compliance gauge
How to keep your referrals compliant
by Cara C. Bachenheimer & Jeffrey S. Baird

An important component of a successful home medical equipment (HME) supply business is and has always been a strong relationship with referral sources. This article discusses some of the ways that arrangements with referral sources can be structured in order to comply with applicable federal laws, and what to know about those laws and policies.

Federal Statutes

There are several federal statutes in place that define what an illegal referral looks like and the penalties for violating the statute. They include:

The Anti-Kickback Statute (AKS), which makes it a felony to knowingly and willfully offer, pay, solicit or receive any remuneration in order to induce a person or entity to refer (or arrange for the referral of) an individual for an item or service that is covered by a federal health care program.

The Physician Self-Referral Statute, also known as the Stark Law, which states that if a physician (or one of their immediate family members) has a financial relationship with an entity providing designated health services—including HME—then the physician may not refer patients to them unless an exception is met.

The Beneficiary Inducement Statute, which imposes civil monetary penalties upon any person or entity that offers or gives something of value to prospective customers who are covered by a government health care program. 

Federal Safe Harbors

The Health and Human Services (HHS) Office of Inspector General (OIG) has issued several safe harbors to the Anti-Kickback Statute. If an arrangement falls within a safe harbor, then, as a matter of law, the arrangement does not violate the AKS. However, if the arrangement does not fall within a safe harbor, it does not mean that the AKS is violated. Rather, it means that a stringent analysis of the arrangement must be made.

Two important safe harbors are:

  • The Employee Safe Harbor—Prohibited remuneration does not include any amount paid by an employer to a bona fide employee “for employment in the furnishing of any item or service for which payment may be made in whole or in part under [federal health care programs].”
  • The Personal Services and Management Contracts Safe Harbor—Prohibited remuneration does not include any payment made to an independent contractor as long as a number of conditions are met, including: the parties must sign an agreement with a term of at least one year; the methodology to calculate the compensation paid must be fixed one year in advance; and the compensation must be the fair market value equivalent of the payee’s services.

Seeking OIG Guidance

A HME supplier may make a request to the OIG for an advisory opinion concerning whether a current or future arrangement will violate the AKS.

The OIG also publishes alerts and bulletins that discuss types of business arrangements that the OIG believes may be abusive. HME suppliers should check these communications frequently.

Arrangements With Referral Sources

What makes a referral partnership compliant with federal regulations? These arrangements fall within the law’s scope:

  • Use of Employees—An HME supplier can pay bona fide employee marketing representatives as follows: base salary plus discretionary bonuses based on a number of factors.
  • Use of Independent Contractors—Under a Stark exception, the supplier can compensate 1099 independent contractors for marketing to government program patients as long as the arrangement complies with the Personal Services and Management Contracts Safe Harbor.
  • Expenditures for Physicians—Under a Stark exception, the supplier can spend up to $429 in 2021 on a physician for non-cash equivalent items such as meals and golf.
  • Expenditures for Physicians’ Staffs, Hospital Discharge Planners & Other Referral Sources—It is permissible for the supplier to provide non-cash equivalent items to non-physicians as long as the amount spent is modest.
  • Medical Director Agreement—It is permissible for a supplier to enter into a Medical Director Agreement (MDA) with a referring physician as long as the MDA complies with the Personal Services and Management Contracts Safe Harbor and the personal services exception to Stark.
  • Employee Liaison—The supplier can place an employee liaison at a facility as long as the liaison does not perform services that the facility would normally have to perform.
  • Waiver of Copayments—A supplier must make a reasonable attempt to collect copayments. The supplier can waive a patient’s copayment only if the patient’s financial condition justifies the waiver.
  • Charitable Contributions—The OIG will approve charitable contributions as long as they are for a bona fide charitable purpose, are made in a manner that do not take into account the value or volume of referrals, and that the arrangement incorporates safeguards to ensure that contributions are not tied to referrals or other business generated between the organizations.
  • Joint Venture with Referral Source—A supplier and a hospital can jointly own an HME supplier as a joint venture. The joint venture will preferably comply with the Investment Interest Safe Harbor to the AKS; if that’s not possible, it must comply with the OIG’s 1989 Special Fraud Alert called “Joint Ventures” and the OIG’s April 2003 Special Advisory Bulletin called “Contractual Joint Ventures.”
  • Gifts to Prospective Customers—Under an exception to the Beneficiary Inducement Statute, a supplier can provide gifts of minimal value ($15 or less) to prospective customers.

On the other hand, these arrangements can land providers in hot water:

  • Improper Use of Independent Contractors—If an independent contractor is generating government program patients for the supplier, then the supplier cannot pay percentage compensation to the independent contractor.
  • Patient Recruiters—Paying patient recruiters violates the AKS.
  • Improper Use of Marketing Companies—If a marketing company is generating government health care program patients for the supplier, and if the supplier is paying production-based compensation to the marketing company, then the AKS will likely be violated.
  • Expenditures for Physicians—The supplier cannot give cash or cash equivalents to physicians. In 2021, the supplier cannot give non-cash-equivalent gifts to physicians worth more than $429.
  • Expenditures for Non-Physician Referral Sources—The supplier should not spend more than a modest amount on non-cash equivalent items on physicians’ staffs, hospital discharge planners, and other referral sources.
  • Medical Director Agreements—The compensation paid by the supplier to a medical director cannot vary based on the number of referrals from the medical director to the supplier.
  • Sham Clinical Studies—If a clinical study is not associated with a hospital, medical school, or institutional review organization, there is a risk that the study is a subterfuge designed to funnel money to referring physicians.
  • Sham Telehealth Arrangements—If a supplier receives physician orders from telehealth encounters between patients and physicians, the supplier cannot directly or indirectly pay the telehealth physician.
  • Sham Copayment Insurance Programs—In a sham copayment insurance program, patients pay a small monthly amount to suppliers or intermediaries. These monthly payments are called insurance premiums and are designed to allow the patients to obtain insurance to pay copayments. In reality, this type of program is a sham designed to routinely waive copayments.
  • Gifts to Prospective Customers—The supplier cannot provide gifts to prospective government program customers in which the value of the gift exceeds $15.

This article provides an overview of potentially applicable federal laws. We recommend that providers and/or suppliers entering into arrangements with referral sources consult a health care attorney to ensure that their arrangements are structured in compliance with all  applicable laws.

Cara C. Bachenheimer, Esq., is an attorney with the Health Care Group at Brown & Fortunato, PC, a law firm with a national health care practice based in Texas, where she heads up the firm’s Government Affairs Practice. She is a member of the HomeCare Editorial Advisory Board. She can be reached at (806) 345-6321 or

Jeffrey S. Baird, Esq., is chairman of the Health Care Group at Brown & Fortunato, PC. He represents pharmacies, infusion companies, HME companies, manufacturers and other health care providers throughout the United States. He is a member of the HomeCare Editorial Advisory Board. Baird can be reached at (806) 345-6320 or