Marketing, Joint Ventures and Arrangements with Referral Sources

The home medical equipment industry today is a totally different animal from yesterday. The industry has matured, technology has progressed and demand is increasing exponentially. The flip side is that the industry has been hit with breathtaking legislative and regulatory changes.

Now more than ever, in order to succeed, an HME company must have an innovative marketing program and enter into strategic joint ventures and business arrangements. But there are legal parameters that must be followed when implementing all of them.

Legal Guidelines

• Medicare Anti-Kickback Statute — The anti-kickback statute provides for criminal penalties for any person or company that solicits, receives, offers or pays any remuneration to a person or company to induce that person/company to refer an individual for Medicare-covered items or services, or to purchase, lease, order or arrange for or recommend purchasing, leasing or ordering any Medicare-covered item or service, subject to certain exceptions.

• Beneficiary Inducement Statute — This statute imposes civil monetary penalties upon a person or entity that offers or gives remuneration to any Medicare beneficiary 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. The statute does not prohibit the giving of incentives that are of "nominal value" (i.e., no more than $10 per item, or $50 in the aggregate, to any one beneficiary on an annual basis).

• Anti-Solicitation Statute — An HME company may not contact a Medicare beneficiary by telephone regarding the furnishing of a covered item unless 1) the beneficiary has given written permission for the contact, or 2) the company has previously provided the covered item to the beneficiary and the company 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 company has furnished at least one covered item to the beneficiary during the preceding 15 months.

• Stark Physician Self-Referral Statute — The statute provides that if a physician has a financial relationship with an entity providing designated health services, which includes DME, then the physician may not refer Medicare patients to the entity unless one of the statutory or regulatory exceptions applies.

• Safe Harbors — Safe harbor regulations issued under the anti-kickback statute provide "bright line" tests defining arrangements that do not violate the statute. If a business arrangement clearly falls within a safe harbor, then it is not violative of the anti-kickback statute. If the arrangement does not clearly fall within a safe harbor, then it must be examined in light of the anti-kickback statute and related court decisions to determine if it violates the statute.

• OIG Advisory Opinions — A provider may submit a request to the Office of Inspector General for an advisory opinion concerning a business arrangement that the provider has entered into or wishes to enter into in the future. In response, the OIG will issue an advisory opinion about whether or not the arrangement will likely implicate the anti-kickback statute.

• OIG Special Fraud Alerts and Special Advisory Bulletins — The OIG publishes Special Fraud Alerts and Special Advisory Bulletins that discuss business arrangements it believes may be abusive and that educate providers concerning fraudulent and/or abusive practices the OIG has observed (and is observing).

• Supplier Standard No. 11 — A supplier may not directly solicit a Medicare beneficiary. A supplier may call a beneficiary only if one of three exceptions are met (same exceptions as those under the anti-solicitation statute).

• The States — All states have enacted statutes prohibiting kickbacks, fee-splitting, patient-brokering or self-referrals. Some state statutes apply only when the payer is a state health care program, while others apply regardless of the identity of the payer.

Marketing

• Use of Employees — It is acceptable for an HME company to pay commissions, bonuses and other production-based compensation to bona fide full-time and part-time employees who market the company's products and services to Medicare patients.

• Use of Independent Contractors — An HME company cannot pay commissions, bonuses or other production-based payments to independent contractors for marketing to Medicare patients. To do so would violate the anti-kickback statute. The only mechanism to pay an independent contractor for marketing to Medicare patients is to fit (or substantially fit) the relationship within the Personal Services and Management Contracts safe harbor.

• Approaching Physicians and Other Referral Sources — It is acceptable for the HME company to call on physicians and other referral sources in order to market the company's products and services. But your company cannot directly or indirectly give something of value to the referral sources for referrals. Stark allows an HME company to furnish non-cash items (such as meals) to a physician so long as the cost of the meals in the aggregate does not exceed $300 (adjusted annually for inflation) over 12 months.

• Mail-Outs — On condition that the HME company secures a mailing list in such a way that HIPAA is not violated, then the company can mail out promotional literature to the individuals on the list.

• Promotional Items to Prospective Customers — An HME company can offer an item of nominal value (i.e., not more than $10) to prospective customers covered by a government health care program. Over a 12-month period, your company may not give items to any one customer with a combined value greater than $50.

• Health Fairs, Luncheons, Kiosks and Open Houses — An HME company can participate in local health fairs, can put on a short program during lunch at a senior citizens' center, can place a kiosk in a mall and can hold an open house.

• Provision of Discounts to Cash Customers — An HME company is prohibited from charging Medicare substantially in excess of the company's usual charges unless there is good cause. Current regulations do not give any guidance on what constitutes "substantially in excess" or "usual charges."

  "Unusual circumstances or medical complications requiring additional time, effort, expense" would be considered good cause.

  While there have been some efforts by the government to define "substantially in excess" and "usual charges," no final rule has been issued. The most recently proposed rule (2003) contemplates the "usual charge" to be either the average or median of the supplier's charges to payers other than Medicare.

  Your company's usual charge should not be less than 83 percent of the Medicare fee schedule amount. An exception for good cause 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 rule would include charges of affiliate companies into the calculation of an HME company's usual charges. In 2007, the government declined to promulgate the proposed rule into a final rule. Nevertheless, the prudent course of action is for your company to follow, as closely as possible, the proposed rule.

• OIG Restrictions on Provision of Home Oxygen Prior to Qualification and on Conducting Pre-Screens (Pertaining to Medicare Patients) — On Nov. 8, 2006, the OIG posted Advisory Opinion No. 06-20 that sets out a restrictive view toward two business practices pertaining to home oximetry testing.

  Pursuant to the first practice, the HME company would provide Medicare beneficiaries with free home oxygen until the beneficiaries qualify for Medicare coverage for oxygen. Under the second practice, the HME company would pre-screen beneficiaries by running overnight pulse oximetry tests on them and then reporting the test results to the physician.

  The OIG stated that the practices would implicate both the Civil Monetary Penalties statute and the Medicare anti-kickback statute.

Business Arrangements

• Joint Venture — The government may carefully scrutinize a joint venture between providers in order to ensure that it is not merely a sham whereby one entity is paying remuneration to the other in exchange for the referral of customers. If the Investment Interest safe harbor is not met, then in deciding whether to exercise its discretion to bring an enforcement action against the parties to a joint venture, the government will look to see whether the venture complies with the guidelines of the OIG's 1989 Special Fraud Alert and April 2003 Special Advisory Bulletin.

  • Physician Ownership in an HME Company — Under Stark, a physician cannot have an ownership interest in an HME company and also refer Medicare patients to it. An exception is if at least 75 percent of the HME company's products and services are provided to residents of a rural area.

  • Physician Ownership in a Sleep Lab — A polysomnography does not fall within the Stark definition of designated health services. Therefore, Stark does not prohibit a physician from having an ownership interest in a sleep lab.

  • Joint Ownership of a New HME Operation by a Hospital and an Existing HME Company — A hospital and an existing HME company may jointly set up and own a new HME operation (e.g., on the hospital's premises) so long as the OIG's 1989 Special Fraud Alert ("Joint Ventures") and 2003 Special Advisory Bulletin ("Contractual Joint Ventures") are met.

• Contractual Arrangements

  • Operational Services — Providers may offer services to each other. Assume that the entity providing the services is a referral source. The entity that receives the services must pay fair market value for the services and, in order to reduce the risk of government scrutiny, the arrangement should fall within one of the safe harbors to the anti-kickback statute.

  • Cooperative Marketing Program — A provider may enter into a cooperative marketing program with another provider. The costs and expenses of the program must be proportionately shared by the providers.

  • Management Services Agreement — A hospital may open an HME operation. The hospital may contract with an existing HME company to provide management and operational administrative services. Here again, it is important that the agreement comply with the guidance set out in the OIG's April 2003 Special Advisory Bulletin entitled "Contractual Joint Ventures."

  • Loan/Consignment Closets — An HME company may place inventory in the facility -of a referral source. The inventory must be for the convenience only of the facility's patients, and the facility cannot financially benefit, directly or indirectly, from the inventory.

  • Preferred Provider Agreement — An HME company can enter into a Preferred Provider Agreement with a hospital whereby, subject to patient choice, the hospital will recommend the HME company to its patients who are about to be discharged.

  • Employee Liaison — An HME company may designate an employee to be on the hospital premises. The employee may provide education to hospital employees and help facilitate a smooth transition when the patient is discharged. The employee liaison may not assume responsibilities that the hospital is required to fulfill.

  • Medical Director Agreement — An HME company can enter into an independent contractor Medical Director Agreement with a physician, even if the physician is a referral source. The MDA must comply with the Personal Services and Management Contracts safe harbor and the Personal Services exception to Stark.

  • Purchase of Leads — A lead generation company ( let's call it ABC ) may compile a list of names, addresses, phone numbers and other information about individuals who have expressed an interest in a particular product line (e.g., diabetic supplies), and who have given their written permission to be called by an HME company. ABC can sell the list to XYZ Medical; XYZ can call the names on the list.

    Based on its guidance, it appears that the OIG is comfortable with an HME company paying compensation, on a per-lead basis, for "unqualified" leads. An "unqualified" lead will start moving into the "qualified" category as ABC gathers specific information from the prospective customer, such as third-party coverage, diagnosis, products currently being used and the treating physician's name.

    If the HME company pays for qualified leads on a per-lead basis, then there is a risk that the anti-kickback statute will be violated. Payment for qualified leads needs to fit within the applicable safe harbor.

    The arrangement needs to comply with the "written permission" exception to the anti-solicitation statute. If the prospective customer checks a box on a Web page that clearly shows his/her consent to be called by an HME company, then a credible argument can be made that the prospective customer's "electronic signature" complies with the federal Electronic Signatures in Global and National Commerce Act and, as a result, constitutes "written permission" under the anti-solicitation statute.

  • Utilizing a Call Center — Assume that ABC properly accumulates leads. Further assume that ABC contracts with an outside call center (XYZ). CMS has published guidance that states that a subcontractor (i.e., XYZ) may not engage in intake, assessment and coordination of care with the physician. An employee of ABC needs to handle these responsibilities. XYZ can subsequently call the lead, confirm reorders and handle other communications on behalf of ABC.

    It is safest for ABC to pay a fixed annual fee to XYZ. A less conservative approach (but one that has low risk of an enforcement action) is for ABC to pay XYZ on a "per call" or hourly basis. The compensation cannot be directly or indirectly tied to whether or not a customer reorders. The compensation cannot be a percentage of what ABC collects.

Here's the Bottom Line

In an increasingly competitive market, it is important for HME companies to implement innovative marketing programs and work closely with referral sources. In order to avoid governmental scrutiny, it is crucial that all marketing programs and business arrangements be established and implemented properly.

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 jbaird@bf-law.com.