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Is My DME Business Safe from Health Care Fraud Allegations?

DME Fraud: Key Targets for Government Regulators

Durable medical equipment is vital to modern health care and allows patients to better manage their health from the convenience of their homes. Because of this, federal health care programs, including Medicare and Medicaid, provide coverage for a range of products, including:

  • Blood glucose monitors and accessories
  • Wheelchairs, walkers, and mobility devices
  • Hospital beds
  • Oxygen equipment
  • CPAP machines
  • Prosthetics

While these and other medical devices are critical to some patients, they also present ample opportunities for fraud and abuse. As such, DME companies and arrangements are major targets for regulatory enforcement by the Department of Justice (DOJ) and Health and Human Services’ Office of Inspector General (OIG).

Here are a few of the most common red flags and health care fraud allegations involving DME:

1. Unnecessary DME

Medicare and other federal payers will only cover DME that qualifies as “medically necessary” per program guidelines, and regulators have long targeted fraudulent schemes involving falsified medical necessity determinations, auto-refill programs that fail to consider a patient’s ongoing need for devices, and DME companies that contract with third-party marketers which engage in fraudulent practices.

For medical device companies, the need to ensure medical necessity for equipment orders is vital to remaining in business. Even if necessity determinations or violations fall “outside” the control of your company, being a part of a fraudulent transaction can still trigger liability for civil or criminal penalties.

2. Illegal Compensation Arrangements

Because durable medical equipment companies may have unique structures or arrangements with physicians or third parties, it is vital that all compensation agreements be carefully evaluated for compliance with the Stark Law.

The Stark Law, also known as the Physician Self-Referral Law, specifically prohibits physicians from referring patients to receive designated health services, such as durable medical equipment, payable by Medicare or Medicaid, from entities with which the physician or an immediate family member has a financial relationship, unless an exception applies. Financial relationships include both ownership/investment interests and compensation arrangements.

Exceptions to the Stark Law that may apply to compensation arrangements between durable medical equipment providers and other entities or individuals include:

  • Referrals for in-office ancillary services, including certain durable medical equipment such as canes, crutches, walkers, folding manual wheelchairs, and blood glucose monitors, if essential conditions are met.
  • Fair market value compensation for items or services if the agreement meets certain criteria: To qualify for this exception, compensation agreements must be in writing and signed by both parties, and the compensation must be set in advance for a specific time frame and cannot take volume or value or referrals into account. Other conditions must also be met.
  • Bona fide employment relationships where the employer has a legitimate employment relationship with an employee or physician to provide identifiable services. The compensation provided within the employment relationship must be set at fair market value and may not take volume or value or referrals into account, among other requirements.
  • Personal services arrangements between a designated health service and a physician that meet certain conditions. For example, the service agreement must be in writing and last for a term of at least one year. Compensation for services must be set in advance and not exceed fair market value, and services cannot involve the counseling or promotion of a business arrangement or other activity that violates any state or federal law.

These exceptions must be carefully followed, and each has very strict requirements. Critical components of Stark exceptions relevant to DME suppliers include calculation of compensation, setting payments at a fair market value, setting the compensation in advance, ensuring the services are identifiable, and that the duration of the agreement is defined.

In addition to Stark, compensation arrangements can also land DME suppliers in serious liability with two other federal health care laws that govern fee structures: the Anti-Kickback Statute (AKS) and the False Claims Act (FCA). For these reasons, having an attorney experienced with health care law – and with structuring compliant health care practices – is strongly recommended.

3. Unlawful Telehealth Arrangements

As the telehealth industry continues to grow in response to COVID-19, DME businesses should carefully audit and assess any arrangements they have or may engage in with telemedicine companies and their practices for billing federal payers.

Not only can arrangements with contracted telemedicine companies attract scrutiny from auditors and regulators and implicate allegations under the AKS or FCA, medical device companies can be liable – potentially for both civil and criminal penalties – for unlawful orders, billing, and contractual agreements that stem from telemedicine.

Medical device companies should be certain that any referrals made by physicians via telemedicine satisfy a patient-physician relationship, that they keep records and documentation, and that all compensation arrangements and billing agreements associated with telemedicine services are well within the scope of permitted practice.

4. Third-Party Relationships

It is not unlawful for DME companies to contract with third parties as a means to market and grow their business. Third-party relationships can, however, create exposure to fraud allegations – especially if DME suppliers assume compliance requirements are being met by a third party, such as a telemedicine, marketing, or billing service.

Though vetting potential services for a strong record of compliance is a good starting point, medical device companies should also work with experienced legal counsel to evaluate agreements, compensation arrangements, billing practices, and internal documentation protocol.

If a contracted company makes errors, goes out of business, or is implicated in an audit or investigation, your DME company may be on the hook. When enforcing regulations, the DOJ and OIG consider the whole process – from the subscriber to the fulfilling DME company – a conspiracy or fraud scheme, no matter what the assumptions or obligations of one party for another.

5. Insufficient Documentation

DME companies, like any practice that bills federal health programs, must make recordkeeping and documentation top priorities.

Given the added scrutiny regulators devote to the DME industry, your company should maintain comprehensive documentation that can be regularly audited internally, and easily produced early in any contractor audits or regulatory investigations.

Medical device companies should take particular care to keep documentation for:

  • DME order fulfillment and physician notes regarding medical necessity
  • Physician compensation agreements
  • Contractual agreements with marketing, telemedicine, and billing services.
  • Internal compliance efforts.

DME suppliers must also ensure that they are not in possession of patient information that is safeguarded by the Health Insurance Portability and Accountability Act (HIPAA) without, at minimum, the patient’s informed consent and a written agreement.

Experienced Counsel for Health Care Compliance

Durable medical equipment companies find themselves on the threshold of a rapidly evolving health care system that will likely continue its reliance on DME to supplement patient care in the post-COVID world. Although the prospect of growth is promising, the risks of regulatory enforcement and livelihood-threatening penalties are pronounced.

At Hendershot Cowart P.C., our health and medical law attorneys draw from decades of collective experience to counsel DME companies, physicians, therapists, pharmacies, and health care entrepreneurs in all matters involving regulatory compliance.

From startups to established enterprises, our attorneys take a proactive approach to helping clients stay out of regulatory crosshairs so their businesses can prosper. Though prevention is always vital in health care compliance matters, our firm is also available to provide an immediate response and defense to audits and health care fraud investigations.

Call or contact us online to speak with a lawyer.

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