Recent Legal Issues Involving HME Supplier And Manufacturer Relationships

By: Bradley W. Howard, Esq.

In recent years the home medical equipment (“HME”) industry has actively sparred with the Federal Government (the “Government”) over the process and reimbursement of direct to patient care. Now the Government has moved their way up the HME chain, and instead of limiting their attention to HME entities involved in direct to patient care, they are turning their gaze to the HME Provider-Manufacturer relationship. And just like the Eye of Sauron, the Government would like to examine every detail, contract, or verbal agreement between a HME entity and manufacturer. No relationship is safe from scrutiny, and as such, how does a HME entity stay safe and sane? The purpose of this article is to identify the “hot spots” of most Government investigations into the HME Provider-Manufacturer relationship, and to offer some practical tips for avoiding the Government’s deep scrutiny. Please note that this article is written from the perspective of a HME provider, but the information within may apply to both HME providers and manufacturers.

Who is involved with monitoring the HME industry?

Comparing the Government’s attention to J.R.R. Tolkien’s all-knowing entity may seem extreme, but consider the breadth of agencies emotionally/financially/mentally invested in the HME industry. Starting from the top: the Department of Justice (“DOJ”), the Federal Bureau of Investigation (“FBI”), the Office of Inspector General (“OIG”), United States Attorney’s Offices (“AUSAs”), Medi-Cal Fraud Control Unit, Medicaid Fraud Control Units, and any other parallel state agency or enforcement agency tasked with seeking and preventing fraud. In sum, everyone in the land is interested in the HME Provider-Manufacturer relationship.

The silver lining in this situation is that the Government is not shy about their specific areas of interest. In fact, the OIG’s 2017 Work Plan (the “Work Plan”) specifically identifies the Government’s interest in health care fraud schemes related to “durable medical equipment”. The Work Plan states that “OIG investigates allegations of fraud, waste and abuse in all of HHS’ programs . . . specific case types include health care fraud schemes related to . . . durable medical equipment;” In my experience, one of the largest legal issues in the HME Provider-Manufacturer relationship is the Anti-Kickback Statute (“AKS”).

Switching Campaigns

In the HME Provider-Manufacturer context the Government has specifically started to focus on whether manufacturers are providing any form of kickbacks to HME providers in return for the HME provider’s promise to funnel their patients solely to the stated manufacturer. This type of fraudulent healthcare scheme is commonly known as a “switching campaign”. The Government closely examines advertising underwriting, as well evidence of incentives from manufacturers to their own sales representatives or to the sales representatives of HME providers, and questions whether these stated efforts are proof of an intentional scheme to “switch” or “convert” an HME provider’s patients from one manufacturer’s products to another. To be clear, an appropriate price reduction is not usually problematic, provided that the discount or price reduction is properly disclosed and appropriately reflected in the costs claimed or charges made by the provider under a Federal health care program.

Scrutiny into these “switching campaigns” starts with an examination of any business contracts that the HME entity holds. The Government then digs in further, and asks to review draft agreement, “side letter” agreements, company emails, and any other communication between the HME provider and selected manufacturer. The Government wants to know every detail of the HME provider business relationship so that they can form a theory regarding the intent of the HME Provider-Manufacturer relationship. The Government reviews these documents by asking themselves questions such as “is the manufacturer is merely providing the HME provider a legal discount, or are they underwriting marketing (or tying discounts) to a switching campaigns to convert an HME supplier’s customers to this particular manufacturer’s products?” Or simply stated, does the business agreement and communication between the two parties reflect some form of a kickback arrangement?

What Can HME Providers Do?

HME Providers can prepare themselves for the Government’s in-depth review by taking a hard look at their contracts and business relationships with manufacturers. HME providers should ask themselves, “if the Government reviews my contracts, draft agreements, and communications with XYZ manufacturer, will they find evidence that the manufacturer is seeking to financially induce my company to switch patients solely to the manufacturer’s products (a “switching campaign”)?” The goal for every HME Provider-Manufacturer business arrangement is to be capable of withstanding scrutiny by a Government investigator charged with determining whether the HME supplier-manufacturer business relationship violates any federal or state kickback laws.

Bradley W. Howard is a Shareholder of Brown & Fortunato and one of the senior attorneys in its Health Care Group. He advises HME suppliers, manufacturers, and other health care companies in their business relationships and routinely represents them in investigative proceedings around the United States. Howard can be reached at (806) 345-6310 or bhoward@bf-law.com.