Successful Hospital Arrangements
Jun 4, 2012
(reposted from medtradeMonday)
Successful Hospital Arrangements
by Jeffrey S. Baird, JD
June 4, 2012
AMARILLO, TX - Increasingly, hospitals and HME companies are looking at ways that they can do business together. Fortunately, there are options.
Preferred Provider Agreement (PPA)
Pursuant to a PPA, the hospital would follow procedures to insure patient choice. If a patient expresses no preference for a DME company, then the hospital would recommend ABC Medical Equipment Inc (ABC) on the basis of the quality and timeliness of ABC’s services. The burden is on ABC to render superior services to the patients referred by the hospital. The PPA is a simple document and allows either party to terminate it upon 30 days’ prior written notice.
Hospital Leases Physical Space to ABC
ABC can establish a location on property owned by the hospital. ABC would enter into a lease agreement with the hospital that would comply with the Space Rental safe harbor to the Medicare/Medicaid anti-kickback statute. Among the other requirements, the lease payments would be fixed one year in advance and would not take into account any referrals from the hospital to ABC.
Hospital Leases Equipment to ABC
ABC can rent equipment from the hospital. The equipment rental agreement would comply with the Equipment Rental safe harbor to the anti-kickback statute. Among other requirements, the rental payments would be fixed one year in advance and would not take into account any referrals from the hospital to ABC.
Hospital Provides Services to ABC
The hospital can provide specific services to ABC. The service arrangement would comply with the Personal Services and Management Contracts safe harbor to the anti-kickback statute. Among other requirements, payment by ABC to the hospital for the services would be fixed one year in advance and would not take into account any referrals from the hospital to ABC.
ABC Provides Services to Hospital
The hospital would open up its own DME operation. The hospital would contract with ABC for ABC to help the hospital in setting up the operation. The hospital-owned DME operation would be staffed by hospital employees; would acquire and maintain its own inventory; and would acquire and maintain its non-inventory assets (desks, delivery vans, computers and the like).
ABC would assist the hospital in training its employees, in setting up an inventory control system, and in establishing policies and procedures. ABC could also provide billing services and after-hours equipment repair and maintenance. After the hospital's DME operation is established, the hospital could hire ABC on a periodic basis to assist the hospital in solving operational problems.1
Joint Equity Arrangement
The hospital and ABC would jointly own a DME operation (separate and apart from ABC’s operation) that would serve patients discharged from the hospital (subject, of course, to their right to choose a DME provider) as well as patients within the community.
The jointly-owned operation would compete with ABC. In structuring a joint equity arrangement (commonly known as a joint venture) with a referral source such as the hospital, it is critical that the joint equity arrangement not merely be a subterfuge to funnel remuneration to the referral source (i.e., the hospital). If the joint equity arrangement is merely a vehicle to pay remuneration to the hospital, then the Medicare/Medicaid anti-kickback statute would be violated.
The safest way to structure a joint equity arrangement is to fit it within the Small Investment Interest safe harbor to the anti-kickback statute. Unfortunately, it is rare for a joint equity arrangement to meet the strict terms of this safe harbor and ABC and the hospital would be unable to do so. Therefore, in order to minimize the risk of governmental action against the joint equity arrangement, the terms of the Office of Inspector General’s (“OIG”) 1989 Special Fraud Alert must be met. This fraud alert provides, in relevant part:
The hospital should not be actively encouraged to make referrals to the joint venture and to divest its ownership interest if it fails to sustain an “acceptable” level of referrals.
The joint equity arrangement cannot track its sources of referrals and cannot distribute this information to the owners. The hospital’s equity interest needs to be transferable.
The jointly-owned DME operation needs to be independent. ABC cannot manage the operation on a turnkey basis. It is permissible for the hospital and/or ABC to (i) lease physical space to the operation; (ii) lease equipment to the operation; and (iii) provide services to the operation. However, the hospital and ABC cannot provide so many services (or so much property) that it appears that the hospital or ABC is managing the operation on a turnkey basis. Doing so would violate the OIG’s April 2003 Special Advisory Bulletin on Contractual Joint Ventures.
Purchase of Equity Interest in ABC
The hospital may purchase a minority equity interest in ABC. In doing so, the hospital will pay fair market value to ABC for the interest. The hospital will be entitled to receive profit distribution in accordance with its percentage ownership interest.3
Loan/Consignment Closet
ABC may place inventory on the premises of the hospital. The inventory must be for the convenience only of the hospital's patients and the hospital cannot financially benefit, directly or indirectly, from the inventory. It is important that the hospital ensure patient choice. Technically, ABC can pay rent to the hospital so long as the rental agreement complies with the Space Rental safe harbor to the anti-kickback statute. However, from a practical standpoint, because the physical space utilized by the placement of the inventory is so small, it is preferable for ABC to pay no rent to the hospital.
Employee Liaison
ABC may designate an employee to be on the hospital premises for a certain number of hours each week. The employee may educate the hospital 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 ABC (but before the patient is discharged), in order for there to be a smooth transition when the patient goes home.
The employee liaison may not assume responsibilities that the hospital is required to fulfill. Doing so will save the hospital money, which will likely constitute a violation of the anti-kickback statute. ABC may rent an office at the hospital for the liaison. The rental agreement must comply with the Space Rental safe harbor to the anti-kickback statute.
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. He can be reached at (806) 345-6320 or jbaird@bf-law.com.