OIG: Arrangements between DME Supplier and IDTFs May Trigger Sanctions and Implicate Anti-Kickback Statute

The Officer of Inspector General (OIG) issued an advisory opinion addressing an existing and proposed contractual arrangement between a durable medical equipment (DME) supplier and independent diagnostic testing facilities (IDTFs). The unfavorable opinion concluded that the arrangements could potentially generate prohibited remuneration under the Anti-Kickback Statute (AKS), which would trigger sanctions if the requisite intent was present.

The following facts were presented with regard to the DME supplier’s existing and proposed arrangements:

The Medicare-enrolled DME supplier (the Requestor) sold continuous positive airway pressure (CPAP) blower units, masks, and supplies. A CPAP is prescribed for patients with obstructive sleep apnea who have undergone a sleep study, often performed at an IDTF. Once prescribed by a physician, the patient chooses a DME suppler.

Under the existing arrangement, the Requestor entered into contracts with IDTFs, some of which have physician investors. Each of these contracts is in writing, for a term of at least one year, and is non-exclusive. The IDTF may terminate the contract at any time, but the Requestor may only terminate for breach or cause. Federal health care program beneficiaries are excluded from the Existing Arrangement. In exchange for providing services (e.g., preparing the CPAP and educating the patient on its use) to non-federally insured patients, the Requestor pays the IDTF a per-patient fee that reflects fair market value.

The proposed arrangement was similar to the existing arrangement except: (1) federal health care beneficiaries would be included; (2) the IDTF would be paid a flat monthly/annual fee, which the Requestor could not certify as fair market value; and (3) the Requestor would have the right to terminate the contract if it was not satisfied with the number of patients receiving services.

The OIG concluded that the specific circumstances surrounding the arrangements could create more than a minimal risk of fraud and abuse. The OIG’s analysis focused on the following issues:

• The carve out of federal business was not dispositive of whether the AKS could apply. The OIG noted its concern with arrangements that carve out federal health care program beneficiaries. Although the existing arrangement excluded federal health care program beneficiaries, the OIG found that the participating IDTFs could still influence referrals of federal health care program beneficiaries to the Requestor.
• The arrangements do not meet the personal services and management contracts safe harbor. The OIG found that the arrangements do not qualify for safe harbor protection because they do not meet all of the safe harbor’s required conditions. However, the OIG noted that the lack of safe harbor protection is not fatal, but the arrangements must undergo a case-by-case evaluation.
• Direct payments to IDTFs and aggressive marketing are problematic. The OIG concluded that direct payments to IDTFs may be problematic where IDTF staff may be in a position to influence federal health care beneficiary selection of the Requestor’s products. Direct payments would be particularly problematic when physicians with financial interests in IDTFs are prescribing the DME products. The arrangements also allow the Requestor to obtain in-person contacts with patients through health care professionals who are in a position of trust. When these contacts occur prior to the patient’s selection of a DME supplier, the OIG is concerned that the IDTF staff – and, potentially, physicians with a financial interest in the IDTF – could inappropriately influence the beneficiary’s choice of supplier.
• Part of the fee, the consignment component poses fraud and abuse risks. Despite the Requestor’s certification that it would not make separate payments for rental of space and consignment services, the OIG concluded that the consignment component is part of the total package of services and thus comprises at least some portion of the fees paid to the IDTF.

You may access the OIG’s opinion (11-08) here.