On June 14, 2011, the Office of Inspector General (OIG) issued an unfavorable advisory opinion addressing an existing and a proposed arrangement involving contracts between a durable medical equipment (DME) supplier and several independent diagnostic testing facilities (IDTF). The DME supplier (Requestor) provides continuous positive airway pressure supplies (CPAP), which may be prescribed by a physician for patients diagnosed with obstructive sleep apnea. The study may be performed at the IDTFs, and a patient must select a DME supplier to supply the equipment after being prescribed the CPAP.
The existing arrangement involves contracts between Requestor and several IDTFs, some of which have physician investors, where the IDTFs are permitted to display and provide equipment from multiple DME suppliers. The patients are given a list of local DME suppliers, and are advised by IDTFs their right to select which supplier will provide them with the equipment. The contracts only apply to non-federally insured patients. If a non-federally insured patient chooses Requestor’s DME, an IDTF staff member will prepare the CPAP for the patient, along with educating the patient on how to properly use the equipment. For completing these tasks, Requestor pays the IDTF a per-patient fee. Each contract between Requestor and IDTF is non-exclusive and is set for a term of at least one year. Furthermore, Requestor may only terminate the contract for breach or for cause, but the IDTF may terminate the contract at any time.
The proposed arrangement would be similar to the existing arrangements, except for the following three elements: (1) the proposed arrangement would include federally-insured patients; (2) IDTF would be paid a flat monthly/annual fee; and (3) Requestor would have the ability to terminate the contract if it is unsatisfied with the number or patients receiving the services.
OIG had found several problematic issues relating to the arrangements. First, OIG noted that even though Requestor excluded federally-insured patients under the existing agreement, IDTFs may nevertheless have an influence in referring those patients to choose Requestor’s DME. Another issue found by OIG pertained to the in-person sales pitches or informational sessions that are aimed at senior citizens, Medicaid beneficiaries, and other vulnerable patients. Moreover, OIG raised concerns in regard to physicians marketing the equipment, which would ultimately distort the line between medical advice and a sales pitch. Finally, OIG determined that even though Requestor has certified that it would not make separate payments for rental of space and consignment services, the consignment component of the arrangement contains at least some amount of the IDTFs’ fees.
It was determined by OIG that the arrangements did not meet the necessary elements for the personal services and management contracts safe harbor, mostly due to the arrangements failing to specify the exact schedule, precise length, and exact charge for the intervals of services performed.
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