For the past few months, we have seen an increase in the number of hospitals that have entered into relationships with favored HME suppliers. As profit margins drop, hospitals are trying harder and harder to find ways to get an edge, and that edge may leave many CPAP, respiratory, and rehab/mobility suppliers without a fair opportunity to compete.

To combat these abusive relationships, HME suppliers must educate themselves on the rules governing referral relationships between hospitals and HME suppliers. HME suppliers should know the signs that a relationship may be in violation of such rules, and be prepared to take action.

BE EDUCATED

There are many proper referral relationships that HME providers may develop with hospitals. Providers need to be aware that any type of relationship that favors one supplier over another will attract greater scrutiny. If such a relationship entails a direct financial benefit to the hospital, it will be viewed with even greater scrutiny since federal law requires that hospitals disclose all financial interests in HME suppliers. It is important to understand what type of relationships do exist and what type of scrutiny they may receive.

DISCHARGE PLANNER'S DISCRETION

Some hospitals allow discharge planners full discretion in recommending an HME supplier. Normally, such an arrangement would not entail heightened scrutiny. However, keep in mind that an improper financial relationship can exist between a discharge planner and an HME supplier just as easily as it can between a hospital and an HME supplier. Discharge planners should not receive a financial incentive for referring patients to a particular HME supplier.

STRICT ROTATION

Some hospitals may choose to use a strict rotation where there is a formal system of alternating HME suppliers that the hospital recommends. This type of system can ensure fair play and a fair chance to all suppliers. In general, this type of relationship would receive less scrutiny than others. However, even in a strict rotation, hospitals must be aware of the importance of patient choice and physician discretion.

A hospital should never tell a patient that they must go to a particular supplier, nor should a hospital overlook the physician's recommendation. If a physician recommends a particular supplier for a health-related reason, the hospital should be willing to defer to the physician.

FLOOR REPRESENTATIVES

Hospitals may also choose to allow HME suppliers to have a representative on the floor of the hospital, so long as there is equal access for all suppliers—or at least all suppliers who satisfy reasonable criteria. While this type of arrangement generally would not receive heightened scrutiny, hospitals must take measures to ensure that HME representatives are truly representing their HME supplier, and not working for, or with, the discharge planners. If the representatives are working with the discharge planners, this could be viewed as illegal remuneration under the anti-kickback statute.

PREFERRED PROVIDER AGREEMENTS

A preferred provider agreement is a formal contract arrangement that allows HME suppliers to promise availability of specific services to hospitals—as well as information, accessibility, and educational services whenever patients are referred. You may naturally hope for an increase in the hospital's awareness of you, but this is not contractually required.

Preferred provider agreements must be in compliance with all federal laws, rules, and regulations. Any preferred provider agreement should be administered carefully and with diligent attention to guidelines ensuring patient choice. Ensuring patient choice does not mean you must inform a patient of every HME company they can choose from. Most hospitals and companies are not aware of this fact.

Although Section 4321(a) of the Balanced Budget Act (BBA) of 1997 requires hospital discharge planners to provide patients with a complete list of "home health services" providers, a 1997 internal CMS memo confirms that CMS currently interprets the BBA's reference to "home health services" to apply only to home health agencies.

However, failing to provide patient choice could invite scrutiny from the Department of Health and Human Services' Office of Inspector General. Arrangements where referrals are steered to a preferred HME supplier, without clear policies to protect the patient's decision-making authority, could be viewed as suspect.

We advise that while hospitals can recommend particular HME suppliers, they may want to show patients a list of the providers that could meet the patient's HME needs. The HME supplier that the hospital recommends may be at the top of the list. For HME suppliers, the list does not have to be all inclusive, but should merely demonstrate that patients were provided a choice.

We recommend that these preferred provider arrangements do not include financial benefits to the hospital, whenever possible. This avoids some of the structural and operational problems that can arise under the anti-kickback laws and other relevant self-referral laws.

Section 4321(b) of the BBA requires that hospitals disclose any financial relationship with an entity to which it sends referrals. This would include direct ownership of the HME supplier by the hospital (or a parent company) or a subcontracting arrangement between the hospital and the HME supplier. This would also include information such as an HME supplier leasing space from the hospital.

Neil Caesar

Keep in mind that certain financial relationships will satisfy legal requirements. If the relationship does not tie utilization to payment, it will not violate anti-kickback laws. However, hospitals must disclose the relationship. The parties should also check state law requirements.

RECOGNIZE THE WARNING SIGNS

Learn to recognize when a hospital's relationship with a favored HME supplier may be noncompliant. One of the first signs is an improper financial relationship between the hospital and the HME supplier. If you hear that hospitals are referring to a particular HME supplier as "the hospital's HME company," this should alert you to a potential compliance problem.

While hospital ownership of a supplier by itself is not necessarily improper, there must be safeguards to ensure that the supplier is actually a separate entity from the hospital. This means that the HME should be incurring costs associated with running its business, such as employees and governance. The more turnkey the supplier's operation, the more likely that there is an improper financial relationship between the supplier and the hospital.

Be aware of subcontracting relationships between a favored HME supplier and the hospital. In these situations, the favored HME supplier could not truly thrive as an active supplier—but for its relationship with the hospital.

If you discover that the favored HME has a storefront presence in the hospital, but is not informing its patients of the financial relationship, then the relationship is potentially noncompliant. Even HME suppliers who have a storefront presence at the hospital must maintain a separate office in compliance with National Supplier Clearinghouse supplier standards.

Discharge planners, not just hospital owners, may also have a prohibited financial relationship in a particular DME company. We dealt with a hospital that had no formal HME policy and allowed discharge planners to recommend HME suppliers at their discretion.

One discharge planner was moonlighting as an RT at an HME company. In her role as discharge planner, she recommended the provider she worked for. This is a potential kickback relationship.

HARDBALL TACTICS

Discharge planners should not use hardball tactics to persuade patients to choose a particular HME supplier. Unfortunately, this is a common problem among hospital discharge planners. Some planners may be receiving internal job pressure to persuade patients to go to the hospital's favored HME supplier. Others either fail to advise patients that they have a choice, or simply ignore the other choices. We have seen several instances where patients specifically requested a particular HME supplier, but hospital officials ignored the request—and instead provided equipment from their favored supplier.

ASK QUESTIONS

To determine whether there is a problem, listen to past and present clients for clues that a hospital may not be ensuring patient choice. Patients who have a preference—and are denied—have a tendency to be adamant. Typically, they will come to you to complain, so be ready to listen.

Brian R. Miller

Communicate with your contacts in the hospital. Do not be afraid to ask questions. Sometimes discharge planners and hospital employees will be completely unaware that their policies are noncompliant. They may tell you more than you think.

Finally, be aware of market trends. If your business drops off substantially from a particular hospital without any explanation, keep your eyes and ears open for evidence of an improper referral relationship.

If you have evidence that a hospital has entered into an improper referral relationship with an HME supplier and is failing to abide by the federal laws, rules, and regulations governing such relationships, you must be prepared to take action.

First, gather information. Talk to other HME suppliers in the area to ensure that you are not the only company being affected by the change in business. Talk and listen to your clients. Consult with any contacts you may have in the hospital to determine what type of internal pressure may be placed on hospital personnel.

Second, review your facts. Remember, just because a hospital favors one supplier does not mean it has violated the law. If you are uncomfortable assessing your case, you may wish to consult a health care attorney.

Third, develop your strategy. Nothing will change unless you demand fair play. You cannot depend on the government to sort out all the noncompliant relationships. The government has neither the time nor the money to expose everything.

One strategy is writing a letter to the hospital's compliance officer. Their job is to objectively monitor and document the hospital's compliance with existing regulations, in addition to keeping appropriate hospital personnel informed of those regulations.

It has been our experience that compliance officers usually will investigate any issue brought to their attention, and will take action if needed. If a compliance officer does not investigate the situation, the hospital will wind up in even hotter water if the government gets involved. Failure to investigate a known problem can lead to criminal and civil penalties.

Another strategy may be to contact the hospital's favored HME supplier. The HME supplier may or may not be aware of how the hospital recommends its services. Communication can sometimes resolve problems more quickly than confrontation.

From a practical standpoint, HME suppliers who complain may risk retaliation. Thus, those who wish to complain should consider whether they want to draft the letter, or whether they want to have an attorney draft the letter for them. The advantages to remaining anonymous are obvious, but anonymity weakens credibility.

As a last resort, we suggest that companies inform the government of the noncompliant relationship. HME suppliers should keep in mind that merely informing the government does not guarantee action, but if enough companies complain, an investigation will likely take place. Anonymity also affects credibility with the government. HME suppliers that wish to remain anonymous should have a health care attorney write the letter to the government, since an attorney will demand more credibility than an anonymous complaint.

Neil Caesar, JD, is president of the Health Law Center, Greenville, SC. Caesar serves the consulting and legal needs of medical practices, HME companies, and home health agencies. He can be reached via e-mail: . Brian R. Miller, JD, is an associate attorney with the Health Law Center (Neil B. Caesar Law Associates, PA), a national health law firm based in Greenville, SC. He can be reached via e-mail: .