Moving the HME Industry Forward

Billing/Reimbursement

Joint Ventures with Hospitals – What the Law Requires – Part 1

October 13, 2014

AMARILLO, TX – For years, the health care delivery system operated in silos. Hospitals did their thing, physicians did their thing, pharmacies did their thing, DME suppliers did their thing. There was little coordination among the providers.

When Medicare, Medicaid, and commercial insurers were content to pay on a fee-for-service basis, then this model worked. Unfortunately, the country could not afford it. Medicare “grew up” with 23 million of the Greatest Generation. Now, Medicare and other payors are having to deal with 78 million Baby Boomers who are retiring at the rate of 10,000 per day. The “silo” model is no longer financially viable.

Medicare and other payors are squeezing reimbursement and are demanding results (good patient outcomes). These two factors are forcing providers to enter collaborative arrangements to cut costs and achieve successful patient outcomes. One example of this is the hospital DME supplier joint venture.

In its most simplistic terms, a “joint venture” is when two or more people or companies own something together. Increasingly, hospitals and DME suppliers are forming new DME suppliers, partially owned by the hospital and partially owned by the DME supplier. One of the reasons why a hospital would be interested in forming a new DME company, owned by the hospital and an existing DME supplier, is to help insure “continuum of care” for the patient when he is discharged from the hospital.

The hospital wants the discharged patient to stay healthy; the hospital does not want to see the patient readmitted within 30 days. By co-owning a DME supplier, the hospital will indirectly have “touches” with the patient upon discharge. The hospital, through the DME supplier that the hospital partially owns, will help facilitate the use by the discharged patient of equipment and supplies that will assist in keeping the patient healthy.

In putting together such a joint venture, it is important to keep in mind that the hospital will be a referral source to the joint venture. As an owner of the joint venture, the hospital will be entitled to profit distributions. Because of this, the joint venture cannot be a subterfuge to funnel remuneration to the Hospital for referrals of patients. Such a subterfuge would violate the Medicare anti-kickback statute.

In determining whether the joint venture is a legitimate arrangement, or is a violation of the anti-kickback statute, the three principal sources of guidance are (i) the Small Investment Interest safe harbor to the anti-kickback statute, (ii) the OIG’s 1989 Special Fraud Alert entitled “Joint Ventures” and (iii) the OIG’s April 2003 Special Advisory Bulletin entitled “Contractual Joint Ventures.”

Part 1 of this three part series discusses the Small Investment Interest safe harbor to the anti-kickback statute. Part 2 will discuss the OIG’s 1989 Special Fraud Alert (“Joint Ventures”). Part 3 will discuss the OIG’s April 2003 Special Advisory Bulletin (“Contractual Joint Ventures”).

Because the anti-kickback statute is very broad, it is easy for a DME supplier to become ensnared in it. In order to afford a base level of protection to providers, including DME suppliers, the OIG has issued multiple “safe harbors.” If an arrangement falls within a safe harbor, then the remuneration paid under the arrangement does not constitute prohibited remuneration under the anti-kickback statute. The applicable safe harbor for a hospital-DME supplier joint venture is the Small Investment Interest safe harbor.

In order to meet this safe harbor, the following elements must be met:
• “No more than 40 percent of the value of the investment interests of each class of investment interests may be held in the previous fiscal year or previous 12 month period by investors who are in a position to make or influence referrals to, furnish items or services to, or otherwise generate business for the entity.”
• “The terms on which an investment interest is offered to a passive investor, if any, who is in a position to make or influence referrals to, furnish items or services to, or otherwise generate business for the entity must be no different from the terms offered to other passive investors.”
• “The terms on which an investment interest is offered to an investor who is in a position to make or influence referrals to, or otherwise generate business for the entity must not be related to the previous or expected volume of referrals, items or services furnished, or the amount of business otherwise generated from that investor to the entity.”
• “There is no requirement that a passive investor, if any, make referrals to, be in a position to make or influence referrals to, furnish items or services to, or otherwise generate business for the entity as a condition for remaining as an investor.”
• “The entity or any investor must not market or furnish the entity’s items or services (or those of another entity as part of a cross referral agreement) to passive investors differently than to non-investors.”
• “No more than 40 percent of the entity’s gross revenue related to the furnishing of health care items and services in the previous fiscal year or previous 12-month period may come from referrals or business otherwise generated from investors.”
• “The entity or any investor (or other individual or entity acting on behalf of the entity or any investor in the entity) must not loan funds to or guarantee a loan for an investor who is in a position to make or influence referrals to, furnish items or services to, or otherwise generate business for the entity if the investor uses any part of such loan to obtain the investment interest.”
• “The amount of payment to an investor in return for the investment interest must be directly proportional to the amount of the capital investment (including the fair market value of any pre-operational services rendered) of that investor.”

Even if the joint venture does not fully comply with the safe harbor, it does not mean that the arrangement violates the anti-kickback statute.  Rather, the parties to the arrangement need to examine the arrangement in light of the language of the anti-kickback statute and other OIG guidance such as the previously mentioned 1989 Special Fraud Alert and the April 2003 Special Advisory Bulletin.

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato PC, a law firm based in Amarillo, Tex. He represents pharmacies, HME 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.