WASHINGTON--The Department of Health and Human Services Office
of Inspector General said a proposed program that would allow
physicians to become DME suppliers could violate Medicare's
anti-kickback statute.

A DME manufacturer and supplier, whose name was withheld,
recently had inquired whether this and a similar program would
constitute grounds for sanctions.

Under a proposal that would allow physicians to become DME
suppliers, the manufacturer/supplier would sell DME and orthotics
to physicians under a pre-arranged fee schedule. The program would
only apply to patients who are not members of a federal health care

In the second program--which would apply to patients of both
federal and non-federal health plans--the manufacturer/supplier
would remain the DME supplier by renting product storage space from
the physician, paying the physician a percentage of the revenues
generated from the sale and rental of products and providing the
physician practice with a trained technician.

In a posted response, the OIG said these programs could
potentially violate Medicare's anti-kickback statute and result in
administrative sanctions.

"The first proposed program would essentially amount to a
contractual joint venture for private pay business," the OIG said.
"The proposed program offers physician practices the potentially
lucrative opportunity to expand into the DME and orthotics business
with little or no business risk and to retain a share of profits
from DME and orthotics business generated by the physician

In the second program, leasing space from a physician could pose
a problem, the OIG explained.

"While we are precluded from determining whether the rental
amount under the consignment closet portion of the arrangement
would be fair market value, a key element of compliance with the
space rental safe harbor, we have a long-standing concern that such
rents may exceed fair market value and may be disguised kickbacks
to a physician-landlord for federal program referrals," the OIG

But, the response continued, "any definitive conclusion
regarding the existence of an anti-kickback violation requires a
determination of the parties' intent," which is "beyond the scope
of the advisory opinion process."

To read the OIG advisory opinion,
click here