Sleeping Through Trouble

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.

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.

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 [email protected] 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.