Stock-and-Bill: Sleeping with the Enemy?
By Miki Fairley  Supply closets--also known as
"stock-and-bill" and "consignment closets"--are out of the
closet.
The issue, which has been smoldering underground for some time
and periodically heating up the OANDP-L listserve and discussions
among O&P practitioners, was debated at a crowded session
during the 2005 National Assembly of the American Orthotic &
Prosthetic Association (AOPA).
Taking the "pro" side was Joe Sansone, CEO, TMC
Orthopedic, Houston, Texas. Representing the "con" was
Jonathan Naft, CPO, of Geauga Rehabilitation Engineering Inc.,
Chardon, Ohio. Discussing legal aspects of stock-and-bill
arrangements was healthcare attorney John Latsko of Schottenstein
Zox & Dunn, Columbus, Ohio.
Point: Why Stock-and-Bill?
Since to many credentialed O&P professionals, the words
"stock-and-bill" are akin to waving the proverbial red flag in
front of a bull, Sansone may deserve a gold star for bravery as he
tackled the subject head-on. His company, TMC Orthopedic,
unabashedly offers stock-and-bill programs along with patient care
by credentialed and licensed providers and other services.
Sansone described stock-and-bill programs: 1)
the physician's office is stocked with products at the
vendor's expense; 2) the vendor's employees handle
many of the aspects of maintaining products in the physician's
clinic; and 3) the vendor bills third-party payers
under its tax ID number.
Why would some physicians prefer stock-and-bill programs to
referring to O&P facilities? Sansone listed these reasons:
- The physician's office is forced to seek an in-network
provider;
- The patient is inconvenienced with an extra trip to another
medical office;
- Incorrect products may be dispensed at the O&P
facilities;
- Patients may be subject to aggressive financial policies at
O&P facilities; and
- O&P facilities may not be open during clinic hours.
However, Sansone held out a carrot to stock-and-bill's
traditional opposition, as he gave reasons why O&P facilities
might consider adding stock-and-bill programs to their
repertoire:
- Your physicians want it;
- It can be profitable;
- It can bring you new customers;
- It can prevent you from losing business to competitors;
and
- It can bring you custom-bracing clients.
"In a nutshell," Sansone stated, "Your competitors are taking
your business by providing stock-and-bill programs. You can either
save your business and offer these services, or let the larger
national companies take your market share."
Sansone injected his presentation with humor as he
discussed some legal considerations of stock-and-bill. Sansone
warned of the intricacies of paying physicians remuneration
of any type and strongly advised against ever paying rent for
a consignment closet arrangement.
He gave the disclaimer, "I am not a lawyer!" as his PowerPoint
photo changed into a cartoon monkey giving onlookers the raspberry;
and as he discussed ramifications of the Anti-Kickback Statute, the
screen showed a photo of him in a prison uniform.
He posed the question, "Are stock-and-bills legal?" and
answered, "Absolutely!" Then he asked, "Are stock-and-bills
extremely difficult to manage legally?" Again, his answer:
"Absolutely!"
Counterpoint
Naft began by asking, "How did we [credentialed O&P
practitioners] get here [to the stock-and-bill issue]?" He
identified three main reasons: 1) Availability of
quality off-the-shelf products; 2) electronic
billing; and 3) consignment items from
suppliers.
Stock-and-bill has risks, Naft pointed out, as he noted several
areas of concern:
- Liability issues;
- Gray area with Medicare;
- Insurance validation and financial concerns;
- Financial concerns relative to non-insured and co-pay; and
- Professional issues.
Regarding liability, Naft noted that if someone from the
physician's office fits your product, you now may share some
liability in case of a lawsuit. For instance, was the patient
adequately instructed in the use of the product? Unlike the
situation in treating patients in your own facility, you lack
documentation regarding the patient's care and instruction. Naft
also pointed out potential reimbursement problems with insurance
companies. For instance, will the physician's office verify
insurance? What about non-insured patients and discrimination
policies? What about items that require pre-certification and
claims that require documentation?
Insurance issues can be a concern also from the physician's
point of view and be a factor in the physician's decision regarding
a stock-and-bill program. For instance, an online search by this
reporter turned up an article in the June 2005 issue of The
Physician and Sports Medicine on sports medicine practice
economics by Chris Madden, MD; James G. Macintyre, MD, MPE; and
Elizabeth Joy, MD. "Distribution of DME is a lucrative business,"
the article pointed out, and then sounded this caveat: "Physicians
need to strike a balance between not violating insurance contracts
if they charge patients and being reimbursed appropriately if they
charge insurance companies. DME reimbursement is highly variable
among insurance companies, and benefits frequently change.
Thus, it can be challenging to keep up with specific coverage, and
charging for DME may be difficult for physicians. Furthermore,
individual insurance companies may shake hands' with specific DME
suppliers, and physicians who supply DME to patients insured by
these companies may unwittingly breach contracts. Finally, DME is
often subject to high co-pays (which creates more billing and
collection work and fees), so even if physicians are able to
legitimately supply their patients with equipment, they are lucky
to break even financially.
"To sidestep these problems, many sports medicine physicians
rent space (e.g., closet, cabinet) to DME suppliers who stock
offices with requested items and bill patients separately from the
physician office," the article continued. "Even with this setup,
physicians should be aware of individual insurance contracts so
that patients are not surprised by a large bill from a DME supplier
that is not contracted with their insurance company. Physicians may
want to develop waivers that clarify patients' insurance and
related options. Many patients may opt to avoid hassles and further
appointments with the DME supplier by signing the waiver and
purchasing DME at their initial visit. Physicians should check with
individual insurance companies before using waivers to ensure that
doing so does not violate insurance contracts."
Naft pointed out that stock-and-bills also are a gray area with
Medicare, since the Centers for Medicare & Medicaid Services
(CMS) considers L-Codes to inherently include the time for fitting
and adjustments, which may not have been performed by the billing
company.
Product returns could add to the supplier's expenses. For
instance, a patient may return a device that only needs a simple
adjustment, yet the physician's office exchanges it for an entirely
new one--or the patient may return the device because he/she simply
doesn't want it. Any substantial number of returns could present a
costly nuisance.
Professional issues are another major consideration. Said Naft,
"Our role is being practitioners and members of the clinical team.
We are not DME reps!" Many, if not most, highly educated and
credentialed practitioners are likely to agree, since the O&P
profession has struggled long and hard to get O&P separated
from DME in the eyes of Congress, government payers, private
insurers, and the medical community.
Legal Issues
All this being said, what about the legal issues? First
of all, the legal information discussed in this article is for
general reader information only. Any provider considering offering
a stock-and-bill program should consult a healthcare attorney for
advice relative to his/her individual situation.
Like Sansone, Latsko first defined stock-and-bill:
- Supplier consigns DMEPOS inventory owned by supplier in or near
space owned or leased by a medical group practice;
- Consigned inventory available to medical group to prescribe and
use on patients requiring DMEPOS; Supplier replaces used DMEPOS on
a scheduled basis to maintain inventory;
- Supplier files claims for the DMEPOS with payers, including
Medicare and Medicaid, from information obtained from patient in
accordance with payer requirements and supplier standards;
- Supplier may or may not pay rental for the consignment close
space where the inventory is maintained;
- Either the supplier (using its own employee) or an independent
contractor (which may be the physician or the physician's employee)
may deliver, fit, and instruct;
- If the physician or physician's employee delivers, fits, and
instructs, the supplier may or may not pay the physician for that
service.
Latsko then considered four basic areas of legal issues to
consider: 1) Anti-Kickback Statute;
2) Stark Law; 3) Medicare
Supplier Standards; and 4)
Licensure/qualifications.
Anti-Kickback Statute
Latsko pointed out that the Anti-Kickback Statute makes it a
criminal offense knowingly and willfully to offer, pay, solicit, or
receive any remuneration to induce referrals of items or services
reimbursed by a federal healthcare program. The statute ascribes
liability to parties on both sides of an impermissible "kickback"
transaction. Remuneration includes the transfer of anything of
value, in cash or-in-kind, directly or indirectly, covertly or
overtly.
Stark Law
The Stark Law prohibits a physician from referring patients to
entities with which he/she has a financial relationship for the
provision of designated health services. DME and
orthotics/prosthetics are designated health services. A financial
relationship can consist of a compensation arrangement, an
ownership interest, or an investment interest.
What are the possible penalties for violation of the
Anti-Kickback Statute, the Stark Law, and licensure requirements?
Latsko reviewed them. Anti-Kickback violations could snag criminal
penalties of triple repayment, fine and penalties up to $25,000 per
violation, exclusion, interest, and/or jail time up to five years
per violation. Civil penalties for Stark violations can include a
refund plus $15,000 penalty per service plus minimum five-year
exclusion from serving Medicare patients. Also violation of
these laws could trigger qui tam (whistleblower) actions under the
False Claims Act. Licensure violations could end up requiring the
supplier to return reimbursement, plus facing state law sanctions
for practicing without a license, along with possible criminal
fraud charges.
Medicare Supplier Standards
Latsko reviewed Medicare Supplier Standards:
- Supplier Standard No. 4: A supplier must fill
orders from its own inventory, or must contract with other
companies for the purchase of items necessary to fill the order. A
contract to purchase inventory must contain at a minimum the
signature of both parties; establish a credit limit (C.O.D. not
acceptable); credit terms (net due); identification of both
parties; and dates contract is effective.
- Supplier Standard No. 12: A supplier must be
responsible for the delivery of Medicare-covered items to
beneficiaries and maintain proof of delivery. The supplier must
document that it or another qualified party has at an
appropriate time, provided beneficiaries with necessary information
and instructions on how to use Medicare-covered items safely and
effectively.
Also:
- A supplier may contract delivery and instruction of use of
items to someone;
- A supplier remains fully responsible for delivery and
instruction;
- The inventory must be owned by the supplier, but delivery may
be made by someone else out of the supplier's inventory;
- If the delivery is made by someone not qualified in
the use of the product, that person may not be the one instructing
in the use of the product.
Rental Space: Under the Microscope
In reference to possible violation of the Anti-Kickback
Statutes, the Office of Inspector General (OIG) of the US
Department of Health & Human Services (HHS) issued a Special
Fraud Alert in February 2004 regarding rental of space in
physicians' offices by persons or entities to which physicians
refer. This document, which was referenced by Sansone, can be read
in its entirety at http://oig.hhs.gov/authorities/docs/fraudalert.pdf
"Consignment closets" set up by DMEPOS suppliers in physicians'
offices were included in the alert. Stated the OIG, "The OIG is
concerned that in such arrangements, the rental payments may be
disguised kickbacks to the physician-landlords to induce referrals.
We have received numerous credible reports that in many cases,
suppliers, whose businesses depend on physicians' referrals, offer
and pay rents'--either voluntarily or in response to physician's
requests--that are either unnecessary or in excess of the fair
market value for the space to access the physicians' potential
referrals."
The OIG gave the rationale for the Anti-Kickback Law: "Kickbacks
can distort medical decision-making, cause overutilization,
increase costs, and result in unfair competition by freezing out
competitors who are unwilling to pay kickbacks. Kickbacks also can
adversely affect the quality of patient care by encouraging
physicians to order services or recommend supplies based on profit
rather than the patients' best medical interests."
The OIG outlines three areas of questionable rental
arrangements:
- The appropriateness of rental agreements;
- The rental amounts; and
- Time and space considerations.
"The threshold inquiry when examining rental payments is whether
payment for rent is appropriate at all," said the OIG. "Payments of
rent' for space that traditionally has been provided for free or
for a nominal charge as an accommodation between the parties for
the benefit of the physicians' patients, such as consignment
closets for DMEPOS, may be disguised kickbacks."
The statement continued, "Rental amounts should be at
fair market value, be fixed in advance, and not take into account,
directly or indirectly, the volume or value of referrals or other
business generated between the parties."
Regarding time and space considerations, the OIG said,
"Suppliers should only rent premises of a size and for a time that
is reasonable and necessary for a commercially reasonable business
purpose of the supplier. Rental of space that is in excess of
suppliers' needs creates a presumption that the payments may be a
pretext for giving money to physicians for their referrals."
The fraud alert noted that it does not address the
appropriateness of consignment closet arrangements under
HCFA's [Health Care Financing Administration, the former name for
the Centers for Medicare & Medicaid Services (CMS)] DMEPOS
supplier standards, and added "The interpretation of the DMEPOS
supplier standards is a matter under HCFA's jurisdiction."
Sansone referenced a document from CMS' National Supplier
Clearinghouse Supplier Audit and Compliance Unit: "Medicare
has&recently been notified that some suppliers [of DMEPOS] are
leaving these items in physicians' offices and asking doctors to
dispense them to their patients. This practice is not
permissible.
"DMEPOS suppliers receive their provider numbers from the
National Supplier Clearinghouse (NSC). The NSC requires all
suppliers to abide by a set of standards. One of these standards
clearly states that "the supplier&is responsible for delivery
of Medicare-covered items to Medicare beneficiaries&" When a
physician dispenses DMEPOS directly to a Medicare beneficiary,
he/she is acting as a de facto DMEPOS supplier without the
appropriate provider numbers. The supplier also is not living up to
his/her commitment under the NSC's supplier standards."
Of course, one way to avoid this problem is for the supplier to
simply not have a rental arrangement with the physician.
Regarding consignment closets, Sansone noted a statement from
healthcare attorney Jeff Baird, Brown & Fortunato, Amarillo,
Texas, quoted in an article by Mike Moran in the June 2002 issue of
HME News. Baird provided three guiding principles to aid
suppliers in avoiding problems with the Anti-Kickback Law:
1) Don't pay rent for the consignment closet;
2) Referral sources cannot make money off a
consignment closet arrangement; and 3) The DME
supplier informs the doctor in writing or verbally that patient
choice must be maintained.
Should you as an O&P facility owner, consider
adding stock-and-bill to your services?
Sansone presented several reasons why stock-and-bill
arrangements could be good for O&P, but
acknowledged the legal complexities involved.
In concluding his presentation, Naft summed up
succinctly:
"Avoid the program."
He then added, "[If you do decide to utilize stock-and-bill
programs,] clearly understand the risks."
Only you, as a facility owner and O&P professional, can
decide. 
Table Of Contents - February 2006
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