What steps can you take when the local hospital is not ensuring patient choice?

For many HME suppliers, a critical source of referrals is the local hospital. In a perfect world, the hospital would refer discharged patients in need of HME to the supplier that delivers the best care. Unfortunately, we do not live in a perfect world. Too often, hospitals refer patients to HME suppliers on a basis other than quality of care. For example, a hospital may steer patients to an HME operation that is 100% owned by the hospital, or to a joint venture in which the hospital is a partial owner. How should you respond?

Applicable Law
The general Medicare patient-choice statute is 42 USC 1395a(a), which provides: “Any individual entitled to insurance benefits under this subchapter may obtain health services from any institution, agency, or person qualified to participate under this subchapter if such institution, agency, or person undertakes to provide him such service.”

A more specific statute is 42 USC 1395x(ee)(2), which (among other things) provides: Section (D)—A discharge planning evaluation must include an evaluation of a patient’s likely need for appropriate post-hospital services, including hospice services, and the availability of those services, including the availability of home health services, through individuals and entities that participate in the program under this title and that serve the area in which the patient resides—and that request to be listed by the hospital as available.

Section (H)—Consistent with section 1395a, the discharge plan shall: (i) not specify or otherwise limit the qualified provider which may provide post-hospital home health services; and (ii) identify (in a form and manner specified by the Secretary) any entity to whom the individual is referred in which the hospital has a disclosable financial interest (as specified by the Secretary consistent with section 1395cc(a)(1)(S) of this title or which has such an interest in the hospital).

This more specific statute is limited to patients discharged under a home health plan of care.

Unfortunately, the HME supplier that is being denied the ability to compete for hospital referrals cannot bring a lawsuit against the hospital under either of the patient-choice statutes. For example, in Home Health Services, Inc v Currie, 706 F2d 497 (4th Circuit 1983), a home health agency alleged that a physician and a state medical university refused to allow their patients to use the plaintiff and “steered” patients away from the plaintiff in violation of the general Medicare freedom of choice requirement. The 4th Circuit held, however, that the plaintiff did not have an implied private right of action under 42 USC 1395a(a). The trial court found that “the statute was obviously not enacted primarily for the benefit of the provider of services, but rather for the recipients of medical care benefits. ...Under 42 USC 1395a, the special class that Congress sought to protect were the Medicare recipients themselves, not the providers [531 FSupp 476, at 479-480].”

The trial court concluded by saying: “[T]his court expresses no opinion on the question of whether a private cause of action in favor of the Medicare recipients themselves could be implied under 42 USC 1395a.”

Antitrust Theories
Other theories for enforcing patient choice upon hospital providers typically center around antitrust theories: (i) unreasonable restraint of trade in violation of Section 1 of the Sherman Act, 15 USC § 1; (ii) monopolization in violation of Section 2 of the Sherman Act, 15 USC § 2; (iii) attempted monopolization in violation of Section 2 of the Sherman Act, 15 USC § 2; (iv) conspiracy to monopolize in violation of Section 2 of the Sherman Act, 15 USC § 2; (v) denial of access to essential facility in violation of Section 2 of the Sherman Act, 15 USC § 2; and (vi) illegal leveraging. An HME supplier can bring a private cause of action against a hospital under one or more of these antitrust theories.

In Key Enterprises of Delaware Inc v Venice Hospital (11th Circuit 1990), VCA Medical Supply sued Venice Hospital and others in July 1985. VCA claimed that the joint venture between the hospital and MPAC violated federal and state antitrust law. The jury awarded VCA $760,983, which the court tripled to $2,282,949. The court then granted the defendants’ motion for judgment notwithstanding the verdict. VCA appealed. The 11th Circuit panel reversed and directed the trial court to enter a judgment for VCA in accordance with the jury’s verdict. The defendants asked for a rehearing “en banc.” During the appeal, VCA and the hospital settled for $3,272,111.11 (triple the jury’s finding of damages plus VCA’s attorney’s fees and costs). The 11th Circuit panel made several findings:

• Within 6 months after the joint venture began, VCA’s business dropped significantly.

• HHA nurses stopped using VCA after the joint venture began, notwithstanding that they testified that VCA gave superior service.

• Because of the Medicare fee schedule, there is little possibility of long-term vigorous price competition in the DME market.

• The typical patient is not well versed in the DME market. This renders the patient vulnerable to suggestions made by those in positions of authority.

• In the DME industry, because of the Medicare fee schedule, the primary means of competition are quality and service. The defendants set in place a scheme that insulates the patient from knowing of these nuances. Competition has been injured because there are no effective means by which DME vendors can reach those patients who require DME when they are discharged from the hospital.

Alternative theories of liability include state common law and/or statutory law theories of unfair competition, tortious interference with contractual relations, and tortious interference with business relations. If the HME supplier is successful in bringing a lawsuit against the hospital under one of these theories, then the supplier may be entitled to injunctive relief, actual damages, punitive damages, attorney’s fees, and costs of court.

In the Venice Hospital case, the 11th Circuit determined that (i) the defendants were aware of the relationships between the HHA nurses and the DME companies in the community, and (ii) the defendants sought to unduly influence the nurses to recommend the hospital’s joint venture for discharged patients’ DME.

Lastly, some states have merchandising practices statutes that are enforceable by the states’ Attorney General’s Offices.

Preventive Steps
An effective course of action for the HME supplier to take, and one that has proven to be successful, is to educate its customers and potential customers, as well as physicians, about the right of a hospital patient to choose their HME supplier. For example, the HME supplier can place billboards throughout the community that say: “I use ABC Medical because I choose ABC Medical.”

The HME supplier can place similar ads in the newspaper, to educate existing and past customers regarding their right (or the right of a family member) to choose a provider when they are being discharged from the hospital. Lastly, HME suppliers can inform referring physicians that when patients are about to be released from the hospital, they can recommend an HME supplier that they trust.

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato PC, an Amarillo, Tex-based law firm. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and represents DME companies, pharmacies, and other health care providers throughout the United States. He can be reached via e-mail: jbaird@bf-law.com.