by Richard Cheng and Erik Weber
November 21, 2016

Some HME providers utilize creative marketing strategies to gain a greater market share in the industry, attempting to distinguish themselves from competitors. Unfortunately, some creative marketing and advertising methods are also noncompliant, leading to severe penalties because of the many complex laws that regulate the health care industry.

HME providers must comply with applicable fraud and abuse laws, specifically the federal anti-kickback statute (AKS), along with issues surrounding direct patient contact or telemarketing activities. Further, HME providers should consider the application of information privacy laws and telecommunications laws, which can vary from state to state. This article is intended to provide a broad overview of the legal considerations associated with marketing activities by HME providers, including the AKS and the physician self-referral prohibition (Stark Law). Additionally, this article will assess regulations and case law studies applicable to HME providers’ marketing activities. Finally, practical tips are offered to HME providers so they can structure their marketing efforts in a compliant fashion.

Federal Health Care Laws and Regulations Impacting Marketing

Anti-Kickback Statute—The AKS seeks to limit health care costs to federal programs due to referral payments for unnecessary services or items. The AKS establishes criminal and civil prohibitions against knowingly and willfully offering, paying, soliciting or receiving any remuneration directly or indirectly, in cash or in kind, to induce or reward 1. The referring of an individual for the furnishing or arranging for the furnishing of items or services reimbursable by a federal health care program; or 2. The purchasing, leasing or ordering, or the arranging for or recommending the purchasing, leasing or ordering of items or services reimbursable by a federal health care program.

Because payment by an HME provider to a marketer may be seen as an inducement to cause the marketer to arrange for or recommend the purchase of items from the HME provider, most third-party marketing arrangements have the potential to implicate the statute. In addition, the AKS’s prohibition of the provision of remuneration, a broadly defined term to induce a person to purchase items or services reimbursable by a federal health care program, may be implicated by direct marketing activities undertaken by HME providers.

Safe harbors under the AKS may protect the legitimacy of suspect remuneration. Safe harbors are intended to provide immunity from prosecution to proposed arrangements. Safe harbor compliance is not mandatory; however, it creates a presumption that the arrangement meets the AKS’s statutory requirements. Failure to satisfy a safe harbor does not conclusively establish that the arrangement violates the AKS. A frequently used safe harbor with commission-based compensation is the employment safe harbor, which allows HME employers to compensate an employee in any manner if a bona fide employment relationship exists with the HME employer for the provision of services or items covered by a federal health care program.

If an arrangement involves contracting with a third party, the employment safe harbor will not apply. In fact, in its initial proposed rule and in response to commentators’ suggestions that the employment exception be extended to independent contractors paid on a commission basis, the Department of Health and Human Services (HHS) Office of Inspector General (OIG) declined to do so.

Stark Law—The Stark Law provides that if a physician (or a member of the physician’s immediate family) has a financial relationship with an entity, then 1. The physician may not make a referral to the entity for the furnishing of designated health services (DHS) for which payment may be made by Medicare; and 2. The entity may not present, or cause to be presented, a claim for a DHS rendered pursuant to a prohibited referral, unless a specific exception is met.

Sanctions for violating the Stark Law include denial of payment, refunding amounts received for services provided, civil monetary penalties (CMPs) up to $15,000 per item or service improperly billed and exclusion from federal health care programs. The Stark Law also provides for a penalty of up to $100,000 for a scheme intended to circumvent the Stark Law’s prohibitions. Stark Law is not an intent-based statute. So, similar to a traffic ticket, the slightest violation has the potential of incurring penalties.

The Stark Law may be implicated by a marketing or consulting arrangement where a physician markets on behalf of an entity that furnishes DHS or vice versa. For example, physicians may be paid to market on behalf of the affiliated provider entity. Likewise, advertising campaigns by provider entities to market their physicians may constitute remuneration to the physicians. To the extent a marketing arrangement implicates the Stark Law, health care providers should structure it to meet an exception to the Stark Law. Similar to the AKS, under the Stark Law, that bona fide employment relationship exception may be used by physicians who may be marketing on behalf of an HME provider entity that provides DHS. Aside from the employment relationship exception, the personal service arrangements exception to the Stark Law may also provide protection to marketing arrangements between HME providers and entities that furnish DHS.

The Stark Law may be less likely to be implicated by marketing activities. But its application should be carefully assessed by HME providers, and associated parties should evaluate any proposed arrangement in which the provider may be construed as marketing in an improper way.

Marketing Arrangements that Violate AKS and the Stark Law

Marketing arrangements that violate the AKS and the Stark Law can lead to serious financial and criminal consequences. Understanding the types of marketing arrangements that courts have found to be in violation of these laws will assist in structuring compliant arrangements.

A case between Medical Device Network (MDN) and Physical Respiratory Care (PRC) provides a clear example of a marketing arrangement that violates the AKS. PRC agreed to pay MDN a percentage of all business developed by the marketing of its HME to clients, which included physicians, nursing homes, retirement homes and individual patients. MDN would contact various users of medical equipment, and promote the use of PRC’s equipment. Nursing homes would order supplies directly from PRC, and physicians would refer patients that required HME to PRC. The court found that this type of arrangement, whereby a third-party company is paid a percentage of the sales it generates for an HME provider, falls squarely within the AKS prohibitions.

An Arkansas Federal Court found a similar arrangement in violation of the AKS, in which a third-party company entered an agreement with an HME provider to identify Medicare recipients in need of the equipment and put them in contact with the provider. The marketing company received a fee for each item sold by the provider to patients identified by the marketing company. In an apparent attempt to circumvent the AKS, the written arrangement specifically prevented the marketing company’s direct involvement in the actual sales of HME to Medicare recipients. The Court was not moved by this contract provision. Whether interpreted as a referral arrangement or as payments to the marketing company for recommending to Medicare recipients that they purchase HME from a specific provider, the Court found the arrangement an indisputable violation of the AKS.

On the other hand, a Texas Court reversed convictions for violations of the AKS because the provider’s payments were not made to “relevant decision maker,” i.e. the referring entity or person, as an inducement for kickbacks. Specifically, a home health services provider paid a PR company to distribute literature and business cards to local medical offices. When a physician determined that home health services were needed for a patient, the office contacted the PR company who would furnish the patient’s name and Medicare number to the provider. The PR company would only then receive a fee for each patient that became a home health client. Because the physician selected the patients and the PR company had no control over which home health provider the physician selected, the payment was not made to the “relevant decision maker as an inducement for sending patients.” The Court thus held that there are two components of an AKS violation: 1. payment and 2. referral. While the home health provider made a payment to the PR company, there was not a referral.

There are many other guidelines and tips that can be used to ensure a compliant culture (see sidebar at left). It is vital to take the initial steps now, not later, to create compliant practices to lessen the chances of suffering from governmental penalties.


Compliance Practical Tips

Each arrangement will have specific facts that require review. The following tips may assist HME providers in structuring compliant marketing arrangements.

  • Evaluate any proposed arrangement in which the provider may be construed as marketing on behalf of the facility or vice versa.
  • Providers should not appear to endorse certain HME products in order to avoid white coat marketing.
  • Payments under a marketing arrangement should be for fair market value for the services rendered.
  • Payments under a marketing arrangement should not include success fees or compensation that otherwise reflects the generation of business by the HME provider.
  • Ensure the business rationale is thoughtful, thorough and does not include any intent to inappropriately induce the purchase of items reimbursable by federal or state health care programs.
  • HME providers should not provide gifts to potential referral sources.
  • HME providers should ask themselves whether a proposed marketing activity may be viewed as offering or paying “remuneration” to Medicare or Medicaid beneficiaries in an effort to influence the beneficiaries’ choice in selecting health care providers.
  • Tailor consulting or marketing services to conform to the requirements of the HIPAA privacy regulations. In particular, where protected health information (PHI) is to be used as part of a marketing activity, HME providers should ensure that authorization is obtained or, if not, that the activity is exempt from the provisions concerning marketing.
  • Ensure telemarketing policies and procedures comply with the federal restriction on telephonic solicitation of Medicare beneficiaries regarding the furnishing of a covered item. Particularly, if the HME provider has not previously furnished a covered item to the beneficiary within the preceding 15 months, the provider should first ensure that the beneficiary has given written permission to the provider to make contact by telephone.