by Elizabeth E. Hogue, Esq.

Preferred Provider Agreements as Referral Source

In a highly competitive marketplace, home care providers of all types, including home health agencies, hospices, private duty/home care companies and home medical equipment (HME) suppliers are looking for a “leg up,” especially for patients with certain types of payors. Providers may be able to cement important referral sources using Preferred Provider Agreements. For example, a provider may wish to approach an assisted living facility (ALF) to see if it is interested in a preferred provider relationship. If so, then management of the ALF may want to sign a Preferred Provider Agreement in order to further a relationship with this provider.

Problems with Preferred Provider Agreements

The anti-kickback statute may apply if providers involved in referral arrangements receive any type of federal or state funds, including, but not limited to, payments for services provided from Medicaid waiver programs, managed Medicaid programs, the Tri-Care Program, the VA, or any other state or federal programs. The anti-kickback statute generally says that anyone who either offers to give or actually gives anyone anything in order to induce referrals has engaged in criminal conduct. There are, however, several exceptions to this statute that may be applicable.

How to Assess Your Preferred Provider Agreements

Providers should ask two crucial questions about the application of the anti-kickback statute to referral arrangements:

  1. Is there a kickback or rebate?
  2. If so, is there an exception or “safe harbor” that permits the arrangement even though it would otherwise violate the statute?

 kickback or rebate occurs when a provider receives referrals from another provider and something flows back to the referral source from the provider who received referrals. If there is a kickback or rebate, providers must automatically ask the second question listed above. If they fail to utilize applicable exceptions, they may miss out on useful marketing strategies that are likely to result in numerous referrals.

With regard to Preferred Provider Agreements, however, it is important to note that they can be structured so that no money or anything of value changes hands between providers and the other party involved. If so, there is no kickback or rebate.

Patient Choice

The parties to Preferred Provider Agreements must also make certain that they honor patients’ choices of providers. There are a number of sources of patients’ right to freedom of choice of providers applicable to preferred provider arrangements, including:

  • Court decisions or the common law says that all patients – regardless of payor source, type of care rendered, or types of providers involved – have the right to control the care they receive and who provides it.
  • A federal statute that guarantees all Medicare and Medicaid patients the right to freedom of choice of providers. This statute may be applicable if either party receives reimbursement from the Medicare or Medicaid Programs.

When patients express preferences for certain providers, however, their choices must be honored despite the existence of Preferred Provider Agreements. The agreement of the parties to honor patients’ choices should be included in Preferred Provider Agreements.

Final Thoughts

The market to provide services to patients in their homes is expanding, but the competition for referrals among providers seems to be extremely fierce. Providers are well advised to utilize Preferred Provider Agreements to help them to increase and/or maintain referrals in order to help ensure profitability.

©2024 Elizabeth E. Hogue, Esq. All rights reserved.

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