Moving the HME Industry Forward

General Healthcare

Consignment Agreement With Hospital – Key Provisions

September 28, 2015

AMARILLO, TX – Collaboration between hospitals and DME suppliers is becoming more prevalent. One of the ways that a hospital and DME supplier can work together is for them to enter into an Equipment Placement Agreement (“EPA”).

Pursuant to an EPA, the DME supplier will place inventory on the hospital’s premises. If a patient (who is about to be discharged) selects the DME supplier that has the consigned inventory at the hospital, then when the patient is discharged, he will be sent home with a product from the “consignment closet.”

To avoid kickback problems, it is important that the hospital not directly or indirectly make money off of the consigned inventory. The EPA may also contain a “preferred provider” section and an “employee liaison” section. The EPA should also contain a “chargeback” section. Set out below are some of the key provisions of an EPA:

• Appointment of Preferred Provider – Hospital appoints Supplier as its Preferred Provider for furnishing Services on a post-discharge basis to Patients who elect to receive such Services from Supplier, and Supplier accepts such appointment. Hospital’s appointment, and Supplier’s acceptance, are conditioned on the continued performance by each Party of their respective duties, and other terms and conditions, as set forth herein.

• Placement of Inventory – Supplier will deliver to Hospital’s premises the DME listed on Exhibit A (the “Inventory”). Supplier will replace items distributed from the Inventory from time to time. Supplier may increase, decrease or change the quantity or kinds of DME in the Inventory as Supplier deems appropriate, taking into account Hospital’s preferences and usage patterns. Hospital will provide suitable storage space for the Inventory at Hospital’s premises and will permit Supplier access to such storage space for purposes of (i) verifying and replacing inventory and (ii) carrying out the purposes of this Agreement.Ownership of Inventory – Title to the Inventory will remain with Supplier and Hospital will have no ownership interest in the inventory.

• Distribution of Inventory – If the Patient chooses to obtain an item from the Inventory (“Inventory Item”), Hospital will provide the Inventory Item to the Patient. Hospital will notify Supplier of the provision of the Inventory Item to the Patient and will provide the Patient’s name and insurance or other third party reimbursement source information to Supplier, together with a written order and such other documentation as Supplier may request for the purpose of billing for the Inventory Item. Hospital will not distribute an Inventory Item to any person other than to a Patient, parent or guardian who has chosen to receive an Inventory Item from Supplier. Hospital will not use an Inventory Item to provide any service at Hospital’s premises, or make any other use of the Inventory Item or permit any other person to make any other use of the Inventory Item, other than as expressly set forth in this Agreement. Supplier may verify the Inventory Item from time to time as Supplier deems necessary.  

• Chargeback – If Supplier determines that any Inventory Items are missing from the Inventory for which Hospital has not provided billing information as provided in this section, or if any Inventory Item is lost or damaged, or if any Inventory Item is used on a Hospital patient in such a way that the Inventory Item falls under Part A of the Medicare program or falls under hospital reimbursement by any other third party payer, or if Supplier determines that it cannot submit a claim for third party reimbursement because of inadequate or incomplete documentation obtained by Hospital and transmitted to Supplier, or if a claim (submitted by Supplier) is denied because of inadequate or incomplete documentation obtained by Hospital and transmitted to Supplier, then Hospital will pay Supplier for such Inventory Item at its regular retail price. Hospital’s obligations under this section will survive expiration or termination of this Agreement.

• Billing – Supplier will be responsible to bill and collect for its own account all charges to Patients and third-party payers for Inventory Items distributed from the Inventory by Hospital. Hospital will cooperate as requested by Supplier in obtaining and providing documentation required to support claims for payment for such Inventory Items.

• Hospital Liaison – Supplier may, at its discretion, assign an employee to serve as its Hospital Liaison (“Liaison”). THE LIAISON WILL NOT PERFORM ANY SERVICES THAT THE HOSPITAL IS OBLIGATED TO PERFORM AND WILL NOT HAVE ACCESS TO A PATIENT’S MEDICAL RECORDS UNLESS THE PATIENT SELECTS SUPPLIER TO BE ITS DME SUPPLIER. Among other duties, the Liaison will (i) educate the Hospital staff regarding how to properly use DME; (ii) be available to answer questions posed by Hospital staff; and, (iii) resolve concerns expressed by Hospital staff.

• Intake – For each Patient who chooses to receive Services from Supplier, Hospital will provide Supplier with complete and accurate intake information and such other information that is necessary for Supplier to provide Services to Patients, including the Patient’s identifying and clinical information, the Services ordered, the name of the ordering physician, the expected delivery date, and insurance and other third party billing information. If required for any Patient, Hospital will coordinate the provision of Services with any home care nurses, aides, therapists, or other caregivers involved in such Patient’s home care.

• Notification of Preferred Provider Status – Hospital agrees to identify Supplier as Hospital’s Preferred Provider of Services. In particular, Hospital will make such information known to its employees, medical staff, and patients, PROVIDED, however, that nothing herein will be construed as compromising a patient’s right to select his or her supplier of choice.

• No Referrals Required – In entering into this Agreement, the parties do not intend to induce the referral of Patients by Hospital to Supplier. The parties acknowledge that there is no requirement under this Agreement or any other agreement between Hospital and Supplier or their respective affiliates that any patients be referred to the other. In connection with their respective duties hereunder, neither Party will pay the other any remuneration, directly or indirectly, overtly or covertly, in cash or in kind. At its sole cost and expense, each Party will provide such staff space and other resources as are necessary or appropriate to achieve the purposes of this Agreement. The Parties further acknowledge that the relationship established hereby is for the convenience of Patients who select Supplier to furnish their Services.

Jeff Baird will be presenting the following webinar:
AAHomecare’s Educational Webinar
Buying and Selling a DME Supplier
Presented by:  Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.
Thursday, October 15, 2015
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 Thursday, October 15, 2015, 2:30-4:00 pm ET, with Jeffrey S. Baird, of Brown & Fortunato, PC. Please contact Ika Sukh at to register.

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