I am surprised at the constancy with which clients ask for help with hospital discharge problems. Often I am asked to set up a preferred provider relationship
by Neil Caesar

I am surprised at the constancy with which clients ask for help
with hospital discharge problems. Often I am asked to set up a
“preferred provider” relationship that favors one home
care company as a default supplier for all patients without a
referral preference.

Other times I am asked to help with the opposite problem: to
help HME companies get a fair deal when a local hospital decides to
become a greedy bully and direct all business to a supplier from
which it derives a financial benefit.

Here are some tips for separating the good ideas from the dumb
ones: On the one hand, most home care companies do not realize that
hospitals are not required to alert discharged patients about every
home medical equipment option. This important
“loophole” in CMS policy eases the way for hospitals
and HME companies to establish “preferred provider
agreements” and other special contractual arrangements.

Section 4321(a) of the Balanced Budget Act of 1997 requires a
hospital's discharge planners to provide patients with a complete
list of providers of “home health services.” However, a
1997 internal CMS memorandum confirms that CMS currently interprets
the BBA's reference to “home health services” to apply
only to home health agencies. This narrow interpretation of Section
4321(a) is generally not understood by hospitals and home care

A preferred provider agreement is a formal contract arrangement
that allows an HME company to promise a hospital that it will
guarantee the availability of specific services, as well as (if
desired) information on accessibility, education services, etc.,
whenever patients are referred to the company.

The HME company hopes for an increase in the hospital's
awareness of (and comfort with) the preferred provider, but this
need not be contractually required. The safer route is to make this
optional, even though it will happen most of the time. Many PPAs,
however, do make it mandatory.

One the other hand, too many hospitals these days ignore the
many rules that apply to these relationships. First, any
preferred provider agreement should be administered carefully and
with diligent attention to guidelines ensuring patient choice
Patient freedom of choice does continue to be a mandatory part of
the hospital's continued compliance with the Medicare Conditions of
Participation. It is also an important safeguard against kickback
allegations when the hospital benefits financially from the

Second, I prefer setting up these hospital-home care
preferred arrangements so that there is no financial element
included in the relationship
. After all, the hospital gains
accessibility and availability from a quality service provider for
its discharged patients. Sometimes the home care provider offers
other enhanced services as well, so there is a real benefit to the
hospital even without the financial aspect. This also avoids some
of the structural and operational problems that can arise under the
anti-kickback laws and other relevant self-referral laws.

Third, the BBA does not prohibit hospitals from giving
patients factual information or opinions about agencies only as
long as they don't steer people inappropriately or deny their
. Hospitals may refer discharged patients to a preferred
agency only if the patient has no preference. Further, if a
preferred provider offers additional services to referred patients,
this may be communicated to the patient. But be careful. CMS will
be quite wary of these arrangements if they include financial
benefit to the hospital.

Fourth, the BBA does require patient disclosure of any
relationships which include a financial benefit to the hospital,
even for HME companies
. Section 4321(b) of the BBA makes this
financial disclosure mandatory. Yet many hospital ignore this key

Certain relationships will still pass legal muster even if they
include a financial arrangement between the parties. If the
relationship does not tie utilization to payment, these
arrangements can satisfy the requirements of the anti-kickback
laws. But the devil is in the details. The parties must also check
state law requirements.

To create the simplest and safest preferred provider system:

  • Hospitals should favor relationships where they don't benefit
    financially from the arrangement.

  • Discharge planners should not persuade a patient to choose a
    particular company.

  • Hospitals cannot steer people based on financial incentive, or
    deny their choice.

Hospitals and home care companies should work together to
prepare an oral text for discharge planners to use to inform
patients that they may choose any provider they wish, while still
giving them information about the preferred provider's availability
if there is no alternate choice, as well as information about any
additional services offered by the preferred provider.

These guidelines will help you identify when a preferred
provider opportunity may present itself. They will also help you
know when a hospital is not playing fair — and when you
should fight back.

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 relationship.

Neil Caesar is president of the Health Law Center (Neil B.
Caesar Law Associates, PA), a national health law practice in
Greenville, S.C. He also is a principal with Caesar Cohen Ltd.,
which offers compliance training, outsourcing and consulting and
the author of the Home Care Compliance Answer Book. He can be
reached by e-mail at target="_blank">ncaesar@healthlawcenter.com or by telephone at