Opportunities continue to abound for home medical equipment providers to collaborate with physicians, hospitals, sleep labs and entrepreneurs to enter
by NEIL CAESAR

Opportunities continue to abound for home medical equipment
providers to collaborate with physicians, hospitals, sleep labs and
entrepreneurs to enter joint ventures for sleep studies and for the
provision of sleep therapy equipment.

These opportunities can be structured so that they comply with
the federal law's requirements. But sometimes these ventures are
invitations for disaster with the potential to expose providers to
scrutiny, fines and penalties — or worse — under the
anti-fraud and abuse and Medicare reimbursement requirements.

Let's look at some of the more frequent and most interesting
legal blunders that home care companies make when pursuing venture
opportunities for sleep labs or sleep therapy equipment, along with
several collaborative arrangements that minimize legal risk.

Revenues from treating sleep ailments continue to increase
dramatically. At least 45 percent of sleep patients are age 49 or
under, and 60 to 67 percent are age 60 or under. This means that
joint ventures in the sleep field do not necessarily need Medicare
patients in order to be profitable. In fact, you may find that your
best and safest collaborative opportunities involve private-pay
patients only.

Also, CPAP reimbursement rules are often more generous for
non-Medicare patients, and the conditions for payment are sometimes
more lenient. This reimbursement reality guides many collaborators
toward private-pay sleep ventures as well.

Here are five of the most important legal rules that are key for
real-life sleep joint ventures.

A medical equipment supplier should not own a sleep lab if it
wishes to get government reimbursement for CPAP referrals from that
lab. But, the owners of the HME company may own the sleep
lab.

Under the Medicare reimbursement rules, a CPAP supplier may not
perform polysomnographic studies that result in CPAP referrals to
that supplier. This prohibition is similar to the rule for
oximetry, which disallows referrals to a respiratory therapy
supplier if it has a financial relationship with the entity that
performs the oximetry test.

However, the CPAP/sleep study reimbursement rule has a couple of
substantial loopholes. First, it does not apply to hospitals. A
hospital may provide a Medicare-reimbursed sleep study even if the
hospital is also a DME supplier. Conversely, a hospital sleep study
may result in a Medicare-reimbursed referral for DME supplied by
the hospital.

Second, the prohibition only applies to sleep studies performed
by a DME supplier. If the supplier's owner also has an ownership
interest in a sleep lab, the prohibition will not apply, and the
lab's sleep studies are eligible for government reimbursement as
will be any DME referrals resulting from the sleep study. (The
anti-fraud rules will still apply, however.)

Investors or employees of DME suppliers may become investors or
employees of sleep labs without jeopardizing either's ability to be
reimbursed by Medicare for referred services or equipment. Finally,
a DME supplier may provide CPAP to government-reimbursed patients
even if it owns the sleep lab, as long as the sleep lab serves
non-government-reimbursed patients only.

  • An HME company should not provide turnkey sleep lab or CPAP
    services or equipment to a hospital, medical group or other health
    care provider, especially if it includes services or equipment for
    government-reimbursed patients.

    The federal anti-kickback statute prohibits anyone from
    soliciting or receiving anything of value (called
    “remuneration”) in return for referring a
    government-reimbursed patient or arranging for any item or service
    to be furnished to that patient; or in return for purchasing or
    leasing any government-reimbursed good, service, etc.

    It is equally unlawful for anyone knowingly or willfully to
    offer or pay such remuneration. Federal fraudbusters have declared
    that they are prone to investigate any collaboration between a
    sleep lab or a DME supplier and a referral source, whenever the
    supplier or sleep lab does virtually all of the work involved in
    the collaboration and/or provides virtually all of the equipment,
    supplies, personnel, etc.

    The feds reason that if the subcontractor “does it
    all,” it essentially looks like a smokescreen for referral
    payment. To the government, there is little difference between
    saying, “I will set you up in a sleep lab or CPAP business
    and do all the work for you in exchange for 80 percent of
    revenues,” and saying, “If you refer all of your
    business to me, I will give you a 20 percent kickback.” In
    both cases, the government reasons, the referral source gets
    rewarded for referring patients.

    Even more troubling, the government has recently taken the
    position that its concern applies to all such collaborations, even
    if they do not focus on government-reimbursed patients:

    “The [Office of Inspector General] has a long-standing
    concern about arrangements pursuant to which parties “carve
    out” referrals of Federal health care beneficiaries or
    business generated by Federal health care programs from otherwise
    questionable financial arrangements. Such arrangements may violate
    the anti-kickback statute by disguising remuneration for Federal
    referrals through the payment of amounts purportedly related to
    non-Federal business.”

    The feds are concerned that a sleep lab or CPAP supplier may
    offer a “sweetheart” deal to a referral source. With
    excessively favorable terms, such a deal would enable the referral
    source to provide sleep lab services or CPAP equipment to
    private-pay patients in exchange for the referral source sending
    its government-reimbursed patients to the lab or supplier.

    Suppose the subcontracting party doesn't do
    “everything?” If the subcontractor merely provides most
    of the services and equipment, it is still a turnkey operation?
    There is no clear answer to this question. The more the workload is
    handled by one party only, the more the legal risk increases. Which
    party makes pricing decisions? Who handles day-to-day operations?
    Who hires or pays for personnel? Inventory? These are some of the
    questions that will shape the legal risks.

  • A collaboration for sleep lab services or CPAP equipment must
    not subsidize one party's risk, particularly if
    government-reimbursed patients are involved.

    One common mistake home care companies make with sleep ventures
    involving referral sources is to subsidize the referring party's
    risks. It is not enough to focus just on revenues. So, perhaps a
    sleep lab is purchasing equipment from a CPAP supplier at a highly
    discounted rate, and then refers Medicare business to that
    supplier. The feds might question whether this arrangement rewards
    the sleep lab for its Medicare referrals with an excessive purchase
    discount.

    Or perhaps an HME company is providing equipment and services to
    a medical group for a fair fee, but does not bill the group until
    it has been reimbursed for the equipment or services it provides to
    patients. In this instance, the government may view the excessively
    favorable billing terms as a form of referral kickbacks since the
    medical group must pay for services only when it has obtained a
    profit from the equipment or services.

    When evaluating the safety of any sleep collaboration, don't
    just look at how revenues are allocated. Also look at whether costs
    are subsidized, profits are more certain because of favorable
    billing terms or payments are timed to minimize hardship to the
    referral source.

  • Because of the Stark Law, home care companies probably should
    avoid collaborations with medical groups to provide CPAP equipment
    and services to Medicare or Medicaid patients. But, the
    “non-attribution” and “rural” exceptions
    can offer profitable opportunities in certain
    circumstances.

    The so-called Stark Law has become one of the most notorious and
    ill-understood weapons in the government's arsenal of anti-fraud
    legislation. While the law revolves around physicians, it impacts
    all referrals between physicians and providers generally, including
    HME companies. The rule states that a physician may not refer a
    patient for a “designated health service” to an entity
    with which the physician has a financial relationship. Further, the
    entity may not present a claim or bill for such services.

    The list of designated health services includes “durable
    medical equipment and supplies.” Thus, a physician who refers
    a patient for CPAP equipment may not have a financial relationship
    with that DME supplier unless that relationship falls into one of
    the Stark Law's exceptions.

    There is a specific carve-out for some DME, as part of the
    broader exception that covers services provided in a medical
    practice's facility. But that exception is limited to ambulatory
    infusion pumps, blood glucose monitors and a few other ambulatory
    devices necessary for the patient to be able to leave the office
    (crutches, canes, walkers, folding manual wheelchairs, etc.).

    An argument perhaps could be made that CPAP equipment, with its
    heavy educational component, should be implicitly included in this
    category. But that argument has not yet been tested with the
    feds.

    Some attorneys and consultants have suggested that a loophole
    may exist for services “personally performed” by the
    physician. The idea here is that if the physician personally hands
    the CPAP to the patient, personally educates, fits and calibrates
    the equipment, then no referral has been made and the Stark Law
    should not apply. In fact, some commentary surrounding the Stark
    Law arguably supports this response.

    However, home care companies should tread very carefully before
    embracing this supposed “loophole.” First, the CMS
    commentary is ambiguously written. It is quite unclear from CMS'
    comments whether the DME must be integrally tied to the
    professional services provided by the physician in order to fall
    within the loophole.

    All of the other examples in the CMS commentary addressed
    materials provided as a necessary component of the office visit. It
    is difficult to argue that CPAP must be provided as part of an
    office visit.

    This loophole also is rather impractical. It is highly unlikely
    that physicians will consistently provide every aspect of the CPAP
    delivery. Will the physician handle all of the fitting? Will the
    physician personally comply with the necessary supplier standards?
    Is it enough for the physician to supervise a nurse or other
    support professional who handles these duties?

    There is no guidance from the government on these questions.
    Also, this broad interpretation renders the very limited DME
    exception mentioned earlier quite meaningless. A physician could
    instead open a “full service” DME store as part of an
    office practice, with personal services by the physician.

    Certainly this loophole may ultimately turn out to be valid. It
    has some particular resonance for CPAP where the fitting and
    education are important components of the equipment service. But
    the consequences of guessing wrong for this potential loophole are
    severe. Not only would all of the reimbursement need to be repaid
    to the government but fines and civil money penalties would follow
    each referral.

    Each HME provider must decide if these risks are worth the
    potential benefits.

    There are, however, two Stark Law exceptions that would permit a
    home care company to have a joint venture collaboration with a
    physician for the provision of CPAP equipment and services to
    Medicare and Medicaid patients.

    First, the Stark Law states that a physician's financial
    relationship with a designated health service entity (such as a DME
    supplier) will not be transferred to the physician's group
    practice. This means that other members of the group practice may
    continue to make referrals to the DME supplier, as long as the
    physician with the ownership relationship does not so refer.

    The government cautions, however, that in such an event, the
    group must ensure “that the members do not have financial
    relationships with the entity and the physician with the financial
    relationship is not in a position to control the referrals of the
    other group members
    .” It is often a challenge to ensure
    that the medical group's method for income division does not reward
    the referring physicians for their loyalty to the
    physician-owner.

    The final exception applies to “rural providers.”
    Physicians may have an ownership interest in a DME supplier if at
    least 75 percent of the DME provided by the supplier goes to
    residents outside of an urban area. This is a highly underutilized
    exception, that offers some real opportunity to
    progressive-thinking home care companies.

  • Service relationships between HME companies and physicians
    often fall into Stark Law exceptions, thus allowing referrals by
    the physicians of CPAP equipment and services.

    There are a number of potential compensation relationships
    between a home care company and a physician that will satisfy the
    Stark Law's exceptions, and scrutiny under the anti-kickback law as
    well.

    A home care supplier may rent space from a physician for the
    provision of DME services. A home care company whose owners also
    own a sleep lab may lease equipment from a physician. A referring
    physician may serve as a medical director to a home care
    company.

    In all of these examples, the Stark Law requires that the
    arrangements be in writing and signed by the parties; that they
    specify the specific services being provided; that the fees to be
    paid are set in advance; that the contracts be comprehensive and
    identify all of the services to be provided; that the relationships
    last for at least one year (or, if terminated, that no new
    relationship starts up within the year); that the amount paid is in
    no way tied to the volume or value of referrals or other business
    generated between the parties; and that the services provided be
    reasonable and necessary for legitimate business purposes.

    This last requirement is often a lurking danger for providers
    that seek these sorts of relationships. Does the company really
    need that medical director relationship? What is the physician
    providing that the company cannot obtain otherwise? Will the
    physician offer useful and ongoing benefits as to equipment
    purchases or training of support professionals, or education to
    other physicians?

    As another example, if a DME supplier wants to lease space from
    a medical group, will it be able to use that space for services to
    outside parties, that is, customers who are not patients with the
    medical group? If the only business the home care company receives
    in its “physician office” location are patients
    referred by the medical group, the government may argue that the
    rent paid is a reward for the referrals. (This is also an
    anti-kickback concern.)

    Notwithstanding these dangers, these sorts of compensation
    arrangements are often practical solutions for the hurdles (or
    barriers) imposed by the Stark Law for collaborations with
    physicians for the provision of CPAP equipment to Medicare/Medicaid
    patients.

    There are real and significant revenue opportunities from sleep
    lab services and from CPAP equipment and support. Smart home care
    providers are particularly interested in these opportunities
    because of their substantial and continued growth and because they
    extend beyond the elderly market reimbursed by Medicare.

    As long as your company is mindful of the rules, there are many
    collaborative opportunities available to tap into or expand in this
    market. If you move cautiously and intelligently, you may pursue
    these opportunities safely and profitably.


    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 ncaesar@healthlawcenter.com or by phone at
    864/676-9075.

    Wide Range of Venture Options

    There are many options for potential affiliations. Home care
    companies may partner with physicians for office sleep labs or for
    the provision of CPAP equipment. They may collaborate with
    hospitals for the provision of on-campus or off-campus sleep labs
    or to help the hospital expand into HME, or CPAP in particular.
    Other times, home care providers may partner with independent sleep
    labs to expand their services to include medical equipment or to
    provide management services.

    The range of potential collaborative arrangements is broad as
    well. An HME company may enter into a preferred provider
    arrangement with a hospital, medical group, sleep lab or other
    referral source, guaranteeing access, availability, etc., in
    exchange for being the “go-to” provider whenever the
    sleep patient has no referral preference.

    Alternatively, an HME company may offer a wholesale rate
    agreement to another provider, enabling that provider to obtain
    CPAP equipment at a discount.

    Another category for collaboration involves joint ventures for
    operational activities. Perhaps a home care company will
    subcontract with a medical group for support services to enable the
    group to offer CPAP equipment to their patients. Perhaps the owner
    of a home care company may contract to manage a hospital-affiliated
    sleep lab. Or perhaps a home care company may become a co-owner of
    a sleep lab or a hospital-affiliated HME company.

    The final category for potential collaborative relationships
    involves the provision of specific services. A physician may serve
    as a medical director for a home care supplier. Perhaps a medical
    group located at some distance from the home care company might set
    up a professional support arrangement to assist the company in
    providing set-up and education services to distant patients. A home
    care company could serve as a landlord or tenant for a space lease,
    or might set up a consignment closet with a sleep lab or medical
    group, or might lease equipment to a sleep lab.

    From the list of possibilities, it should be clear that the
    variety of venture opportunities is extremely broad, and ranges
    from fully integrated collaborations to specific, limited support
    services.

    Also, if a home care company seeks to collaborate in some
    fashion, it should remember that, clearly, there are many different
    ways to forge an alliance.