If you win a contract under competitive bidding, you need to crank up your marketing efforts—but be sure to do it legally.

What should you do if you win a competitive bidding contract? The answer is to out-hustle, out-market, and out-compete the competition. If your market share is 7.5% at the time of the contract award, you will want it to be 15% by the end of the 3-year contract term.

LEGAL GUIDELINES

The Medicare/Medicaid anti-kickback statute provides for criminal penalties for any person or entity that solicits, receives, offers, or pays any remuneration to a person/entity to induce that person/entity to refer an individual for Medicare-covered items or services—or to purchase, lease, order, arrange for, or recommend purchasing, leasing, or ordering any Medicare-covered item or service—subject to specified exceptions.

The beneficiary inducement 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 annually. Nominal value is based on the retail purchase price of the item.

Pursuant to the anti-solicitation statute, 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—or the supplier has furnished at least one covered item to the beneficiary during the preceding 15 months.

The Stark physician self-referral statute provides 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. DHS include (i) DME, (ii) parenteral and enteral nutrients, (iii) prosthetics, orthotics and prosthetic devices and supplies, and (iv) outpatient prescription drugs, among others.

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 does not violate 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.

An HME company may submit a request to the OIG for an advisory opinion concerning a business arrangement that the company has entered into, or wishes to enter in the future. In submitting the advisory opinion request, the HME company must give the OIG specific facts. In response, the OIG will issue an advisory opinion concerning the likelihood that the arrangement will implicate the anti-kickback statute.

From time to time, the OIG publishes Special Fraud Alerts and Special Advisory Bulletins that discuss business arrangements that it believes may be abusive, and educate health care providers concerning fraudulent and/or abusive practices.

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 an HME 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.

An HME company cannot pay commissions or bonuses, or make 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. It is acceptable to advertise on television, radio, newspaper, and other media outlets.

Clay Stribling

It is acceptable to call on physicians, hospital discharge planners, home health agencies, and other referral sources to market your products and services. Do not give something of value—directly or indirectly—to referral sources for referrals.

If you secure a mailing list without violating HIPAA, feel free to mail out promotional literature to those on the list. In so doing, you may include a stamped, self-addressed postcard. In the promotional literature, you may ask the recipient to sign and mail the postcard back, which will give you the right to call the recipient.

You may offer an item of nominal value (not more than $10 retail) to customers and prospective customers. For example, if you run an ad in the newspaper that encourages individuals to visit the company, the ad can say that all visitors will receive a coffee mug (that has a retail value of $7.⁹⁹). Over a 12-month period, do not give items to any one customer that have a combined retail value greater than $50.

HME companies can participate in local health fairs. In so doing, they can set up tables or booths and give away items with a retail value of not more than $10. Similarly, it is acceptable to put on a short program during lunch at a senior citizens' center, at which time the company can distribute promotional literature. You may also place a kiosk in a mall to promote your products and services.

JOINT VENTURE

The government may carefully scrutinize joint ventures between providers to ensure that the ventures are not merely a sham in which one entity pays remuneration to the other entity in exchange for customer referrals. It is rare that a joint venture will fit within the safe harbor applicable to joint ventures. If the safe harbor is not met, then the government will examine the joint venture under the "one purpose" test. The basic inquiry under this test is whether one purpose of the arrangement is to induce referrals. In deciding whether to exercise its discretion to bring an enforcement action against the parties to a joint venture, the government will look to see whether the venture complies with the guidelines of the OIG's 1989 Special Fraud Alert and April 2003 Special Advisory Bulletin.

Under Stark, a physician cannot have an ownership interest in an HME company and also refer to it. As an exception, if the HME company is located in a rural area—and if at least 75% of the company's products and services are provided to residents of the rural area—then it is acceptable for the physician to have an ownership interest in the HME company and also refer to it.

SLEEP/CPAP RULES

Polysomnography does not fall within the Stark definition of DHS. Therefore, Stark does not prohibit a physician from having an ownership interest in a sleep lab, even if the sleep lab is receiving money from Medicare and Medicaid. However, CPAP falls under DME, which, in turn, falls within the definition of DHS. Therefore, if a physician has an ownership interest in a sleep lab and refers to it, then the sleep lab cannot also sell CPAP units and related supplies to Medicare/Medicaid customers.

In June 2002, the DMERCs issued a revised medical policy concerning CPAP devices, which stated, in part: "For the purposes of this policy, polysomnographic studies must not be performed by DME suppliers or any entities with a financial relationship to the DME supplier." Under the terms of this policy, not only would an HME company be prohibited from performing sleep studies in a sleep testing facility, but an HME company would be prevented from investing in such a facility. Likewise, the owners of an HME company would be restricted from investing in a sleep testing facility.

However, soon after the issuance of this policy, the DMERCs revised the policy and replaced the above language with: "For the purposes of this policy, polysomnographic studies must not be performed by a DME supplier. This prohibition does not extend to the results of studies conducted by hospitals certified to do such tests." These changes appear to permit (i) an HME company to have an ownership interest in a separate legal entity that owns a sleep lab and (ii) the owners of an HME company to become investors in a sleep testing facility.

A hospital and an existing HME company may jointly set up and own a new HME operation (on the hospital's premises) so long as the OIG's 1989 Special Fraud Alert (Joint Ventures) and 2003 Special Advisory Bulletin (Contractual Joint Ventures) are met.

CONTRACTUAL ARRANGEMENT

A pharmacy, HME company, hospital, or any other provider, may offer services to each other. The entity that receives the services must pay fair market value compensation for the services and, to reduce the risk of government scrutiny, the arrangement must fall within one of the safe harbors to the anti-kickback statute. These services may include billing, pickup and delivery of equipment, equipment maintenance, accounting, and establishing quality control and outcome determination programs.

A pharmacy, HME company, hospital, or any other provider may enter into a cooperative marketing program. The costs and expenses of the program must be proportionately shared by the provider. The cooperative marketing program offers one-stop shopping to customers. Examples of the programs are: joint advertisements in the media; a brochure jointly prepared by the entities that promotes their products and services; references to the cooperative arrangement on the letterhead and business cards of each entity; a link on each entity's Web site to the other entity's Web site (or other entities' Web sites); a display table with materials that educate customers about the services offered by each entity; and written information (explaining the services offered by each entity) that is mailed to each entity's customers.

A hospital may open an HME operation located on hospital premises or at a location leased or owned by the hospital. In so doing, the hospital may contract with an existing HME company to provide administrative services. If an HME company enters into such an agreement with a hospital, then it is critical that the agreement comply with the guidance set out in the OIG's 2003 Special Advisory Bulletin entitled "Contractual Joint Ventures."

An HME company may place inventory in the office of a physician or on the premises of a hospital. The inventory must be for the convenience of only the physician's or hospital's patients, and the physician or hospital cannot financially benefit, directly or indirectly, from the inventory. It is important that the physician and hospital ensure patient choice. Technically, the HME company can pay rent to the hospital or physician so long as the rental agreement complies with the Space Rental safe harbor. However, from a practical standpoint, because the physical space used by the placement of the inventory is so small, it is preferable for the HME company to pay no rent to the physician or hospital.

HME companies can enter into preferred provider agreements with hospitals whereby, subject to patient choice, the hospital will recommend the HME company to its patients who are about to be discharged. An HME company may designate an employee to be on the hospital/physician's office premises for a certain number of hours each week. The employee may educate the hospital/physician staff regarding medical equipment (to be used in the home) and related services. The employee also may work with a patient, after a referral is made to the HME company (but before the patient is discharged/leaves the physician's office), for there to be a smooth transition when the patient goes home. The employee liaison may not assume responsibilities that the hospital/physician is required to fulfill. Doing so will save the hospital/physician money, which will likely constitute a violation of the Medicare/Medicaid anti-kickback statute.

An HME company can enter into an independent contractor medical director agreement (MDA) with a physician, even if the physician is a referral source. The MDA must comply with the (i) Personal Services and Management Contracts safe harbor and (ii) the Personal Services exception to Stark II.

For more articles on competitive bidding, visit the free archives. In the archives, you'll find a knowledge database including articles such as: Aug 2007 Maintain Your Lifeblood Grow your diabetic business within legal parameters—both in and out of the competitive bidding area. By Jeffrey S. Baird, JD July 2007 Pennsylvania Paradox At Blackburn's, they fight competitive bidding even as they survive under its rules. By Rich Smith June 2007 Submit a Winning Bid It can be tricky, but you can win a competitive bidding contract. By Rich Smith

Assume that a sleep lab refers Medicare/commercial patients to an HME company. The HME company cannot, in turn, pay the sleep lab (or pay an employee of the sleep lab) a dollar amount per setup for services rendered by the sleep lab in setting up patients on CPAP provided by the HME company. Such an arrangement would violate the Medicare/Medicaid anti-kickback statute.

If the sleep lab is referring only nongovernment program patients to the HME company, then whether the HME company can pay a "per setup" fee to the sleep lab will be determined by state law. The only plausible way that the HME company can pay money to the sleep lab, for providing services to Medicare/Medicaid patients, is for the arrangement to fit (or substantially fit) within the Personal Services and Management Contracts safe harbor to the anti-kickback statute. Among other requirements, there must be a written contract, compensation must be fixed 1 year in advance, and the compensation paid by the HME company to the sleep lab (or an employee of the sleep lab) must be fair market value.

COMPLY AND COMPETE

Successful bidders will compete against each other the same way as they competed prior to competitive bidding. To out-compete its competitors, it is important that successful bidders implement innovative marketing strategies. In so doing, it is equally important for the supplier to comply with applicable legal guidelines.

Clay Stribling, JD, is an attorney with the Health Care Group at Brown & Fortunato PC, a law firm based in Amarillo, Tex. He represents HME companies, pharmacies, infusion companies, and other health care providers throughout the United States. Stribling is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached via e-mail: .