Direct-to-Consumer Healthcare Model: Opportunities and Legal Risks for Suppliers

1. Direct-to-Consumer Healthcare Model: Opportunities and Legal Risks for Suppliers Mary Ellen Conway (US MED) Juliet M. McBride (King & Spalding)

2. Please Complete Your Evaluation Everyone should have received an evaluation form upon entering the session. Please complete evaluation form and turn in to room monitor as you exit the session. Or, you can complete your evaluation in the mobile app. Locate the session in the app and tap on the clipboard icon to begin the survey. Please help us keep the Medtrade Spring Education sessions the best in the industry by completing an evaluation for every session you attend! Your feedback is very valuable to us and will be used in planning future Medtrade Spring events! Connect with us on Social Media Twitter: @MedtradeConnect Instagram: @MedtradeConnect Facebook: facebook.com/medtrade #MedtradeSpring19

3. Introduction

4. Direct to Consumer (DTC) Model for Suppliers – Overview • Legal Landscape • Common Risk Areas • Enforcement Agenda

5. DTC Model for Suppliers - Overview

6. Encounter DTC Model Overview Patient Physician DMEPOS Order Supplier Payer $$$

7. Oxygen • Catheters • Wound Care Products • Negative Pressure Wound Therapy Current Products in DTC

8. Manufacturers going DTC must adhere to the same requirements as suppliers • Reimbursement • Medicare • Medicaid • Commercial payers • Self-pay • Other • Legal Landscape • Billing Manufacturers

9. Compared to other types of claims, DMEPOS claims result in a high rate of allegedly “improper payments” (CERT data) Scrutiny of DMEPOS Suppliers

10. State Attorneys GeneralEnforce state kickback, false claims acts, and consumer protection laws in their respective geographical jurisdictions that often mirror the federal laws Department of Justice (DOJ) Investigate and prosecute violations of the AKL and civil violations of the federal False Claims Act Overview of Enforcement Landscape Overlapping regulatory and enforcement jurisdiction Office of Inspector General (OIG)Safeguard federal heath care programs, develop regulations and guidance, investigate AKSand False Claims Act violations, and have exclusions authority Centers for Medicare and Medicaid Services (CMS) Authority over the Stark Law and Sunshine Act, including developing regulations and investigating and enforcing these laws

11. Examples of Enforcement Action

12. Legal Landscape

13. Applicable Laws and Guidance • Fraud and Abuse: Anti-Kickback Statute, Civil Monetary Penalty Law, Stark Self-Referral Law, False Claims Act, and 60-Day Repayment Rule • HIPAA • Food, Drug & Cosmetic Act • Compliance Risk Areas for DMEPOS Suppliers • Accreditation • Quality Standards • Supplier Standards • Billing Requirements • Required Documentation • Competitive Bidding (on hold now) • Enforcement • Industry Enforcement Landscape • Industry Guidance & Resources Legal Landscape

14. Principal Fraud and Abuse Authorities Federal Health Care Program Anti-Kickback Statute (AKS) Civil Monetary Penalties Law (CMPL) Stark Physician Self-Referral Law Federal False Claims Act (FCA) 60-Day Repayment Rule HIPAA Food, Drug & Cosmetic Act Applicable laws

15. Anti-Kickback Statute Basic Prohibition: • Unlawful to knowingly and willfully (intent) pay (or offer) or acceptremuneration (anything of value) to induce another to: • refer Medicare/Medicaid program patients or other federal health care program patients or business • purchase or order covered items or services • arrange for others to make such referrals/purchases/orders • recommend that others make such referrals/purchases/orders Provider Purchase product Lunch, gift, discount Supplier

16. Determining whether a proposed arrangement implicates, violates, and/or poses a material risk of program abuse is complex and nuanced Four key steps include: (1) Remuneration (2) Intent/induce prohibited conduct (3) Safe harbors (4) Risk assessment (policy objectives) Anti-Kickback Statute

17. Anti-Kickback Statute - Penalties Possible Sanctions: • Criminal: five years imprisonment, $25,000 fine per violation, and/or mandatory exclusion • Civil: $50,000 CMP per violation, up to treble damages, and/or permissive exclusion • Collateral: potential False Claims Act liability ($11,000 per claim, up to treble damages, and payments to private whistleblowers)

18. Beneficiary Inducement Prohibition The prohibition on beneficiary inducement is located within the CMPL and makes it unlawful for a person to: • Offer or transfer remuneration (anything of value) to any individual who is eligible for Medicare benefits or eligible for benefits under a state health care program • if that person knows, or should know, (intent) that such remuneration is likely to influence the beneficiary to order or receive any item or service for which payment may be made by a federal or state health care program. • The analysis required to identify a violation of this prohibition is generally the same analysis that is required by the AKS except that the beneficiary is receiving the remuneration rather than a covered entity.

19. Beneficiary Inducement Prohibition Exceptions to the prohibition on beneficiary inducement have been created through the statute and implementing regulations. Some of those exceptions include: • The nominal value exception • Some waivers of copayment and deductibles (generally for completed and vetted Financial Hardship Form) • Providing assistance to the needy • Transfer of coupons or rebates from a retailer • Any practice permitted by a safe harbor or statutory exception under the AKS

20. No patient referrals Physician DHS Entity Stark Law Financial relationship with no exception • Stark Law prohibits a physician from: • Referring Medicare or Medicaid beneficiaries to an entity for any designated health service (DHS) if the physician or an immediate family member has a direct or indirect financial relationship with the entity receiving the referral unless an exception applies. • The Stark Law also prohibits the DHS entity from presenting or causing to be presented claims to Medicare (or billing another individual, entity, or third party payer) for those referred services.

21. Stark Law Analysis Analysis to determine if there is a violation under the Stark Self-Referral Law can be broken down into five steps: (1) Physician referrals (2) Designated health service (3) Entity (4) Financial relationships (5) Exceptions *Note that the Stark Law is a strict liability law.

22. Civil False Claims Act • The Civil False Claims Act: • Makes it illegal to submit claims for payment to Medicare or Medicaid that the submitting entity knows or should know are false or fraudulent • The Act includes a qui tam (whistleblower) provision that allows a private individual to file a lawsuit on behalf of the US and entitles that whistleblower to a percentage of any recoveries

23. Civil False Claims Act • Claims for reimbursement submitted in violation of the AKS automatically constitute false claims for purposes of the False Claims Act • Can be used to increase value of settlements: • 3 times the amount of damages which the government sustains as a result of the submission of false claims • Per claim penalty of $10,781-$21,563 • Possible (permissive) exclusion from federal health care programs

24. 60-Day Overpayment Rule • A person that has received an overpayment under Medicare Part A or B must report and return the funds and notify HHS or the Medicare contractor of the reason for the overpayment within 60 days of it being identified or by the date that any corresponding cost report is due • “any overpayment retained by a person after the deadline for reporting and returning the overpayment . . . is an obligation . . . for purposes of [the False Claims Act]. • Thus, failing to return an overpayment creates liability under the reverse false claims provision of the False Claims Act.

25. Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) Amended by the HITECH Act (Health Information Technology for Economic and Clinical Health Act) Three main Rules: Privacy, Security, Breach Notification Applies to Covered Entities and Business Associates Business Associates conduct certain covered functions on behalf of, or provide specified services to, covered entities Business Associate directly subject to various aspects of HIPAA In addition, Covered Entities mustcontractually bind business associates to certain aspects of the HIPAA rules • Covered Entities • DME Suppliers • Health Plans • Health care providers • Business Associates • Conduct service on behalf of CEs • Involving PHI PHI HIPAA

26. Compliance Risk Areas

27. Accreditation • Quality Standards • Billing • 30 SupplierStandards • Required Documentation Compliance Risk Areas for DMEPOS Suppliers

28. States increasingly are adopting licensure requirements for DMEPOS suppliers • Recent example: Georgia • Failure to comply with licensure requirements puts the supplier out of compliance with Medicare standards • What to do in case of a state licensure gap? State Licensure Issues

29. Surveyed for compliance by both the NSC and your Accreditor 7. A supplier must maintain a physical facility on an appropriate site and must maintain a visible sign with posted hours of operation. The location must be accessible to the public and staffed during posted hours of business. 9. A supplier must maintain a primary business telephone listed under the name of the business in a local directory or a toll free number available through directory assistance. The exclusive use of a beeper, answering machine, answering service or cell phone during posted business hours is prohibited. 19. A supplier must have a complaint resolution protocol established to address beneficiary complaints that relate to these standards. A record of these complaints must be maintained at the physical facility. 20. Complaint records must include the name, address, telephone number and health insurance claim number of the beneficiary; a summary of the complaint; and any actions taken to resolve it. 29. A supplier is prohibited from sharing a practice location with other Medicare providers and suppliers. 30. A supplier must remain open to the public for a minimum of 30 hours per week except physicians (as defined in section 1848 (j) (3) of the Act) or physical and occupational therapists or a DMEPOS supplier working with custom made orthotics and prosthetics. Common Issues with Standards on Survey

30. DMEPOS suppliers have the option to disclose the following statement in order to satisfy the requirement outlined in Supplier Standard 16 (disclosure of the standards to each Medicare beneficiary) in lieu of providing a paper copy of the standards to the beneficiary: The products and/or services provided to you by the supplier are subject to the  Supplier Standards contained in the Federal regulations shown at 42 Code of Federal Regulations Section 424.57(c). These standards concern business professional and operational matters (e.g., honoring warranties and hours of operation). The full text of these standards can be obtained at http://ecfr.gpoaccess.gov. We will furnish you a written copy of these standards upon request. Alternative for Supplier Standard #16

31. Before submitting a claim for reimbursement, the supplier must have on file: • Written Order (WOPD) • If Applicable: • Dispensing Order • Documentation of Medical Necessity • The Certificate of Medical Necessity (CMN) • The DME Information Form (DIF) • The supplier must also maintain the following records (for those applicable products): • Proof of Delivery Documentation • Face-to-Face Encounter Documentation Required Documentation

32. Documentation does not meet medical necessity • Example: No clinical documentation for the period prior to the service to support the diagnosis billed or need for the item • Coverage criteria not met • Example: No documentation of a specific clinical examination Documentation Deficiencies

33. Invalid proof of delivery • Examples: • The shipping date and service date differ • No confirmed delivery date in documentation • Invalid physician order • Examples: • No signature • No start date or signature date • Corrections in the form without initialing and dating • Item ordered and item supplied differ Documentation Deficiencies

34. Changes of ownership • Structures for changes of ownership • Consequences of a change of ownership • Common legal issues CHOW Consideration

35. Enforcement

36. The OIG Work Plan currently notes the following areas of enforcement focus pertaining to the DMEPOS industry: • “Payments for Medicare Services, Supplies, and DMEPOS Referred or Ordered by Physicians-Compliance” (pertaining to ordering provider’s eligibility to order services) • “Orthotic Braces – Supplier Compliance with Payment Requirements” Office of Inspector General Audits

37. The OIG’s Office of Audit Services also conducts independent evaluations that are helpful in identifying potential risk areas and subjects that the OIG may be focusing on, for example: • Incomplete and Inaccurate Licensure Data Allowed Some Suppliers in Round 2 of the Durable Medical Equipment Competitive Bidding Program That Did Not Have Required Licenses (A-05-13-00047) • Claim Modifier Did Not Prevent Medicare From Paying Millions in Unallowable Claims for Selected Durable Medical Equipment (A-04-10-04004) Office of Inspector General Audits

38. Auditors (Medicare compliance): • Medicare Administrative Contractors (MACs) • Recovery Audit Contractors (RACs) • Unified Program Integrity Contractors (UPICs) • Comprehensive Error Rate Testing (CERT) by CMS • Supplemental Medical Review Contractor (SMRC) Other Auditors

39. Benefits of Reaching Out FOR ASSISTANCE

40. Use of different partners in different stages of appeal • Consultant • At the onset of the appeal (redetermination and reconsideration), the focus is commonly on the collection of clinical documentation, making a consultant particularly valuable • Obtaining documentation from prescribers • Obtaining published articles that may be relevant Resources / Partners Available

41. Benefits of partnering with a law firm • Fluency in the applicable legal standards, knowledge of industry practices • Familiarity with appeals process, both procedurally and with respect to successful arguments • Relationships with regulatory agencies and knowledge of enforcement activities • Maintaining privilege • Ensuring all the necessary evidence is submitted at reconsideration • At the ALJ hearing stage, the case is reviewed de novo, and legal arguments are likely to be most successful Resources / Partners Available

42. Questions

43. Please Complete Your Evaluation Everyone should have received an evaluation form upon entering the session. Please complete evaluation form and turn in to room monitor as you exit the session. Or, you can complete your evaluation in the mobile app. Locate the session in the app and tap on the clipboard icon to begin the survey. Please help us keep the Medtrade Spring Education sessions the best in the industry by completing an evaluation for every session you attend! Your feedback is very valuable to us and will be used in planning future Medtrade Spring events! Connect with us on Social Media Twitter: @MedtradeConnect Instagram: @MedtradeConnect Facebook: facebook.com/medtrade #MedtradeSpring19

44. Anti-Kickback Statute Analysis • Stark Law Analysis • Quality Standards/Accreditation • Supplier Standards (1-30) • Food, Drug and Cosmetic Act - For Manufacturers Reference Materials

45. Anti-Kickback Statute - Analysis Step One: Remuneration • Does proposed arrangement provide for “remuneration” of any kind to flow between the parties? • Anything of value • Cash or gifts (e.g., iPad) • Discounts/Rebates • Free or Discounted Products, Services, Space, Equipment • Loaned equipment • Meals • Product training • Reimbursement support services • No “de minimis” exception for minimal amounts Provider Remuneration? Supplier

46. Remuneration Intent? Anti-Kickback Statute - Analysis Step Two: Inducement/Intent • Does remuneration implicate AKS? • Is remuneration intended to induce recipient to engage in conduct that is prohibited by AKS? • AKS has been interpreted to cover any arrangement where “one purpose” of the remuneration was to induce prohibited conduct. Provider Supplier

47. Step Three: Safe Harbors If there is “remuneration” (Step One), and one purpose of this remuneration is or may be “intended” to “induce” prohibited conduct (Step Two), can the remuneration be protected by a statutory “exception” or regulatory “safe harbor”? Protect certain common arrangements, such as (1) employment arrangements, (2) service contracts, (3) discounts, and (4) warranties, among others. Anti-Kickback Statute - Analysis

48. Step Four: Risk Factors Any indicia of a quid pro quo? Does arrangement involve FMV exchange? How close is arrangement to being safe harbored (one of seven v. six of seven)? Which safe harbor requirements are not met (critical/substantive v. technical)? To what extent are AKS policy objectives implicated? Has OIG issued any guidance (fraud alerts, Advisory Opinions, etc.)? Is remuneration addressed in AdvaMed Code? What is current enforcement environment? What is organization’s risk tolerance level and current status? How robust and effective is the Company’s Compliance Program? Anti-Kickback Statute - Analysis

49. Anti-Kickback Statute - AdvaMed • Voluntary Code of Conduct • Addresses 10 common remunerative arrangement (1) Company Conducted Product Training and Education (2) Supporting Third Party Educational Conferences (3) Sales, Promotional and Business Meetings (4) Consulting Arrangements with HCPs (5) Prohibition on Entertainment (6) Meals associated with HCP Interactions (7) Educational Items; Gift Prohibition (8) Coverage, Reimbursement and Health Economics Information (9) Research and Educational Grants and Charitable Donations (10) Demonstration and Evaluation Products • Provides useful benchmarks designed to promote adherence with AKS

50. Stark Law Analysis Step One: Physician Referrals • Is there a “physician” who is making a “referral”? • A physician includes: • MD, DO, DDS, DMD, DPM, OD, DC • A physician’s immediate family members include: • Husband, wife, birth or adoptive parent, child, sibling, stepparent, stepchild, stepbrother, stepsister, father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, grandparent, grandchild, spouse of grandparent, spouse of grandchild • What is a referral? • Anything “reasonably intended” to result in patient receiving service from entity • Need not be in writing or absolute