OIG questions DME joint ventures

Sunday, April 27, 2003

April 28, 2003

WASHINGTON - The OIG called into question last week the validity of many joint ventures that HMEs often enter into with hospitals and pharmacy management companies, say industry sources.

The OIG’s Special Advisory Bulletin focused on certain contractual agreements that at their core use a combination of shell entities and subcontracting arrangements to disguise illegal kickbacks, according to the OIG.

The OIG provided the following examples of suspect joint ventures:

- A hospital establishes a subsidiary to provide DME. The new subsidiary enters into a contract with an existing DME to operate the new subsidiary and to provide the new subsidiary with DME inventory.

- A mail order pharmacy suggests that a DME form its own mail order pharmacy to provide nebulizer drugs. Through a management agreement, the mail order pharmacy runs the DME’s pharmacy, providing personnel, equipment and space. The existing mail order pharmacy also sells all nebulizer drugs to the DME’s pharmacy for inventory.

Joint ventures are more likely to escape OIG scrutiny if both sides share in the risk. That is, they both contribute substantial money and other resources in setting up and running the subsidiary. If one partner contributes the bulk of the resources, it looks more like a cash for referral exchange, which violates anti-kickback laws, say industry sources.