Subcontracting? Don't forget anti-kickback statutes

Sunday, June 8, 2008

YARMOUTH, Maine - Just because CMS has given the industry little guidance about subcontracting for national competitive bidding, doesn't mean contract providers have free reign to craft any type of agreement they want, industry attorneys say.

Contract providers, attorneys point out, must still comply with anti-kickback statutes.

"There's an awful lot of subcontracting interest and activity, and I expect that's going to result in a lot of subcontracts," said Neil Caesar, president of the Health Law Center in Greenville, S.C. "How many of those subcontracts will stand to scrutiny? I can't say. How many of them will be operated in a safe manner? I can't say."

Industry attorneys have seen contract providers scramble to form subcontracting agreements leading up to competitive bidding's July 1 start. In most cases, contract providers seek to fill gaps in their geographical coverage or product expertise.

To avoid kickback allegations, contractors should make sure there's a "true division of responsibility and risk" in their subcontracting agreements, said Jeff Baird, a healthcare attorney with Brown & Fortunato in Amarillo, Texas.

"The contractor can't just say to the subcontractor, 'Well shoot, these are your patients--you have the expertise, you have the inventory--so you just handle it, and I'll bill for it and pay you 92%,'" he said. "You can't do that. That's a kickback and the government says you can't do that."

This is how Baird envisions subcontracting: The contractor places inventory with the subcontractor. The contractor takes calls, obtains appropriate documentation and instructs the subcontractor to deliver product to a beneficiary's home. The contractor then bills Medicare for the product and pays the subcontractor.

"Essentially, the subcontractor's responsibility is to be a set-up, delivery service," he said.

Industry attorneys advise contractors to pay subcontractors by fee not percentage.

"A contractor may be able to demonstrate that 80% represents a fair fee to the subcontractor, but it's easier and safer to just state a fee," Caesar said. "There are a lot of ways to do that, such as tying services into equipment for a flat fee. Whatever the fee, it has to be reasonable and not influenced by referral potential."

Industry attorneys also advised contractors to have provisions in place for monitoring subcontractors.

"They are their brother's keeper," Caesar said.