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Legal Guidelines For Sales & Marketing By HME Suppliers
Phuong D. Nguyen

To be successful in its marketing and joint venture efforts, an HME supplier needs to “think outside the box,” but also needs to understand the legal restrictions that apply to Medicare-enrolled suppliers. It’s easy to be caught off-guard, as such restrictions often do not apply to other industries, and practices that are common in other industries are prohibited in the health care industry.

Le gal Guidelines There are a number of federal statutes and guidelines applicable to a health care provider’s marketing efforts. We summarize some major statutes below: Fe deral Statutes

1. Medicare/Medicaid Anti -Kickb ack Statute (42 U.S.C. § 1320a-7b) It is a felony for a person or entity to knowingly or willfully solicit or receive any remuneration in return for referring an individual for the furnishing or arranging for the furnishing of any item for which payment may be made under a federal health care program, or in return for purchasing, leasing or arranging for or recommending the purchasing or leasing of any item for which payment may be made under federal health care programs.

Likewise, it is a felony for a person or entity to knowingly or willfully offer or pay any remuneration to induce a person to refer a person for the furnishing or arranging for the furnishing of any item for which payment may be made under a federal health care program, or the purchase or lease or the recommendation of the purchase or lease of any item for which payment may be made under a federal health care program.

There are a number of specifically described arrangements that do not violate the anti-kickback statute (“safe harbors”). If a business arrangement clearly falls within a safe harbor, then it does not violate the anti-kickback statute. If the arrangement does not clearly fall within a safe harbor, then it must be examined in light of the anti-kickback statute and related court decisions to determine if it violates the statute. Of the various safe harbors, some that are particularly pertinent to HME suppliers include safe harbors for equipment rental, space rental, employees, and personal services and management contracts.

2. Benefi ciary Inducement Statute (42 U.S.C. § 1320a-7a (a)) This statute imposes civil monetary penalties upon a person or entity that offers or gives remuneration to any Medicare beneficiary (or beneficiary under a state health care program) that the offeror knows, or should know, is likely to influence the recipient to order an item for which payment may be made under a federal or state health care program. In the preamble to the regulations implementing this provision, the OIG stated that the statute does not prohibit the giving of incentives that are of “nominal value.” The OIG defines “nominal value” as no more than $10 per item or $50 in the aggregate to any one beneficiary on an annual basis. “Nominal value” is based on the retail purchase price of the item.

3. Anti -Solicit ation Statute (42 U.S.C. § 1395m(a)(17)) A supplier of a covered item (e.g., a Medicare-enrolled DMEPOS supplier) may not contact a Medicare beneficiary by telephone regarding the furnishing of a covered item unless (i) the beneficiary has given written permission for the contact, or

(ii) the supplier has previously provided the covered item to the beneficiary and the supplier is contacting the beneficiary regarding the covered item, or (iii) if the telephone contact is regarding the furnishing of the covered item other than an item already furnished to the beneficiary, the supplier has furnished at least one covered item to the beneficiary during the preceding 15 months.

4. False Claims Act (31 U.S.C. § 3729) Any person or entity that knowingly presents to a federal health care program a fraudulent claim for payment, or knowingly uses a false record or statement to obtain payment from a federal program, is subject to civil monetary penalties.

5. False, Fictitio us or Fraudulent Claims (18 U.S.C. § 287) Whoever makes or presents to any person or officer in the civil military, or naval service of the United States, or to any department or agency thereof, any claim upon or against the United States, or any department or agency thereof, knowing such claim to be false, fictitious, or fraudulent, shall be imprisoned not more than five years and shall be subject to a fine in the amount provided in this title.
The “Stark II” provisions of the Omnibus Budget Reconciliation Act of 1993, as amended, provide that if a physician (or physician’s immediate family member) has a financial relationship with an entity providing “designated health services,” then the physician may not refer patients to the entity unless one of the statutory or regulatory exceptions apply. Designated health services include, among others, (i) durable medical equipment, (ii) parenteral and enteral nutrients, (iii) prosthetics and orthotics, and (iv) outpatient prescription drugs.

OIG Advisor y Opinions A health care provider may submit to the OIG a request for an advisory opinion concerning a business arrangement that the provider has entered into or wishes to enter into in the future.

In submitting the advisory opinion request, the provider must give to the OIG specific facts. In response, the OIG will issue an advisory opinion concerning the likelihood of whether or not the arrangement will implicate the anti-kickback statute. Although advisory opinions may not be relied on by anyone except the requesting parties, they provide valuable insight into the OIG's views on certain kinds of arrangements. Past advisory opinions are available online from the OIG’s website.

OIG Special Fraud Alerts and Special Advisor y Bulletins From time to time, the OIG publishes Special Fraud Alerts and Special Advisory Bulletins that discuss business arrangements that the OIG believes may be abusive, and educate health care providers concerning fraudulent or abusive practices that the OIG has observed and is observing in the industry. These documents reflect the OIG's opinions regarding the application of the fraud and abuse laws. The alerts and bulletins are available online from the OIG’s website.

State Statues In addition, most states have enacted statutes prohibiting kickbacks, fee splitting, patient brokering, or self-referrals. State requirements and prohibitions vary from state to state. Some state statutes refer to definitions and standards found in the federal statutes while others are materially different. Some state statutes apply only when the payor is a state health care program, while other statutes apply regardless of the identity of the payor.

Marketing Em ployees An HME supplier may pay commissions, bonuses and other production-based compensation to bona fide full-time and part-time employees who market the supplier's products and services. There is a specific exception to the anti-kickback statute for payments to bona fide employees. Likewise, there is an “employee” safe harbor that provides that payments to a bona fide employee do not constitute illegal remuneration in violation of the anti-kickback statute.

The employee must be a “bona fide” employee, as opposed to being a “sham” employee. The IRS has published a laundry list of factors to consider in determining whether a person is an employee or an independent contractor. It is important that the employment relationship meet most of the IRS factors.

In scrutinizing whether a person is an employee versus an independent contractor, the government (e.g., the Department of Justice and the OIG) will look at “substance over form.” For example, if an HME supplier has a written employment agreement with a person, withholds taxes and Social Security from the person's paycheck, and issues a W-2 to the person, such factors by themselves do not establish an employment relationship. Other important factors are whether the employer is supervising, training and controlling the employee. Therefore, if the company calls a person an employee and pays the person as if he or she is an employee, but otherwise treats the employee as if he or she is an independent contractor, then the government will likely conclude that the person is an independent contractor.

Independent Contr actors An HME supplier may not pay commissions, bonuses or other production-based compensation to an independent contractor (a person who receives a 1099) for marketing services. Such payment would likely be a violation of the anti-kickback statute.

Instead, the relationship must comply with the personal services and management contracts safe harbor, which requires, among other things, that (i) the HME supplier pay a fixed annual fee to the independent contractor for marketing services and (ii) such fee must be the fair market value equivalent of the person's efforts and not his or her results.

Appro achin g Ph ysi cians and Oth er Referr al Sources An HME supplier may call on physicians, hospital discharge planners, home health agencies and other referral sources in order to market the company's products and services.

In so doing, the supplier can hand out brochures and other promotional literature. The supplier cannot, however, directly or indirectly give something of value to the referral sources for referrals.

Media Advertisin g An HME supplier may advertise on television, on radio, in the newspaper and in other media outlets.

Mail-Outs On condition that the HME supplier secures a mailing list in such a way that HIPAA is not violated (e.g., the list comes from a non-covered entity), then the supplier may mail out promotional literature to individuals on the list. In so doing, the supplier can include a stamped, self-addressed postcard.

Promotion al Items An HME supplier may offer an item of nominal value (i.e., retail value of not more than $10) to customers and prospective customers. For example, the company can run ad in the newspaper that encourages individuals to visit the company; the
Ad can say that all visitors will receive a coffee mug (that has a retail value of $7.99). Health Fairs , Luncheons and Kiosks An HME supplier may participate in local health fairs. In so doing, it can set up a table or booth and give away items with a retail value of not more than $10. Similarly, the supplier may put on a short program during lunch at a senior citizens' center, at which time the supplier may distribute promotional literature. The supplier may place a kiosk in a mall that promotes its products and services.

Consi gnm ent Clos ets An HME supplier may place inventory in an office or facility that is not owned by a physician or non-physician practitioner.

The inventory must be for the convenience only of the office’s or facility’s patients and the office or facility cannot financially benefit, directly or indirectly, from the inventory. It is important that the office or facility ensure patient choice. The HME supplier can pay rent to the office or facility so long as the rental agreement complies with the space rental safe harbor. However, from a practical standpoint, because the physical space utilized by the placement of the inventory is usually very small, it is preferable for the HME supplier to pay no rent to the office or facility.

On August 7, 2009, CMS issued Change Request 6528, Transmittal 297, which would have added a section to the Medicare Program Integrity Manual (“PIM”) addressing consignment closets and stock and bill arrangements. The stated purpose of the transmittal was to “define and prohibit certain arrangements where an enrolled supplier of …. (DMEPOS) maintains inventory at a practice location which is … owned by a physician, non-physician practitioner or other health professional.” The transmittal was also intended to define “specific compliance standards for NSC-MAC [National Supplier Clearinghouse-Medicare Administrative Contractor] validation” of consignment closets. The transmittal was scheduled to take effect on March 1, 2010. However, CMS withdrew the transmittal prior to its effective date. Nevertheless, it is helpful to examine the transmittal because it gives some insight on what restrictions CMS may impose on consignment closets in the future.

The proposed PIM provisions state that “most consignment closets or stock and bill arrangements do not satisfy the DMEPOS supplier standards” and would have allowed a supplier to maintain inventory at a practice location owned by a physician or non-physician practitioner only when certain conditions were met. A non-physician practitioner included physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, certified nurse-midwives, clinical social workers, clinical psychologists and registered dietitians or nutrition professionals. For this article, we use the term “practitioner” to collectively refer to physicians and non-physician practitioners. The conditions the foregoing consignment arrangement must meet are the following:

1. Title to the DMEPOS is transferred to the practitioner at the time the item is furnished to the patient;
2. The practitioner bills Medicare for furnishing the item under his, her or its own DMEPOS billing number;

3. All services concerning fitting or use of the item are performed by individuals being paid by the practitioner (and not by any other DMEPOS supplier); and

4. The patient is advised to contact the practitioner concerning problems or questions regarding the DMEPOS item.

In addition to the above, the NSC-MAC was to verify that two or more Medicare-enrolled DMEPOS suppliers are not enrolled or located at the same practice location. A practice location must have a separate entrance and United States Post Service post office address.

The consignment arrangement permitted under the proposed PIM provisions is of limited value for the provision of DME, due to the requirements of the Stark law. Briefly, Stark prohibits a physician from referring patients to entities for the furnishing of designated health services (which includes DME), if the physician (or an immediate family member of the physician) has a financial relationship with the entity, unless a Stark exception applies. There is an exception to Stark for “in-office ancillary services,” but that exception is only applicable to limited items of DME (i.e., canes, crutches, walkers, folding manual wheelchairs, blood glucose monitors, and infusion pumps). Under Stark, a physician may furnish prosthetics and orthotics under the in-office ancillary exception, because prosthetics and orthotics are not DME.

The Transmittal referenced consignment arrangements with a physician, non-physician practitioner or other health care professional.

The proposed PIM provisions reference arrangements only with physicians and non-physician practitioners, with no inclusion of “other health care professional,” which is not a defined term. Therefore, it appears that consignment closet and stock and bill arrangements with hospitals, sleep labs or other Medicare non-practitioner providers would not have been subject to the proposed PIM provisions.

The proposed PIM provisions state that “most consignment closets or stock and bill arrangements do not satisfy the DMEPOS supplier standards,” but then fails to identify which standards are not being met or why.

For this reason, even though the proposed
PIM provisions appeared to not apply to consignment arrangements with hospitals, sleep labs or other Medicare non-practitioner providers, such entities involved in consignment arrangements should not assume the transmittal, or further CMS action, will not impact these arrangements.

Em ployee Li aison An HME supplier may designate an employee to be on the hospital’s or physician’s office premises for a certain number of hours each week. The employee may educate the hospital or physician staff regarding medical equipment (to be used in the home) and related services.

The employee may also work with a patient, after a referral is made to the HME supplier (but before the patient is discharged or leaves the hospital’s or physician’s office), to ensure a smooth transition when the patient goes home.

The employee liaison may not assume responsibilities that the hospital or physician is required to fulfill. Doing so will save the hospital or physician money, which will likely constitute a violation of the Medicare/Medicaid anti-kickback statute.

Purchase of Int ern et Leads In order to cut marketing expenses, an increasing number of HME suppliers are cutting back on sending marketing representatives into the field and are focusing on purchasing leads. Typically, a lead generation company (“ABC”) will compile a list of names, addresses, phone numbers, and other information about individuals who have expressed an interest in a particular product line (e.g., diabetic supplies). Some of the individuals will be covered by Medicare, while others will be covered by commercial insurance.

ABC sells the list to XYZ Medical, who then calls the individuals on the list. The compensation paid by XYZ Medical to ABC is on a “per lead” basis (e.g., $10 per name).

ABC may manage a number of websites that can be reviewed by prospective customers. A prospective customer can type in his/her name and contact information and check a box indicating the prospective customer's consent to be called by an HME supplier. Prospective
Customers can mail to ABC forms out of newspapers, magazines and direct mail pieces that contain the prospective customer's name and contact information and gives the prospective customer's consent to be called by the HME supplier. Prospective customers can call ABC on a toll-free telephone number in response to television, internet, radio and print ads. ABC can purchase lists of leads from other companies that acquire leads.

The Medicare/Medicaid anti-kickback statute, provides that it is a felony for a person or entity to knowingly and willfully offer or pay any remuneration to induce a person to refer an individual for the furnishing or arranging for the furnishing of any item for which payment may be made under a federal health care program, or the purchase or lease or the recommendation of the purchase or lease of any item for which payment may be made under a federal health care program.

Some courts have adopted the “one purpose” test: if one purpose of a payment is to induce referrals, then the anti-kickback statute is violated even if the payment is fair market value for legitimate services rendered.

On November 5, 2008, the OIG issued Advisory Opinion 08-19 discussing internet leads in the context of the anti-kickback statute. The proposed arrangement involved one or more websites to which patients interested in chiropractic services would enter their zip code. The website would then display assigned phone numbers and e-mail addresses of chiropractors within the zip code entered.

When the patient calls the phone number or sends an e-mail, the call or e-mail is routed to the listed chiropractor (and electronically tracked by the advertiser). The advertiser is paid a “per lead” fee based on the routed call or e-mail. The OIG indicated that it would not seek enforcement action against the parties for the arrangement proposed in the Advisory Opinion. We highlight some of the factors that were important to the OIG’s decision.

First, the advertiser does not collect “health care information” on the potential patient.

Second, the arrangement passively routes calls and e-mails initiated by the lead. Third, the advertiser does not actively “steer” patients to a particular provider.

Looking at the anti-kickback statute and the Advisory Opinion together, it appears that the OIG is comfortable with a HME supplier paying compensation, on a per lead basis, for “unqualified” leads. Generally, an unqualified lead will consist of name, address,
Phone number, and the prospective customer’s interest in talking to the HME supplier about its products. An “unqualified” lead will start moving into the “qualified” category as ABC gathers specific information from the prospective customer, such as (i) age; (ii) third-party coverage; (iii) diagnosis of illness/disability;

(iv) products or equipment currently being used; and (v) treating physician’s name. While the purchase of an unqualified lead is exactly what it is…the purchase of a lead, the purchase of a qualified lead can be construed as the payment for a “referral.” A HME supplier may purchase qualified leads from ABC if the arrangement meets the requirements of the Personal Services and Management Contracts safe harbor to the anti-kickback statute.

Among other requirements, the compensation must be fixed one year in advance (e.g., $50,000 over the next 12 months), the compensation must be the fair market value equivalent of ABC’s services, and the compensation cannot take into account the volume of referrals to be generated by ABC.

Separate from the anti-kickback statute, the arrangement needs to be examined within the context of the Medicare anti-solicitation statute, which prohibits a HME supplier from contacting a Medicare beneficiary by telephone concerning the furnishing of a covered item of HME unless (i) the beneficiary has given “written permission” for the contact; (ii) the HME supplier is contacting the beneficiary only about an item the company has already provided to the beneficiary; or (iii) the HME supplier has provided at least one covered item to the beneficiary during the 15 months immediately preceding the contact. Exceptions “(ii)” and “(iii)” will not apply to the phone calls to be made by the HME supplier to leads; “(i)” is the only applicable exception.

The question, therefore, is whether the HME supplier has “written permission” to call the lead. If the prospective customer checks a box on a web page that clearly shows his/her consent to be called (not just contacted) by a HME supplier, then a credible argument can be made that the prospective customer’s “electronic signature” complies with the federal E-Sign Act and constitutes “written permission” under the anti-solicitation statute. Also, if a prospective customer calls a toll-free number and verbally requests that an HME supplier return the call, then it is unlikely that the government will assert that the anti-solicitation statute is violated since the prospective customer initiated the call. The prudent course of action will be to record such phone calls.

The arrangement also needs to be examined within the context of the Health Insurance Portability and Accountability Act of 1996, 42 USC § 1320d, and the corresponding regulations contained in title 45, Code of Federal Regulations, parts 160 and 164 (collectively “HIPAA”). An HME supplier is subject to the requirements of HIPAA, which prohibits the use or disclosure of protected health information (“PHI”) not specifically permitted or required by HIPAA. PHI includes information that is created or received by a health care provider (such as a HME supplier) that – Relates to the past, present, or future physical or mental health or condition of an individual; the provision of health care to an individual; or the past, present, or future payment for the provision of health care to an individual; and

(i) That identifies the individual; or

(ii) With respect to which there is a reasonable basis to believe the information can be used to identify the individual.

45 C.F.R. § 164.103. This definition would encompass identification and contact information for a lead, as well as the information that relates to the lead’s interest in HME. Therefore, a HME supplier’s use of the information is subject to HIPAA.

HIPAA defines “marketing” to include “a communication about a product or service that encourages recipients of the communication to purchase or use the product or service.” 42

C. F.R. § 164.501. HIPAA prohibits use of PHI for marketing, unless the covered entity (i.e., the HME supplier) obtains written authorization from the potential customer prior to making such communication.

Telemark etin g The Medicare anti-solicitation statute restricts telephone calls from HME suppliers to Medicare beneficiaries. The purpose of the statute is to protect beneficiaries from telemarketing; that is, from receiving unsolicited phone calls (i.e., cold calls) from suppliers trying to sell HME.

The statute is entitled “Prohibition against unsolicited telephone contacts by suppliers.” It states that a supplier cannot call a beneficiary unless one of three exceptions is met: (i) the beneficiary has given written permission to be called; (ii) the supplier has furnished a covered item to the beneficiary and the phone call pertains to the item; or (iii) the supplier has furnished at least one covered item to the beneficiary during the 15 month period preceding the phone call.

In mid-January 2010, the OIG published an Updated Special Fraud Alert entitled “Telemarketing by Durable Medical Equipment Suppliers.” The alert initially confirms that the intent of the anti-solicitation statute is to prohibit unsolicited phone calls. For example, the alert states: “Section 1834(a)(17)(A) of the Social Security Act prohibits suppliers of durable medical equipment (DME) from making unsolicited telephone calls to Medicare beneficiaries…..The Office of Inspector General (OIG) has received credible information that some DME suppliers continue to use independent marketing firms to make unsolicited telephone calls to Medicare beneficiaries to market DME…… Except in the three specific circumstances described in the [telephone solicitation] statute, [the telephone solicitation statute] prohibits unsolicited telemarketing by a DME supplier to Medicare beneficiaries…..” However, the alert then proceeds by saying: “A physician’s preliminary written or verbal order is not a substitute for the requisite written consent of a Medicare beneficiary.” In other words, the OIG appeared to be saying that if Dr. Smith orders a product for Mrs. Smith and faxes the order to ABC Medical Equipment, ABC cannot call Mrs. Smith in order to arrange delivery. Such position, however, is contrary to the OIG’s and CMS’s long-standing position that ordering HME should be physician-driven, and not supplier-driven. The physician has a position of trust with the patient; the physician speaks for the
Patient. If the physician orders an item and sends the order to the supplier, then it seems to us that the physician is doing so on behalf of the patient. It is a matter of convenience for the patient that the supplier, upon receipt of the physician’s order, will call the patient and arrange for delivery. To us, such call is not “unsolicited” or a “cold call.” In response to concerns raised by the OIG’s alert, CMS issued a “Telemarketing Frequently Asked Questions.” Under the FAQ, CMS clarified that, “If a physician contacts a supplier on behalf of a beneficiary with the beneficiary’s knowledge, and then a supplier contacts the beneficiary to confirm or gather information needed to provide that particular covered item (including delivery and billing information), then that contact would not be considered ‘unsolicited’.” CMS stated that the beneficiary need only be aware that a supplier will contact him or her, and need not know the actual identity of the supplier. CMS reserved the right to ask for evidence that the beneficiary had such knowledge.

Conclusion In an increasingly competitive market, it is important for HME suppliers to enter into business arrangements and implement innovative marketing programs. However, in order to avoid governmental scrutiny, it is crucial that all business arrangements and marketing programs be established and implemented properly so that they are not perceived as a veiled enterprise for channeling remuneration to a referral source.

However, a CMS employee has verbally indicated that, in such person’s opinion, only a “blue ink” signature satisfies the “written permission” exception under the antisolicitation statute. We respectfully disagree.
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