Moving the HME Industry Forward


Renting Out a Commercial Insurance Provider Contract

August 4, 2014

AMARILLO, TX – A challenge facing DME suppliers relates to commercial plans that have “closed panels.” For example, ABC Medical Equipment applies to be added to the provider panel for an Insurance Company. However, the Insurance Company informs ABC Medical that the Insurance Company has a sufficient number of DME suppliers on its provider panel.

Unless a solution can be found, this places ABC Medical in the unenviable position of having to (i) decline to serve patients covered by the Insurance Company or (ii) serve the patients on an out-of-network basis.

To address this challenge, a number of DME suppliers are turning to the subcontract model. In its most simplistic form, here is how it works: Assume that XYZ Medical Equipment is on the Insurance Company’s provider panel. Assume that Mrs. Smith is covered by the Insurance Company.

Under the subcontract model, XYZ Medical will subcontract out to ABC Medical specific responsibilities to take care of Mrs. Smith. XYZ Medical will bill and collect from the Insurance Company and XYZ Medical will, in turn, pay ABC Medical for its subcontract services. On the surface, this looks like a straight-forward arrangement. However, as is often the case, the “devil is in the details” and if the subcontract arrangement is set up incorrectly, then ABC Medical and XYZ Medical are exposed to potential liability. Let me explain.

All of us know that a Medicare Part B supplier number cannot be sold, transferred, or “rented.” Doing so can violate the Medicare anti-kickback statute, the federal False Claims act, and the supplier standards.

There are similar legal concerns in the commercial insurance space. A commercial insurance contract cannot be “rented.” In other words, XYZ Medical cannot simply allow ABC Medical to “use” the contract that XYZ Medical has with the Insurance Company. If ABC Medical and XYZ Medical want to enter into a bona fide subcontract arrangement, then the issues they need to address are the following:

• Does the provider contract between XYZ Medical and the Insurance Company address whether or not XYZ Medical can subcontract out its services? If so, what does the contract say? Does it simply give the right, without any restrictions, to XYZ Medical to subcontract out its services? Or does the contract allow subcontracting…..but only if certain conditions are met?

• If the provider contract says nothing about subcontracting, then do the Insurance Company’s provider guidelines address subcontracting? If the contract and the provider guidelines are silent regarding subcontracting, then it is likely permissible for ABC Medical and XYZ Medical to enter into a subcontract arrangement. However, out of an abundance of caution, it would be wise for XYZ Medical to call the Insurance Company and inquire about subcontracting.

• Assume that ABC Medical and XYZ Medical conclude that subcontracting is allowed. Does XYZ Medical have operational responsibilities and financial risk? Said another way, does XYZ Medical have “skin in the game?” When XYZ Medical submits a claim to the Insurance Company, then XYZ Medical is representing that it is the supplier. As the supplier, XYZ Medical needs to have at least a minimal level of operational responsibilities and financial risk. If ABC Medical completely takes care of Mrs. Smith, and if all that XYZ Medical does is bill and collect from the Insurance Company, then XYZ Medical is not really the supplier; rather, ABC Medical is the supplier. Hence, there is a risk that the Insurance Company will assert that XYZ Medical submitted a fraudulent claim, and that ABC Medical collaborated in the submission of the fraudulent claim. Additionally, if ABC Medical is generating the patient and is doing all the work, and if XYZ Medical is pocketing a percentage of the payment by the Insurance Company, then there is a risk that the arrangement violates a state anti-kickback statute. Almost all states have an anti-kickback statute that is similar to the Medicare anti-kickback statute. Some state anti-kickback statutes apply only if the payer is the state Medicaid program. Other state anti-kickback statutes apply even if the payer is commercial insurance or is an individual patient paying cash.

The “take-away” is this: Just because a subcontract arrangement does not involve patients covered by government health care programs does not mean that the parties can set up a “sham” subcontract arrangement. A subcontract arrangement requires two parties: a contractor (XYZ Medical) and a subcontractor (ABC Medical). The contactor needs to have the minimum operational responsibilities and financial risk necessary for it to credibly hold itself out as the “supplier.”

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

Jeff Baird and Louis Feuer will be co-presenting a webinar for AAHomecare on Thursday, August 14. See details below:

Innovative Marketing While Remaining Within Legal Parameters

Presented by:
Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.
Louis Feuer, Dynamic Seminars & Consulting, Inc.

Thursday, August 14, 2014
2:30-4:00 p.m. EASTERN TIME

Sign up now for Innovative Marketing While Remaining Within Legal Parameters on Thursday, August 14, 2014, 2:30-4:00 pm ET, with Jeffrey S. Baird, Esq., chairman of the Health Care Group of Brown & Fortunato, PC and nationally recognized marketing expert, Louis Feuer of Dynamic Seminars & Consulting, Inc.

To register, contact Ika Sukh at

FEES: Member: $99.00    
Non-Member: $129.00