Moving the HME Industry Forward

General Healthcare

Subcontracting – How to Properly Structure – Part 2

December 15, 2014

AMARILLO, TX – Competitive bidding rules provide that contract suppliers may subcontract with non-contract suppliers as long as the subcontractor has not been “excluded from the Medicare program, any state health program or any other government executive branch procurement or non-procurement activity.”

To demonstrate that subcontractors meet this requirement, among others, the contract supplier must disclose the subcontract and related information within 10 business days after the parties execute the contract. Failure to meet the disclosure requirements and other rules concerning subcontracts may result in termination of the competitive bid contract. According to the competitive bidding rules, “[CMS] might conclude that a contract supplier breached its contract if [CMS] discover[s] that the contract supplier did not fully comply with disclosure requirements . . . or falls out of compliance with the Medicare program requirements.”

Part 1 discussed (i) the responsibilities that can be subcontracted, (ii) accreditation requirements, (iii) the provision of inventory and delivery of products, and avoiding kickback problems. This Part 2 discusses important provisions to be included in a subcontract agreement.

Important Provisions in a Subcontract Agreement
A Subcontract Agreement needs to contain a number of important provisions, including the following:

The subcontract should represent and warrant that:
• The subcontractor, and all persons it employs or engages to perform services, has all qualifications, accreditations, certifications, and licenses required by federal, state, or local law or third party payor policy or rule (collectively, “Qualification”) to fully perform the subcontract services on behalf of the contract supplier, and the subcontractor will notify the supplier immediately upon notice of a threatened loss of Qualification as well as immediately upon notice of an actual loss or limitation of a Qualification.
• Neither the subcontractor nor any of its officers, directors, owners, employees has ever been and will not be during the term of the Subcontract Agreement (1) convicted of a criminal offense, including any offense related to health care or related to the provision of services paid for by a federal or state health care program (for example, Medicare and Medicaid); (2) assessed civil money penalties for an offense related to health care or related to the provision of services paid for by a federal or state health care program; (3) excluded from participation in any federal or state health care program; or (4) excluded by any federal agency from receiving federal contracts. The subcontractor will immediately notify the supplier if any person or entity associated with the subcontractor becomes the subject of an investigation that could threaten the subcontractor’s ability to continue to accurately represent and warrant the statements in the Subcontract Agreement, and the subcontractor will immediately notify the supplier if and when it can no longer represent and warrant the statements in the Subcontract Agreement and such notice to the supplier will explain why such representations and warranties can no longer be made by the subcontractor.

The subcontract should covenant that:
• The subcontractor will not employ or contract with any individual or entity that is excluded from participation in any federal or state health care program or excluded by any federal agency from receiving federal contracts.
• The subcontractor acknowledges that, in the course of performing its duties hereunder, the supplier will disclose to the subcontractor confidential information having a special and unique nature and value relating to the supplier. As a material inducement to the supplier to enter into the Subcontract Agreement, the subcontractor agrees that, unless the supplier provides prior written consent, the subcontractor will not, at any time during or following the term of the Subcontract Agreement, directly or indirectly, disclose, publish, or divulge, except in connection with the provision of the subcontractor’s services, any confidential information which has been obtained by or disclosed to the subcontractor through or in the course of its relationship with the supplier. As an exception, the subcontractor may disclose confidential information as required to comply with the binding order of a governmental entity that has jurisdiction over it, provided that the subcontractor (a) gives the supplier reasonable written notice to allow the supplier to seek a protective order or other appropriate remedy, (b) discloses only such information as is required by the governmental entity, and (c) uses commercially reasonable efforts to obtain confidential treatment for any confidential information so disclosed.
• The subcontractor will maintain all Qualifications for the duration of the Subcontract Agreement.
• All subcontract services will be provided in accordance with (1) all applicable laws and regulations; (2) the supplier’s protocols, policies and procedures (including but not limited to policies regarding safety, infection control, and clinical practice); (3) operational specifications provided by equipment manufacturers and by the supplier; and (4) any standards or procedures imposed by the accreditation organization by which the supplier is accredited. The supplier will provide a copy of the supplier’s applicable clinical protocols, policies and procedures to the subcontractor, and may modify any protocol, policy or procedure by providing 10 days notice to the subcontractor.
• The subcontractor will cooperate with the supplier in the conduct of quality improvement activities.
• The subcontractor will cooperate with the supplier in the supplier’s efforts to comply with the supplier’s contracts with third party payors.
• The subcontractor will produce any document or information in its possession that the supplier reasonably requires in order to comply with a request from any third party payor, state or federal agency, or accreditation organization.
• The subcontractor will maintain all documents and records necessary for it to provide its service.

• The subcontractor will indemnify and hold harmless the supplier from and against all damages, claims, liabilities and losses (including reasonable attorney’s fees) resulting from the subcontractor’s negligence or willful misconduct committed in connection with the performance of the subcontractor’s duties hereunder. Likewise, the supplier will indemnify and hold harmless the subcontractor from and against all damages, claims, liabilities and losses (including reasonable attorney’s fees) resulting from the supplier’s negligence or willful misconduct committed in connection with the performance of the supplier’s duties hereunder.

• In providing services under the Subcontract Agreement, the subcontractor will be acting as a business associate of the supplier, as that term is used in the Security Standards for the Protection of Electronic Protected Health Information and the Standards for Privacy of Individually Identifiable Health Information (collectively the “HIPAA Standards”), 45 CFR parts 160 and 164. In compliance with the HIPAA standards, the parties will execute a Business Associate Addendum to the Subcontract Agreement.

The subcontract’s services might include the following:
• The supplier will arrange for a limited supply of DME to be shipped to the subcontractor, and the subcontractor will segregate and store the DME (“Consignment Inventory”). The supplier will retain title to the Consignment Inventory until it is furnished to a patient as directed by the supplier. The supplier will replenish Consignment Inventory as-needed.  In the event of termination of the Subcontract Agreement, the subcontractor will promptly return any Consignment Inventory in the subcontractor’s possession to the supplier.

If a patient chooses to obtain DME from the supplier, the supplier will notify the subcontractor that the patient requires an item of DME. After the supplier has performed the intake and assessment on the patient, and after the supplier instructs the subcontractor to furnish an item of Consignment Inventory to the patient, the subcontractor will promptly:
• Deliver DME to the patient, as ordered by patient’s physician, at the subcontractor’s location, the patients residence, or at the hospital at which the patient is about to be discharged. The subcontractor will provide initial education and training to the patient or patient’s caregiver on operation and use of DME required by the patient, as ordered by the patient’s physician;
• Provide the supplier’s contact information, including 24-hour emergency number, to the patient or patient’s caregiver, and instruct the patient and/or caregiver to contact the supplier directly regarding any complaint; and
• Transmit to the supplier relevant patient information and documents in the form and manner required by the supplier, including, without limitation, proof of delivery.

• Should the subcontractor receive any patient complaints regarding use of the supplier’s DME, the subcontractor will immediately forward to the supplier such complaints. The subcontractor will maintain a log that records (i) the date of the complaint, (ii) the identity and contact information of the complainant, (iii) the nature of the complaint and (iv) date and time the complaint is forwarded to the supplier. The subcontractor will make the log available to the supplier upon the supplier’s request.

• The subcontractor will document its services on an invoice which it will submit to the supplier on a monthly basis.
• The subcontractor will assist the supplier, as reasonably requested, in obtaining the necessary forms and documentation for billing and reimbursement for items and services provided by the supplier. The subcontractor will submit these forms to the supplier on a weekly basis. The supplier may withhold payment for services until the subcontractor submits such forms and documentation to the supplier.

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. He can be reached at (806) 345-6320 or jbaird@bf-law.com

Jeff Baird will be presenting the following webinar:
Oxygen: Restarting the 36 Months, Pre-Screens, Use of Concentrators and Other Hot Button Issues
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.
Thursday, Dec 18, 2014
2:30-4:00 p.m. Eastern Time

Sign up now for “Oxygen: Restarting the 36 Months, Pre-Screens, Use of Concentrators and Other Hot Button Issues” on Thursday, Dec 18, 2014, 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.
FEES: Member: $99.00    
Non-Member: $129.00