Stock-and-Bill: Sleeping with the Enemy?

Supply closets--also known as "stock-and-bill" and "consignment closets"--are out of the closet. The issue, which has been smoldering underground for some time and periodically heating up the OANDP-L listserve and discussions among O&P practitioners, was debated at a crowded session during the 2005 National Assembly of the American Orthotic & Prosthetic Association (AOPA). Taking the "pro" side was Joe Sansone, CEO, TMC Orthopedic, Houston, Texas. Representing the "con" was Jonathan Naft, CPO, of Geauga Rehabilitation Engineering Inc., Chardon, Ohio. Discussing legal aspects of stock-and-bill arrangements was healthcare attorney John Latsko of Schottenstein Zox & Dunn, Columbus, Ohio. Point: Why Stock-and-Bill? Since to many credentialed O&P professionals, the words "stock-and-bill" are akin to waving the proverbial red flag in front of a bull, Sansone may deserve a gold star for bravery as he tackled the subject head-on. His company, TMC Orthopedic, unabashedly offers stock-and-bill programs along with patient care by credentialed and licensed providers and other services. Sansone described stock-and-bill programs: 1) the physician's office is stocked with products at the vendor's expense; 2) the vendor's employees handle many of the aspects of maintaining products in the physician's clinic; and 3) the vendor bills third-party payers under its tax ID number. Why would some physicians prefer stock-and-bill programs to referring to O&P facilities? Sansone listed these reasons: The physician's office is forced to seek an in-network provider; The patient is inconvenienced with an extra trip to another medical office; Incorrect products may be dispensed at the O&P facilities; Patients may be subject to aggressive financial policies at O&P facilities; and O&P facilities may not be open during clinic hours. However, Sansone held out a carrot to stock-and-bill's traditional opposition, as he gave reasons why O&P facilities might consider adding stock-and-bill programs to their repertoire: Your physicians want it; It can be profitable; It can bring you new customers; It can prevent you from losing business to competitors; and It can bring you custom-bracing clients. "In a nutshell," Sansone stated, "Your competitors are taking your business by providing stock-and-bill programs. You can either save your business and offer these services, or let the larger national companies take your market share." Sansone injected his presentation with humor as he discussed some legal considerations of stock-and-bill. Sansone warned of the intricacies of paying physicians remuneration of any type and strongly advised against ever paying rent for a consignment closet arrangement. He gave the disclaimer, "I am not a lawyer!" as his PowerPoint photo changed into a cartoon monkey giving onlookers the raspberry; and as he discussed ramifications of the Anti-Kickback Statute, the screen showed a photo of him in a prison uniform. He posed the question, "Are stock-and-bills legal?" and answered, "Absolutely!" Then he asked, "Are stock-and-bills extremely difficult to manage legally?" Again, his answer: "Absolutely!" Counterpoint Naft began by asking, "How did we [credentialed O&P practitioners] get here [to the stock-and-bill issue]?" He identified three main reasons: 1) Availability of quality off-the-shelf products; 2) electronic billing; and 3) consignment items from suppliers. Stock-and-bill has risks, Naft pointed out, as he noted several areas of concern: Liability issues; Gray area with Medicare; Insurance validation and financial concerns; Financial concerns relative to non-insured and co-pay; and Professional issues. Regarding liability, Naft noted that if someone from the physician's office fits your product, you now may share some liability in case of a lawsuit. For instance, was the patient adequately instructed in the use of the product? Unlike the situation in treating patients in your own facility, you lack documentation regarding the patient's care and instruction. Naft also pointed out potential reimbursement problems with insurance companies. For instance, will the physician's office verify insurance? What about non-insured patients and discrimination policies? What about items that require pre-certification and claims that require documentation? Insurance issues can be a concern also from the physician's point of view and be a factor in the physician's decision regarding a stock-and-bill program. For instance, an online search by this reporter turned up an article in the June 2005 issue of The Physician and Sports Medicine on sports medicine practice economics by Chris Madden, MD; James G. Macintyre, MD, MPE; and Elizabeth Joy, MD. "Distribution of DME is a lucrative business," the article pointed out, and then sounded this caveat: "Physicians need to strike a balance between not violating insurance contracts if they charge patients and being reimbursed appropriately if they charge insurance companies. DME reimbursement is highly variable among insurance companies, and benefits frequently change. Thus, it can be challenging to keep up with specific coverage, and charging for DME may be difficult for physicians. Furthermore, individual insurance companies may shake hands' with specific DME suppliers, and physicians who supply DME to patients insured by these companies may unwittingly breach contracts. Finally, DME is often subject to high co-pays (which creates more billing and collection work and fees), so even if physicians are able to legitimately supply their patients with equipment, they are lucky to break even financially. "To sidestep these problems, many sports medicine physicians rent space (e.g., closet, cabinet) to DME suppliers who stock offices with requested items and bill patients separately from the physician office," the article continued. "Even with this setup, physicians should be aware of individual insurance contracts so that patients are not surprised by a large bill from a DME supplier that is not contracted with their insurance company. Physicians may want to develop waivers that clarify patients' insurance and related options. Many patients may opt to avoid hassles and further appointments with the DME supplier by signing the waiver and purchasing DME at their initial visit. Physicians should check with individual insurance companies before using waivers to ensure that doing so does not violate insurance contracts." Naft pointed out that stock-and-bills also are a gray area with Medicare, since the Centers for Medicare & Medicaid Services (CMS) considers L-Codes to inherently include the time for fitting and adjustments, which may not have been performed by the billing company. Product returns could add to the supplier's expenses. For instance, a patient may return a device that only needs a simple adjustment, yet the physician's office exchanges it for an entirely new one--or the patient may return the device because he/she simply doesn't want it. Any substantial number of returns could present a costly nuisance. Professional issues are another major consideration. Said Naft, "Our role is being practitioners and members of the clinical team. We are not DME reps!" Many, if not most, highly educated and credentialed practitioners are likely to agree, since the O&P profession has struggled long and hard to get O&P separated from DME in the eyes of Congress, government payers, private insurers, and the medical community. Legal Issues All this being said, what about the legal issues? First of all, the legal information discussed in this article is for general reader information only. Any provider considering offering a stock-and-bill program should consult a healthcare attorney for advice relative to his/her individual situation . Like Sansone, Latsko first defined stock-and-bill: Supplier consigns DMEPOS inventory owned by supplier in or near space owned or leased by a medical group practice; Consigned inventory available to medical group to prescribe and use on patients requiring DMEPOS; Supplier replaces used DMEPOS on a scheduled basis to maintain inventory; Supplier files claims for the DMEPOS with payers, including Medicare and Medicaid, from information obtained from patient in accordance with payer requirements and supplier standards; Supplier may or may not pay rental for the consignment close space where the inventory is maintained; Either the supplier (using its own employee) or an independent contractor (which may be the physician or the physician's employee) may deliver, fit, and instruct; If the physician or physician's employee delivers, fits, and instructs, the supplier may or may not pay the physician for that service. Latsko then considered four basic areas of legal issues to consider: 1) Anti-Kickback Statute; 2) Stark Law; 3) Medicare Supplier Standards; and 4) Licensure/qualifications. Anti-Kickback Statute Latsko pointed out that the Anti-Kickback Statute makes it a criminal offense knowingly and willfully to offer, pay, solicit, or receive any remuneration to induce referrals of items or services reimbursed by a federal healthcare program. The statute ascribes liability to parties on both sides of an impermissible "kickback" transaction. Remuneration includes the transfer of anything of value, in cash or-in-kind, directly or indirectly, covertly or overtly. Stark Law The Stark Law prohibits a physician from referring patients to entities with which he/she has a financial relationship for the provision of designated health services. DME and orthotics/prosthetics are designated health services. A financial relationship can consist of a compensation arrangement, an ownership interest, or an investment interest. What are the possible penalties for violation of the Anti-Kickback Statute, the Stark Law, and licensure requirements? Latsko reviewed them. Anti-Kickback violations could snag criminal penalties of triple repayment, fine and penalties up to $25,000 per violation, exclusion, interest, and/or jail time up to five years per violation. Civil penalties for Stark violations can include a refund plus $15,000 penalty per service plus minimum five-year exclusion from serving Medicare patients. Also violation of these laws could trigger qui tam (whistleblower) actions under the False Claims Act. Licensure violations could end up requiring the supplier to return reimbursement, plus facing state law sanctions for practicing without a license, along with possible criminal fraud charges. Medicare Supplier Standards Latsko reviewed Medicare Supplier Standards: Supplier Standard No. 4 : A supplier must fill orders from its own inventory, or must contract with other companies for the purchase of items necessary to fill the order. A contract to purchase inventory must contain at a minimum the signature of both parties; establish a credit limit (C.O.D. not acceptable); credit terms (net due); identification of both parties; and dates contract is effective. Supplier Standard No. 12 : A supplier must be responsible for the delivery of Medicare-covered items to beneficiaries and maintain proof of delivery. The supplier must document that it or another qualified party has at an appropriate time, provided beneficiaries with necessary information and instructions on how to use Medicare-covered items safely and effectively. Also: A supplier may contract delivery and instruction of use of items to someone; A supplier remains fully responsible for delivery and instruction; The inventory must be owned by the supplier, but delivery may be made by someone else out of the supplier's inventory; If the delivery is made by someone not qualified in the use of the product, that person may not be the one instructing in the use of the product. Rental Space: Under the Microscope In reference to possible violation of the Anti-Kickback Statutes, the Office of Inspector General (OIG) of the US Department of Health & Human Services (HHS) issued a Special Fraud Alert in February 2004 regarding rental of space in physicians' offices by persons or entities to which physicians refer. This document, which was referenced by Sansone, can be read in its entirety at http://oig.hhs.gov/authorities/docs/fraudalert.pdf "Consignment closets" set up by DMEPOS suppliers in physicians' offices were included in the alert. Stated the OIG, "The OIG is concerned that in such arrangements, the rental payments may be disguised kickbacks to the physician-landlords to induce referrals. We have received numerous credible reports that in many cases, suppliers, whose businesses depend on physicians' referrals, offer and pay rents'--either voluntarily or in response to physician's requests--that are either unnecessary or in excess of the fair market value for the space to access the physicians' potential referrals." The OIG gave the rationale for the Anti-Kickback Law: "Kickbacks can distort medical decision-making, cause overutilization, increase costs, and result in unfair competition by freezing out competitors who are unwilling to pay kickbacks. Kickbacks also can adversely affect the quality of patient care by encouraging physicians to order services or recommend supplies based on profit rather than the patients' best medical interests." The OIG outlines three areas of questionable rental arrangements: The appropriateness of rental agreements; The rental amounts; and Time and space considerations. "The threshold inquiry when examining rental payments is whether payment for rent is appropriate at all," said the OIG. "Payments of rent' for space that traditionally has been provided for free or for a nominal charge as an accommodation between the parties for the benefit of the physicians' patients, such as consignment closets for DMEPOS, may be disguised kickbacks." The statement continued, "Rental amounts should be at fair market value, be fixed in advance, and not take into account, directly or indirectly, the volume or value of referrals or other business generated between the parties." Regarding time and space considerations, the OIG said, "Suppliers should only rent premises of a size and for a time that is reasonable and necessary for a commercially reasonable business purpose of the supplier. Rental of space that is in excess of suppliers' needs creates a presumption that the payments may be a pretext for giving money to physicians for their referrals." The fraud alert noted that it does not address the appropriateness of consignment closet arrangements under HCFA's [Health Care Financing Administration, the former name for the Centers for Medicare & Medicaid Services (CMS)] DMEPOS supplier standards, and added "The interpretation of the DMEPOS supplier standards is a matter under HCFA's jurisdiction." Sansone referenced a document from CMS' National Supplier Clearinghouse Supplier Audit and Compliance Unit: "Medicare has&recently been notified that some suppliers [of DMEPOS] are leaving these items in physicians' offices and asking doctors to dispense them to their patients. This practice is not permissible. "DMEPOS suppliers receive their provider numbers from the National Supplier Clearinghouse (NSC). The NSC requires all suppliers to abide by a set of standards. One of these standards clearly states that "the supplier&is responsible for delivery of Medicare-covered items to Medicare beneficiaries&" When a physician dispenses DMEPOS directly to a Medicare beneficiary, he/she is acting as a de facto DMEPOS supplier without the appropriate provider numbers. The supplier also is not living up to his/her commitment under the NSC's supplier standards." Of course, one way to avoid this problem is for the supplier to simply not have a rental arrangement with the physician. Regarding consignment closets, Sansone noted a statement from healthcare attorney Jeff Baird, Brown & Fortunato, Amarillo, Texas, quoted in an article by Mike Moran in the June 2002 issue of HME News . Baird provided three guiding principles to aid suppliers in avoiding problems with the Anti-Kickback Law: 1) Don't pay rent for the consignment closet; 2) Referral sources cannot make money off a consignment closet arrangement; and 3) The DME supplier informs the doctor in writing or verbally that patient choice must be maintained. Should you as an O&P facility owner, consider adding stock-and-bill to your services? Sansone presented several reasons why stock-and-bill arrangements could be good for O&P, but acknowledged the legal complexities involved. In concluding his presentation, Naft summed up succinctly: "Avoid the program." He then added, "[If you do decide to utilize stock-and-bill programs,] clearly understand the risks." Only you, as a facility owner and O&P professional, can decide.

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