Debunking the Myths of Ambulance Restocking Programs

As they say, what goes around comes around. Twelve years ago, after hospitals expressed concern that resupplying ambulance services with medications and supplies could be an illegal kickback, the federal government established a “safe harbor” to expressly permit the practice. But recently, it seems more hospitals are shutting down their ambulance restocking programs, claiming they violate the law. In reality, hospitals may be trying to reduce costs by using the law as an excuse to stop restocking ambulances. The truth is that restocking programs can be operated in a perfectly legal manner. Hospitals may simply choose to stop these to cut costs–that’s their right–but they shouldn’t be blaming the law.

Ambulance restocking programs can raise concerns under the federal anti-kickback statute (AKS) because the receiving hospital is giving something of value (such as disposable medical supplies or clean linens) to a potential source of patient referrals. The AKS can be implicated when patients insured by Medicare, Medicaid or other federal healthcare programs are delivered to resupplying hospitals by ambulance services. It’s unlawful under the AKS to provide any type of remuneration–which could theoretically include ambulance supplies restocked by a hospital–if the intent is to induce the referral of federal healthcare patients. However, ambulance restocking programs are expressly permitted under federal regulations that we’ll discuss in more detail later.

The Office of Inspector General (OIG) for the Department of Health and Human Services has issued several advisory opinions on the restocking issue. Although one such opinion issued in 1997 concluded that restocking programs could violate the AKS, that was before the OIG issued its safe harbor regulation. Since then, the OIG apparently rethought the issue, and published several subsequent “favorable” opinions.

In Advisory Opinion 98-7 (issued in 1998), the OIG concluded that the restocking arrangement was “likely to have a positive impact on the quality of patient care. By providing a mechanism to ensure ambulances are fully stocked, the arrangement is likely to foster fast, efficient and effective prehospital emergency care. This significant community benefit persuades us that the arrangement poses minimal risk of fraud and abuse under the a
nti-kickback statute.”

Then in Advisory Opinion 00-09 (issued in 2000), the OIG found that the proposed arrangement is “designed to improve and enhance the delivery of EMS for the benefit of the entire community and will not be undertaken solely for the benefit of a single provider or group of providers. Regional and local programs to improve and coordinate the delivery of quality EMS are consistent with longstanding Federal policy.”

The OIG has also approved restocking arrangements in Advisory Opinions 98-13, 98-14, 02-02 and 02-03. Even though the OIG has typically found restocking arrangements to be acceptable, the one “unfavorable” advisory opinion in 1997 caused hospitals some concern, giving them a reason to avoid restocking arrangements, even though the OIG has subsequently and repeatedly pronounced ambulance restocking programs are legal and even beneficial.

Certainly the potential exists for poorly structured restocking programs to violate the AKS. For example, in the absence of appropriate safeguards, a hospital could use the promise of restocked supplies in order to persuade an ambulance crew to bring patients to its hospital instead of competing hospitals.

Another AKS violation would occur if a hospital offered all ambulances new monitor defibrillators so they would bring more patients to them to curtail losing patients to a competing facility. In that case, there would be a link between the “freebies” and patient referrals, and that would pose a kickback problem.

Therefore, the AKS may potentially be implicated in ambulance resupply programs that have an improper purpose or intent, but the common, ethical programs like those that resupply disposable supplies, drugs, or clean linens, generally don’t raise those legal concerns.

Hospitals may be trying to reduce costs by using their interpretation of the law as an excuse to stop restocking ambulances,

Hospitals may be trying to reduce costs by using their interpretation of the law as an excuse to stop restocking ambulances, but exchange programs can be operated in a perfectly legal manner. Photo Doug Wilson

A “˜Safe Harbor’ on the Ocean of Concern
After issuing several favorable advisory opinions, the OIG published a “safe harbor” regulation for ambulance restocking that became effective Jan. 3, 2002. It covers the replenishing of drugs, linens and supplies by hospitals to ambulance services. Even though the OIG established this safe harbor, failure to strictly satisfy every element doesn’t mean an arrangement violates the law.

A safe harbor is a voluntary regulation, not a mandatory standard of conduct. A safe harbor regulation merely offers protection to arrangements that strictly satisfy all of the elements of the safe harbor. In other words, strictly meeting all of the elements of a safe harbor guarantees protection of a particular arrangement, but the failure to satisfy a safe harbor doesn’t mean the arrangement is illegal–especially since the AKS is an intent-based statute, meaning a court would have to find the intent of a restocking arrangement was to induce the referral of patients to their hospital.

The safe harbor regulation permits the restocking of only ambulances used for emergencies; it doesn’t permit restocking of strictly non-emergency ambulances. The OIG has defined an “emergency” ambulance as one that responds to emergencies on the average of three times per week. But that average can be measured over any reasonable time period, and doesn’t mean the ambulance has to run exactly three emergency calls a week. For example, if the ambulance is used 12 times during the month, the standard will be met.

So restocking for non-emergency calls is permitted as long as the ambulance is also used for emergency runs. It’s not necessary for restocking to be limited to the replacement of items used on emergency calls, as long as the ambulance is an emergency ambulance under the “three times per week” standard. Restocking arrangements for ambulance providers that only perform routine, non-emergency transports or don’t meet the “three run” standard for emergencies would be evaluated on a “case-by-case basis” according to the OIG.

First responder programs are also eligible for restocking. The safe harbor accommodates arrangements by which personnel respond, but aren’t transporting the patient, and allows for the transporting entity to restock the first responder service.

It isn’t required for all ambulance providers in a service area to participate in order for an arrangement to fit the safe harbor. The OIG intended that a protected restocking arrangement be open to the voluntary participation of all ambulance providers and receiving facilities in the area.

These additional standards apply under the restocking safe harbor:

1. Under no circumstances may both the hospital and the ambulance provider bill for the replenished items. The hospital should bill or otherwise seek reimbursement directly or indirectly from any federal healthcare program or other party for the restocked items only to the extent permitted under the payer’s rules and regulations. Under the Medicare ambulance fee schedule, supplies and drugs are included in the base rate and aren’t separately billable. Ambulance suppliers should consult with their payer to confirm appropriate billing.

2. All parties must otherwise comply with all applicable federal healthcare program payment and coverage requirements.

3. The ambulance provider or the hospital must maintain records of the restocked drugs and supplies. The records requirement may be met with a patient care report as long as it documents the restocked drugs and medical supplies, and is provided to the receiving facility within a reasonable period of time. The records are to be maintained for at least five years. There’s no requirement to document the exchange of linens, as the OIG recognizes this is a prevalent practice in the ambulance industry. If they’re part of a restocking arrangement, it’ll be presumed that linens are exchanged on a one-for-one basis.

4. The restocking arrangement must not take the volume or value of patient referrals into account.

5. The restocking program must meet the requirements for one of the following:

General replenishing–where the receiving facility only restocks ambulance providers on an equal basis within certain categories (e.g., nonprofit services, those that don’t charge for their services, etc.). This is also known as free or discounted restocking and allows hospitals to exclude some categories of ambulance providers, such as adopting a policy by which they restock only municipal or nonprofit services. Under this safe harbor, the restocking program must be conducted publicly. This means either a written disclosure describing the hospitals restocking policy must be conspicuously posted by the hospital in the ED or other location where ambulances deliver patients, or the program must be operated in accordance with a plan or protocol publicized by an EMS council or comparable entity. In either case, a written copy of the program must be provided to ambulance providers on request.

Fair market value replenishing–where the ambulance provider pays the receiving facility fair market value for its restocked drugs and supplies. This type of program involves situations where the ambulance service may actually purchase the drugs and supplies from the hospital. The transaction must be “arms-length” and follow general commercial standards for making payment for the supplies. The OIG agrees this replenishing program is restricted to the resale of supplies and nonprescription drugs. The stocking of prescription drugs should be handled in accordance with other state and federal laws with regard to the control of medications (such as the Prescription Drug Marketing Act).

Government mandated restocking–where the restocking program is undertaken in accordance with a state or local statute, ordinance or regulation that requires the hospitals or receiving facilities in the area to replenish ambulances that use supplies during the transport of the patient to that facility.

A disclosure statement that outlines the specific elements of the program that must be met will suffice. A formal written agreement isn’t required, but would help ensure there’s no misunderstanding about the responsibilities that each organization will have under the arrangement. The written agreement should include whether the hospital will restock after all transports or only emergency transports, identify which drugs and supplies will be restocked, identify whether the ambulance service is required to pay for any of the restocked items and identify the documentation requirements to track the restocked items.

There’s no specific requirement that a regional EMS council or similar entity oversee the restocking program, although this is an excellent opportunity for regional councils. The OIG allows three flexible safe harbor conditions that include: the program be a publicly conducted arrangement, there be uniformity in the restocking arrangement and the arrangement can’t take the volume or value of patient referrals into account.

The OIG notes that restocking arrangements conducted in accordance with a protocol or plan of a regional EMS council or comparable body will satisfy the public operation requirement and will likely satisfy the other safe harbor elements as well.

Ambulance restocking programs have been deemed legal by the Office of Inspector General for the Department of Health and Human Services.

Ambulance restocking programs have been deemed legal by the Office of Inspector General for the Department of Health and Human Services. Photo A.J. Heightman

Supply Problem Solutions
Compliance concerns have been used as an excuse by some hospitals to discontinue restocking programs, even though nothing requires a hospital to restock ambulances in the first place. Hospitals may need to be educated on what constitutes an acceptable arrangement under the safe harbor. Ambulance services should work jointly with hospitals to reach an agreement that’s acceptable for both parties while allowing ambulance services to restock their supplies at the hospital in a timely and cost-effective manner.

Agencies can also consider collaborating with other ambulance services in the area when approaching hospitals. Even though all ambulance services in an area aren’t required to participate in an arrangement for it to be acceptable under the regulations, if the desire is for a general replenishing arrangement where all or some ambulance services in the area wish to participate, there may be strength in numbers when meeting with the hospital.

Jonathan Washko, assistant vice president of operations for North Shore-Long Island (N.Y.) Jewish Health System Center for EMS, suggests that if ambulance services aren’t able to reach an agreement with a hospital, they may simply be talking to the wrong people. The key, he says, is to work with the hospital administration, which may not always be the ED director. This gives the ambulance service the opportunity to alleviate compliance concerns and talk directly with the decision makers about how the arrangement will operate.

This also allows the ambulance service to discuss proper controls with the hospital that can prevent the program from being a drain on the hospital’s finances. Engaging the hospital’s compliance officer may help in the approval process.

Washko notes that linens can be a challenging topic when structuring arrangements with hospitals. While the OIG allows for the one-for-one exchange of linens within the restocking arrangement, hospitals may protest because of a preference for uniformity in their linens. Washko suggests ambulance services engage in a group purchasing organization for a centralized approach. In other words, all hospitals and ambulance services in the area would use the same type of linens and restock from a joint supply.

Even though restocking arrangements can be designed to comply with the AKS, Gary Ludwig, deputy chief of the Memphis (Tenn.) Fire Department has gone a different direction. Instead of attempting to reach agreements with the many hospitals and systems they serve, their department resupplies the ambulances themselves. The department keeps supplies such as linens and drugs at 10 different hospitals in the area using specialized dispensing machines. Crews must enter their credentials and PIN into the machine to have access to the supplies, and must enter a trip number that corresponds to the supplies needed. This system has helped the department save money and increase accountability in the utilization of their supplies. The department still had to reach an agreement with the hospitals, but they found the machines simpler and more straightforward than restocking arrangements.

Restocking arrangements between hospitals and EMS agencies usually don’t pose significant compliance risks, especially when structured in accordance with the OIG’s safe harbor regulation. But the safe harbor regulation is complex and should be reviewed carefully to ensure the restocking arrangement does in fact pose minimal compliance risks.

Being knowledgeable about the law can go a long way in convincing hospitals to keep their existing restocking program in place or to establish a new one. With the financial challenges EMS agencies are facing nationwide, any area where operating costs can be reduced can help improve the bottom line.

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