Advisory Opinion 02-11: OIG Will Not Impose Sanctions on Contribution between Parts of Academic Medical Center
OIG Advisory Opinion 02-11, issued August 12, 2002, addressed a proposed charitable contribution from a hospital authority to a university endowment to support education and research at a medical school through a clinical cardiology services program. Although the proposed arrangement involved prohibited remuneration under the antikickback statute, 42 U.S.C. § 1320a-7b(b), the OIG concluded that it would not impose administrative sanctions.

The proposed charitable contribution involved various interrelated components of an academic medical center. In total, the medical academic center consists of: (1) a university and medical school; (2) 15 nonprofit, tax-exempt foundations that correspond by clinical specialty to academic departments; (3) a faculty practice plan; (4) a hospital authority; and (5) a hospital.

To meet the educational needs of the medical students, the university employs, or contracts with, physicians who serve as faculty physicians at the medical school. Faculty physicians are either full-time or part-time salaried employees or unsalaried volunteers. All salaried faculty physicians are paid an annual salary that is determined in advance to cover all teaching, research, and other non-clinical activities. Volunteer faculty physicians are compensated by their respective employers for their teaching, research, and other non-clinical activities.

To meet the clinical needs of the academic medical center's patients, the university has agreements with the faculty practice plan to provide professional medical services. The faculty practice plan has professional services agreements with each of the foundations. Either the hospital authority or one of the 15 foundations, in turn, employs virtually all of the faculty physicians.

In 1998, the state legislature created the hospital authority as a separate legal entity to operate the hospital. Previously, the university had operated the hospital. The hospital authority employs 25 primary care physicians, 10 emergency care physicians, 24 cardiologists, and 4 cardiothoracic surgeons. In creating the hospital authority, the state legislature required the hospital authority to facilitate and support education, research, and public service activities of the academic medical center.

Finally, the endowment association is yet another nonprofit, tax-exempt corporation. It is independent of both the hospital authority and the university. It secures donor contributions and manages the investment of such contributions.

The hospital authority and the university have several interrelated agreements that define their respective academic and clinical responsibilities. One agreement calls for the development of a comprehensive cardiovascular services program. To carry out this agreement, the university and endowment association propose to enter into a support agreement. The agreement would call for the establishment of a fund for education and research in internal medicine and another for education and research in the medical school. In support of the agreement, the hospital authority proposes to transfer to the endowment association $1.6 million during fiscal years 2002 and 2003.

The OIG began it analysis by noting that the antikickback statute was implicated because, at its core, the proposed arrangement involved a substantial donation by a hospital to a major referral source. Specifically, the OIG considered the university a referral source for the hospital authority, because the university employs and is affiliated with the faculty physicians who make referrals to the hospital.

Nevertheless, the OIG indicated that it would not impose administrative sanctions for several reasons. First, the OIG cited the shared heritage and common mission of the components of academic medical centers. Second, the OIG noted that the proposed arrangement would be consistent with the state legislation that established the hospital authority. Third, the university would not require or encourage any physicians to refer patients to the hospital. Fourth, the university would not track referrals by faculty physicians to the hospital. Fifth, compensation paid to the faculty physicians from the donated funds would not be related to the volume or value of referrals by the faculty physicians to the hospital. Finally, the total compensation paid to the faculty physicians would be set in advance, not exceed fair market value, and not be determined in a manner that takes into account the volume or value of referrals.

Advisory Opinion 02-11 suggests that the OIG will take a fairly lenient approach toward cross-support arrangements between various components of academic medical centers. The OIG recognized that relationships between components of academic medical centers are organizationally and financially complex. Interestingly, a key justification for the OIG's approval was the "shared history, mission, and public provenance" between various components of academic medical centers.

Advisory Opinion 02-12: OIG Gives Advice on Internet Advertising
On August 21, 2002, the OIG issued an advisory opinion regarding a proposed arrangement involving an Internet-based chronic disease management business. The proposed arrangement was analyzed under the antikickback statute and the civil monetary penalty provision (CMP) against inducements to beneficiaries, 42 U.S.C. § 1320a-7a(a)(5). Although the proposed arrangement implicated both the antikickback statute and the CMP, the OIG concluded that it would not impose administrative sanctions.

The requestor was a closely held, Internet-based, behavior modification and drug regimen compliance company. Under the proposed arrangement, the requestor would contract with managed care organizations and employer-based health plans (collectively MCOs) to provide a drug and behavior compliance program through the Internet to the MCOs' members. The contract would provide for participating MCO members and their primary care physicians to receive incentives as a reward for participating in the compliance program. In addition, the proposed arrangement would involve marketing and advertising by health care companies and other advertisers through the requestor's web site.

Drug and Behavior Compliance Program. The requestor would contract with MCOs to use various Internet-based methods to remind and encourage members to take medications, refill prescriptions, and comply with behavior modification regimens prescribed by their physicians. The MCOs would pay the requestor either a fixed, per-member, per-month fee or a fee that represents a share of the savings to the MCO from improved compliance. In either case, the requestor indicated that the fee would be fair market value.

The MCO would identify members who could benefit from the program, including persons with chronic diseases, long-term users of pharmaceuticals (e.g., hormone replacement or hypertension medication), and persons with behavior modification regimens (e.g., smoking or weight loss programs). The requestor would contact the identified members about the program, although participation would be voluntary.

As part of the program, the requestor would establish an incentive system. Members would be awarded points for undertaking desired actions. Physicians and their staffs also would be awarded points for participation in specific program activities, such as reviewing monthly patient information and compliance results. Physicians would not receive any points for ordering, recommending, or arranging for the purchase or ordering of any item or service. In both cases, the points would be redeemable only for goods and services that are not reimbursable by federal health care programs. Nothing about the program would affect members' cost-sharing obligations.

Advertising Activities. The requestor would sell banner advertising on its web site and other promotional opportunities to health care and non-health care advertisers. Pharmacy advertisers would be limited to those pharmacies that participate in the MCOs' provider network. The requestor also would charge pharmacies for the privilege of including hyperlinks to the pharmacies' own web sites. Finally, the requestor would permit pharmaceutical companies to sponsor interactive discussions on the requestor's web site (e.g., chat rooms and forums). The operation of the chat rooms would be the sole responsibility by the requestor. The pharmaceutical company would be identified as the sponsor, but it would not have any control over the specific content of the chat room. The requestor certified that the fee (either flat or per click) would be fixed in advance and be consistent with fair market value. All paid advertising would be clearly identified as such.

The OIG analyzed the various aspects of the proposed arrangement separately.

Drug and Behavior Compliance Program. First, the OIG began its analysis by noting that payments from the MCOs to the requestor for the drug and behavior compliance program should not implicate the antikickback statute because the services were not generally reimbursable under the federal health care programs. The requestor's services to the MCOs and their members did not include the provision, referral, or recommendation of federal health care program business. Despite its statement that the antikickback statute was not implicated, the OIG went on to state that, even if it were implicated, administrative sanctions would not be imposed.

Second, the OIG concluded that rewarding of points by the requestor constituted remuneration to both members and physicians. The compliance activities of the members and physicians create value for the requestor by reducing MCO costs and in return the MCOs reward the requestor financially. Nevertheless, the OIG found that the points posed "minimal risk of federal health care program fraud and abuse." The OIG emphasized that the compliance activities were not reimbursable by federal health care programs. The requestor did not supply or otherwise profit directly from the reimbursable goods and services.

Finally, the OIG indicated that it was unnecessary to analyze the arrangement between the requestor and the suppliers of the redeemable goods and services because none of these goods and services were reimbursable by federal health care programs.

Advertising Activities. The OIG began its analysis of the advertising activities by noting that advertising, like any marketing, implicates the antikickback statute because it is designed to recommend the use of a product. The OIG identified several factors that should be examined: (1) the identity of the party engaged in the marketing activity and the party's relationship with the target audience; (2) the nature of the marketing activity; (3) the item or service being marketed; (4) the target populations; and (5) any safeguard to prevent fraud and abuse. The OIG noted that accurate and nondeceptive print advertising in general circulation media does not raise antikickback concerns. In this particular case, the OIG found the requestors advertising was essentially passive in nature. Moreover, all advertising would be identified as such and there would be no suggestion that the requestor was endorsing the advertisers. In the end, the OIG found it unlikely that visitors to the requestor's web site would view the requestor as a participant in the member's health care team, rather than a seller of advertising space.

Next, the OIG analyzed the sponsorship and found that it was similar to the advertising. The requestor would be solely responsible for the operation and editorial content of the chat room. The sponsors' only involvement with the chat room would be payment of the sponsorship fee and concurrent advertising. The OIG concluded that such an arrangement did not raise significant fraud and abuse issues.

Interestingly, the OIG concluded its analysis by cautioning readers that the conclusions reached in Advisory Opinion 02-12 do not mean that Internet advertising and marketing relationships do not raise any serious concerns. The OIG warned that chat rooms were targeted at vulnerable, disease-specific populations and could be manipulated. The OIG also observed that the use or misuse of patient information for marketing using direct email and other technologies may raise concerns under other legal authorities, such as the HIPAA privacy standards.

Advisory Opinion 02-12 provides much-needed guidance as to how the OIG will approach some common Internet-related arrangements. Any health care provider considering an arrangement involving the Internet should carefully review the OIG's guidance.

No. 02-13: OIG Rejects Proposed Subsidization of Cost-sharing Amounts by Pharmaceutical Company's Nonprofit Foundation
In Advisory Opinion 02-13, issued September 27, 2002, the OIG analyzed under the antikickback statute the funding of cost-sharing amounts for financially needy patients by a nonprofit foundation established by a pharmaceutical company. The OIG concluded the proposed program could potentially generate prohibited remuneration under the antikickback statute, and the OIG would impose administrative sanctions in connection with the proposed program.

A pharmaceutical company proposed to establish and fund a nonprofit foundation that would subsidize all or part of the cost-sharing amounts incurred by insured patients (including Medicare patients) who were using a drug that was manufactured by the pharmaceutical company (Drug A). There was at least one competing drug for each of Drug A's approved uses. The foundation would require that a patient meet several conditions to be eligible for the subsidy program, including medical necessity and financial need. The foundation would not consider the identity of the referral source in determining a patient's eligibility. The pharmaceutical company would play no role in selecting patients or determining eligibility for participation in the program. The pharmaceutical company would not be given the identity of either the patients or the referral sources.

Under the proposed program, only patients using Drug A would be considered for the assistance. The pharmaceutical company would market the program to physicians who prescribed Drug A. The patients would learn of the assistance through physicians and other health care providers, as well as the pharmaceutical company's own patient assistance program. The foundation would use a distributor that would authorize a purchase credit for Drug A to the patient's physician. The physician would thus be given notice to report the purchase credit and provide information as required under § 1001.952(h) of the antikickback discount safe harbor regulations.

In analyzing the proposed program, the OIG concluded that the program implicated the antikickback statute in that it constituted payment by a pharmaceutical company for items directly reimbursable by a federal health care program. The OIG found that the insertion of the foundation between the pharmaceutical company and Medicare beneficiaries did not "insulate" the pharmaceutical company as the source of funding of the cost-sharing amounts. Similarly, the OIG found that neither the design nor the administration of the program insulated the pharmaceutical company. The OIG was particularly concerned that the program only provided assistance to patients receiving Drug A and not any of its competitors.

Finding that the proposal was "squarely prohibited by the [antikickback] statute," the OIG focused on the "cost-shifting" aspects of the proposed program. Under the program, the OIG reasoned, physicians would receive full payment for prescribing Drug A (80 percent from Medicare of the Medicare allowable amount, and 20 percent copayment from the foundation). The OIG noted that this cost-shifting distinguishes this program from the "long-permitted" situation in which a provider, non-routinely and without advertising, waives copayment based on a patient's financial need. The OIG was particularly troubled that the program would be advertised to physicians and patient advocacy groups.

In addition to the cost-shifting aspects of the program, the OIG noted that the program would pose many of the usual risks of kickback arrangements, including a financial benefit to the pharmaceutical company, as well as the potential to influence patients to use, and physician to prescribe, a particular drug. The OIG expressed concern that the anticompetitive nature of the proposal would permit the pharmaceutical company to enjoy an advantage over its competitors. Patients as well as physicians, the OIG reasoned, were likely to prefer treatment with Drug A rather than an alternative drug, if by choosing Drug A, the patients would forego a copayment and the physicians would be guaranteed full payment. Finally, the OIG stated that there were alternative patient assistance programs that pharmaceutical manufacturers could operate that were "non-abusive," i.e., programs that would not give one pharmaceutical manufacturer a competitive advantage or generate potentially significant profits.

Advisory Opinion 02-13 provides fairly clearcut guidance to pharmaceutical companies that are considering how to provide assistance to indigent patients. If a pharmaceutical company wants to support just its drug and not that of any competitor, then the pharmaceutical company should provide the drug for free and ensure that federal health care programs are not billed. Alternatively, a pharmaceutical company could provide financial assistance to a foundation that supports all of the competing drugs. The OIG has clearly rejected the belief among some in the pharmaceutical industry that simply running financial assistance through a nonprofit foundation is sufficient to insulate the pharmaceutical company as the source of the financial support.

No. 02-14: OIG Approves Limited Free Equipment to Hemophilia Patients
OIG Advisory Opinion 02-14, issued September 30, 2002, addressed a free equipment program offered by an infusion therapy company to hemophilia patients. The free equipment program was analyzed under the CMP provision for violation of the prohibition against inducements to beneficiaries as well as the antikickback statute. The OIG concluded the proposed program could potentially generate prohibited remuneration under the CMP for inducements to beneficiaries, and, if the requisite intent were present, under the antikickback statute. However, the OIG indicated that it would not impose administrative sanctions in connection with the proposed program, but only if the retail value of the free equipment was limited to $10 per item and no more than $50 per patient in the aggregate annually.

A for-profit provider of infusion therapy and related services established a division to provide products and services to persons with hemophilia. The therapy company's patient mix includes private pay, Medicaid (10 percent), and Medicare (1 percent).

Under the proposed program, the therapy company would permit hemophilia patients to choose among a variety of free equipment, including safety helmets, knee pads, medical information bracelets, tourniquets, cold packs for joints, emergency contact folders, and carrying cases for medications. The therapy company would also furnish electronic pagers to the parents of pediatric hemophilia patients. The pagers would be used by the child's teacher or daycare provider to contact the child's parents in the event of an emergency bleeding episode. The therapy company would instruct the parents that the pager could only be used in connection with its intended use. The parents would be required to return the pager upon termination of the therapy company's provision of goods and services to the patient. The therapy company would also pay the monthly service on the pager. The estimated retail value of the pager and pager service would be between $5 and $15 per month.

The OIG concluded that the proposed program constituted an improper inducement to beneficiaries. Although the OIG acknowledged the hardships faced by beneficiaries suffering from chronic illnesses, the OIG reasoned that the program presented several potential harms, including (1) corrupting of the decision-making process, (2) giving the therapy company an unfair advantage over its competitors, and (3) negatively affecting the quality of care to beneficiaries. The OIG also noted that providers such as the therapy company have a greater incentive to offer gifts to beneficiaries who are chronically ill because they are more likely to generate continuing business. Nevertheless, the OIG stated that it would not impose sanctions if the value of the free items did not exceed $10 per item or $50 in the aggregate per year.

Although not explicitly stated, Advisory Opinion 02-14 suggests that the $10 per item and $50 aggregate limits under the CMP for inducements to beneficiaries also may be applicable to the antikickback statute. If this view is applied more broadly, it would create a de minimus exception to the antikickback statute.

No. 02-15: OIG Approves Use of Local Taxes to Cover Copayment and Deductibles for Local Residents
The OIG issued Advisory Opinion 02-15 on September 30, 2002, regarding a municipally owned ambulance service that proposes to treat local real estate tax revenues as payment of copayments and deductibles due from local residents. Analyzing the proposed arrangement under the antikickback statute, the OIG concluded it would not generate prohibited remuneration.

A municipal corporation that was the exclusive provider of emergency medical services in its county (the Fire District) was funded primarily from real estate taxes. The Fire District was considering adopting an ordinance under which the Fire District would bill local residents who utilize its services only the amount of their insurance coverage and treat the revenues from real estate taxes as payment of any otherwise applicable copayments or deductibles.

The OIG indicated that typically "insurance-only" billing arrangements constitute limited waivers of copayment and deductible amounts that implicate the antikickback statute. Under a special rule, Medicare does not require providers and suppliers that are owned and operated by a municipality to collect copayments or deductibles from residents. See Medicare Carriers Manual § 2309.4. The OIG limited Advisory Opinion 02-15 to the extent that (1) the waiver extends only to bona fide residents, and (2) the Fire District is the ambulance supplier and does not contract with outside ambulance suppliers.

In the present situation, the antikickback statute was not implicated because the Fire District had no obligation under Medicare to collect copayments and deductibles from residents.

No. 02-16: OIG Approves Waiver of Cost Sharing Obligations as Part of NIH Study
OIG Advisory Opinion 02-16, issued December 23, 2002, addressed whether cost-sharing obligations under Part B for monitored blood glucose equipment and supplies of patients participating in a National Institute of Health (NIH) study could be waived. The proposed arrangement was analyzed under the antikickback statute and the CMP against inducements to beneficiaries. The OIG found that the proposed arrangement implicated both the antikickback statute and the CMP, but concluded that it would not impose administrative sanctions.

The Action to Control Cardiovascular Risk clinical trial (ACCORD) is a randomized clinical trial initiated, organized, funded, and managed by NIH. The study will be conducted over a 60-month period by seven clinical networks. The study will involve 10,000 patients with Type II diabetes and either diagnosed coronary heart disease or two major risk factors for the development of coronary heart disease. The goal of ACCORD is to research whether the treatment of Type II diabetes patients is improved by (1) lowering their blood glucose and systolic blood pressure to levels below those currently recommended and (2) administering drugs that modify their serum HDL cholesterol and triglyceride levels. ACCORD is neither a commercial study nor a product-oriented or product-specific study, but rather a scientific study of emerging public health and clinical issues related to the treatment of Type II diabetes and coronary heart disease.

As part of ACCORD, patients will be required to self-monitor their blood glucose levels. Self-monitored blood glucose (SMBG) supplies, including blood glucose monitors, blood-testing strips, lancets, and syringes, will be provided to ACCORD patients through an agreement between NIH and a specified manufacturer. The manufacturer, in turn, plans to enter into an agreement with a nationwide supplier of blood glucose testing products. To promote and enhance patient participation, NIH wants participants to receive care under the ACCORD clinical trial without charge. Therefore, for Medicare patients, the manufacturer would waive Part B cost-sharing obligations for SMBG supplies.

The OIG began its analysis by observing that on September 19, 2000, CMS issued a National Coverage Determination (NCD) expanding Medicare coverage to include the routine costs of clinical trials. However, the NCD left intact all Medicare program requirements, including applicable cost-sharing obligations.

The OIG noted that payments to providers and participating patients potentially present a risk of fraud and abuse. Nevertheless, the OIG indicated that it would not impose sanctions in the present case, given that the study "reasonably accommodates the needs of an important, government-sponsored scientific study without posing a significant risk of fraud and abuse...." The OIG specifically cited several aspects of the arrangement. First, ACCORD is an NIH-sponsored scientific study. Second, ACCORD is neither a commercial study nor a product-oriented or product-specific study. Finally, the resolution of the public health and clinical issues addressed by ACCORD is likely to have significant consequences for professional medical treatment of all affected patients.

Advisory Opinion 02-16 does not have wide application to research involving Medicare beneficiaries. Instead, it suggests that NIH and other government entities may be given extra latitude with regard to waiver of cost-sharing amounts.