Moving the HME Industry Forward

General Healthcare

Purchase by DME Supplier of Internet Leads

February 9, 2015

AMARILLO, TX – When a lead generation company (LGC) sells Medicare leads to a DME supplier, it is important that the arrangement not violate the Medicare anti-kickback statute, nor the telephone solicitation statute.

Anti-kickback statute
The statute makes it a crime for a Company A to give anything of value (e.g., money) to Company B in exchange for Company B (i) referring patients covered by a government health care program; (ii) arranging for the referral of government program patients; or (iii) recommending the purchase of a product that is reimbursed by a government health care program.

It is acceptable for the DME supplier to “purchase a lead.” However, it is a violation of the anti-kickback statute for the supplier to “pay for a referral.” Assume that the LGC furnishes leads to the supplier and the supplier, in turn, pays the LGC. The question is this: Is the supplier only buying leads? Or is the supplier paying for referrals?

The OIG addressed this issue in an Advisory Opinion. The OIG distinguished purchasing “raw leads” from purchasing “qualified leads.” A raw lead is when the LGC only collects name, address and phone number of the Medicare beneficiary.

A qualified lead is when the LGC collects additional information about the beneficiary such as physician’s name, Medicare number, diagnosis, products the beneficiary is currently using, etc. The chances of a raw lead becoming a paying customer for the supplier are pretty remote. This is akin to the supplier publishing an ad in the newspaper. When a prospective customer calls in response to the ad, then the supplier will have no idea as to whether or not the caller is a serious prospective customer.

On the other hand, the chances of a qualified lead becoming a paying customer increase appreciably. This is akin to a physician referring the beneficiary to the supplier. If the supplier purchases raw leads on a per lead basis, then the anti-kickback statute is likely not implicated. However, if the supplier purchases qualified leads on a per lead basis, then the anti-kickback statute will likely be implicated.

Brown & Fortunato (B&F) recently defended a DME supplier that had a criminal and a civil case brought against it by the Department of Justice (DOJ). The supplier purchased qualified leads and paid for them on a per lead basis. The DOJ took the position that the arrangement violated the anti-kickback statute and that the claims, arising from the “kickback” arrangement, constituted false claims. B&F worked out a civil settlement that avoided a criminal conviction. However, the DOJ is pursuing the lead vendors that sold leads to the supplier.

Let’s look at an example: Assume that (i) the LGC will provide the lead to the supplier; and (ii) the supplier will pay the LGC $100 for the lead. Assume that the information on each lead includes name, address, phone number, physician information, and Medicare number.

The question becomes: Does this additional information regarding the lead (physician information and Medicare number) move the lead from the “raw” category to the “qualified” category? If the answer is “yes,” then there is a potential kickback problem. Conversely, if the answer is “no,” then the anti-kickback statute is not implicated.

Telephone Solicitation Statue
This statute only applies to DME suppliers. The statute essentially says the same thing as Supplier Standard # 11. The statute says that the DME supplier cannot call a prospective customer (Medicare beneficiary) unless the beneficiary has given his permission to be called specifically by the DME supplier. For example, assume that a prospective customer visits the LGC’s website. Assume that the web page has a “consent-to-be-called” box for the beneficiary to click. According to the National Supplier Clearinghouse, for the electronic consent-to-be-called to be valid, the DME supplier can be the only provider listed on the page and the consent must be specific to the DME supplier.

What all of this means for the supplier and the LGC
The arrangement should be structured one of two ways. First, the only information that the LGC will collect and give to the supplier will be the lead’s name, address and phone number. The LGC will not collect additional “qualifying” information such as physician information, Medicare number, diagnosis, products being used, etc. The supplier can pay for these raw leads on a per lead basis. Alternatively, the LGC will also collect the physician information, Medicare number, and any other qualifying information that the LGC deems pertinent. The compensation paid by the supplier for the LGC’s services will be fixed one year in advance (e.g., $60,000 over the next 12 months, or $5000 per month) and will be the fair market value equivalent of the services rendered by the LGC. Fixed annual compensation (fair market value) is an important element to the Personal Services and Management Contracts safe harbor to the anti-kickback statute.

Assume that the LGC is also the Manufacturer
Assume that the LGC is also the manufacturer of the products that the leads will purchase. The more conservative (and, thus, preferable) arrangement is for (i) the LGC and the supplier to enter into a standard product purchase agreement in which the supplier agrees to buy products from the manufacturer/LGC in accordance with a price list; and (ii) the manufacturer/LGC will furnish leads to the supplier (including the physician information, Medicare number and other qualifying information) but the supplier will not pay for the leads. This is a standard arrangement that many manufacturers follow. If the manufacturer/LGC insists that the supplier purchase the leads, and if the supplier agrees to do so, then the arrangement needs to be structured as set out in the preceding paragraph.

Assume that the manufacturer/LGC will also serve as the “fulfillment house” for the DME supplier. The manufacturer/LGC will ship the products to the customer on behalf of the DME supplier. At the end of the day, the DME supplier (not the manufacturer/LGC) is the “supplier.” It is the supplier that submits claims to Medicare. When it submits a claim, the DME supplier is representing to Medicare that the supplier has operational responsibilities and financial risk……that is, the DME supplier is truly acting like a “supplier.” If the supplier essentially does nothing except bill and collect money, then the government will likely consider the arrangement to be nothing but a sham, in which (i) the DME supplier is, in reality, “renting out” its PTAN to the manufacturer/LGC and (ii) the DME supplier is collecting money from Medicare for products that the supplier did not, in reality, furnish. The supplier must have operational responsibilities and financial risk. In other words, the supplier must have “skin in the game.”

For example, the supplier must handle the “intake, assessment and coordination of care.” The obligation of the supplier to pay the manufacturer/LGC must be absolute. The supplier must pay the manufacturer/LGC even if the supplier does not get paid by the third party payor. If there is a problem with a product, then the beneficiary should call the supplier. If the supplier wants to direct the manufacturer/LGC to furnish a replacement product, then the supplier can do so. The labels on the boxes (that are shipped to the beneficiaries) must reflect the DME supplier’s name, not the manufacturer’s/LGC’s name.

Jeff will be presenting the following webinar on behalf of Medline Industries.
Innovative Marketing While Avoiding Legal Landmines
Presented by: Jeffrey S. Baird, Esq., of Brown & Fortunato, P.C.
Wednesday, February 11, 2015 – 12:00-1:00 p.m. Central Time

The DME industry today is a totally different animal from yesterday. The industry has matured, technology has progressed, and demand is increasing exponentially. The flip side is that the industry has been hit with breathtaking legislative and regulatory changes. Now more than ever, in order to succeed the supplier must have an innovative marketing program and enter into strategic joint ventures and business arrangements. This program will discuss the legal parameters that must be followed when implementing a marketing program and entering into joint ventures and arrangements with referral sources. Among other issues, the program will discuss the Medicare anti-kickback statute, the Stark physician self-referral statute, the beneficiary inducement statute, the telephone solicitation statute, safe harbors, and OIG fraud alerts.

To register, contact Maggie Andersen:; 847-643-4687

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato PC, 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