Q&A: Moving into Retail Sales

AMARILLO, Texas — “Years ago, there was a television
commercial advertising that Oldsmobile automobiles are ‘hip,’
‘sexy’ … in other words, not boring,” recalls health care
attorney Jeff Baird of Brown & Fortunato. “The tag line was
‘This is not your father’s Oldsmobile.’ To paraphrase, ‘This is not
your father’s DME industry.’ The DME industry used to be boring:
ABC Medical would open its doors; a senior citizen would walk in or
a physician would phone in an order; the DME company would fill the
order; and the DME company would get paid whatever Medicare would
pay.”

However, Baird continues, “This business model has gone the way
of the Oldsmobile, Mercury, and dodo bird. In other words, extinct.
In today’s world, the successful HME company must compete on the
basis of price, service and appearance. In other words, the HME
company must act like any other retailer.

“As the HME company aggressively moves into the retail arena,
there are some basic legal guidelines that must be followed,” Baird
points out in the following Q&A.

Question: I keep hearing that the successful HME company
must compete on the basis of price and service. This makes no sense
to me. Medicare is going to pay whatever it is going to pay. So why
do I have to worry about price and service?

Answer: There are 78 million baby boomers out
there, and the country cannot afford them. If we eliminated the
federal government except for Social Security, Medicare and
Medicaid, we would still go broke. The country cannot afford the
entitlement program as it is currently structured.

The end result will be a two-tiered health care system: the
“haves” and the “have nots.” No matter how you slice and dice it,
Medicare will only be able to pay for a base level of product and
service. Essentially, Medicare will pay for a Cavalier. If a
beneficiary wants an upgraded product and service (a Cadillac),
then the beneficiary will have to sign an ABN and pay for the
difference.

Most of the boomers will live to be 85 years old, will not want
to live in a nursing home, will expect a good quality of life
(e.g., attending Rolling Stones concerts), and will be willing to
flip out their Visa or American Express to pay for whatever is
necessary to have such a good quality of life.

What all of this means is that HME companies will become more
dependent on cash paying customers and less dependent on Medicare.
Hence, the necessity of competing on the basis of price and
service.

Question: What about selling over the
Internet?

Answer: Great idea. Selling products for cash
over the Internet is a good way to supplement the HME company’s
standard walk-in and referral business. Many of the current senior
citizens are Internet-savvy. Most of the baby boomers are
Internet-savvy and are comfortable in giving their credit card
information online.

Question: Should I invest the money in an attractive
retail showroom?

Answer: The answer depends on the types of
products that you are selling. If all that you are selling are
diabetic supplies or similar types of mail-order items, then the
answer is probably “no.” However, if you are selling beds, chairs,
respiratory, certain types of softgoods, etc., then it is a good
investment to have an attractive retail space. Boomers are
accustomed to shopping at malls and at stand-alone stores. If a
boomer knows that he/she will have to pay some cash for an item
(e.g., an upgrade over what Medicare will pay), then the boomer
will want to browse, touch, feel, etc.

An attractive website can drive consumers to the HME company’s
retail floor and vice versa. In a sense, the HME company should not
hold itself out as a “durable medical equipment” company, but
rather, should hold itself out as something more — a living
aid store (or something like that).

Question: OK, Jeff, enough of the “feel good fluff.” You
are an attorney, so let’s get down into the muck. Are there legal
restrictions on what HME companies can do as they push their retail
sales?

Answer: Yes there are. However, if you
understand the restrictions/guidelines, then you will be just fine.
For example, an HME company can sell a covered item for cash at a
discount off the Medicare allowable. As is almost always the case,
the “devil is in the details.” Let me explain.

An HME company is statutorily prohibited from charging Medicare
substantially in excess of the company’s usual charges, unless
there is good cause. The existing regulations do not give any
guidance on what constitutes “substantially in excess” or “usual
charges.” While there have been some efforts by the Office of
Inspector General 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 HME company’s charges to
payers other than Medicare (and some others). Under these proposed
rules, an HME company’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 company’s usual
charges to be less than 83 percent of the Medicare fee schedule if
the company 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 affiliate companies
into the calculation of an HME company’s usual charges. An
affiliated company is any entity that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or
is under common control with the HME company.

The proposed rules explicitly exclude fees set by Medicare,
state health care programs and other federal health care programs
(except TriCare). By implication, charges not specifically excluded
will be included. However, CMS declined to promulgate the proposed
rules into a final rule. Nevertheless, the proposed (but never
finalized) rules give us insight into the government’s thinking
when it comes to an HME company’s selling covered items for cash
(at a discount off the Medicare allowable).

Question: Let’s say that I remodel an existing location,
or open up a new location, and want to throw an open house for the
public. In doing so, I want to give away door prizes. Can I do
so?

Answer: The short answer is “yes.” Just do not
cross over the line.

Here is what I am talking about. The beneficiary inducement
statute imposes civil monetary penalties upon a company that offers
or gives remuneration to any Medicare beneficiary (or beneficiary
under a state health care program) that the company knows, or
should know, is likely to influence the beneficiary 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.
Let’s say that the open house will last three days. Let’s further
say that you want to have a drawing for a $1,500 flat screen TV. I
would probably pass off on this on the condition that any person
who attends the open house (senior citizens, community business
leaders, physicians, etc.) can put his/her name into the hopper.
Assume that 400 people put their names into the hopper. $1,500
divided by 400 equals $3.75. So what is the “chance of winning”
really worth? Is it $3.75?

This one-time drawing is not offensive nor abusive. It is
unlikely that the government would consider such a drawing to be a
violation of the inducement statute. My attitude would change,
however, if the drawing was limited to physicians and other
referral sources, or if the HME company had a quarterly or
semi-annual open house. These scenarios show that the HME company
is trying to “game the system” by giving away expensive prizes on a
periodic basis.

Question: I want the physicians in town to refer to my
retail operation. To make them aware of what I have to offer, I
want to drop off donuts or pizza or other treats. Can I do
that?

Answer: You bet. Here again, just don’t cross
the line. The Medicare anti-kickback statute states that it is a
felony for an HME company to knowingly or willfully offer or pay
any remuneration to induce a person (e.g., a physician) to refer 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 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.

In law school, I learned that the definition of pornography is
“you know it when you see it.” The same is true with a kickback:
You know it when you see it. At the end of the day, dropping off
Krispy Kremes once a year, twice a year, once a quarter, once every
two months, will not affect the independent judgment of the
physician or his/her staff. If you drop off Krispy Kremes every
other day, then we have problems.

Likewise, I am OK with an occasional lunch consisting of pizzas
or sandwiches; I am not OK with the HME company providing lunch
once a week. Let’s say that Dr. Smith is a big referral source. Can
you take him to play golf once or twice a year at the local golf
course? Sure you can. Can you take Dr. Smith to the Masters in
Augusta, Georgia? Of course not. Like I said, “you know it when you
see it.”

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].