The Office of Inspector General (OIG) concluded in Advisory Opinion No. 06-02 issued on March 21, 2006 that two programs proposed by a durable medical equipment (DME) manufacturer to physician practices would create a significant risk of fraud and abuse. The OIG also commented that it could impose administrative sanctions on the physician practices and DME manufacturer under the Federal anti-kickback law and other federal statutes and regulations if these proposed programs were utilized.

Besides the specific programs addressed in this advisory opinion, there are several aspects addressed by the OIG that are included in other types of arrangements between physician practices and other providers or suppliers. These aspects include: (1) arrangements or services that are only for patients who are not beneficiaries of any Federal health care program (i.e., non-Federal patients); (2) leasing and/or providing personnel to health care providers for assistance in a provider’s office; (3) arrangements that are provide turn-key management and related services to physician practices; and (4) agreements between DME suppliers and physician practices such as orthopedic practices.

In this advisory opinion, the OIG described two programs that would be offered by a DME manufacturer to physician practices for the sale and distribution of DME items and orthotics to the physician’s patients. One program would only involve items and related services furnished to non-Federal health care program patients. The other program would cover items and services furnished to both non-Federal and Federal health care program patients.

Under one program, a physician practice would become a DME supplier and the practice would obtain DME and orthotic products under a pre-arranged fee schedule from the DME manufacturer. Pursuant to a written agreement for this program, the DME manufacturer would: (1) rent continuous passive motion devices (CPM devices) based on a fee schedule to physician practices on an as-needed basis; (2) provide physician practices with a technician for a fixed monthly fee who would fit non-Federal program patients for DME and orthotics, complete in-home set up of equipment, and obtain insurance payor pre-certification; and (3) provide billing and collection services to physician practices for a fixed monthly fee for DME items.

Under the second program, the DME manufacturer would furnish DME and orthotic products to a physician practice’s Federal and non-Federal patients, and the DME manufacturer would bill payors under its own provider number. Three important aspects of the second program are that the DME manufacturer would: (1) rent product storage space from a practice for a fixed monthly fee; (2) pay the physician practice a percentage of revenues generated from the sale and rental of DME to the practices patients who are not Federal health care program beneficiaries in return for the practice to provide inventory management and storage of the DME products; and (3) provide a trained technician for a fixed monthly fee to fit patients with DME products and obtain payor pre-certification, and manage product inventory.

An interesting aspect that physicians and other providers should compare to their own arrangements is that the OIG considered the components of the programs that carved out items for Federal health care program patients and the payment to practices for management services otherwise provided by the DME manufacturer to potentially create remuneration for a practice to refer Federal health care patients to the DME manufacturer.

This advisory opinion is available on the OIG’s web site at