Moving the HME Industry Forward


Preferred Provider Agreement With Hospital – Key Provisions

Jeffrey S. Baird, JD • April 28, 2018

AMARILLO, TX – A hospital is motivated to discharge patients as quickly as possible. This is because under most compensation methodologies, if a patient has a prolonged stay at the hospital for a particular disease, then the hospital may lose money on the patient. If a hospital desires to discharge a COPD patient, then the hospital wants to feel comfortable that the patient will have oxygen as soon as the patient returns home. This is a need that the DME supplier can fill. The supplier can approach the hospital and say: “If you will designate our company as your preferred DME supplier, then we will commit to be ready to take over service on your patients upon discharge.”

In the same vein, a hospital is motivated to reduce the number of “frequent flyers.” These are the patients who are readmitted soon after discharge. Under the Hospital Readmissions Reduction Program, if a patient is readmitted soon (e.g., within 30 days) after discharge for the same disease for which the patient was initially admitted, then the Medicare program will pay less money to the hospital the following year. The DME supplier can approach the hospital and say: “If you will designate our company as your preferred DME supplier, then we will commit to work with your discharged patients and their caregivers so as to reduce the risk of the patients being readmitted soon after discharge.”

Assume that the hospital is amenable to entering into a “preferred provider” arrangement with a DME supplier in order to (i) have the supplier on standby after a patient is discharged and (ii) reduce the number of “frequent flyers.” How should the hospital and supplier consummate their preferred provider arrangement? An important first step is for the hospital and DME supplier to execute a Preferred Provider Agreement (“PPA”) that contains a number of provisions, including the following:


The hospital performs discharge planning for patients prior to their discharge, including arranging for oxygen equipment, wheelchairs, beds, and related supplies (collectively referred to as “Equipment”) ordered by a physician for the patients’ home use following discharge. The hospital desires to appoint a qualified Preferred Provider to furnish Equipment to patients who elect to utilize the Preferred Provider’s Equipment post-discharge and the DME supplier (“Supplier”) desires to serve in the capacity of the Preferred Provider for the hospital. The hospital has confidence in the quality of the Supplier’s Equipment, the Supplier has a good reputation, and the Supplier is willing to support the mission of the hospital.

Appointment of Preferred Provider

The hospital appoints the Supplier as its Preferred Provider for furnishing Equipment on a post-discharge basis to patients who elect to receive such Equipment from the Supplier, and the Supplier accepts the appointment.

Duties of the Supplier

As requested by the hospital pursuant to a physician’s order, the Supplier will furnish Equipment to patients for use in their homes post-discharge. The Equipment furnished by the Supplier will be provided in the same manner and be of the same quality as the Equipment that the Supplier customarily provides to its other patients.

  • Inventory –The Supplier will maintain an inventory of equipment, supplies and products, suitable in terms of variety and amount, to allow the Supplier to provide Equipment to patients following discharge.
  • Availability –The Supplier will use its best efforts to provide Equipment to patients within the time frame specified by the hospital.
  • Initial Contact –The Supplier will contact a patient within __ hours of receipt of the referral from the hospital to schedule delivery of the prescribed Equipment.
  • Delivery –The Supplier will deliver Equipment to the patient’s home, or elsewhere, as mutually agreed to by the patient and the Supplier.
  • Set-Up and Training –The Supplier will set up and install Equipment as appropriate and in accordance with the Supplier’s usual protocols and train patients and/or caregivers in the proper utilization of the Equipment.
  • Billing –The Supplier will bill and collect for its own account all charges to patients and third-party payors. The hospital will cooperate as reasonably requested by the Supplier in obtaining and providing documentation required to support claims for payment for Equipment.
  • Service and Maintenance –At no extra charge, the Supplier will service and maintain Equipment provided on a rental basis in accordance with the Supplier’s usual protocols and the rules of applicable third party payors and, as necessary, replace rental equipment that fails beyond repair due to normal use or manufacturer’s defects. With respect to Equipment purchased by patients, the Supplier may charge the purchaser the Supplier’s usual and customary fees for service, maintenance and replacement in accordance with the rules of applicable third party payors.
  • 24 Hour Availability –The Supplier will provide 24 hour service, seven day per week telephone availability to the the hospital and patients regarding the Equipment.
  • Retrieval –The Supplier will retrieve and disinfect rental Equipment upon notification that the rental Equipment is no longer needed.
  • Complaints –The Supplier will promptly address any patient or caregiver complaints or concerns and coordinate its response with the hospital as appropriate.
  • Returns –The Supplier will accept returns of any substandard or unsuitable Equipment.
  • Hospital Staff Education –The Supplier will (i) educate the hospital staff regarding how to properly use home medical equipment, (ii) be available to answer questions posed by hospital staff, and (iii) resolve concerns expressed by the hospital staff.
  • Compliance Monitoring –Following discharge, the Supplier will monitor the patient’s compliance with the proper utilization of the Equipment. Upon the request of the hospital or treating physician, the Supplier will submit compliance reports to the hospital and/or the treating physician.
  • Regulatory Compliance –The Supplier will maintain a written Compliance Plan and an active internal compliance program under the direction of a designated Compliance Officer to ensure that the Supplier does not knowingly fail to comply with the service and billing requirements established by Medicare, Medicaid, and other third party payors.
  • Resources –At its own cost and expense, the Supplier will provide all Equipment, staff, vehicles, office space, and other resources necessary or appropriate to perform its duties.

Duties of the Hospital

  • Notice of Selection –In the event the patient selects Supplier to provide Equipment, the hospital will so notify the Supplier and provide the Supplier with complete and accurate information as may be necessary for the Supplier to perform its duties.
  • Preferred Provider Status –The hospital will accord the Supplier “Preferred Provider” status to serve patients requiring Equipment post-discharge. Nevertheless, the “Preferred Provider” status will not be construed as compromising any patient’s right to select his or supplier of choice.
  • Patient Choice –The hospital will inform patients of their right to select their supplier of choice. In the event that a patient does not express a preference for a particular supplier, then the hospital will inform the patient of the preferred provider arrangement and recommend Supplier. The hospital will be responsible for ensuring that patients are given free choice of suppliers and will document such choice in accordance with applicable law.
  • Information –For each patient served pursuant to this PPA, the hospital will provide the Supplier with information, including the patient’s identifying and clinical information, the Equipment ordered, the name of the ordering physician, the expected delivery date, and insurance and other third party billing information.
  • Coordination –If required for a patient, the hospital will coordinate the provision of Equipment with home care nurses, aides, therapists, or other caregivers involved with the patient’s home care.
  • Advanced Notice –To promote continuity of care, patient convenience and cost efficiencies, the hospital will use commercially reasonable efforts to provide the Supplier with advance notice of a patient’s Equipment needs.
  • Complaints –The hospital will promptly inform the Supplier of any Equipment-related patient complaints or concerns of which the hospital becomes aware and, if appropriate, will coordinate and cooperate with the Supplier in fashioning an appropriate response.

No Referrals Required/No Remuneration

There is no requirement that any patients be referred from one party to the other party. Neither party will directly or indirectly pay remuneraton to the other party.

Term and Termination

The term will be for one year. At the end of one year, and at the end of each year thereafter, this PPA will automatically renew. Either party may terminate this PPA, with or without cause, by giving the other party at least ___ days prior written notice.


Each party (“Indemnifying Party”) will indemnify and hold harmless the other party (“Indemnified Party”) from and against any liability on account of damaged property or bodily injury arising out of intentional acts, reckless acts, or negligent acts of the Indemnifying Party.


Each party will maintain insurance of such kinds and in such amounts as are usual in the party’s business or operations. Evidence of the insurance coverage will be provided by each party to the other upon request.

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