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Loan Closets, Employee Liaisons, Preferred Provider Agreements And Other Arrangements With Referral Sources

Wednesday, November 4th, 2015

(October 2013)

The HME 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. In order to succeed, many suppliers are entering into strategic alliances and business arrangements. In so doing, the “devil is the details.” The supplier must be aware of, and adhere to, the applicable anti-fraud statutes and guidelines. Several of the most common alliances and arrangements are discussed below.

Loan/Consignment Closets

An HME supplier may place inventory in a facility (e.g., physician’s office, hospital). 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. It is important that the facility ensure patient choice. Technically, the HME supplier can pay rent to the facility so long as the rental agreement complies with the Space Rental safe harbor to the Medicare anti-kickback statute. Among other requirements, the rent must be fixed one year in advance and it must be fair market value. However, from a practical standpoint, because the physical space utilized by the placement of the inventory is so small, it is preferable for the supplier to pay no rent to the facility.

Preferred Provider Agreement

An HME supplier can enter into a preferred provider agreement with a hospital whereby, subject to patient choice, the hospital will recommend the supplier to its patients who are about to be discharged.

Employee Liaison

An HME supplier can designate an employee to be on the hospital premises for a certain number of hours each week. The employee may educate the hospital staff regarding medical equipment (to be used in the home) and related services. The employee may also work with a patient, after a referral is made to the supplier (but before the patient is discharged), in order for there to be a smooth transition when the patient goes home. The employee liaison may not assume responsibilities that the hospital is required to fulfill. Doing so will save the hospital money, which will likely constitute a violation of the Medicare anti-kickback statute.

Medical Director Agreement

An HME supplier can enter into an independent contractor Medical Director Agreement (“MDA”) with a physician, even if the physician is a referral source. The MDA must comply with the (i) Personal Services and Management Contracts safe harbor to the anti-kickback statute and (ii) the Personal Services exception to the Stark physician self-referral statute. Among other requirements: (i) the MDA must be in writing and must have a term of at least one year; (ii) the compensation to the physician must be fixed a year in advance and it must be the fair market value equivalent of the actual services rendered; (iii) the physician must render actual, necessary and substantive services to the HME supplier; and (iv) the compensation paid by the supplier to the physician must bear no resemblance to referrals by the physician.

Physician Ownership in HME Supplier

Under Stark, a physician cannot have an ownership interest in an HME supplier and also refer Medicare/Medicaid patients to it. As an exception, if the supplier is located in a rural area, and if at least 75% of the supplier’s products and services are provided to residents of the rural area, then it is acceptable for the physician to have an ownership interest in the HME supplier and also refer Medicare/Medicaid patients to it.

Physician Ownership in 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, even if the sleep lab is receiving money from Medicare and Medicaid. However, a CPAP falls under “DME” which, in turn, falls within the definition of DHS. If a physician has an ownership interest in a sleep lab and refers to it, then the sleep lab cannot also sell CPAPs and related supplies to Medicare/Medicaid customers.

Joint Ownership of an HME Company by a Hospital and an Existing HME Supplier

A hospital and an existing HME supplier may jointly set up and own an HME company (e.g., on the hospital’s premises) so long as the OIG’s 1989 Special Fraud Alert (entitled “Joint Ventures”) and 2003 Special Advisory Bulletin (entitled “Contractual Joint Ventures”) are met. Among other requirements, both owners will need to invest risk capital; the HME supplier cannot be required to refer patients to the jointly-owned venture; the existing HME supplier cannot run the venture on a turnkey basis; and the hospital must insure patient choice.

This monograph is not intended to be legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only. The law pertaining to this monograph may have changed following the date of the monograph. The reader should consult his or her own attorney for legal advice concerning the contents of this monograph. Except where noted, attorneys are not certified by the Texas Board of Legal Specialization.

Prepared by:

Health Care Group
Brown & Fortunato
P.O. Box 9418
Amarillo, Texas 79105-9418
(806) 345-6300
(806) 345-6363 (fax)

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