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General Healthcare

Arrangement with Physician – Case Study

July 25, 2016

AMARILLO, TX – This article discusses the implications under the federal physician self-referral law and the federal anti-kickback statute regarding a hypothetical arrangement (“Arrangement”) between a DME supplier (“Supplier”) and a physician (“Physician”).  

Assume that the Supplier provides equipment, consultation services and data retrieval/storage/analysis services to a Physician in connection with computerized skeletal testing. Assume that the Supplier sells or leases the testing equipment to the Physician, and charges a per-test fee for the services that the Supplier provides. Assume that the per-test fee is assessed when the Physician submits the raw data generated by the equipment to the Supplier for analysis and reporting. Assume that the computerized testing is performed in the physician’s office, and is reimbursable by Medicare and commercial payers.

Federal Physician Self-Referral Law
The federal physician self-referral law (commonly referred to as the “Stark Law”) prohibits a physician from referring Medicare or Medicaid patients for certain Designated Health Services (“DHS”) to an entity with which the physician, or an immediate family member of the physician, has a financial relationship, unless a statutory or regulatory exception applies.  For purposes of the Stark Law, a financial relationship includes an investment or ownership interest in an entity or a compensation arrangement with an entity.  DHS is defined at 42 U.S.C. §1395nn(h)(6), and further delineated at:
http://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/List_of_Codes.html.

The Stark Law is not implicated by the Arrangement as the equipment and services are not included in the definition of DHS.

The Federal Anti-Kickback Statute
The federal anti-kickback statute states:
1) Whoever knowingly and willfully solicits or receives any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind—
A) in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program, or
B) in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program, shall be guilty of a felony and upon conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than five years, or both.

2) Whoever knowingly and willfully offers or pays any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person—
A) to refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program, or
B) to purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program, shall be guilty of a felony and upon conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than five years, or both.  

Due to the broad language of the anti-kickback statute, the Office of Inspector General (“OIG”) has adopted “safe harbor” regulations to protect arrangements that may otherwise violate the statute.  Strict compliance with the requirements of a safe harbor will immunize an arrangement from liability under the federal anti-kickback statute. The safe harbors pertinent to the Arrangement are the Equipment Rental safe harbor and the Personal Services and Management Contracts safe harbor.

The Equipment Rental and Personal Services and Management Contracts safe harbors both share six basic elements: (i) the agreement must be set out in writing and signed by the parties; (ii) the agreement covers all equipment to be leased or services to be provided for the term of the agreement and specifies the equipment or services to be covered; (iii) if use of the equipment or service is intended to be on a periodic, sporadic or part-time basis, the agreement specifies the exact schedule, length and charge of the intervals; (iv) the agreement is for a term of at least one year; (v) the aggregate rental or services charge is set in advance, is consistent with fair market value in arms-length transactions, and is not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made by a federal health care program; and (vi) the aggregated rental items or services do not exceed that which would be reasonably necessary to accomplish the commercially reasonable purpose for the rental or services agreement.  The Personal Services and Management Contracts safe harbor adds a seventh element: the services performed under the agreement must not involve the promotion of business that violates any federal or state law.  

In structuring the Arrangement it will be difficult to satisfy every element of each applicable safe harbor. Specifically, since the nature of the services to be provided are sporadic and part-time, it will likely be impossible to specify the exact schedule of intervals and charges. In addition, a service charge based on a per-click or per-test methodology will not comply with the safe harbor since the aggregate charges will not be set in advance. Even if the aggregate compensation is set in advance with a fixed annual fee, it will be difficult to ensure that the fee is fair market value if it does not take into account the volume of business to be performed at some level. However, failure to meet all criteria of the safe harbor does not mean that the Arrangement constitutes prohibited remuneration. In the event that all of the elements of a safe harbor are not met, the Arrangement will be examined on a fact-specific basis to determine whether a violation under the federal anti-kickback act has occurred.

The OIG opined on the provision of equipment and services on a periodic basis in Advisory Opinion 10-24, which concerned a proposed arrangement between a sleep test provider and a health care facility. Under the Advisory Opinion (“AO”) arrangement, the sleep test provider would furnish certain sleep testing equipment and services for a sleep testing facility. In particular, the AO arrangement would consist of three separate fees: (1) a fixed annual fee for full-time use of equipment; (2) a fixed annual fee for full-time marketing services; and (3) a fixed annual fee for other specified services and supplies that would be provided on an “as-needed” basis. As some equipment and technician services were to be provided on an “as needed” basis, the safe harbor did not apply. Here, the OIG opined that the AO arrangement did not violate the anti-kickback statute due to the following factors: (1) the testing services would be ordered and interpreted by physicians without a direct or indirect financial interest; (2) the fees under the proposed agreement would be consistent with fair market value in an arm’s length transaction and the fees would not be determined in a way that would take into account the value or value of referrals or other business generated between the parties; (3) the hospital would assume some business risk and would contribute substantially to furnishing the sleep testing services for which it bills; and (4) the fees would be set in advance and charged regardless of whether payment is collected from the patient or third parties.

It is noteworthy that the OIG expressed concern regarding the testing provider’s position to generate referrals for the facility due to its provision of marketing services on behalf of the billing provider. However, the OIG found that the risk raised by the marketing activities was sufficiently reduced by the factors discussed above. Unlike the AO arrangement, the hypothetical Arrangement described above does not provide for any marketing services to be undertaken on behalf of the Physician ordering the test. Accordingly, the risk of fraud or abuse should be lessened to a greater extent than in the AO. Based on the AO, a lease of equipment between the Supplier and Physician should constitute a low risk of a kickback violation if the written lease is for a fixed annual fee (which may be paid monthly) that is also consistent with fair market value for the equipment provided.

While the federal anti-kickback safe harbors do not include an exception for the sale of an item, as guidance, an exception to the Stark Law is available for arrangements involving the sale of items from an entity to a physician.  To qualify for this exception, the sale agreement (1) should be in writing, signed by the parties and identify the items under the sale; (2) should specify the time-frame for the arrangement; (3) should set in advance the compensation to be provided, consistent with fair market value and not determined in a manner that takes into account the volume or value of referrals; (4) should be commercially reasonable and further the legitimate business purposes of both parties; and (5) does not violate the federal anti-kickback statute or other federal or state law regarding billing or claim submission.  In the context of the sale of the device from the Supplier to the Physician, compliance with these requirements should protect the parties from an allegation of a violation of the anti-kickback statute.  

With regards to compensation for the services to be provided by the Supplier to the Physician, including physician education, physical therapy consultation support, and data analysis, assume that the Supplier proposes a per-click arrangement whereby the Physician is charged a fixed fee per submission of test data for analysis and reporting. Assume that the Supplier will not perform any type of marketing services to generate business for the Physician. The OIG has cautioned that per-click or per-test arrangements are “inherently reflective of the volume or value of services ordered and provided” and will warrant greater scrutiny.  

The OIG opined on the risks of per-test arrangements in a series of Advisory Opinions involving arrangements between a sleep test provider and a health care facility with regards to the provision of testing equipment and services. Under the arrangement discussed in Advisory Opinion 10-23, the sleep test provider would charge the facility a per-test fee that would cover all sleep testing equipment and services. In addition, the per-test fee would also include services ancillary to performance of the sleep test. For example, the sleep test provider proposed to furnish a part time manager who would market the facility’s services to physician referral sources and to attendees at health fairs and community health education events. The OIG opined that the proposed arrangement violated the anti-kickback statute due to the fact that the marketing services provided could result in increased referrals and an increase in the per-test fees paid. In particular, since the sleep test provider would be in a position to generate referrals through its marketing services and such referrals would result in more per-test fees received, its financial incentive to arrange for or recommend the facility was greatly increased.

In contrast, the OIG found the proposed per-test fee in Advisory Opinion 10-14, which also involved the provision of items and services between a sleep test provider and a facility, to be of sufficiently low risk of fraud or abuse so as not to violate the anti-kickback statute. Under that AO arrangement, the sleep test provider would charge a fixed per-test fee, which covered only items or services integral to performing the sleep test, evaluating or scoring the data and transmitting the results to an interpreting physician. The per-test fee in the AO arrangement would not include amounts attributable to other ancillary services, such as marketing.  In determining that the AO arrangement did not violate the anti-kickback statute, the OIG found the following mitigating factors: (1) testing would be ordered by individuals or entities without a financial or ownership interest; (2) the per-test fees, when taken individually and not in the aggregate, would not take into account the value or volume of referrals or business generated; (3) the per-test fee would be charged even if the billing provider was not reimbursed on the claim; and (4) the provider would assume some degree of business risk.

While the hypothetical Arrangement will cover some services integral to the test, such as the data collection and analysis, it also includes ancillary services of physician education and physical therapy support consultations. In this regard, it is more similar to the prohibited arrangement in Advisory Opinion 10-23. While the Supplier’s per-test payment arrangement may be distinguished since the ancillary education and consultation services, unlike marketing services, are not directly linked to the potential for increased financial incentives for either the Physician or the Supplier, the services not related to test data should be segregated and covered under a separate service agreement with a flat annual fee that is fair market value.

Any arrangement involving a per-test compensation structure for services should ensure that the per-test fee is consistent with fair market value not adjusted for any volume of referrals or other business generated, and does not consist of ancillary items and services not related to the test itself. If these requirements are met, then there is minimal risk of an enforcement action under the federal anti-kickback statute. Satisfaction of these requirements demonstrates that the parties seek to meet as many safe harbor criteria as possible, ensures that the arrangement reflects the proper intent of the parties, and creates minimal risk of abuse.

State Fraud and Abuse Statutes
Note that most states have self-referral and/or anti-kickback laws that may impact the legality of the arrangements in that state.

Jeff Baird will be presenting the following webinar:
AAHOMECARE’S EDUCATIONAL WEBINAR
Responding to Reimbursement Cuts: Billing Non-Assigned and Other Options
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.
Wednesday, July 27, 2016
2:30-4:00 p.m. EASTERN TIME
We now know what Medicare reimbursement is……and it is not pretty. The bottom line is that Medicare will pay as little as possible for DME. And yet, with 78 million Baby Boomers retiring at the rate of 10,000 per day, the demand for DME will dramatically increase. This webinar will primarily focus on billing on a non-assigned basis. Specific issues to be addressed include: (i) What does it mean to bill non-assigned? (ii) If the supplier bills an item non-assigned, then can the supplier set the price without limitations? (iii) Can a supplier bill a rental item non-assigned? If so, can the supplier demand a purchase price up front or is the supplier obligated to take rental payments from the patient? (iv) If the supplier bills non-assigned, then is it required to submit a claim for reimbursement on behalf of the patient? (v) If a supplier is a non-contract supplier providing competitive bid products on a non-assigned basis in a CBA, must the supplier utilize an ABN? (vi) If a supplier provides products, on a non-assigned basis, to patients residing outside a CBA, must the supplier utilize an ABN? (vii) If a supplier provides a rental item on a non-assigned basis, and receives monthly rental payments from the patient, is one ABN at the beginning sufficient or must the supplier utilize an ABN every month? In addition to non-assigned billing issues, the webinar will discuss other options for the supplier to lessen its dependence on Medicare fee-for-service.

Register for Responding to Reimbursement Cuts: Billing Non-Assigned and Other Options on Wednesday, July 27, 2016, 2:30-4:00 pm ET, with Jeffrey S. Baird, Esq., of  Brown & Fortunato, PC.
Contact Ika Sukh at ikas@aahomecare.org if you experience any difficulties registering.
This webinar is free to AAHomecare members, and $49.00 for non-members.

Joshua Skora will be presenting the following webinar:
AAHOMECARE’S EDUCATIONAL WEBINAR
Schemes, Scams and Flim-Flams: How the DME Supplier Can Recognize Fraud Landmines
Presented by: Joshua I. Skora, Esq., Brown & Fortunato, P.C.
Tuesday, August 9, 2016
2:30-4:00 p.m. EASTERN TIME
It would be nice if DME suppliers operated in the “real world”…….the world inhabited by auto parts stores and widget manufacturers. Unfortunately, suppliers are not in the real world. They are in Alice in Wonderland where “up is down, down is up, and every day they climb through the proverbial rabbit hole.” In this alternative universe, DME suppliers are subjected to numerous federal and state anti-fraud statutes and regulations. What would be perfectly acceptable in the auto parts world may be a felony in the health care world. This program will discuss the many anti-fraud statutes and regulations that the DME supplier must follow. More importantly, this program will teach the supplier how to recognize fraud landmines so that it does not step on them. Examples of these fraud landmines include: (i) paying commissions to 1099 independent contractor marketing reps; (ii) routinely waiving co-payments; (iii) violating the telephone solicitation statute and Supplier Standard #11; and (iv) furnishing prohibited gifts to physicians and prospective customers.

Register for Schemes, Scams and Flim-Flams: How the DME Supplier Can Recognize Fraud Landmines on Tuesday, August 9, 2016, 2:30-4:00 pm ET, with Joshua I. Skora, Esq., of  Brown & Fortunato, PC.
Contact Ika Sukh at ikas@aahomecare.org if you experience any difficulties registering.
FEES: 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 jbaird@bf-law.com.