What to consider with DME agreements

A physician group client of mine recently received a proposed services agreement from a durable medical equipment firm -- something many doctors are considering, and something doctors must enter into cautiously because of recent declarations that such deals could violate fraud and abuse laws if constructed in certain ways.

The group is seeking to contract with the DME company for provision of DME and setup services through a licensed professional employed by the company. The physicians seek to provide DME to their patients through this agreement to enable their patients to have convenient access to what they judge to be high-quality DME, as well as related training and instruction.

This column highlights the content of the proposed agreement and also addresses regulatory considerations, including the recent DME Competitive Bidding Program and OIG advisory opinion.

The Office of Inspector General issued an advisory opinion on March 21 that addressed two programs proposed by a DME and orthotics manufacturer and supplier that designs, develops, and manufacturers and markets products.

The DME supplier sought an opinion on the two programs it wanted to offer to physicians. One would offer physician practices "the opportunity" to be DME suppliers for items and services furnished to patients "who are not beneficiaries of any federal health care program." Physicians would buy products at a predetermined price from the supplier, then sell them to non-federal patients, billing them and their plans directly.

The other arrangement would allow a DME supplier to rent, for a fixed fee, space in a practice to store equipment, then pay the practice a percentage based on equipment sold or rented to non-federal patients. In each arrangement, the supplier would provide an in-house technician, for a fixed monthly fee paid by the practice, to handle such tasks as equipment set-up, patient instruction on product use and maintenance, obtaining payer pre-certification and other tasks.

The OIG determined that each arrangement raised a red flag. The OIG's opinion stated that the first program would amount to a "contractual joint venture." Also, it said the practice group's ability to switch between the two proposed programs heightened the risk of fraud and abuse. In any case, the aggregate compensation was not set in advance between the parties, and the OIG stated that the proposed arrangements could potentially generate prohibited remuneration under the anti-kickback statute.

The OIG opinion was but one thing I had to keep in mind when reviewing the DME contract. I also had to factor in the advent of the DME competitive bidding program, which will begin in 10 of the largest metropolitan statistical areas in 2007 and be phased into other areas in subsequent years.

DME, prosthetic and orthotic suppliers who provide services under Medicare Part B are affected by this new program. The Medicare Modernization Act of 2003 requires the Secretary of the Dept. of Health and Human Services to replace current DME payment methodology for certain items with a competitive acquisition process. The new bidding program is intended as an incentive for DME suppliers to provide quality items and services in an efficient manner and at a reasonable cost -- basically to try to get prices for such devices to come down. DME providers will also have to comply with certain quality standards and become accredited by a CMS-designated organization.

Crafting contract provisions

If you are considering a services agreement with a DME company, make sure you carefully consider patient consent, insurance, inventory, and billing in light of the proposed DME competitive bidding program and recent OIG advisory opinion.

In my client's case, the DME company says it will deliver certain products to the group on a consignment basis. The DME company also would keep an inventory of such equipment.

It is important that you include language in your contract that addresses how the equipment will be provided by the DME company, including ordering, storage, inventory and delivery. The DME company should retain ownership of the equipment even when it is being stored on the premises of the practice's office.

Make sure that the DME company also has an insurance policy which provides coverage if the DME is lost, damaged or stolen.

It is important that you determine how the DME will be provided to your patients. Even if you do not have a financial interest in the DME company, in order to be in compliance with federal and state self-referral laws, it is important that you explain to your patients that they have the ability to choose where they receive the necessary DME, prosthetics or orthotics.

I recommended that my client provide a form to the patient. It states the patient received information from the practice group regarding DME suppliers and has chosen to use the DME company with which the practice group has a services agreement.

This form should be presented to the patient for review and signature before the DME is delivered to the patient, and a copy of the signed form should be retained in the patient's file. Language in the contract should include a provision stating that the practice will not distribute DME to any person other than those who have signed the form.

I also had the DME company sign a HIPAA business associate agreement with my client because the physician group will be providing protected health information, including the patient's name, address and diagnosis, to the DME company during the delivery of the DME, related services, and for billing purposes. The DME company is billing and collecting under its own provider number for all charges to patients and third-party payers for DME distributed to patients from the inventory.

My client has agreed to cooperate with the DME company to obtain and provide any required information or documentation required to support claims for payment of such DME.

Under terms of the services agreement, the group practice's patients would also receive instruction on usage of the DME from the DME company's licensed professional. Make sure that your services agreement for the provision of DME specifically states that any representative or licensed professional providing services to your patients remains an employee or independent contractor of the DME company.

You should also make sure that the DME company cannot assign your services agreement to another company or subcontractor without your permission.