Moving the HME Industry Forward


Paying Physicians – Guidance from Two Cases

February 20, 2017

AMARILLO, TX – Within certain legal parameters, a DME supplier can make payments to physicians. For example, if the supplier and physician enter into a legitimate Medical Director Agreement, then the supplier can make payments to the physician. Likewise, if a physician will provide bona fide education services for the supplier, then the supplier can pay fair market value (“FMV”) compensation to the physician. In entering into these types of arrangements with physicians, the DME supplier must avoid violating the Medicare anti-kickback statute (“AKS”) and the federal Stark physician self-referral statute (“Stark”).

• AKS – It is a felony for a supplier to give anything of value to a person/entity in exchange for (i) the person/entity referring a patient  (covered by a government health care program such as Medicare, Medicare Advantage, Medicaid and TRICARE) to the supplier, or (ii) arranging for the referral of a patient (covered by a government health care program) to supplier, or (iii) recommending the purchase or lease of a product/service covered by a government health care program. Because the AKS is so broad, the Office of Inspector General (“OIG”) has published a number of “safe harbors.” A safe harbor is a hypothetical fact situation in which if an arrangement fits within the hypothetical fact situation, then as a matter of law the arrangement does not violate the AKS. If an arrangement does not fall within a safe harbor, then it does not mean that the arrangement violates the AKS; rather, it means that the arrangement must be closely scrutinized under (i) the language of the AKS, (ii) other published OIG guidance, and (iii) court decisions interpreting the AKS. A number of courts have enumerated the “one purpose test,” which states that if “one purpose” behind a payment is to influence referrals, then the AKS is violated notwithstanding that the primary purpose behind the payment is to pay for legitimate services. The safe harbor that applies to payments to physicians is the Personal Services and Management Contracts safe harbor (“PSMC safe harbor”). Among other requirements of the PSMC safe harbor, (i) the parties must enter into a written contract with a term of at least one year; (ii) the compensation must be fixed one year in advance (e.g., $18,000 over the next 12 months, or $1500 per month); and (iii) the compensation must be the FMV equivalent of the services rendered.

• Stark – A DME supplier can be subjected to civil monetary penalties (“CMPs”) if (i) the supplier has a financial relationship with a physician (compensation or ownership arrangement) and (ii) the physician refers Medicare and Medicaid patients to the supplier. There are a number of exceptions to Stark, including the Personal Services exception. This Stark exception says essentially the same thing as the PSMC safe harbor to the AKS.

Now let’s talk about the two cases. In the first case, a federal grand jury in Connecticut indicted Jeffrey Pearlman, a former sales manager for Insys Therapeutics, Inc. According to a Department of Justice (“DOJ”) statement, Mr. Pearlman allegedly used bogus educational events as a “cover” for paying kickbacks to physicians in exchange for their increased prescriptions of Subsys, a spray version of the opioid fentanyl. The DOJ alleges that Mr. Pearlman and Insys sales representatives arranged sham “speaker programs,” which were billed as gatherings of physicians to educate them about Subsys.

In reality, according to the DOJ, the events – usually held at high-end restaurants – mostly consisted of friends and co-workers who lacked the ability to prescribe the drug, and there was no educational component. According to the DOJ, the “speakers” were physicians who were paid fees ranging from $1000 to several thousand dollars to attend the dinners. The indictment says that these payments were kickbacks to the speakers “who were prescribing large amounts of Subsys and to incentivize those [physicians] to continue to prescribe Subsys in the future.” According to the indictment, one “speaker” was paid approximately $83,500 in order to induce more prescriptions of Subsys over similar (competing) products.

In the second case, University Behavioral Health of El Paso, LLC (“UBH”) has agreed to pay $860,000 to the federal government to settle allegations of False Claims Act (“FCA”) violations relating to the payment of kickbacks to a physician. UBH agreed to settle after the DOJ alleged that UBH had violated the AKS and Stark by improperly paying a physician who made referrals to UBH during a three year period.

According to the DOJ, claims submitted by UBH to Medicare were “tainted by the payment of kickbacks to a physician under the guise of a professional services agreement, in return for the physician’s referral of patients to UBH.” The physician allegedly received payments that were either above FMV or for services not rendered. In announcing the settlement, the DOJ stated: “Federal law, including the Anti-Kickback Act and the Stark Law, seeks to ensure that services reimbursable by federal healthcare programs are based on the best interests of patients rather than the personal financial interests of referring physicians.”

Here are the “takeaways” from these two cases for the DME supplier:
• Before the supplier provides “anything of value” to a physician, the supplier needs to consult with a health care attorney to ensure that the arrangement does not violate the AKS or Stark. If an arrangement with a physician violates the AKS, then it likely also violates Stark…..and vice versa.

• “Anything of value” can be a payment of money, it can be a trip, it can be a set of golf clubs, and it can be front row seats to a Springsteen concert. “Anything of value” can include the supplier performing services for the physician that the physician would normally have to perform himself/herself. By performing these types of services for the physician, then the supplier is saving the physician money; such savings constitutes “value” to the physician.

• It is permissible for a DME supplier to enter into a Medical Director Agreement (“MDA”) with a physician who also refers Medicare patients to the supplier. The MDA needs to comply with the PSMC safe harbor and with the Stark Personal Services exception. Among other requirements, (i) the MDA must be in writing and have a term of at least one year, (ii) the physician must render valuable (not “made up”) services to the supplier, (iii) the compensation paid by the supplier to the physician must be fixed one year in advance, and (iv) the compensation must be the FMV equivalent of the physician’s services. If the MDA does not meet these requirements, then the DME supplier and physician will likely be in violation of the AKS and Stark.

• If a supplier is going to pay a physician to put on an education program, then it must pass the “smell test.” Specifically, the physician must be qualified to make the presentation, the physician must actually make the presentation, the presentation topic must be substantive and timely, the audience must be in the position of benefitting from the presentation, and the compensation to the physician must be FMV.

• If a DME supplier submits a claim to Medicare that arises out of an improper arrangement with a physician (i.e., the arrangement violates Stark and/or the AKS), then the claim is “tainted” and becomes a false claim. Penalties under the FCA can be massive.

Attribution: The information regarding the UHB settlement is taken from a Law360 article (dated February 10, 2017), written by Michelle Casady, entitled “El Paso Hospital Pays $860K To Settle FCA Kickback Claims. The information regarding the Jeffrey Pearlman indictment is taken from a Law360 article (dated February 10, 2017), written by Stewart Bishop, entitled “Ex-Insys Sales Boss Indicted In Fentanyl Kickback Scheme.”

A Whole New Medtrade Spring
For Medtrade Spring 2017, the Education Advisory Board “blew up” the education program format and installed a radically different format. Feedback from attendees of prior Medtrades led the EAB to conclude that attendees value interactive education experiences Attendees want to interact with the instructors … and they want to interact with each other. And so with few exceptions, all of the programs will have two or more discussion facilitators (not “speakers”). The chairs will be configured in a semi-circle and the facilitators will stand in the middle of the attendees. The facilitators can use Power Points, but they are not required to do so. If the facilitators do use Power Point, it will not be the focal point of the program … rather, the focal point will be the interaction among the attendees and facilitators. In this interactive format, the facilitators will cover the assigned topic. This approach should result in an enjoyable and effective learning experience for the attendees.

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, infusion companies, 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, and can be reached at (806) 345-6320 or