The HME industry has grown up. This is both good news and bad news. In the 1960s and 1970s, the HME industry was little more than a cottage industry. There were very few HME suppliers, and patients were largely unaware of the types of products and services offered by HME providers. This changed in the 1980s with the growth of several national HME companies and independent HME providers. In addition, in the late 1980s, managed care (with an emphasis on cost cutting) moved much of health care out of the physician and hospital settings and into the home setting. As a result, an increased portion of health care was and continues to be provided by visiting nurses, HME providers, mail-order pharmacies, and similar types of providers.

The 1990s witnessed a maturation of the HME industry. The number of independent and regional HME providers exploded and the national players continued to grow. Patients, particularly Medicare beneficiaries, became educated concerning the various products and services offered by the HME industry.

The government took notice, as did plaintiffs’ attorneys. The government observed a dramatic increase in reimbursement under Part B and, as a result, took it upon itself to regulate the HME industry. Accordingly, the HME industry witnessed the establishment of the National Supplier Clearinghouse (NSC) and the Durable Medical Equipment Regional Carriers (DMERCs). The HME industry also witnessed the cooperation among the various federal and state regulatory agencies, observed the passage of a number of statutes addressing health care fraud, and took notice of the publication of safe harbors, fraud alerts, advisory bulletins, supplier standards, and other regulatory guidance. In short, since the mid 1990s, the HME industry has become highly regulated.

A parallel phenomenon has occurred. As an attorney, I can state that there are too many attorneys in this country. Worse, there are too many starving attorneys. With the passage of tort reform legislation by the various states, it has become less profitable for plaintiffs’ attorneys to earn a living by filing medical malpractice, personal injury, and workers’ compensation suits. This void is being filled by the growth of qui tam (whistle blower) cases. In a qui tam action, the plaintiff (relator) can bring a lawsuit against an HME provider on the basis of alleged violation of the various federal antifraud laws. These statutes are draconian inasmuch as they often provide for actual damages, treble damages, and fines and penalties (eg, $5,000-$10,000) per claim.

This brings us full circle to the title of this article. Certainly, there are a number of challenges that an HME provider must address in order to be successful: hiring and training of competent personnel, establishment of an effective marketing program, and setting up a technologically advanced billing system to name a few. However, there are two risk areas that can destroy an HME provider overnight. These are responding to a DMERC audit in a cavalier fashion and being the defendant in a qui tam action.

DMERC Audit
An HME provider will face a number of DMERC audits throughout its existence. On a periodic basis the HME provider will face a random audit. In addition, an audit will occur if one of the following takes place:

• One or more beneficiaries complain to the DMERC about alleged improper practices by an HME provider. For example, beneficiaries might complain that the provider did not process a refund for a product returned by the beneficiary, billed for products not delivered to the beneficiary, or engaged in upcoding.
• A competitor complains to the DMERC concerning activities of an HME provider.
• The DMERC notices a change in the HME provider’s billing pattern.
• The DMERC notices that the HME provider is selling a disproportionately large quantity of a particular item.

There are three basic approaches that a DMERC takes in an audit. One approach is for the DMERC to send a letter to the HME provider requesting copies of documents pertaining to a designated list of beneficiaries. The letter will give the HME provider a future date (normally within approximately 20 days) within which to respond. Alternatively, the DMERC might call or fax a letter to the HME provider and require that documentation pertaining to a designated list of beneficiaries be provided within 24-48 hours. Lastly, DMERC auditors might appear at the premises of the HME provider unannounced and request to review (and make copies of) documents pertaining to a designated list of beneficiaries.

Obviously, if the DMERC demands that the documents be mailed within 24-48 hours, or if DMERC auditors show up unannounced at the HME provider’s premises, the provider must hope that its documentation is in order. The provider will have no time to correct any deficiencies in advance or to give an adequate explanation concerning any deficiencies.

The most common audit approach, however, is for the HME provider to forward the requested documents to the DMERC within a reasonable period of time (eg, 30 days). Too often, when given time to organize and forward documents, the HME provider responds to a DMERC audit in a cavalier fashion. Without examining the files and (more important) without having an experienced health care attorney examine them, the HME provider will simply make copies of the documents and send them to the DMERC audit unit. If the documentation is deficient in a number of files, the DMERC will determine the percentage of claims from the files that are deficient, and will project the same percentage for the same types of files (eg, the same products) over a 3- to 5-year period. This can result in a staggering amount of disallowed claims. More ominously, if the DMERC audit concludes that the deficiency in documentation is a result of intentional or reckless acts, then the DMERC may refer its findings to the Office of Inspector General (OIG) for investigation. Many OIG and Department of Justice (DOJ) investigations originate from DMERC audits.

It is critical that HME providers engage in the following:

• The provider must ensure that its patient order intake, document retrieval, and document maintenance comply with supplier standards and other guidance given by the DMERCs. In so doing, the provider will be in the position to respond to a DMERC audit, particularly an audit that requires documentation within 24-48 hours.
• If a DMERC allows the provider reasonable time to submit requested documentation, then the HME provider must take the audit request extremely seriously. The HME provider must adopt the attitude that the request is simply the “tip of the iceberg.” When given a reasonable time to respond, the HME provider must make duplicate sets of the requested documents: one set to send to the DMERC and one set to give to the provider’s health care attorney. The HME provider must immediately deliver a set of the requested documents to its health care attorney so that the attorney will have sufficient time to review the documents for deficiencies before the documents are forwarded to the DMERC. If the attorney determines that there are deficiencies, then he or she can guide the HME provider in obtaining additional documents that can rehabilitate the deficient files. In addition, the attorney can formulate a transmittal letter to the DMERC that explains the deficiencies.
• By taking these steps, the HME provider will greatly reduce the chances of being subjected to a large overpayment demand or that the audit results will be transmitted by the DMERC to the OIG for investigation.

Qui Tam Proceedings
There are 93 US Attorney’s offices located throughout the United States. Each US Attorney’s office has a politically appointed US Attorney and a number of Assistant US Attorneys (AUSAs). Some US Attorney’s offices are small with no more than three to five AUSAs, while other US Attorney’s offices are large, with upwards of 200 AUSAs. Practically speaking, the DOJ does not have the manpower or the resources to investigate or prosecute all of the fraudulent activities occurring in the HME industry. As a result, the government has encouraged qui tam actions. In essence, in a qui tam proceeding the DOJ is outsourcing or subcontracting its fraud investigation to private industry.

Prior to the growth of qui tam actions, the only real concern that an HME provider might have had concerning a disgruntled employee is that he or she may be less productive and may cause discord among other employees. Likewise, the only real concern that the HME provider might have had concerning a disgruntled ex-employee is that the ex-employee might apply for unemployment benefits. Unfortunately, those were the Leave It to Beaver days. We are now in a different time and place.

Employees are well aware of the existence of qui tam actions. They know, in general, that if they can uncover and prove fraudulent activities by their employer, they may be entitled to a large reward. There is often a stark difference in perspective. From the employer’s standpoint, mistakes or sloppiness are simply the result of negligence or bad decision-making. However, from the perspective of the disgruntled employee, the mistakes or sloppiness are the result of intentional or reckless acts. The federal antifraud statutes are so broadly worded that even good faith mistakes can become the foundation of a qui tam action.

If a qui tam action is filed, then the HME provider faces a serious dilemma. If the qui tam action has merit, then the provider may face astronomical damages, fines, and penalties. The provider might also face exclusion from the Medicare program or even a criminal proceeding. A provider can be found both civilly and criminally liable for the same activities.

If a qui tam action has little to no merit, its existence can nevertheless be devastating. For example, once the existence of a qui tam action becomes known, then the DMERC may freeze payments to the provider; the NSC might suspend the provider’s supplier number; the existence of the qui tam action might give managed care payors the grounds to terminate managed care contracts; the provider’s competitors might use the existence of the qui tam action to criticize the provider in the marketplace; vendors might place the provider on a “cash on delivery” basis; and the provider’s bank might require the company to move its line of credit elsewhere.

Finally, the attorney’s fees to respond to a qui tam action can be suffocating.

It is critical that HME providers take steps to avoid the filing of qui tam actions. These steps include:

• Having a practical, functioning corporate compliance program in place that will uncover any potential fraudulent activities before they become a problem. As part of the corporate compliance program, the HME provider must conduct continuous employee training on how to avoid fraudulent practices. Compliance must be as important a part of an HME provider’s mind-set as other worthy goals, such as patient service. The corporate compliance officer must be part of the senior management team.
• Addressing any criticism or complaint by an employee, immediately. The HME provider must communicate openly and frequently with the complaining employee concerning the steps he or she is taking to address the complaint.
• Conduct the termination of an employee in as positive a way as possible. Whether it is a voluntary termination or whether the employee is terminated by the employer, a lengthy exit interview must be conducted. The person conducting the interview must be sufficiently skilled to ascertain from the departing employee whether he or she has any complaint or problems with the HME provider. If the departing employee discusses complaints or problems he has with the HME provider, then the provider can immediately address them.

Certainly, there are factors that might impact the viability of an HME provider: competency of employees; effectiveness of marketing; and technological efficiency of the billing operation. However, none of these factors can, in and of themselves, constitute a company’s death sentence.

There are two events that can constitute such a death sentence: a cavalier response to a DMERC audit and being the subject of a qui tam action. Take those steps necessary to avoid these two events.

Jeffrey S. Baird, JD, is chairman of the Health Care Group of Brown & Fortunato, PC, Amarillo, Tex. He represents HME companies, pharmacies, and other health care providers throughout the United States and Puerto Rico and can be reached at (806) 345-6320 or jbaird@bf-law.com.