Legal: Don't run afoul of supplier standards

Q. What are some of the rules subcontractors must follow?
Friday, August 23, 2013

A. For the past several months, DME suppliers have been calling me with questions concerning the interplay between contractors and subcontractors in Round 2 of the competitive bidding program (CBP). First and foremost, it is important to point out that subcontracting is not a concept that is unique to the CBP; rather, subcontracting for all DME suppliers is governed by Chapter 42 of the Code of Federal Regulations, Section 424.57 and the supplier standards, regardless of whether the DME supplier is involved in the CBP. Second, the rules and regulations governing subcontracting are broad and opaque, leaving room for interpretation. This article discusses two common mistakes contractors and subcontractors make when performing services under a subcontract agreement. 

A subcontractor should not refer to or recommend a contractor to a referral source. If a subcontractor receives an order for a DME item that the subcontractor is prohibited from providing under the CBP, the subcontractor should not unilaterally refer the DME item to a contractor with whom the subcontractor has a financial relationship. This is a violation of the supplier standards. Instead, the subcontractor should notify the referral source that the subcontractor is unable to fulfill the order, and tell the referral source to send the order directly to a CBP contract supplier. The subcontractor may inform the referral source that the subcontractor is acting as a subcontractor for a particular contractor. However, the subcontractor should not recommend, encourage or market on behalf of the contractor to the referral source—otherwise, a kickback violation may occur.  

A subcontractor should not perform any services without receiving notification from the contractor. A subcontractor should not perform any service unless and until the subcontractor receives notification from the contractor to perform the service. For example, a subcontractor should not provide a replacement CPAP mask to a patient even if the patient calls the subcontractor to request one. Instead, the subcontractor should inform the patient to contact the contractor, who will then notify the subcontractor to provide a replacement mask to the patient.

Edward Vishnevetsky is an associate with Munsch Hardt Knopf & Harr. Reach him at or 214-855-7546.