Point Counterpoint

For an HME company that provides products and services to patients covered by Medicare and Medicaid, marketing is guided by federal statutes and regulations that protect and guard the integrity of the programs. This does not mean that you must restrict your creativity in marketing; however, you must abide by the law.

A Note about Colette and Jeff

The story goes like this: An environmentalist and an oil driller are standing on the top of a hill looking over a pristine valley with elk, streams and trees. The environmentalist sighs and says, “What a sight.” The oil driller sighs and says, “What a site.” In other words, beauty is in the eye of the beholder.

The same is true when it comes to looking at marketing programs.

Colette Weil is an expert in marketing. For years, she has advised HME providers on how to grow their businesses by implementing innovative marketing programs.

According to Colette, marketing is the lifeblood of every business. You might have the best product mix, the best service, the best prices and the greatest website. But if no one knows about you, it doesn’t really matter, she says. “Marketing is what keeps pumping new life into the veins of the business. I know of no attorneys who have built HME businesses. Entrepreneurs and creative people build businesses.”

As Colette says: “What a sight.”

Jeff Baird is a health care attorney. For years, he has advised HME providers on how to implement marketing programs legally and, in doing so, how to avoid legal pitfalls.

According to Jeff, in the real world businesses can do just about anything they want when it comes to marketing. However, he says, “HME suppliers are not in the real world — they are in Alice in Wonderland. HME suppliers have to adhere to rules that do not apply in the real world.”

As Jeff says: “What a site.”

In this special presentation for HomeCare, Colette the marketing expert poses real-world marketing scenarios, and Jeff the health care attorney responds with his thoughts. As you will see, they’re both right on.

Scenario 1: Marketing Direct to Your Own Beneficiaries

Colette: Commonly accepted marketing wisdom is that your current customers are your “best value” customers and offer the fastest way to increase revenue. They are cheapest to market to because they are already using you; you don’t have to spend money finding them. They will buy more from you in the average sale or obtain other Medicare items from you if they have the choice. They stay with you longer, have a higher average customer lifetime value, and they will refer others to you.

Here are some programs that can directly leverage your current base:

• You make customer service calls using a script to inform existing customers of other items that are commonly used with their primary equipment.
• You send direct mail describing companion items to customers’ primary equipment.
• You email questions and answers about common products.
• Your delivery technician leaves information on common items used with primary DME that is delivered. The tech sells from the truck, and FAQs are also provided.
• A catalog is mailed by customer service or delivered by the tech.

Jeff: I am comfortable with this scenario. This scenario is partially governed by the federal telephone solicitation statute, which states that an HME supplier may not contact a Medicare beneficiary by phone regarding the furnishing of a covered item unless:

• 1. The beneficiary has given written permission for the contact; or
• 2. The supplier has previously provided the covered item to the beneficiary and the supplier is contacting the beneficiary regarding the covered item; or
• 3. If the telephone contact is regarding the furnishing of the covered item other than an item already furnished to the beneficiary, the supplier has furnished at least one covered item to the beneficiary during the preceding 15 months.

• Colette’s first bullet falls within an exception to the telephone solicitation statute. Looking at the second and third bullets, there is no prohibition against mailing literature (“snail mail”) to a beneficiary. It is also permissible to email information to beneficiaries so long as the requirements of the federal Can-Spam Act are met (e.g., giving the beneficiary the right to opt out).

There are no prohibitions against the examples in the fourth and fifth bullets.

Scenario 2: Discounts and Cash Sales

Colette: Nearly everyone uses the Internet to research products and pricing. Medical equipment and supplies are popular Internet items. Internet companies, which do not bill Medicare/Medicaid, sell at deep discounts. Internet companies invest in search engine marketing and some print and mail catalogs.

An HME supplier that bills Medicare/Medicaid is restricted in how deep a discount (off the Medicare allowable) it can sell a covered item to a cash customer. The standard rule is that you cannot bill Medicare more that your usual charge, which translates to median, or average. There’s no clear line. But common thinking is that you cannot discount more than 17 percent below the Medicare allowable on a covered item. Special sales, discounts and promotions are just that: special, not usual and customary.

Here are some examples:

Example 1: 20% off all bath safety, commodes and related items for the month of June. This program is run three times a year.

Example 2: A holiday special 20% coupon (email, print) off of all power lift chairs

Example 3: 15-20% off transport wheelchairs and special clearance wheelchairs

Example 4: 20% off of a specific model of a product

Example 5: A clearance corner where all items are 40% off

Example 6: An “item of the week” at 30% off

Example 7: A free pillow with an over-the-bed table

Jeff: In considering these scenarios, we need to look at CMS/Office of Inspector General guidance on giving cash discounts on covered items, the beneficiary inducement statute and the Medicare anti-kickback statute.

An HME supplier is prohibited from charging Medicare substantially in excess of the company’s usual charges unless there is good cause. (See 42 U.S.C. 1320a-7(b)(6)(A) and 42 CFR 1001.701(a)(1).) The current regulations do not give any guidance on what constitutes “substantially in excess” or “usual charges.” An HME supplier that violates this prohibition is subject to exclusion from federal health care programs (42 CFR 1001.701(a)).

While there have been some efforts by the OIG to define “substantially in excess” and “usual charges,” no final rule has been issued. The most recently proposed rules contemplate the “usual charge” to be either the average or median of the supplier’s charges to payers other than Medicare and some others. (See generally 68 FR 53939, Sept. 15, 2003.) Under these proposed rules, an HME supplier’s usual charge should not be less than 83 percent of the Medicare fee schedule amount (i.e., up to a 17 percent discount from the Medicare fee schedule).

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 rules would include charges of affiliated companies into the calculation of a supplier’s usual charges.

CMS declined to promulgate the proposed rules into a final rule (72 FR 33430, 33432, June 18, 2007). Therefore, while there is no final rule to give the industry absolute guidance, the proposed rules give the clearest indication of the government’s thoughts toward this issue.

The federal beneficiary inducement statute imposes civil monetary penalties upon a person or entity that offers or gives remuneration to any Medicare beneficiary (or beneficiary under a state health care program) that the offeror knows, or should know, is likely to influence the recipient to order an item for which payment may be made under a federal or state health care program. In the preamble to the regulations implementing this provision, the OIG stated that the statute does not prohibit the giving of incentives that are of “nominal value.”

The OIG defines “nominal value” as no more than $10 per item or $50 in the aggregate to any one beneficiary on an annual basis. “Nominal value” is based on the retail purchase price of the item.

Under the Medicare anti-kickback statute, it is a felony for a person or entity to knowingly or willfully solicit or receive any remuneration in return for referring an individual for the furnishing or arranging for the furnishing of any item for which payment may be made under a federal health care program, or in return for purchasing, leasing, or arranging for or recommending the purchasing or leasing of any item for which payment may be made under federal health care programs.

Likewise, it is a felony for a person or entity to knowingly or willfully offer or pay any remuneration to induce a person to refer a person for the furnishing or arranging for the furnishing of any item for which payment may be made under a federal health care program, or the purchase or lease or the recommendation of the purchase or lease of any item for which payment may be made under a federal health care program. These prohibitions do not apply to any amount paid by an employer to an employee.

With these guidelines in mind, let’s look at the scenarios Colette has posed.

Example 1: This is low risk. Twenty percent is close to 17 percent. If the supplier is ever questioned, it will need to be able to produce evidence that selling an item at a 20 percent discount off the Medicare allowable is justified by the cost savings resulting from not having to deal with Medicare. In addition, some of the items may not be covered by Medicare.

Examples 2, 3 and 4: The same goes here as in the response for Example 1.

Example 5: I am OK with this so long as once the product is gone (“cleared out”), then the supplier does not start selling the product again.

Example 6: This is aggressive. So long as the supplier follows the guidelines for Example 1, then the chances of an enforcement action brought against the company are not high. But I would like to see an item be an “item of the week” only one time during the year.

Example 7: The supplier can advertise that it will give a free pillow so long as the pillow has a retail value of $10 or less. If the pillow has a retail value greater than $10, then the supplier can give the pillow to the customer after the fact, that is, after the customer has made the decision to purchase the over-the-bed table. By giving the pillow “after the fact,” then the free pillow is not used as an inducement. (This answer presumes that the over-the-bed table is a Medicare-covered item. If it is not, then the beneficiary inducement statute does not apply.)

Scenario 3: Events, Promotions, Contests, Giveaways

Colette: The purpose of marketing tools is to engage the consumer, get them into your store, get their email or snail mail address and sell to them. They involve advertising and promotion. Once again, restrictions apply to the Medicare audience in that you cannot spend more than $10 retail or $50 total per year per beneficiary on incentives.

Seniors like coupons, contests, giveaways, free food, vacations and other promotional angles. Keep in mind that all prizes and contest values are divided by the total number of participants.

So, if a drawing for a vacation getaway costs you $300 and 200 people participate in the drawing, that comes out to $1.50 per person. But you may also be spending $2,000 or more to promote the giveaway.

Example 1: An HME company has a grand opening (or re-opening or celebration jubilee), where manufacturers donate giveaway prizes (such as a lift chair, TV or iPad). People must enter the drawing (no restrictions) and give their name and email with permission given to the provider to contact them. There is complimentary transportation for senior communities, a wine/appetizer social for referral sources and door prizes and free food daily.

Example 2: A vacation getaway drawing features ADLs and mobility with a free trip for two to a local casino (one night and three meals, plus a beauty salon visit) valued at $300.

Example 3: A “Watch ‘n Relax” Father’s Day or Mother’s Day giveaway includes a drawing for an HDTV valued at $2,000. Your HME company uses a sticky note drawing entry on the local newspaper (which is expensive, but it works).

Example 4: The HME company hosts seniors or caregiver meetings, and provides food, pens and pads, with the net cost at $7 per person.

Jeff: I am comfortable with Example 1. The card that the customer fills out should say that the customer gives the HME supplier permission to call the customer. It is important that the supplier not go overboard in conducting the grand opening. For example, a one-week grand opening would be proper, while a one-month grand opening would be too aggressive.

Example 2: I am also comfortable with this as long as the supplier offers a vacation getaway drawing no more than once a year. It is important that the drawing be open to all those who walk through the company’s front door.

Example 3: This giveaway is aggressive, and it makes me feel uncomfortable. Giving away an HDTV for a special event such as a grand opening is justified. However, “Mother’s Day” and “Father’s Day” are not that special (each happens once a year). I am not saying that giving away an HDTV for Mother’s/Father’s Day would trigger an enforcement action, but the risk is there.

Example 4: I am comfortable with HME companies hosting such meetings. However, let’s not do this every month — perhaps once every three months.

Colette Weil, MBA, is managing director of Summit Marketing, Mill Valley, Calif., a consulting firm specializing in strategic marketing and program development. You can reach her at [email protected] or 415/388-5303.

Jeffrey S. Baird, Esq., is chairman of the Health Care Group at Brown & Fortunato, P.C., a law firm based in Amarillo, Texas. He represents pharmacies, infusion companies, home medical equipment companies and other health care providers throughout the United States. Baird is board-certified in health law by the Texas Board of Legal Specialization. He can be reached at 806/345-6320 or [email protected].