No. 06-01: Home Health Agency's Free Preoperative Home Inspection
The OIG issued Advisory Opinion 06-01 on March 20, 2006, analyzing whether a home health agency's (Agency) practice of providing prospective customers with free preoperative home safety assessments (Assessments) violates either the civil money penalty (CMP) prohibition on inducements for beneficiaries or the antikickback law. As discussed below, the OIG found that the proposed arrangement could potentially violate both the CMP and the antikickback law.

The Agency provided the free Assessments to patients who had been scheduled for surgery and were referred by their orthopedic surgeons. After receiving a referral, one of the Agency's physical therapists would contact the patient and arrange to provide either an in-person or telephonic Assessment. During the Assessment, the therapist gathered basic information on the patient and the patient's home and offered simple suggestions to improve the home's safety (e.g., removing throw rugs). The Assessments did not involve any skilled care, education, or therapy. The Agency also required that the Assessments include a discussion of materials highlighting the patient's freedom to choose any home health provider. In any event, selections of patient home health providers were not finalized until after the patient's surgery, when the extent of the necessary services could be better determined.

Preoperative in-person home safety Assessments are not covered under Medicare or Medicaid. Private payers who cover the service generally reimburse between $85 and $100 per Assessment. Telephone Assessments are not covered by private payers or the government. The Agency estimated its cost in providing these 10- to 15-minute calls at less than $10, and offered that as an estimate of their value.

In its analysis, the OIG noted that, while the Assessments are not covered under Medicare or Medicaid, many of the products and services the Agency supplies to post-operative patients are. The OIG also reiterated its concern regarding arrangements where a prospective provider of covered services offers beneficiaries a noncovered item or service free of charge. It then examined the Assessments under a three part CMP analysis.

First, the OIG determined that both the in-person and telephonic consultations are valuable services. Private payers often pay up to $100 for an in-person preoperative safety Assessment, indicating that it is a service of substantial value. While there is no active market for telephonic Assessments, the OIG felt that their value should be determined based on their value to the patient, not their cost to the Agency. According to the OIG, the fact that the telephonic Assessments were recommended by a surgeon and delivered by a licensed therapist makes it sufficiently likely that prospective patients believed they had received a valuable service. In the absence of an active market, the OIG does not believe that a service which creates the impression of value on a beneficiary may be considered of nominal value for purposes of the CMP.

Second, the OIG determined that the free home safety Assessments are likely to influence the recipients' selection of provider. Given that the beneficiary's surgeon recommended the Agency, the OIG believes "it would be reasonable and probable" for a beneficiary to assume that the surgeon also recommends the Agency's postoperative care. The OIG also noted Agency therapists have a chance to initiate a relationship with the patients, and that "it is reasonable and probable" that beneficiaries are more likely to select providers with whom they are familiar. According to the OIG, the fact that the Assessments are offered for free increases the likelihood that patients will accept the services and be swayed by the apparent recommendation of their surgeons and the relationship initiated by the Agency's therapists.

Finally, the OIG concluded that the Agency should know that the arrangement is likely to influence the beneficiary's selection of provider. In fact, the OIG felt that the entire structure of the Assessment program appeared calculated to generate Agency business. The OIG did not believe that the Agency's provision of literature and counseling reinforcing the patient's freedom of choice sufficiently guarded against improper inducements. Moreover, the OIG noted that the Assessment is only offered to patients who will require covered services in the near future. Therefore, the OIG determined that the Assessments potentially violate both the CMP and the antikickback statute.

Advisory Opinion 06-01's treatment of value and its effect on patients warrants attention. The opinion asserts that a beneficiary's impression of value is more useful in calculating value in the absence of an active market than the actual cost of providing the service. While the opinion does not address whether the Assessments could be sold to patients, it seems doubtful that many beneficiaries would be willing to pay out-of-pocket for them. Thus, it is disappointing that this advisory opinion will result in many Medicare and Medicaid patients losing an opportunity to receive a service the OIG admits is both valuable and generally noncovered.

OIG Advisory Opinion 06-02 is discussed in "Durable Medical Equipment Suppliers Beware," which appears on page 9 of this issue.

No. 06-03: Pharmaceutical Company's Part D Patient Assistance Programs
OIG Advisory Opinion 06-03, issued April 18, 2006, assessed a Pharmaceutical Company's (Company) efforts to provide free outpatient prescription drugs to Part D enrollees through its two existing patient assistance programs (PAPAand PAP B). The OIG analyzed the proposal under the antikickback statute and concluded that while providing free outpatient prescription drugs to financially needy Medicare Part D enrollees outside of the Part D benefit could potentially generate prohibited remuneration, it would not impose administrative sanctions under the specific facts of the arrangement. Advisory Opinion 06-03 builds on the guidance provided by the OIG in its Special Advisory Bulletin on Patient Assistance Programs for Part D enrollees. 70 Fed. Reg. 70,623 (Nov. 22, 2005).

The Company manufactures and markets prescription drug products. For several years, the Company has operated PAPs Aand B, which provide the Company's products for free to qualifying patients. With the creation of Medicare Part D, the Company has revised the programs to address Medicare beneficiaries. PAP A provides free drug products to eligible patients for the treatment of cancer and hepatitis. PAP B provides free drug products to patients suffering from ailments other than cancer or hepatitis.

To be eligible under either PAP, patients must meet the following eligibility requirements: (1) use one or more of the drug products covered by the PAPs; (2) have an income below 325 percent or 250 percent of the federal poverty level for PAP A or B, respectively; and (3) in the case of Part D enrollees, have already spent at least 3 percent of his or her household income on outpatient prescription drug products during the calendar year. Before patients may qualify for either PAP, they are first directed to any alternative assistance programs for which they may be eligible (e.g., private insurance, veterans benefits, or Medicaid). Patients who are eligible for alternative assistance are not eligible for assistance under either PAP.

Once a Part D enrollee qualifies for assistance, the assistance would continue for the remainder of the calendar year even if the patient's use of the drug was periodic. No payments for the drug products covered by the PAP would be sought from Medicare, any Part D plan, or any enrollee. The PAP distributes the drug products to patients or their physicians through a mail order pharmacy.

Under both PAPs, the Company maintains records of all drugs provided to Part D enrollees to ensure that they are not counted towards true out-of-pocket (TrOOP) drug costs for purposes of calculating Medicare Part D benefits. The Company is developing a data-sharing plan with CMS to ensure that CMS is aware of beneficiaries' participation in the PAPs. This coordination ensures both that Medicare will not pay for the drugs provided for free under the PAP, and that these drugs are not included in the calculation of TrOOP. Patients in the PAPs receive a letter explaining that they will receive their drugs free for the covered year, these drugs should not be reimbursed by Part D, and that these drugs do not count toward their Part D TrOOP.

The OIG began its analysis by reiterating the concerns about PAPs that it initially articulated in the Special Advisory Bulletin on Patient Assistance Programs for Part D enrollees. Specifically, the OIG observed that drug manufacturer PAPs that subsidize enrollees' Part D cost-sharing amounts for the drug manufacturers' drugs raise all "of the usual risks of fraud and abuse associated with kickbacks.. Such programs may steer the beneficiary to certain drugs, increase costs to Medicare, provide a financial advantage to that manufacturer, and reduce the beneficiaries' incentive to seek cost effective alternatives. In the case of Advisory Opinion 06-03, however, the OIG indicated that these risks were addressed because the PAPs function entirely outside of the Part D system.

In reaching its conclusion, the OIG focused on two specific protections. First, the PAPs will notify CMS, via data-sharing agreements, when enrollees receive free drugs. Combined with the PAP's explanation to patients, the data sharing should ensure that Medicare does not make payment for the drugs and that the cost of the drugs is not applied to any beneficiary's TrOOP. Second, enrollee eligibility is based solely on financial need, which is calculated in a consistent manner, without regard to a beneficiary's election of provider or supplier, choice of Part D plan, benefit design, or where patient is in his or her Part D plan's benefit spectrum. According to the OIG, the fact that the Assessments are offered for free increases the likelihood that patients will accept the services and be swayed by the apparent recommendation of their surgeons and the relationship initiated by the Agency's therapists.

In something of a side issue, the OIG noted that the use of physicians to distribute the free drugs could potentially create additional antikickback risks if any economic value inured to the physicians. These PAPs, however, addressed those risks by designating the drugs for individual patients only, limiting the quantity of the drugs, prohibiting physician billing, and sending explanatory notices to both the Part D program and patients. The OIG therefore felt the risk had been sufficiently mitigated.

While the OIG found that the PAPs posed some fraud and abuse risks, it also believed that the structure and integral safeguards of these programs, coupled with the Company's willingness to work with CMS, satisfactorily addressed those risks. For drug manufacturers interested in creating a PAP that will function within Part D, the program safeguards described in this opinion seem to offer a roadmap to satisfying the OIG's concerns.