Hospitals Look to Exclusive Arrangements

It should come as no surprise that many hospitals have tried to reduce their costs by entering into exclusive or semi-exclusive discounted contracts with their vendors. Medicare pays hospitals for inpatient care under a prospective payment system that fixes Medicare's payment based on the patient's diagnostic related group (DRG). Similar methodology has carried over into many of the hospital's managed-care contracts. Of course, the intent of using a DRG methodology is to make hospitals more cost conscious.

That leads us to the topic of hospital/O&P vendor arrangements. Virtually every hospital purchases its medical equipment, medical devices, and hospital supplies under one or more volume-discount group-purchasing contracts. The hospital's objective is to get the lowest price on the items that it uses. Orthotic devices used primarily on hospital surgery patients are not generally included in group-purchasing contracts. Reimbursement for necessary orthotic braces are included in the global Medicare Part A DRG payment to the hospital for inpatients.

Traditionally, hospitals have purchased devices based on the physician's preference at vendor prices. This has changed. Some orthotic vendors and hospitals have entered into exclusive or semi-exclusive contracts, where a single vendor supplies most or all of the orthotic devices required for hospital inpatients. When the vendor is a manufacturer, these contracts allow the vendor to supply its own devices, or a vendor may obtain devices from other sources. Under these arrangements, the physician may have little say about where a device is acquired. In some cases, this arrangement extends to hospital outpatients even though in most cases the hospital is not responsible for payment of these devices. These contracts have significantly changed the competitive environment in many markets.

The implications do not stop at orthotics. Because of the arrangement, the same vendor may often be called upon when a prosthetic device is needed. Quite often, other vendors are put at an unfair competitive disadvantage by being frozen out of hospital referrals. If you are the vendor who has the contract with the hospital, this could be an excellent business opportunity depending on the pricing, volume, and residual benefits.

But what if you are not the vendor that has the contract? What can you do to protect yourself? Initially, the question has to be whether the arrangement is legal under the federal anti-kickback law. A vendor may not offer remuneration with the intent to induce a referral of a patient for which payment is made by a governmental program. The remuneration can be in cash or "in kind."

With regard to hospital/vendor contracts, the hospital is certainly within its rights to try to get its best price and other terms. The question is whether the hospital is accepting anything of value besides a discount in return for the contract. For instance, does the vendor provide administrative or other support to the hospital at no charge? Does the vendor provide a larger discount for patients who are hospital employees? Does the vendor absorb the loss if the hospital is not paid by an insurer or a self pay-patient? As for the Part B devices that are to be used only outside the hospital, is it important that the patient be afforded the opportunity to select a vendor of choice?

Another concern is the Medicare supplier status of the vendor. If the site being used by the supplier is for patient-care services and Medicare Part B is being billed for that care, does the location have its own mandatory Medicare supplier number and meet all supplier and accreditation standards? If a hospital wants to enter into an exclusive arrangement with a supplier, it would be advisable to make it competitive by putting out a carefully developed request for proposal. To a hospital, an orthotic vendor contract might be strictly a business arrangement, but every hospital must recognize the impact it has on other vendors.

Hospitals must be wary of vendor offers that seem "too good to be true." When a hospital receives a discount from a vendor to which it makes referrals, the discount must meet all requirements of the discount safe harbor to the anti-kickback law. The vendor should not receive preferential access to hospital outpatients, and a vendor, whether a supplier or a manufacturer, should have carefully defined parameters of when a referral can be made to itself. The hospital should pay the vendor in accordance with the requirements of the personal services safe harbor if the vendor provides services on behalf of the hospital. Access to inpatients who will require a prosthesis after discharge should include prosthetists selected by the surgeon or chosen by the patient.

Both large and small companies are interested in contracting with hospitals. These are complicated arrangements that significantly impact the prosthetic and orthotic market. Great care needs to be taken when entering into them.

John Latsko is a partner in the health law practice of Schottenstein, Zox & Dunn, Columbus, Ohio. He can be contacted at 614.462.2329; jlatsko@szd.com

Hospitals Look to Exclusive Arrangements

Ability Hires Two New Employees

Wounded Warrior Center Opens

Wounded Warrior Center Opens

RECENT NEWS

Get unlimited access!

O&P JOBS

Open Bionics hiring for CPO’s!

ABC Certified Prosthetist/Orthotist/ Resident – Memphis TN/Southaven MS

Part Time Certified Prosthetist

Are you sure want to unlock this post?

Are you sure want to cancel subscription?

The most important industry news and events delivered directly to your inbox every week.

Welcome Back!

Retrieve your password

Are you sure want to unlock this post?

Are you sure want to cancel subscription?

Hospitals Look to Exclusive Arrangements

Support authors and subscribe to content

Subscribe

Related posts:

Ability Hires Two New Employees

Wounded Warrior Center Opens

Wounded Warrior Center Opens

RECENT NEWS

Get unlimited access!

O&P JOBS

Open Bionics hiring for CPO’s!

ABC Certified Prosthetist/Orthotist/ Resident – Memphis TN/Southaven MS

Part Time Certified Prosthetist

Login to your account

Reset Password

Signup to your Account

Are you sure want to unlock this post?

Are you sure want to cancel subscription?

Account Activation

The most important industry news and events delivered directly to your inbox every week.

Welcome Back!

Retrieve your password

Login to your account

Reset Password

Signup to your Account

Are you sure want to unlock this post?

Are you sure want to cancel subscription?

Account Activation