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Hospital Arrangements with Suppliers Pose Risks
By John Latsko  Marketing to potential customers is a
"must" strategy if a company is to survive. Some of the
best customers for O&P facilities are the hospitals and the
hospital's patients that are in a facility's market. Hospitals have
both inpatients and outpatients who require orthotic and/or
prosthetic devices and services. In an effort to better serve
patients requiring O&P devices and services, some hospitals
have entered into arrangements with companies that help the
hospital and its patients obtain necessary O&P services from
suppliers. These arrangements can serve a very beneficial purpose
to the hospital and its patients and serve as a great marketing
tool for the company, but it also could potentially put the
hospital and the company at risk under the federal anti-kickback
law.
Under the anti-kickback law, it is illegal to offer or accept
any remuneration in return for the recommendation or referral of an
item or service paid by a governmental payer. Remuneration includes
anything of value such as discounts, contracts, gifts, and
services, which are provided at less than fair market value, or
take into account the volume of referrals made. A number of "safe
harbors" help to limit the prohibitions created by the
anti-kickback law by addressing situations that create little
chance of abuse or over-utilization. For example, payment of
reasonable compensation to an employee is permitted even though the
employee may make referrals to the employer. Another safe harbor
and the one that could apply to this arrangement relates to
personal service contracts. To meet this safe harbor, the contract
must be in writing, have a term of at least one year, and payment
must be fixed in advance and be at fair market value without regard
to the value of referrals made between the participants. An
arrangement between a hospital and a company to handle the
hospital's referrals is lawful so long as either no referrals are
made to any company with which the referring company has a
financial interest, or the arrangement meets all of the personal
services safe harbor criteria or another safe harbor. The hospital
should pay the contractor fair market value for the services being
provided.
It is not advisable for a company to provide services to the
hospital on a per-referral, discounted, or free basis and then
refer a Medicare patient to itself. Doing so would be tantamount to
the company paying a kickback to the hospital in return for the
hospital's O&P referrals. While it may be permissible for a
hospital to choose the O&P supplier of its choice to purchase
devices included in the Part A hospital payment from Medicare, it
is not good practice for a hospital to do so when the patient or
the patient's physician requests a different supplier for good
reason.
While a hospital can purchase from the vendor of its choice, the
hospital should not choose a vendor that is giving the hospital a
necessary service free of charge in return for referrals. When
payment is to be made under Medicare Part B because the device is
only to be used by the patient after discharge, Medicare
regulations make it clear that the patient has the right to choose
the supplier. Medicare's discharge planning requirements say that
the patient may choose the supplier of his or her choice except
when a Medicare Advantage Plan is involved. Hospital discharge
planners and clinical staff understandably like the idea of calling
just one number and having someone else make all the arrangements
for the O&P services and devices patients will need when they
go home.
As for O&P and other companies, having a hospital give it
the authority to handle the arrangements for all of the hospital's
O&P device and service needs is well worth its cost of making
the arrangements for the hospital so long as there are no
restrictions on being able to send the referral to its own
facility. Therein lies the problem. If a company wants to offer
referral service to hospitals, it is important that either
referrals not be made to any facility with which the company has an
ownership, investment, or compensation interest, or the referral
meets safe harbor requirements. At the very least, the hospital
should pay fair market value for the service being provided, as
determined by an independent appraisal consultant.
It also must be understood that Medicare patients have the right
to choose the providers and suppliers of their choice. The hospital
may not steer referrals either to its own affiliate or to another
company when a patient requests a particular supplier, especially
when the hospital is receiving something of value from the company
receiving the referral. Sanctions under the anti-kickback law are
severe, so compliance should be a priority.
John Latsko is a partner in the health law practice of
Schottenstein, Zox & Dunn, Columbus, Ohio. He can be contacted
at 614.462.2329; jlatsko@szd.com 
Table Of Contents - September 2007
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