Increase Retail Sales and Avoid Legal Pitfalls

There is a perfect storm of events that is pushing DME suppliers into the retail market. First, we have the ill-conceived and illogical competitive bidding program that is preventing a number of DME suppliers from billing Medicare for specified items in CBAs. Then, we have CMS contractors that are aggressively conducting post-payment audits and recouping money previously paid by Medicare. Because of increasingly stringent documentation requirements, DME suppliers are finding it more difficult to collect from Medicare in the first place. As a result of competitive bidding and other factors, Medicare reimbursement is shrinking. Additionally, there are 78 million baby boomers who are retiring at a rate of 10,000 per day. These boomers are accustomed to paying their own way and they understand that they will have to pay out-of-pocket for a chunk of their medical services. Boomers will want to live out their days in their homes, not in a long term care facility. Boomers are accustomed to shopping retail, whether in person or via the internet. They understand that the most valuable asset they have is time. Boomers do not want to spend their time waiting around on Medicare. This perfect storm opens up opportunities for the supplier to increase its presence in the retail market. For purposes of this article, I define ‘retail market’ as any market that does not involve the federal or state government as the payer. In the retail market, the payer will be the consumer (out-of-pocket) and commercial insurers. At first blush, the DME supplier may think that because it is not dealing with Medicare or Medicaid, then it does not have to worry about federal and state statutes and regulations. While that may be true in the auto parts industry, it is not true in the health care industry. Not all health care providers live in the real world. They live in a confusing world, where up is down, down is up, and every day the provider must climb through the proverbial rabbit hole. This article will address the many statutory and regulatory issues that the DME supplier must address as it pushes into the retail market. Federal Anti-Fraud Statutes, Safe Harbors, OIG Advisory Bulletins, OIG Special Fraud Alerts and Supplier Standards—Most DME suppliers that venture into the retail market are also Part B suppliers and they bill Medicare and Medicaid for covered items. When the suppliers move into the cash and commercial insurance market, they nevertheless need to be aware of how federal statutes and regulations have an impact on their retail business. For example, let’s say that ABC Medical Equipment, Inc. enters into a 1099 independent contractor arrangement with John Smith, a marketing rep. Smith generates both commercial and Medicare business for ABC. However, ABC pays commissions to Smith only for the commercial business; ABC pays nothing to Smith for the Medicare business. At first thought, ABC may feel comfortable that it is not violating the Medicare anti-kickback statute. However, the OIG has stated that the commissions being paid for the commercial patients are also rewarding Smith for generating Medicare business—hence, a violation of the anti-kickback statute. State Anti-Fraud Statutes—All states have anti-fraud statutes. These are similar to their federal counterparts. Some state statutes come into play only when the payer is the state’s Medicaid program. Other state statutes apply even when the payer is a commercial insurer (or the consumer paying cash). Some states specifically incorporate the federal safe harbors while others do not. Look at the example in the above paragraph. Assume that Smith only generates commercial business for ABC. The arrangement will be acceptable in a state in which its anti-kickback statute only applies when the payer is the state’s Medicaid program. On the other hand, the arrangement will be prohibited in a state in which its anti-kickback statute applies even if the payer is a commercial insurer. Selling Items to Cash-Paying Customers at a Discount off the Medicare Allowable—Assume that ABC sells Medicare-covered items and takes assignment. Further assume that ABC sells the same items for cash at a discount off the Medicare allowable. In doing this, ABC needs to be aware of the federal statute that prohibits a DME supplier from charging Medicare substantially in excess of the supplier’s usual charges, unless there is good cause. Unfortunately, CMS and the OIG have not given clear guidance on what “substantially in excess,” “usual charges” and “good cause” mean. Over the years, in advisory opinions and other publications, CMS and the OIG have attempted to clarify what these terms mean. Such attempts have been inadequate. The clearest (and this is a relative term) guidance that the government has given was in a rule that was proposed in 2003 and withdrawn in 2007. Under this proposed rule, the DME supplier’s usual charge should not be less than 83 percent of the Medicare fee schedule (i.e., up to a 17 percent discount from the Medicare fee schedule). Under the proposed rule, there would be an exception for “good cause,” which would allow a supplier’s usual charges to be less than 83 percent of the Medicare fee schedule, if the supplier can prove unusual circumstances requiring additional time, effort or expense, or increased costs of serving Medicare and Medicaid beneficiaries. The proposed rule would include charges of affiliate companies into the calculation of a DME supplier’s usual charge. While this proposed rule (later withdrawn) is not the law, it does give the DME supplier the government’s views toward a DME supplier selling items to cash-paying customers at a discount off the Medicare allowable.

Purchase of Internet Leads—This is a hot area in terms of enforcement actions brought by the Department of Justice, Office of Inspector General, the NSC and the ZPICs. When purchasing internet leads, it is critical that the DME supplier not violate the Medicare anti-kickback statute. In particular, if the DME supplier purchases a qualified lead, the supplier cannot pay for the lead on a per lead basis. When communicating with leads, it is equally as critical that the supplier not violate the telephone solicitation statute nor Supplier Standard No. 11. Tapping into Non-Traditional Payer Sources—In lessening its dependence on Medicare fee-for-service, the DME supplier should look for other sources of income: cash sales, long term care facilities, hospices, the V.A., TRICARE, Medicare Advantage, Medicaid, workers compensation and self-pay employers. Collection of Co-Payments—At the end of the day, the law requires the DME supplier to make a reasonable effort to collect co-payments, regardless of whether the payer is Medicare or a commercial insurer. Failure to make such a reasonable effort can expose the supplier to liability under the Medicare anti-kickback statute, state anti-kickback statutes, federal and state inducement statutes, federal and state false claims acts and state insurance fraud statutes. The same exposure to liability exists if the supplier routinely waives co-payments. Bankruptcy, Estates, Divorce and Other Self-Pay Scenarios—As the supplier makes a reasonable effort to collect co-payments, the supplier needs to understand the steps it can take in the event that the customer files bankruptcy, dies, becomes disabled or goes through a divorce. Sales Taxes—If the DME supplier has a physical presence in a state, and sells products to customers located in that state, then the supplier will be responsible to pay sales taxes. On the other hand, what if the supplier mails products to customers in another state (and the supplier has no connection with that other state other than mailing products into it)? Is the supplier responsible for sales taxes in the state into which the supplier mails products? Will the answer change if the DME supplier has a marketing rep in the state into which the supplier mails products? Qualification as a Foreign Corporation—Let’s say that ABC is incorporated in Montana and ABC mails products into Utah. In fact, ABC’s only connection with Utah is that it mails products to Utah residents. Under the law, ABC is a foreign corporation to Utah. Must ABC qualify as a foreign corporation in Utah? Will the answer change if ABC has some other connection with Utah, such as having a marketing rep in Utah? Communications with Prospective Customers—Separate and apart from the telephone solicitation statute and Supplier Standard No. 11, the DME supplier must be aware of, and comply with, FTC and FCC regulations and with the federal “CAN-SPAM Act.” Equally as important, all states have statutes and regulations addressing communicating with potential customers; the supplier must be aware of the state statutes and regulations. State Licenses—Even if the DME supplier is selling products to commercial customers, the supplier needs to be aware of state licensure requirements. The NSC posts state licensure requirements on its website. However, the NSC website is not entirely accurate and it is the supplier’s responsibility to confirm each state’s licensure requirements. In many states, as to whether the supplier must obtain a license is determined by the type of product that the supplier will sell.