwork relief
or patient screening; and charity care programs.

Improper discharge planning procedures can leave a home care
company vulnerable to violations of the federal anti-kickback
statute, federal and state antitrust law, various other state laws
and accreditation requirements. Consequently, proper compliance
with the rules relating to discharge planning is extremely
important for hospitals and home care companies alike.

Vulnerabilities of the Discharge Planning Process

Under the law, hospitals must operate a discharge planning
process that includes an evaluation of whether the patient will
need post-hospital services and of the availability of such

The process includes the following components: a determination
of the Diagnosis Related Group for the specific case; an evaluation
of the patient's post-hospital requirements; whether home care is
appropriate or whether hospice or nursing home placement is
necessary; steps to place the patient in a nursing home, if
necessary, or preparation for a home care directive; and a
discussion with the patient or patient's representative about the
results of the evaluation.

As part of the process, an RPN, social worker or other qualified
individual may not limit the patient's options for post-hospital
home health services, and must disclose any financial interest in
any entity to which the patient may be referred.

One typical way for the discharge planner to address these
obligations is to provide patients with a list of local service
providers. If the patient doesn't select one, the hospital may
suggest that the patient use the hospital's own preferred
provider(s). When hospitals do use referral lists, providers are
sometimes rotated on the list in order to avoid favoritism.

The hospital may even enter into a “preferred
provider” arrangement, under which it agrees in writing to
make referrals on a preferential basis to a specific provider when
no choice is indicated by the patient. Such an arrangement allows
hospitals to choose partners with whom they are familiar, and who
provide the best quality of care.

The Balanced Budget Act of 1997 requires Medicare-participating
hospitals to give beneficiaries who require post-discharge nursing
services a list of Medicare-certified home health agencies that
serve a patient's geographic area. The hospital may not specify or
limit access to qualified HHAs that ask to be on the list, although
many hospitals wrongly believe that it does. Note that this
provision does not apply to medical equipment suppliers.

The BBA also requires the hospital to disclose whether it has a
financial interest in any provider or supplier if the patient is
referred to that entity. This provision does apply to
equipment suppliers, as well as to HHAs, hospices and respiratory
or infusion therapy suppliers. However, the BBA does not prohibit
hospitals from giving patients factual information or opinions
about such companies as long as they don't steer people
inappropriately or deny choice.

Once hospitals have discussed discharge options with patients,
they are free to refer patients to a “preferred
provider” if the patient has no preference.

What Could Land You In Hot Water?

Watch for the following activities that can create compliance

  • Failing to Provide Patient Choice

    Hindering patient choice could invite scrutiny from the HHS
    Office of the Inspector General. The OIG has stated that one factor
    in the determination to impose sanctions under the Civil Monetary
    Penalty Act and the anti-kickback statute is the preservation of a
    patient's freedom of choice. Arrangements where referrals are
    steered to a preferred home care company, without clear policies to
    protect the patient's decision-making authority, will be viewed as

  • Violating Antitrust Laws

    Starting in the late 1980s, the federal courts addressed the
    antitrust risks arising from hospital durable medical equipment
    policies. In Key Enterprises of Delaware v. Venice Hospital,
    the hospital's policies allegedly permitted only one DME vendor
    access to hospital patients and required non-affiliated HHAs and
    their nurses to recommend the DME vendor. After years of appeals,
    the court ultimately held that the joint venture between the
    hospital and its DME vendor constituted illegal reciprocal dealing
    and monopoly leveraging under the Sherman Antitrust Act.

    The court found that the patient's freedom to choose a DME
    vendor was “illusory” due to the patient's
    susceptibility to authoritative suggestions and to pressure imposed
    on hospital personnel to use the hospital's home care company. The
    court reinstated the jury verdict and treble damages award against
    the defendants of approximately $7 million.

    This case demonstrates the importance of analyzing antitrust
    risks, and also how important it is to analyze any change in
    hospital policies after a hospital implements a new arrangement
    with a home care company. Providers should pay close attention to
    significant hospital policy changes, and assess whether the policy
    was altered to steer patient choice by limiting exposure to the

  • A Helping Hand

    Home care company representatives typically visit local
    hospitals to establish relationships that will ultimately generate
    more patient referrals. The home care staff builds a relationship
    with the discharge planners based on accessibility, reliability and
    their proven track record. Hospital discharge planning departments
    are often understaffed, so to help with the workload, some planners
    may ask, or allow, home care company personnel to perform duties
    they would normally handle by themselves.

    It is proper for an HME provider to qualify the patient who has
    already been referred to the company but who is still in the
    hospital, and to begin the education process and/or the delivery of
    services, equipment or supplies. However, when a home care company
    helps perform the hospital's discharge duties, the government might
    take the position that the company is offering free services in
    exchange for referrals. This would violate the Medicare/Medicaid
    anti-kickback statute.

    Indeed, in an August 1995 Special Fraud Alert, the OIG
    expressed a concern regarding the restriction of choice to Medicare
    beneficiaries. The OIG opined that a home care company's provision
    of discharge planners, home care coordinators or liaisons to the
    hospital in order to induce referrals is a form of a kickback.

    Such “helpfulness” is also a problem because
    hospitals must provide discharge planning to participate in the
    Medicare program — and are indirectly reimbursed for doing so
    as part of the administrative component of DRG/OPPS payments. Thus,
    when a hospital seeks Medicare or Medicaid payment, including
    discharge services not actually provided by the hospital because
    the home care company “helped,” the government may
    challenge the activity.

    The solution is to exercise care and caution. Relationships with
    home care companies must be structured carefully, justified,
    documented well and implemented appropriately. A home care company
    may work with a discharge planner to facilitate a patient's
    transition to the home after the referral occurs. But company
    personnel may not replace the discharge planner by, for example,
    initiating the first pre-discharge discussions with the patient,
    assessing a patient's needs, developing discharge plans or
    documenting the plan in the patient's file.

  • Joint Ventures

    An April 2003 OIG Special Bulletin expressed concern that
    joint ventures between hospitals and home care companies may
    sometimes be disguised kickback arrangements.

    In one of the OIG's examples, a hospital formed its own DME
    company that subcontracted with an existing DME supplier to help it
    serve home care patients. The subcontracted supplier then not only
    managed the new line of business but also supplied inventory,
    employees, space, billing and other services. Essentially, the
    hospital's DME company had contracted out almost its entire
    operation to the outside supplier — otherwise a potential

    The OIG said that this “turnkey” relationship was in
    fact a disguised kickback, giving the hospital “profits of
    the new business” in exchange for referrals to the
    subcontracted home care company.

  • Violating State Law

    Hospitals and affiliated home care companies could find
    themselves in trouble with the state in which they reside if they
    do not ensure a patient's ability to choose a home care provider.
    As an example, the Indiana Department of Health determined in March
    2003 that one of its hospitals violated patient freedom-of-choice
    requirements when (among other things) the hospital referred a
    patient to its own HHA without giving the patient a list from which
    to choose. The state ultimately required the hospital to submit a
    plan of corrective action.

  • Charity Care

    Many hospitals employ creative techniques to deal with
    increasing indigent patient populations. One tactic includes
    requiring HME providers to accept indigent patients in exchange for
    unassigned business from the hospital. In theory, such an
    obligation might subject the hospital to scrutiny under the
    anti-kickback statute because each party stands to benefit
    substantially from this arrangement.

    The hospital will not be obligated to provide uncompensated
    inpatient care to indigent patients who need home services, but
    whom no home care company will serve for free. The home care
    company would generate more reimbursed business by agreeing to
    accept the indigent patients.

    Yet with appropriate checks and balances, the provider may
    accept a hospital's indigent patient population and receive
    preferred status for referrals when the patient has not indicated
    another choice. A hospital may even mention that it will use its
    preferred provider if the patient does not otherwise have a
    preference. This type of arrangement should also be motivated by a
    charitable purpose, reduced to writing.

  • Unsafe Patient Communications

    Although the discharge planning process may create compliance
    cautions for a hospital that wishes to use the exclusive services
    of a preferred home care company, this type of relationship can
    have great benefits to everyone. The preferred provider is more
    likely to provide a high standard of care in order to maintain its
    relationship with the hospital. The hospital can rely on the
    continuity and consistency of the preferred home care company.

    Ultimately, the patient will enjoy the benefits of an
    appropriate preferred-provider relationship.

One key to ensuring compliance with the choice rules and to
rebutting the suggestion of improper referrals is for hospitals to
prepare oral and written text for discharge planners to inform
patients that they may use any provider they wish. Since hospitals
have a general duty to facilitate transitions for patients who
require any post-discharge care including DME, respiratory or
infusion therapy, hospitals may suggest home care suppliers based
on their ability to provide reliable, efficient care.

Home care companies often resist this suggestion. “Why
tell patients about competitors?”

Well, a carefully worded text about patient choice and options
will still result in the hospital's preferred provider getting most
of the referrals when the patient has no preference. As for the
remaining referrals, call them “insurance against legal
action.” Regardless, following a proper set of procedures for
handling referrals is essential in an increasingly competitive

Getting a Fair Shake

HME owners often ask whether it is possible to fight back
against abuses by hospitals or competitors in the discharge
planning process. The answer is “Yes — probably.”
Many home care companies have neither the money nor the stamina to
engage in a full-blown lawsuit to be treated fairly. But there are
other tactics that involve far less “saber-rattling”
— and far less money.

Specifically, communication is key. Most discharge supervisors
are open to calm discussions of whether their activities raise
concerns under federal law, Medicare rules, accreditation standards
and so forth. When they are resistant to the discussion, or when
they suggest that everything is fine because someone higher up
allegedly approved the activities, speaking with those higher-ups
often is quite effective.

Another approach is to communicate with the compliance officer
of the hospital or competitor. While many home care companies do
not have a formal compliance officer, most hospitals do.

This approach obligates the compliance officer to address the
issue, and to do so in a manner that will clearly be subject to
scrutiny. If the hospital then fails to look into the situation, it
would be vulnerable to charges that it failed to address a known
problem to the fraud-busters. This is just about the worst possible
offense any health care provider can commit.

At this point, it's fairly likely that an accommodation will be
made to fix the problem, or at least tone it down. This is
especially true because much of the time these problems are caused
by specific individuals being too aggressive, rather than because
official hospital policy is illegal. Conversely, if your company is
affiliated with a hospital, remember that your competitors are
watching closely. Some of them will contact my colleagues and me if
you are not doing things correctly.

Be sure to follow up any oral discussion with a written letter,
or even e-mail, confirming what was discussed and agreed.
(“You indicated that you would discuss my concerns with Mary
Smith, the director of admissions, and get back to me within two

If you are worried about retaliation if it is known that you are
the company complaining about perceived unfair treatment, you can
engage a health care attorney to have the conversation for you. But
you should assess honestly whether you can guarantee anonymity by
hiding behind a health lawyer. Will the hospital or the favored
competitor be able to figure out it is you anyway?

The discharge planning process can subject hospitals and home
care companies to scrutiny under a number of ways, but
opportunities abound for careful HME providers. Review your
hospital relationships to ensure your company operates consistently
and in a compliant way. Most compliance problems do not come from
poor program structure — but from sloppy operation.

Materials in this article have been prepared by the Health
Law Center for general informational purposes only. This
information does not constitute legal advice. You should not act,
or refrain from acting, based upon any information in this
presentation. Neither our presentation of such information nor your
receipt of it creates nor will create an attorney-client

Neil Caesar is president of the Health Law Center (Neil B.
Caesar Law Associates, PA), a national practice in Greenville, S.C.
He also is a principal with Caesar Cohen Ltd., which offers
compliance training and consulting, and the author of the Home
Care Compliance Answer Book
. He can be reached at or at 864/676-9075. or