Saturday, May 31, 2003

Re-evaluate your condo Rx deals
With Lisa Smith

Q: I’ve heard that recent guidance from the OIG is critical of “condo respiratory pharmacy” arrangements, and agreements between a DME company and hospital. What did the OIG say?

A: On April 23rd, the OIG published a Special Advisory Bulletin concerning contractual joint ventures. You can find the Advisory Bulletin on the OIG’s web site at alertsandbulletins/042303SABJointVentures.pdf. In essence, the OIG criticizes arrangements in which a healthcare provider (the “Owner”) expands into a new business line by contracting with someone who is already an existing provider of that business line (the “Manager”) to assist the Owner, believing that such arrangements may constitute an illegal kickback. As specific examples of “potentially problematic contractual arrangements,” the OIG lists (1) a hospital that establishes its own DME subsidiary, but enters into a contract with an existing DME company to operate the new subsidiary; and (2) a DME company that forms its own mail-order pharmacy to provide nebulizer drugs, but has a management agreement with an existing mail order pharmacy to run the DME company’s pharmacy. In the Advisory Bulletin, the OIG lists seven characteristics of “suspect” arrangements.

These types of arrangements have been established in a variety of ways. This Special Advisory Bulletin has served to increase the risk attendant to any of these arrangements. Suppliers should re-evaluate any such arrangement in light of the information contained in the Advisory Bulletin. What is not clear at this time is the type of enforcement action the OIG intends to take concerning these arrangements.

Lisa Smith is a healthcare attorney with Brown & Fortunato at 830-896-0018.