A diabetic supply company may have the best of everything, but if the company cannot bring business in the door, these admirable qualities are for naught. The age-old question is: "What kind of innovative marketing can my company do to out-compete my competitors?"

To be successful in its marketing efforts, the company needs to understand the legal restrictions that apply to Medicare providers.

LEGAL GUIDELINES

• Medicare/Medicaid Anti-Kickback Statute (42 USC §1320a-7b). It is a felony for a person or entity to knowingly or willfully solicit or receive any remuneration in return for referring an individual for the furnishing or arranging for the furnishing of any item for which payment may be made under a federal health care program, or in return for purchasing, leasing, arranging for, or recommending the purchasing or leasing of any item for which payment may be made under federal health care programs. Likewise, it is a felony for a person or entity to knowingly or willfully offer or pay any remuneration to induce a person to refer a person for the furnishing or arranging of any item for which payment may be made under a federal health care program—or the purchase or lease or the recommendation of the purchase or lease—of any item for which payment may be made under a federal health care program. These prohibitions do not apply to any amount paid by an employer to an employee.
• Beneficiary Inducement Statute (42 USC §1320a-7a (a)). This statute imposes civil monetary penalties upon a person or entity that offers, or gives remuneration to, any Medicare beneficiary (or beneficiary under a state health care program) that the offeror knows, or should know, is likely to influence the recipient to order an item for which payment may be made under a federal or state health care program. In the preamble to the regulations implementing this provision, the Office of Inspector General (OIG) stated that the statute does not prohibit the giving of incentives that are of "nominal value." The OIG defines "nominal value" as no more than $10 per item or $50 in the aggregate to any one beneficiary on an annual basis. "Nominal value" is based on the retail purchase price of the item.
• Anti-Solicitation Statute (42 USC §1395m(a) (17)). A supplier of a covered item may not contact a Medicare beneficiary by telephone regarding the furnishing of a covered item unless (i) the beneficiary has given written permission for the contact, or (ii) a supplier has previously provided the covered item to the beneficiary and the supplier is contacting the beneficiary regarding the covered item, or (iii) if the telephone contact is regarding the furnishing of the covered item other than an item already furnished to the beneficiary, and the supplier has furnished at least one covered item to the beneficiary during the preceding 15 months.
• Stark Statute (42 USC §1395nn). The "Stark" provisions of the Omnibus Budget Reconciliation Act of 1993, as amended, provide that if a physician has a financial relationship with an entity providing designated health services (DHS), then the physician may not refer patients to the entity unless one of the statutory or regulatory exceptions applies. Designated health services include (i) DME, (ii) parenteral and enteral nutrients, (iii) prosthetics, orthotics, and prosthetic devices and supplies, and (iv) outpatient prescription drugs. There are several exceptions to Stark, including the rural exception. This provides that the Stark prohibitions do not apply in a rural area where the entity furnishes substantially all (not less than 75%) of its designated health services to the residents.

SAFE HARBORS

Safe harbor regulations issued under the anti-kickback statute provide "bright line" tests defining arrangements that do not violate the statute. If a business arrangement clearly falls within a safe harbor, then it is not violative of the anti-kickback statute. If the arrangement does not clearly fall within a safe harbor, then it must be examined in light of the anti-kickback statute and related court decisions to determine if it violates the statute. Of the various safe harbors, four are particularly pertinent to diabetic supply companies: 1) space rental; 2) equipment rental; 3) personal services and management contracts; and 4) employees.

SPECIFIC STATE RULES

Most states have enacted statutes prohibiting kickbacks, fee splitting, patient brokering, or self-referrals. Some statutes refer to definitions and standards found in the federal statutes while others are materially different. Some state statutes apply only when the payor is a state health care program, while other statutes apply regardless of the identity of the payor.

INNOVATIVE MARKETING

It is acceptable for a diabetic supply company to pay commissions, bonuses, and other production-based compensation to bona fide full-time and part-time employees who market the company's products and services. There is a specific exception to the anti-kickback statute for payments to bona fide employees. Likewise, there is an "employee" safe harbor that provides that payments to a bona fide employee do not constitute illegal remuneration in violation of the anti-kickback statute.

USE OF INDEPENDENT CONTRACTORS

A diabetic supply company cannot pay commissions, bonuses, or other production-based payments to independent contractors for marketing. To do so would violate the anti-kickback statute. The only mechanism to pay an independent contractor for marketing services is to fit (or substantially fit) the relationship within the Personal Services and Management Contracts safe harbor. Among other requirements, payment to the independent contractor must be fixed 1 year in advance and must be the fair market value equivalent of the contractor's services.

MEDIA ADVERTISING AND REFERRALS

It is acceptable for a diabetic supply company to advertise on television, radio, newspaper, and other media outlets. It is acceptable for the company to call on physicians, hospital discharge planners, home health agencies, and other referral sources to market the company's products and services. In so doing, the company can hand out brochures and other promotional literature. The company cannot, however, directly or indirectly give something of value to the referral sources for referrals.

MAIL-OUTS

On condition that the diabetic supply company secures a mailing list in such a way that the Health Insurance Portability and Accountability Act (HIPAA) is not violated (eg, the list comes from a noncovered entity), then the company can mail out promotional literature to the individuals on the list. In so doing, the company can include a stamped, self-addressed postcard. In the promotional literature, the company can ask the recipient to sign and mail the postcard to the company, which will then give the company the right to call the recipient.

PROMOTIONAL ITEMS

The company can offer an item of nominal value (retail value of not more than $10) to customers and prospective customers. For example, the company can run an ad in the newspaper that encourages individuals to visit the company or its Web site. The ad can say that all visitors will receive a diabetic cookbook (that has a retail value of $9.99). Over a 12-month period, the company may not give items to any one customer that have a combined retail value greater than $50.

HEALTH FAIRS, LUNCHEONS, AND KIOSKS

The company can participate in local health fairs. In so doing, it can set up a table or booth and give away items with a retail value of not more than $10. Similarly, the company can put on a short program during lunch at a senior citizens' center, at which time the company can distribute promotional literature. The company can place a kiosk in a mall that promotes the company's products and services.

Jeffery S. Baird

FREE METERS AND MARKETING ISSUES

Diabetic test strips are designed to be used only in meters from the same manufacturer, with the same brand names. Diabetic supply companies normally carry only one or two brands of test strips. If a new customer is using a meter that is not compatible with the strips furnished by the company, then the company will need to provide a compatible meter to the customer. Normally, the company will desire not to charge the beneficiary for the meter.

If the manufacturer gives meters to a diabetic supply company free of charge, it is not appropriate for the company to bill the Medicare program for the meters. The fact that a company does not bill for meters that it receives for free does not mean that the company may not bill for meters that it purchases. However, the company should be careful not to give all of its free meters to patients who are ineligible for Medicare reimbursement, while selling purchased meters to eligible Medicare beneficiaries. If the free meters are distributed in such a way that the Medicare program does not receive its fair share of the benefit of the discount, the risk of anti-kickback scrutiny is significantly increased.

Unless the decision to forgive is based on an individual determination of financial need, a diabetic supply company cannot forgive the cost of a meter in the event the meter is provided to an individual covered under a Medicare HMO where there is no insurance coverage.

A company that routinely provides items for free to individuals who are not eligible for reimbursement, but bills third-party payors for items provided to patients who have coverage, may incur liability under the anti-kickback statute, the inducement statute, and state insurance fraud laws. An out-of-network charge is a form of co-payment. Like other co-payments and deductibles, this charge may not be waived routinely, but may be waived only upon a determination of financial need in each case.

CONSIGNMENT OPPORTUNITIES

The diabetic supply company may wish to place meters in physician's offices on a consignment basis. Physicians would provide meters to patients from the consigned inventory and would provide billing information to the company. The company would bill for the meters and replenish the consigned inventory as necessary.

The company would make no payments to the physicians, and would not provide any free services or other benefits to the physicians in return for participating in this program. This is commonly referred to as a "consignment closet" arrangement. It is important that patient freedom of choice be preserved; therefore, physicians should be advised to tell patients that they may receive meters and diabetic supplies from any diabetic supply company of their choice. The company should prepare a list of diabetic test suppliers and distribute the list to physicians to be given to patients.

There is no prohibition against placing educational literature, with the company's marketing materials attached, in physician's offices for distribution to patients. While the HIPAA privacy regulations contain significant restrictions on health care marketing activities, they do not prohibit a physician from giving patients information about treatment of their medical conditions or suggesting or recommending providers or suppliers to patients.

It is proper for physicians to ask patients whether they would be willing to have the diabetic supply company contact them regarding the company's products and services. However, this activity must be conducted in compliance not only with HIPAA privacy regulations, but also with the specific Medicare rules dealing with telephone solicitation by HME companies. The physician would need to require the patient to sign an authorization that meets the requirements of the HIPAA privacy regulations. In addition, if the company intends to contact the patient by telephone, the patient's authorization must specifically authorize telephone contact.

In general, giving patients educational information about their medical conditions is far less likely to attract anti-kickback scrutiny than giving them other unrelated items or services. If the educational information being provided is in the form of booklets, audio tapes, or video tapes of relatively small financial value, this practice is unlikely to expose the diabetic supply company to anti-kickback or inducement risks. However, keep it in reasonable limits.

A diabetic supply company may wish to give patients a home-administered test kit that is not a Medicare-covered item. However, these kits must have a retail value of $10 or less. Note that the price that the diabetic supply company pays for the kits is not relevant for purposes of the inducement statute. It is the retail price that the beneficiary would pay to buy the item himself that determines whether the nominal value exception applies.

A diabetic supply company's employees may collect certain information from patients and provide that information to the referring physicians. The question is whether the company will be required to enter into business associate agreements with these physicians. The answer to this question depends on the purpose for which the information is collected and the purpose for which it is disclosed.

Information that the company collects for its own treatment or payment purposes, or for purposes like quality improvement or case management, may be disclosed to physicians for their use for similar purposes without a business associate agreement. However, if the company is collecting information not for its own use, but only on behalf of the physician—or if the information is collected or disclosed for some purpose other than those listed above—then a business associate agreement would be required.

In June 2000, the OIG issued a report entitled "Blood Glucose Test Strips: Marketing to Medicare Beneficiaries." Although the report includes recommendations concerning the other practices discussed in the report (waiver of co-payments, auto-shipping, and misleading advertising), there are no recommendations regarding free meters. The OIG's position on free meters is, therefore, left ambiguous. It appears, however, that to the extent that the OIG is concerned about the practice of distributing free meters, its greatest focus is on (i) free meter programs that are advertised to the public through newspaper advertisements and other media, and (ii) "free" meters that are tied to the purchase of test strips.

For more articles about diabetes education and marketing, search for diabetes in our free online archives.

The risk that the government will allege that a free meter program violates the anti-kickback and/or inducement statute is reduced if the program contains the following characteristics: (i) the diabetic supply company does not advertise free meters to the general public; (ii) the company does not inform a potential customer that if they become a customer, then they will receive a free meter; and (iii) only after the person elects to become a customer will the company inform the customer that they will receive a free meter that is compatible with the company's test strips. Lastly, providing a free item such as a meter, which is essential to maintenance of a diabetic patient's health, should be considered less objectionable than providing a free item that has no relation to maintaining the patient's health.

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