Marketing to hospitals is a challenge under normal circumstances considering the number of decision makers in any given facility. But what if you find you are not exactly competing on a level playing field?

There are many ways that this can happen. In the most obvious example, a competitor may be directly or indirectly paying the hospital for referrals. But even if no such overtly illegal payments are going on, you may still be at a disadvantage. For example, the hospital may never rotate the HME providers on its referral list so the company at the top of the list, where most patients tend to start, always gets the majority of the calls. Or the hospital may refer only to one HME provider. Finally, what sometimes happens is that the hospital owns its own HME operation and never refers patients to other HME providers.

HME Challenges
After listening to attendees speak out at our seminar programs on marketing during last October’s Medtrade, we found that there are four main challenges facing HME providers when marketing to hospitals. These include:

1. Referral lists. Hospitals normally do not use a referral list and often do not give a patient a choice when selecting an HME provider. Denying a patient his or her freedom of choice violates 42 USC § 1395a(a), which is aptly entitled “Free choice by patient guaranteed.”

2. Rotation. When hospitals do use referral lists, they normally do not rotate the HME providers on their lists and usually refer only to the top name.

3. Joint ventures. Some HME providers enter into sham joint ventures or management arrangements with hospitals that are nothing more than a subterfuge to funnel remuneration to the hospitals.

4. HME Responsibilities. Some hospitals ask HME providers to perform work that the hospitals would normally be obligated to perform.

Marketing to hospitals is an integral component of the HME provider’s overall business strategy. In a traditional hospital referral system, employees dedicate their time on a full- or part-time basis to visiting local hospitals and health care professionals to generate patient referrals. These employees build relationships with referral sources based on their proven reliability, accessibility, and worthiness. Once the referral is made, the HME provider’s responsibilities include qualifying the patient’s HME needs, identifying and ordering the appropriate medical equipment and supplies, delivering the order at the designated time, and educating the patient on the equipment usage.

However, because hospitals have become overwhelmed with the growing number of patients and shrinking number of support staff, many discharge planners now are demanding that HME providers perform additional duties if they want referrals. In essence, the discharge planners are asking the HME providers to perform their work for them, including pulling the patient’s file, copying the face sheet, specifying and ordering the appropriate HME, contacting the patient’s physician for approval, and coordinating delivery with the patient’s discharge time.

The problem with the HME provider performing work for the hospital is that the Medicare/Medicaid anti-kickback statute may be implicated. The government might argue that the services provided by the HME provider constitute “something of value” in exchange for referrals from the hospital. Therefore, agreeing to help an overwhelmed hospital discharge planner get his or her work done in order to earn referrals could expose the HME provider to a government lawsuit.

Ensuring fairness
Unfortunately, many HME providers do not have to worry about their role at a patient’s discharge because they never receive any referrals from the hospital. The HME provider must first determine how the hospital refers patients before the provider will know how to be involved in the patient’s discharge. In making this determination, the HME provider should address the following three factors:

1. If the hospital uses a rotating list, then how does it do so? How is the list compiled? Are there minimum requirements for an HME provider to be on this list? Once on this list, how does the rotation system work? Are selections made by discharge planners or according to time periods? Is the list alphabetical but not rotating?

2. If a rotating list is not used, then how are HME providers selected? Are patients given any choice in selection? Does the hospital refer to only one HME provider? If not, what prerequisites are necessary for the provider to receive referrals? Do HME providers have to be preferred providers? Do they have to provide all HME products and services—or at least accept all referrals and then subcontract what they cannot provide themselves? Do the HME providers need to have an employee stationed at the hospital at all times?

3. Is preferred provider status necessary? If the majority of patients at a hospital are covered by a particular third-party insurance company, then an HME provider must be a contracted provider in order to be eligible for referrals of those covered patients. If a national or major regional HME provider already has an exclusive contract with the payor, then the independent provider needs to enlist advocates to speak on its behalf. The HME provider should have customers and physicians write letters to the payor endorsing its products and services. In addition, the HME provider needs to encourage its customers to notify the payor that their HME provider is their provider of choice.

No payment, no referral
Unfortunately, there are HME providers and hospitals that enter into a joint venture or management arrangements that are nothing more than a disguise for the HME provider to pay remuneration to the hospital for referrals. Such a sham arrangement is a violation of the Medicare/Medicaid anti-kickback statute. For example, in a sham joint venture, the HME provider puts up the risk capital, the provider runs the venture, and the hospital’s share of the profits from the venture is nothing more than a reward for referring to the venture.

Likewise, in a turnkey management arrangement, the hospital owns an HME operation “on paper,” but in reality the HME provider furnishes all of the services and products—“on behalf of the hospital”—to the patients. As discussed in the Office of Inspector General’s April 2003 Special Advisory Bulletin entitled “Contractual Joint Ventures,” the true supplier is not the hospital, but is either the HME provider or a “contractual joint venture” formed by the HME provider and the hospital. Either way, all that the hospital is doing is referring its patients to the HME operation run by the HME provider, collecting revenue from Medicare, paying most of the revenue to the HME provider as a “management fee,” and pocketing the difference. This is nothing more than a disguised kickback and the Medicare/Medicaid anti-kickback statute is violated.

What to do
If an HME provider becomes aware of a sham joint venture or turnkey management arrangement, then it can take one or more of the following steps:

1. A health care attorney can write a letter to his or her client, the independent HME provider, that discusses the legal problems with the sham arrangement. The HME provider can share the letter with the hospital.

2. If the preceding step does not work, then the health care attorney can send a letter directly to the hospital or to the hospital’s attorney.

3. If the preceding steps still do not work, then the health care attorney can send a letter, describing the sham arrangement, to the Department of Justice or Office of Inspector General, with a copy to the hospital administrator. Such a letter will probably instigate an investigation into the sham arrangement.

Most HME providers are dependent on patient referrals for the majority of their revenue, and this can make refusing to perform the work of the hospital or alerting a hospital to an illegal referral arrangement extremely difficult. After all, the key to capturing referrals is relationships. Health care professionals must be able to trust the HME provider to care for their patients at home, and the HME provider may be concerned this trust will be damaged by confronting the hospital with violations of the anti-kickback statute.

However, for the referral system to work as intended, HME providers must do their part to protect it. Successful HME providers take care of their customers and are accessible to their referral sources. Over time, this competence builds trust. The end result is that the HME provider becomes an extension of a health care professional’s continuum of patient care.

Jack Evans is president and CEO of Global Media Marketing, Malibu, Calif, and a nationally renowned health care marketing specialist. Contact him at (310) 457-7333 or jevans@retailhomecare.com.

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