The Legal Landscape for HMEs and Sleep Labs

Jeffrey Baird, Esq., is a board-certified health care law attorney with Brown & Fortunato in Amarillo, Texas. In his experience, Baird hasn’t seen too many sleep labs selling or leasing CPAPs, or many owned by the same owner. Where he does see growth is in the number of labs trying to enter into relationships with independently owned HMEs: “That results in their competitors, other HMEs, getting cut out of the loop.”

Baird is concerned that many HMEs simply do not have the legal knowledge or expertise to know what they are getting into legally with labs. Most probably know that when a sleep lab refers to an HME, and if that HME pays the sleep lab on a per setup basis, this is highly illegal. But how many HMEs know the ins and outs of the Personal Services and Management Contracts (PSMC) safe harbor?

The basic premise is that under Medicare antikickback statutes, a person or an entity cannot give anything of value to a physician, RT, nurse, etc., in exchange for referring Medicare patients. But this is easy to violate because of the breadth of the language, Baird says. As a result, the Office of the Inspector General (OIG) issued 21 safe harbors — hypothetical situations. Under the PSMC safe harbor, it is OK to pay money to a referral source as long as a number of conditions are met, such as:

  • There is a written contract
  • The referral source is giving you a valuable service
  • The money you are paying is fair market value
  • The money you pay is an amount fixed in advance, a year ahead of time, so the referral source has no incentive to give additional referrals.

Baird expects that the problem of illegal arrangements will grow and come under the watchful eye of the Department of Justice and the OIG. He predicts there will be much more enforcement, and the industry will see an increase in “whistleblower” lawsuits in the coming year.

The message is clear: Protect yourself and your business, and be sure to know the legal fine print before embarking on any kind of reciprocal arrangements with labs.

Some Legally Acceptable Arrangements Between Sleep labs and HME Companies

From Jeffrey Baird, Esq., Brown & Fortunato, P.C

  • Sleep lab refers patients to HME company. No compensation from HME company to sleep lab.
  • Sleep lab refers patients to HME company. HME company and sleep lab enter into a loan/consignment closet arrangement, whereby the HME company stores CPAPs on the premises of the sleep lab. The sleep lab must give a choice to the patient as to which HME company will provide the CPAP. If the patient does not have a preference, then the sleep lab can recommend the HME company (with which the sleep lab has the consignment arrangement) and send the patient home with one of the HME company’s CPAPs. The HME company either pays nothing to the sleep lab or will pay rent for the space used at the sleep lab for the HME company’s inventory. The rent must be fixed one year in advance, and it must be fair market value. There must be a written space rental agreement between the HME company and the sleep lab that complies with the space rental safe harbor to the Medicare/Medicaid anti-kickback statute.
  • Sleep lab can handle setups for the HME company and the HME company can pay the sleep lab for the setups. However, the arrangement must fall (or substantially fall) within the Personal Services and Management Contracts safe harbor (see above).
  • Sleep lab can purchase an equity interest in the HME company, and vice versa.
  • Sleep lab and the HME company can form a joint venture. The two parties will set up (and capitalize) a separate legal entity. This separate legal entity (the joint venture or “JV”) will either own a separate sleep lab or separate HME operation. The JV will have to comply with the OIG’s 1989 Special Fraud Alert on joint ventures and the OIG’s April 2003 Special Advisory Bulletin on contractual joint ventures.

This article originally appeared in the Respiratory Management March/April 2007 issue of HME Business.

About the Author

Deborah Cooper is the former Respiratory Management editor.


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