AudiologyOnline Phone: 800-753-2160
Consult YHM Banner - December 2018

Law, Financial Arrangements, and Implications for Audiology

Law, Financial Arrangements, and Implications for Audiology
Bryan Liang, MD, JD, PhD
February 5, 2007
Share:
Introduction

The legal system is constantly evolving. With greater scrutiny being placed upon health care providers, conflict of interest, fraud, and abuse investigations are becoming more common. In particular, durable medical equipment (DME) manufacturers and associated arrangements have garnered close attention by federal regulators. Because DME sales directly implicate audiological activities, these legal developments should be of great interest to audiologists.

In addition, the potential for audiologists to monopolize the selling market of hearing aids has become of particular interest to competitors and the courts. With the aging baby-boomers approaching the threshold of retirement, the demand for hearing products and services will surely increase, and, thus, a legitimate question has been raised as to the ability of patients to obtain their own hearing aids from a wide array of vendors who do not employ an audiologist.

Recent legal developments implicate all of these issues. It is apparent that DME manufacturers are now being monitored and prosecuted for their illegal business activities , and that the law is supporting the direct purchase of hearing aids by patients, regardless of state mandates. These developments will have repercussions throughout the practice of audiology in the near term as well as in the future. Three following circumstances illustrate these very principles: the Lincare DME case, the Office of Inspector General DME Advisory Opinion, and the Missouri Board of Examiners for Hearing Instrument Specialists case.

Lincare DME

Lincare Holdings Inc. and its subsidiary Lincare Inc. ("Lincare") represent one of the largest DME suppliers in the United States (US), with $1.7 billion in assets (Lincare, 2006). Lincare focuses on the oxygen and respirator DME market.

The United States Department of Health and Human Services Office of Inspector General (OIG) concluded that during the period from 1993 to 2000, the company violated the federal Anti-kickback Statute and the Stark Self-Referral Laws. The following examples illustrate specific violations of each law.

Lincare engaged in a nationwide scheme and paid illegal kickbacks to physicians in an attempt to induce patient referrals to Lincare for DME supplies. The Anti-kickback Statute is a federal fraud and abuse law. It prohibits any knowing and willful conduct involving:

  • the solicitation, receipt, offer, or payment of any kind of remuneration

  • in return for referring an individual for services or recommending or arranging the purchase, lease, or ordering of any item

  • that may be wholly or partly paid for by a federal health care program (Liang, 2006).
OIG found that Lincare provided kickbacks to physicians using a wide array of methods. These methods included providing items such as sporting and entertainment tickets, gift certificates, rounds of golf, golf equipment, fishing trips, meals, advertising expenses, office equipment, and medical equipment. Illegal kickbacks also were paid in other forms, such as payments in supposed "consulting agreements" between Lincare and providers. These "consulting agreements" paid health care providers to be "directors" and "advisors." In addition, Lincare paid kickbacks as purported "space rental" at provider facilities and "therapy services" rendered for providers.

Second, OIG indicated that Lincare violated the Stark Self-Referral Laws. The Stark Laws prohibit physician referrals to entities in which physicians or their immediate family members have a financial interest, as well as any billing for services or products provided within the scheme (Liang, 2006). Lincare violated the Stark Laws by accepting referrals from physicians to the illegal consulting agreements, i.e., from those within the scheme. Further, Lincare's Medicare claims for equipment payment supplied through the illegal referral arrangements also violated the Stark Laws.

Under the Civil Monetary Penalties Law, OIG may impose penalties of up to $50,000 per illegal kickback and damages of up to three times the amount of the kickback. The Stark Self-Referral Laws allow OIG to impose a penalty of $15,000 for each item or service that was billed to a federal health care program associated with the prohibited self-referral, as well as penalties of up to three times the amount claimed. Both laws allow OIG to exclude a provider from participation in federal health care programs for these statutory violations.

Lincare cooperated with the OIG investigation, and the parties settled. OIG ultimately levied a $10 million civil monetary penalty, and Lincare agreed to adhere to the provisions of a five-year corporate integrity agreement. The settlement agreement is the largest ever under the OIG's civil monetary penalty authority. On announcement of the settlement agreement with Lincare, the OIG's Administrative and Remedies Branch senior counsel noted that these investigations marked the beginning of a trend throughout the healthcare market: "We are focusing not only on the DME area, but also the medical device area and the pharmaceutical area" (Thorne, 2006).

OIG Advisory Opinion

Those who carry out business transactions in the medical field may request the OIG to review business arrangements to determine if they are at risk for sanctions under the Anti-kickback Statute. A proposed arrangement by a DME company was recently submitted to the OIG for review. The OIG analysis indicated that the proposed arrangements are at risk for Anti-kickback Statute violation and potential sanctions under that law (OIG, 2006). This particular arrangement included the sale of wheelchairs and other DME, generally to DME suppliers. These suppliers then provide the DME directly to patients.

The company proposed that it would provide some of its DME suppliers with "advertising assistance and reimbursement consulting services." The "advertising assistance" was to include free advertising for the DME suppliers, paid for by the company. In addition the company agreed to pay for various advertising expenses incurred by the DME suppliers. For example, the DME supplier could develop its own advertisements, and in return, the company would reimburse the supplier for advertising expenses by way of cash or "free" DME. ,In addition, the company might advertise on behalf of the DME supplier, developing and paying for television, Internet, and print advertising material featuring the company's products.

Some of this advertising would display the DME supplier's name and contact information. Other materials would display the DME supplier's name and a toll-free telephone call center number staffed and operated by company employees who would provide callers with information about the company's products. The company would determine which DME suppliers to include in the arrangement, as well as the value of the advertising assistance based on the demographics of the supplier's market, historical market data, and projected market potential.

"Reimbursement consulting services" would include having the company provide various services free-of-charge to its suppliers, or pay for expenses that the DME supplier might otherwise pay itself. These "free" reimbursement consulting services would also include advice on general claims submission information, product coding, as well as specific assistance for product reimbursement. This latter assistance by the company to the DME supplier would include a claim review, appeal assistance for denied claims, and assessment and documentation of individual patients' medical needs and medical justification for receiving particular products to maximize reimbursement. The company also proposed to provide reimbursement training for the DME suppliers' staff.

The OIG indicated that the proposed advertising payment/reimbursement arrangement would constitute unlawful remuneration from the company to the DME suppliers in exchange for direct purchase of the company's products. In addition, it also indicated that the shared advertising for manufacturers and suppliers would create a "reverse" Anti-kickback Statute issue: the advertising feature of the arrangement could be seen as involving remuneration from the DME suppliers to the company (e.g., an agreement to generate business for the company) in exchange for free advertising.

OIG was particularly concerned with the call center in the proposed arrangement. It indicated that patients may be misled or manipulated into choosing the company's products. In particular, the OIG felt there was a significant risk of patients being mistakenly led to believe they were speaking with the DME supplier's customer service representatives, obtaining objective information about DME without bias towards the products of any one manufacturer.

The OIG also indicated that the company's arrangement for the provision of advertising assistance and reimbursement consulting services would be considered remuneration to the DME suppliers. It concluded that the arrangement would be a disguised kickback scheme, or in other words, an attempt to generate business for the company without any safeguards against fraud or abuse. OIG indicated that the proposed arrangement posed risks associated with kickbacks, including the risk of driving over utilization and increasing program costs. Further, the availability and value of the advertising assistance would be determined in a way that considered the volume or value of a DME supplier's past or expected future purchases, and would give DME suppliers an incentive to steer patients to the company's products, even if products from other manufacturers were less expensive or more appropriate. OIG also noted that the proposed arrangement could pose a substantial risk of unfair competition, because the company's provision of remuneration might encourage DME suppliers to purchase products from the company. This could lead to the potential detriment of competitor DME manufacturers that do not provide similar unlawful benefits to their customers.

Missouri Board of Examiners

Direct patient access to hearing aids and hearing aid sales is an important issue that is receiving increased attention. With rising amplification costs , there have been calls for direct patient access to these devices. Conversely, states have passed laws requiring patients to work with state-licensed audiologists to purchase hearing aids, indicating it is within the power of the state to pass such rules as a public safety and welfare issue. However, in an important federal court decision, state laws that required audiologists to fit hearing aids for patients in an attempt to prevent patients from buying aids independently was struck down by the federal 8th Circuit Court of Appeals.

In Missouri Board of Examiners for Hearing Instrument Specialists v. Hearing Help Express, Inc., (Missouri Board, 2006) Hearing Help Express, an out-of-state mail order/Internet hearing aid seller, asked the federal 8th Circuit Court of Appeals to review a lower federal district court decision. The lower court had precluded Hearing Help Express from selling hearing aids to residents of Missouri without prior audiologic fitting or testing, as required by state law.

On review of the lower court's decision, the appellate court reversed the district court's ruling. It held that the Missouri state law was invalid because it was preempted by the federal Medical Devices Amendment (MDA) to the Food, Drug & Cosmetics Act, 21 U.S.C. §360(k).

The MDA indicates that:

No State ... may establish ... any requirement -(1) which is different from, or in addition to, any requirement applicable under this chapter to the device, and (2) which relates to the safety or effectiveness of the device or to any other matter included in a requirement applicable to the device under this chapter.
Regarding hearing aids, under federal regulations implementing the MDA, an adult patient that wishes to purchase a hearing aid must either undergo an auditory evaluation or execute a signed waiver prior to being allowed to purchase it (21 C.F.R. §801.421(a)). Hence, under federal law, an auditory examination is optional prior to hearing aid purchase.

The Missouri law was in direct conflict with the federal regulations. The state law directed that "[n]o person shall (1) sell through the mails, hearing instruments without prior fitting and testing by a hearing instrument specialist." (Missouri Statute §346.110(1)). Audiological fitting and testing by a "hearing instrument specialist" (i.e., an audiologist) was mandatory under state law before a patient could purchase the device.

The federal appellate court noted that if acts which are simply permitted by federal law are made mandatory by state law, the state law requirements would be deemed "in addition to the federal requirement." Applying this principle to the Missouri state law (Missouri Statute §346.110(1)), the court held:

Since the language used in [the MDA] expressly prohibits certain types of state regulation, we ... conclude that the requirements in the Missouri statute are 'different from or in addition to' those prescribed by the MDA. The Missouri statute therefore 'interfere[s] with the execution and accomplishment of the objectives of the FDA's hearing aid regulation,' ... and must be deemed preempted by the MDA.
The federal appellate court reversed the federal district court ruling, and ordered the federal district court to enter judgment in favor of Hearing Help Express. The decision thus allows adult patients to purchase hearing aids without audiologic fitting or testing, and for companies to sell devices independently.

Discussion

It is apparent that the federal government is becoming aggressive in its investigations and in prosecutions of fraud and abuse law violators. Importantly, these fraud and abuse laws are encroaching upon medical equipment, which takes them closer to hearing aid sales and financial arrangements associated with them.

It bears noting that analysis of these arrangements—fraud and abuse prosecutions as well as OIG advisory opinions—have frowned upon "benefits" that have long been associated with the hearing aid industry and their relations with audiologists. "Free" trips, tickets, entertainment, marketing, partnerships, and other clear and cloaked financial arrangements are standard between hearing aid manufacturers and audiologists. As the field of Audiology, including audiologists and their associated practices, and hearing aid manufacturers come closer to the scrutiny of government regulators, audiologists may not just be close (and perhaps horrified) observers of these investigations and sanctions, but may be the very parties actually investigated and sanctioned. Without attention to the financial conflicts and concerns, the field may find itself inundated with OIG agents poring through files and negotiating sanctions that may not only take money away, but also the freedom to practice. More importantly, patients will be privy to this negative attention, which will likely destroy the hard-fought efforts at professionalism won by the field over the past decade.

It is apparent that the use of these hearing aid sales maneuvers and arrangements for financial gain may be over, or at least, on a downward trend. With the Missouri Board case, the federal court has spoken clearly and taken the audiologist out of any required relationship for hearing aid sales. Simply put, patients may buy, and companies may sell, hearing aids without an audiologist.

This ruling has made the audiologist's skills and knowledge a premium factor in the health care arena. Professionals generally rely upon their skills and knowledge, rather than product sales, for their primary income. Particularly in the context of questionable DME arrangements, it is incumbent upon the professional field of audiology to see the Missouri Board decision as an opportunity to work towards the focus of a professional field: better pay, direct patient access and billing, and a uniform code of ethics. Furthermore, professional organizations should support these efforts by self-policing as well as self-determination of professional activities and productivity, akin to the relative value scale almost uniformly applied to physician activities.

Overall, the legal landscape is changing for audiologists and the field of Audiology. The profession and its members must ensure that the recognition of risks and opportunities are clear so that this and future generations of professionals and patients may benefit from appropriate services and service providers.

References

Department of Health and Human Services Office of Inspector General. (2006). OIG Advisory Opinion No. 06-16. Retrieved November 29, 2006, from: oig.hhs.gov/fraud/docs/advisoryopinions/2006/AdvOpn06-16A.pdf

Liang, B.A. (2006). Law and Audiology Practice: Understanding Malpractice and Conflict of Interest Rules. Seminars in Hearing, 27(1), 48-56.

Lincare. (2006). United States Security Exchange Commission Annual 10-K filing. Retrieved November 29, 2006, from: http://investor.lincare.com/EdgarDetail.cfm?CompanyID=LNCR&CIK=882235&FID=1
145443-06-681&SID=06-00

Missouri Board of Examiners for Hearing Instrument Specialists v. Hearing Help Express, Inc., 447 F.3d 21 C.F.R. §801.421(a) (2006).

Thorne, J.A. (2006). Lincare Holdings pays $10 million to settle government allegations. BNA Health Care Fraud Report, 10, 402.
4 live webinars | January 22 + 29 | February 19 + 26 | 12:00 pm EST | Adult Perceptions of Cochlear Implants: Helping Your Patie

Bryan Liang, MD, JD, PhD

Professor and Director of the Institute of Health Law Studies at the California Western School of Law and the University of California San Diego School of Medicine in San Diego, CA

Bryan A. Liang is Professor and Director of the Institute of Health Law Studies at the California Western School of Law and the University of California San Diego School of Medicine in San Diego, CA. He received his B.S. from the Massachusetts Institute of Technology;his Ph.D. in health policy from the University of Chicago Harris School of Public Policy Studies his M.D. from Columbia University College of Physicians & Surgeons and his J.D. from Harvard Law School. His research focuses upon the interface of how law and health care practice interface, with particular attention to ethics, quality issues, and provider education. He does not have a high school diploma, which may explain a lot.



Related Courses

Insurance Basics on Cochlear Implantation and Baha: Helping Parents Negotiate the System (HOPE)
Presented by John McClanahan
Recorded Webinar
Course: #2781 Hour
No CEUs/Hours Offered
This class will provide information to educational professionals and clinicians to aid them in their advisement of parents regarding the current health insurance environment for auditory osseointegrated implants (Baha) and cochlear implants. Information about the world of health insurance and how to work with payers to obtain coverage for professional services and equipment will be presented. An update on the subject of coverage for bilateral cochlear implants will also be included.

**FOR A GENERAL CERTIFICATE OF PARTICIPATION (No CEUs) PLEASE DOWNLOAD THE "COCHLEAR CERTIFICATE HANDOUT" AFTER REGISTRATION**

20Q: Audiology to the People - Combining Technology and Connectivity for Services by Telehealth
Presented by De Wet Swanepoel, PhD
Text/Transcript
Course: #232631 Hour
This article provides an overview of telehealth, and discusses a range of topics specific to telehealth applications for audiology and hearing care, in an engaging question-and-answer format.

Infection Control: Why Audiologists Need to Care
Presented by A.U. Bankaitis, PhD, FAAA
Recorded Webinar
Course: #238081 Hour
The purpose of this course is to define infection control and outline a clear rationale as to why it must be integrated into an audiology or hearing care practice. The presentation will also focus on initial preparation for implementation of an infection control plan. The next course in this 2-part series is Infection Control: What to Do and How to Do It, that you can find in the AudiologyOnline course library.

Infection Control: What to Do and How to Do It
Presented by A.U. Bankaitis, PhD, FAAA
Recorded Webinar
Course: #238091 Hour
The purpose of this course is to outline the components of a written infection control plan for an audiology or hearing care practice. This course is designed to provide an overview of considerations in choosing appropriate infection control products, and implementing effective infection control products to ensure compliance with standards. This course is part of a 2-part series. You can find the first course, Infection Control: Why Audiologists Need to Care in the AudiologyOnline course library as a live webinar on 5/2/14. Both courses will also be recorded for on-demand viewing.

20Q: Forensic Audiology - Putting on Your Investigator's Hat
Presented by Tom Thunder, AuD, FAAA, INCE
Text/Transcript
Course: #252791 Hour
This text course provides an overview of the role of the audiologist as an expert witness, with examples from actual court cases. This article is written in an engaging Q & A format.