Health Law alert by Lamb McErlane PC attorneys Vasilios J. Kalogredis, Esq. and Sonal Parekh, Esq.

The HHS Office of Inspector General (“OIG”) issued Advisory Opinion No. 23-08 (“Opinion”) on October 20, 2023 regarding a Requestor’s proposal to provide a free compatible hearing aid to certain patients who receive one of the cochlear implants it manufactures (the “Proposed Arrangement”). Specifically, the Requestor inquired as to whether the Proposed Arrangement would warrant sanctions under Sections 1128A(a)(7), 1128A(a)(5), 1128(b)(7) of the Social Security Act (“SSA”), as they relate to the federal anti-kickback statute[1] (“AKS”) and the Beneficiary Inducements civil monetary penalties (“CMP”).

The Opinion concludes that the Proposed Arrangement, if undertaken, would generate prohibited remuneration under (i) the AKS, if the requisite intent were present, which would warrant sanctions under Sections 1128A(a)(7) and 1128(b)(7) of the SSA; and (ii) the Beneficiary Inducements CMP, which would warrant sanctions under the Beneficiary Inducements CMP and Section 1128(b)(7) of the SSA.

Factual Background

The Requestor is a durable medical equipment, prosthetics, orthotics, and supplies (“DMEPOS”) supplier that manufactures and distributes various implantable hearing solutions, including a specific “Device,” which is reimbursable by Medicare, Medicaid, and other Federal health care programs. The Device includes an internal cochlear implant and an external sound processor and is sold as a system to hospitals and ambulatory surgical centers (“ASCs”).

Some patients who receive the Device may be eligible for bimodal hearing, which is the combined use of a cochlear implant in one ear and a hearing aid in the other. The hearing aid, which is not covered by Medicare, can help localize sound and improve hearing in noisy areas. The Device works properly with or without the use of a hearing aid in the other ear. The Requestor certified that patients, in consideration of their Provider’s clinical judgment and recommendations, may choose the manufacturer from which the Provider orders the cochlear implant and sound processor.

Proposed Arrangement

Through the Proposed Arrangement, the Requestor would offer eligible candidates[2] a bimodal hearing package consisting of the Device and a free compatible hearing aid[3] (“Hearing Aid”). Here, (i) the Device would be ordered by the patient’s Provider, and purchased by the hospital or ASC, from the Requestor, and (ii) the Requestor would provide the Hearing Aid for free. The Device would be implanted by the Provider, and the Hearing Aid would be fitted, at a later time, by an audiologist. It is expected that both patients and Providers would be aware that the Requestor offers and provides the Hearing Aid for free when the Device is purchased. The Proposed Arrangement would require hospitals and ASCs to (i) refrain from billing patients or Federal health care programs for the Hearing Aid, (ii) advise patients and audiologists in writing that they may not claim insurance reimbursement for the Hearing Aid, and (iii) advise audiologists they may only charge patients for their usual and customary service fee for fitting the Hearing Aid. Further, the Requestor proposed to either: (i) refrain from imposing any financial need criteria for the provision of the Hearing Aid, or (ii) establish financial need criteria to provide the Hearing Aid only to those whose household incomes are at or below 300 percent of the Federal Poverty Level.

The Law

Federal Anti-Kickback Statute

The AKS[4] makes it “a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce, or in in return for, the referral of an individual to a person for… any item or service reimbursable under a Federal health care program.” The prohibition extends to remuneration to induce, or in return for, the purchasing, leasing, or ordering of, or arranging for or recommending the purchasing, leasing, or ordering of, any good, facility, service, or item reimbursable by a Federal health care program. Here, remuneration includes the transfer of anything of value. The statute applies to any arrangement where at least one purpose of the remuneration is to induce referrals for items or services reimbursable by a Federal health care program. Violations of the AKS constitute a felony punishable by a maximum fine of $100,000 and/or up to 10 years of jail time, as well as exclusion from Federal health care programs and potential imposition of fines by the OIG. Here, it is important to note the “Safe Harbor Exception”[5] for arrangements for patient engagement and support to improve quality, health outcomes, and efficiency protects certain in-kind items, goods, or services furnished by a value-based enterprise (“VBE”) participant to a patient in the target population, if all applicable conditions are met, specifically that the aggregate retail value of patient engagement tools and supports furnished to a patient by a VBE participant on an annual basis does not exceed a monetary cap (i.e., $570 for 2023).

Beneficiary Inducements CMP

The Beneficiary Inducements CMP imposes CMPs against any person who offers or transfers remuneration (i.e., items or services for free or less than fair market value) to a Medicare or State health care program beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier for the order or receipt of any item or service, for which payment may be made by such health care programs.

The OIG noted that the “Promotes Access to Care Exception” and/or the “Financial Need-Based Exception” are potentially applicable to the Proposed Arrangement. The Promotes Access to Care Exception provides an exception for remuneration which promotes access to care and poses a low risk of harm to patients and Federal health care programs, which has been interpreted to apply to items or services that improve a beneficiary’s ability to obtain items and services payable by Medicare or Medicaid, and pose a low risk of harm to Medicare and Medicaid beneficiaries and programs.[6] The Financial Need-Based Exception provides that remuneration does not apply to the offer or transfer of items or services for free or less than fair market value if the items or services: (i) are not advertised; (ii) are not tied to the provision of other reimbursable items or services; (iii) are reasonably connected to the medical care of the individual; and (iv) are provided only after a good-faith determination that the recipient is in financial need.

Legal Analysis

The Proposed Arrangement described herein would violate the AKS because it would involve the offer and provision of remuneration in the form of a free hearing aid to eligible patients which may induce them to arrange for the ordering (by the patients’ Providers) and purchasing (by the hospital or ASC) of the Device, which is reimbursable by Federal health care programs. The OIG noted that the Safe Harbor Exception would not apply because the value of the Hearing Aid exceeds the current monetary cap of $570 imposed by the Safe Harbor.

The OIG determined that the risk of fraud and abuse presented by the Proposed Arrangement is not sufficiently low under the AKS to warrant a favorable advisory opinion. The OIG has had longstanding concerns regarding the provision of free products or services due to the potential resulting harms, such has patient steering, unfair competition, improper utilization, and concerns with quality and cost. The OIG has established guidance that “there is no meaningful basis…for exempting valuable gifts based on a beneficiary’s medical condition…”.[7] Here, the Proposed Arrangement could result in unfair competition and inappropriate patient steering to the Device over a competitor’s cochlear implant, or other clinically appropriate items or services used to treat hearing loss, because the offer and provision of the Hearing Aid would be an attractive incentive for a patient to select the Device. The fact that patients would be aware that Requestor offers and provides the Hearing Aid for free would only further this conclusion.

The Proposed Arrangement would also implicate the Beneficiary Inducements CMP because the Requestor’s offer and transfer of the Hearing Aid could influence a beneficiary located in states where Requestor bills Medicaid or Medicaid managed care plans for the Device to select Requestor for the order and receipt of the Device, which may then be reimbursable by Medicare or a State health care program. Once the Device is selected, it could result in the Requestor providing repair and/or replacement services for the Device, where such services may be reimbursable by Medicare or a State health care program. The Promotes Access to Care Exception would not apply because the Hearing Aid is not required for the Device to work properly and therefore would not improve a beneficiary’s ability to obtain items and services payable by Medicare or Medicaid. The Financial Need-Based Exception would also not apply because the free Hearing Aid would be conditioned on the purchase of the Device, which is reimbursable by Medicare and Medicaid. The OIG further emphasized that “there is no meaningful statutory basis for a broad exemption based on the financial need of a category of patients…[and] that categorical financial need is not a sufficient basis for permitting valuable gifts.”[8] Because no exception applies, the Proposed Arrangement could generate prohibited remuneration under the Beneficiary Inducements CMP.

Conclusion and Limitations

The OIG concluded that the Proposed Arrangement, if undertaken, would generate prohibited remuneration under the AKS (if the requisite intent were present) and the Beneficiary Inducements CMP, which would warrant sanctions under Sections 1128A(a)(7) and 1128(b)(7) of the SSA.

It is important to note that the Opinion is limited in scope to the specific Proposed Arrangement and is not to be relied upon by any person other than the Requestor. While the Opinion may not be specifically relied upon for other arrangements, the reasoning stated therein is useful to keep in mind when considering different marketable avenues in which to provide products and services.

 

[1] See Section 1128B(b) of the SSA.

[2] These are patients who meet Medicare coverage requirements to have a cochlear implant and sound processor similar to the Device implanted in one ear and have moderate-to-severe hearing loss in the other ear.

[3] A compatible hearing aid is a hearing aid that can be programmed by an audiologist with the Device to optimize loudness and balance between the devices and enable wireless streaming directly from smart phone applications.

[4] 42 U.S.C. § 1320a-7b(b).

[5] 42 C.F.R. § 1001.952.

[6] 42 C.F.R. § 1003.110 (defining “remuneration”).

[7] OIG, Special Advisory Bulletin: Offering Gifts and Other Inducements to Beneficiaries 4 (2002), https://oig.hhs.gov/documents/special-advisory-bulletins/886/SABGiftsandInducements.pdf. The OIG noted that the risks identified in this Bulletin are particularly instructive when assessing the risks under the AKS.

[8] Id. at 5.

*This alert is for educational purposes only and is not intended to be legal advice. Should you require legal advice on this topic or have any questions or concerns, please contact Vasilios J. (Bill) Kalogredis, Esq. or Sonal Parekh, Esq.

Vasilios J. (Bill) Kalogredis, Esq. has been advising physicians, dentists, and other healthcare professionals and their businesses as to contractual, regulatory and transactional matters for over 45 years. He is Chairman of Lamb McErlane PC’s Health Law Department. Bill can be reached by email at bkalogredis@lambmcerlane.com or by phone at 610-701-4402.

Sonal Parekh, Esq., is an associate at Lamb McErlane PC who focuses on healthcare transactional matters and a broad range of healthcare regulatory-related issues on behalf of healthcare systems, physicians, dentists, and other healthcare providers, and is a pharmacist by education and training. Sonal can be reached by email at sparekh@lambmcerlane.com or by phone at 610-701-4416.