Moving the HME Industry Forward

General Healthcare

Providing Charitable Care/Charitable Contributions

July 6, 2015

AMARILLO, TX – When a DME supplier is about to enter into a preferred provider arrangement (“PPA”) with a hospital, it is not uncommon for the hospital to ask the supplier to provide products to indigent patients being discharged from the hospital. The general rule is that it is acceptable for the supplier to provide charitable care. However, as is usually the case, the “devil is in the details.” While it is generally acceptable to provide charitable care, the PPA should not be structured in such a way that the supplier is construed to be “giving something of value” to the hospital in exchange for referrals. Let me explain.

The OIG takes the position that charitable donations to not-for-profit entities are essential to “sustaining and strengthening the health care safety net.”  The OIG believes that most donors, even those with business relationships with donation recipients, are generally motivated by bona fide charitable purposes and desire to help their communities.  The fact that a business relationship exists between a donor and recipient does not make the donation automatically suspect.  However, where the two entities are in a position to refer to each other, the arrangement does warrant additional scrutiny.  Notably, the OIG opinions do not appear to differentiate between not-for-profit (“NFP”) organizations and tax exempt organizations.  The OIG appears to use the same standards for both organizations (see e.g., Advisory Opinion No. 00-11 vs. No. 10-17). However if an entity has a tax exempt status, the OIG makes a point to note such status.

The OIG has issued several advisory opinions related to the provision of charitable donations from one organization to another where either or both organizations are in a position to refer to the other.  These opinions have generally been favorable to the requesting entities where donations to charitable/not-for-profit entities (1) are for a bona fide charitable purpose; (2) are made in a manner that do not take into account the value or volume of referrals; and (3) incorporate other safeguards to ensure that donations are not tied to referrals or other business generated between the organizations. 

Notwithstanding the above, in Advisory Opinion No. 08-02 the OIG provides examples of potentially problematic contributions, including:
• contributions to private foundations or other charitable organizations directed or controlled by referral sources; and
• contributions determined in any manner that take into account past or expected orders or purchases of items or services payable by any federal health care program.

Let’s look at a hypothetical. Assume that a proposed arrangement between a DME supplier and a hospital requires the supplier to provide donations of DME to the hospital (or to patients as directed by the hospital) based on the value of the referrals provided by the hospital. Such an arrangement results in a potential kickback risk, regardless of whether the hospital is a tax exempt organization.

To reduce such risk, the dollar amount of charity care should not take in to account the value or volume of referrals generated by the hospital. The “gold standard” is for the supplier to simply agree to provide DME to some of the hospital’s indigent patients…..without specifying a dollar amount. The PPA will normally allow either party to terminate the PPA, without cause, upon giving the other party 30 (or 60) days prior written notice. The “silver standard,” one that entails some kickback risk, is for the DME supplier to agree to provide a set dollar amount of charity care (e.g., $10,000) regardless of the number of referrals from the hospital. If the parties elect to go with the “silver standard,” then they need to be aware of the following:

1) If the hospital is tax exempt:
a) If the hospital is tax exempt, it will be required to submit to the IRS a Schedule H form (part of the federal Form 990 tax return for tax exempt organizations)
b) The Schedule H Form is meant to capture the amount/type/level of community benefit (i.e., charity care) that a tax exempt organization provides during a given year.
c) The Schedule H Form has a section that asks organizations to provide a dollar amount of the community benefit they provided during that year.
d) If the hospital includes in its report the amount of care that was actually donated by the DME supplier, it could be argued that the hospital is receiving a kickback in the form of free services which it then claims in order to retain its tax exempt status.

2) If the hospital is not tax exempt:
a) There is no requirement to provide charity care/community benefit.
b) However, the following question needs to be asked: How are patients being chosen to receive charity care from the DME supplier?
c) Assume that the hospital has a patient who needs home infusion, but is unable to pay for it and would otherwise have to stay in the hospital.  The hospital calls the supplier to provide free DME home infusion services to this patient in order to transition him home.  It may be argued that the hospital is receiving a benefit from the supplier in the form of an early discharge for a patient who would otherwise be unable to pay for his hospital stay.

3) Provision of DME as charity care:
a) One OIG Advisory Opinion (No. 10-19) addressed the donations of DME by suppliers.  In this opinion, a tax exempt Foundation was formed to solicit donations from donors, including potential recipients of referrals (e.g., suppliers of DME and pharmaceuticals).  The OIG determined that these donations would be low risk because the Foundation stated it would not provide the DME to federal health care program beneficiaries if the item would be reimbursable by the applicable federal health care program.  Additionally, the donations would be made to the Foundation, and the Foundation would determine which entities would receive such donations without regard to a donor’s financial interest in the entities.  The donor would be unable to dictate where its donations went and would be unable to trace or track the number of referrals it received from any of the recipient entities.
b) The hypothetical discussed above presents a higher risk than the risk set out in AO No. 10-19 because not only will the DME supplier be able to trace the referrals from the hospital, but the hospital proposes to base the dollar amount of the supplier’s charity care on the dollar amount of referrals from the hospital. Furthermore, the provision of DME that is reimbursable by a federal health care program could be potentially problematic if, for example, the DME supplier has the ability to bill a government program for additional disposable or refillable items associated with the particular DME that it provides through charity care.  There is no guarantee that the patient will choose the supplier to service his/her refills/disposables; however, the fact that the supplier did provide the patient with the initial DME for free could potentially lead to a beneficiary inducement issue.

The hospital and DME supplier have three options
• They can implement the “gold standard” described above. In my opinion, the risk of a kickback allegation is low.
• They can implement the “silver standard” described above. The kickback risk associated with this standard is lower than the hypothetical but higher than the “gold standard.”
• They can implement the arrangement described in the hypothetical. This would be ill-advised.

Jeff Baird will be presenting the following AAHomecare Educational Webinar
Accountable Care Organizations: What They Mean to DME Suppliers
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.

Tuesday, July 14, 2015
2:30-4:00 p.m. EASTERN TIME
The Cleveland Clinic. It is a model that many point to when they talk about how health care should be delivered. The Cleveland Clinic uses a team approach with the goal of solving the problem and keeping the patient healthy. Unnecessary expensive tests are not part of The Cleveland Clinic approach. So what does this have to do with ACOs? Created by Affordable Care Act, the goal of the ACO is to “take ownership” over a patient base. Like The Cleveland Clinic, the ACO strives to provide health care in a cost-efficient way, avoid unnecessary tests, use a team approach, and keep patients healthy. The ACO is made up of a hospital, physicians, pharmacies, DME suppliers, home health agencies, and other health care providers. The ACO will be influential in the decisions that patients make regarding what health care providers they will use. This program will present, in a nuts and bolts sort of way, what an ACO is, how it is formed, and what it does. Equally as important, the program will discuss the role that the DME supplier can take in the implementation of the ACO model.

Contact Ika Sukh at to register for “Accountable Care Organizations: What They Mean to DME Suppliers” on Tuesday, July 14, 2015, 2:30-4:00 pm ET, with Jeffrey S. Baird, of Brown & Fortunato, PC.

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, and can be reached at (806) 345-6320 or