Moving the HME Industry Forward


Suspect Claims Submission Arrangement

by Jeffrey S. Baird, JD • September 25, 2017

AMARILLO, TX – A growing challenge in the DME space pertains to “closed panels.” This is where a supplier desires to serve customers who are covered by a particular commercial insurance plan…but the plan is “closed” to additional DME suppliers. When this happens, it is difficult (perhaps impossible) for the supplier to persuade the commercial insurance plan to add the supplier to the plan’s panel. When faced with this frustrating predicament, the DME supplier may try to determine if there are any “workarounds.” One workaround, but one which is fraught with risk, is for the following to occur:

• The out-of-network supplier (DME Supplier A) accepts, and furnishes a product or service to, a patient covered by the payor (commercial insurance plan);
• The in-network supplier (DME Supplier B) submits to the payor the claim for payment related to the item or service furnished by the out-of-network supplier;
• The in-network supplier receives payment from the payor; and
• The in-network supplier keeps either a fixed amount or a percentage of the payment received and forwards the remainder to the out-of-network supplier.

The suppliers will likely memorialize the arrangement in an agreement styled as a “subcontract” agreement, with the out-of-network supplier purportedly functioning as the in-network supplier’s subcontractor.

This type of arrangement is appealing because it can allow a supplier to accept, and obtain more favorable payment terms for, patients covered by payors the supplier is not in-network with. However, suppliers entering into this type of arrangement expose themselves to potential liability under the terms of the payor contract and state law.

Payor Contract Terms
The terms of many third party payor contracts place restrictions on subcontracting. Some payors require an in-network supplier to notify the payor before subcontracting out any of the supplier’s responsibilities under the contract. Other payors prohibit an in-network supplier from engaging in subcontracting.

With regard to a payor that imposes a prohibition on subcontracting, the type of arrangement discussed here will almost certainly violate the prohibition. The same is true where notice and approval is required but not obtained.

Even where a payor contract allows for subcontracting, these types of arrangements are probably not what is contemplated by the term “subcontracting.” Normally, a subcontracting arrangement consists of a party to a contract hiring another entity to perform some of the original contract’s obligations on behalf of the contracted party. For instance, if DME Supplier B is an in-network supplier with a payor, and Mrs. Smith is covered by the payor, under a legitimate subcontract model DME Supplier B will subcontract out to DME Supplier A specific functions related to Mrs. Smith’s care. DME Supplier B will bill and collect from the payor, and DME Supplier B will, in turn, pay DME Supplier A for functions it performs. In the scenario described above, however, if DME Supplier A accepts Mrs. Smith as a patient and furnishes all of Mrs. Smith’s care, and if DME Supplier B merely bills and collects from the payor that covers Mrs. Smith, then DME Supplier B is not in reality Mrs. Smith’s supplier, and DME Supplier A is not performing subcontracted services on behalf of DME Supplier B. Accordingly, the term “subcontracting” does not accurately describe the arrangement.

State Insurance Fraud Statute
In addition to the terms of the payor contract, state law may prohibit this type of arrangement. Most state insurance fraud statutes say that a person commits insurance fraud by “preparing, presenting or causing to be prepared or presented to an insurer a statement in support of a claim that the person knows is false or misleading.” In addition, many states have statutes that say that a person may not “solicit, offer, pay, or receive a benefit in connection with providing a good or service for which a claim under an insurance policy is submitted.”

The described arrangement could involve false or misleading statements in support of insurance claims because insurance claims frequently contain a statement certifying that the supplier submitting the claim furnished the items or services itself. And even in cases where a claim does not contain an explicit certification of this fact, a supplier implies this any time it submits a claim for payment.

In the scenario described above, the in-network supplier is not performing any functions related to the furnishing of the items or services for which it is submitting claims. Rather, the out-of-network supplier does everything except submit the claim. In fact, in most cases, the patient receiving the item or service has no interaction with the in-network supplier and no knowledge of the in-network’s supplier’s role in the claims submission process. In addition, there is a risk that the amount the in-network supplier is keeping could be viewed as a benefit in connection with the provision of an items or service covered by insurance.

State Anti-Kickback Statute (“AKS”)
When issues that potentially violate a state insurance fraud statute arise, there is often overlap with the state’s AKS. For example, the Texas illegal remuneration statute prohibits a person from paying or accepting any remuneration “for securing or soliciting a patient or patronage for or from a person licensed . . . by a state health care regulatory agency.” Because DME suppliers in Texas are licensed by a state health care regulatory agency, the Texas AKS would apply to arrangements involving payment by a DME supplier in exchange for the securing of patients or patronage. Anti-kickback statutes in many other states have language that is similar to the Texas statute.

There is a risk that a state agency or enforcement authority will assert that the arrangement violates the state AKS. The argument would be that the in-network supplier is securing patients or patronage for the out-of-network supplier by arranging for the claims related to the items or services furnished by the out-of-network supplier to be submitted as though they were furnished by an in-network supplier. Without this, the covered patients likely would not elect to utilize the out-of-network supplier. And by allowing the in-network supplier to keep a portion of the in-network payment rates in exchange, the out-of-network supplier is paying the in-network supplier to help secure those patients.

Jeff Baird and Bradley Smith will be presenting the following webinar:
Buying and Selling a DME Supplier
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C. & Bradley M. Smith, ATP, CMAA, Vertess
Tuesday, September 26, 2017
2:30-4:00 p.m. EASTERN TIME
When a person intends to buy … or sell … a DME supplier, there are a number of documentation and regulatory issues that must be addressed.  First, the seller must take a number of steps to make itself more “attractive.”  The buyer and seller need to decide whether the transaction will be an “asset” sale or a “stock” sale.  The parties will need to engage in the normal transactional steps: mutual nondisclosure agreement, letter of intent, stock purchase agreement/asset purchase agreement, and other closing documents.  The buyer will need to engage in three types of due diligence: financial, corporate and regulatory.  And the parties will need to meet a number of regulatory requirements such as submitting change of ownership notifications.  This program will discuss all of these (and other) issues associated with the purchase and sale of a supplier.

Register for Buying and Selling a DME Supplier on Tuesday, September 26, 2017, 2:30-4:00 pm ET, with Jeffrey S. Baird, Esq., Brown & Fortunato, P.C., and Bradley M. Smith, ATP, CMAA, Vertess.

Please contact Ika Sukh at if you experience any difficulties registering.
Member: $99.00
Non-Member: $129.00

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. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or