No. 06-04: OIG Approves Charity’s Assistance with Medicare Premiums and Cost Sharing Obligations
OIG Advisory Opinion 06-04, issued April 27, 2006, considered a charitable organization’s plan to assist financially needy Medicare recipients with premiums and cost-sharing obligations under Medicare Parts B and D, Medigap, and Medicare Advantage. The OIG considered the arrangement under the prohibition against inducements to beneficiaries and the antikickback statute. The OIG concluded that it would not impose sanctions under the prohibition against inducements to beneficiaries. The OIG also concluded the program could potentially generate prohibited remuneration under the antikickback statute, but that it would not impose sanctions based on the facts of the situation.

The charity’s program would draw on donations from other nonprofit organizations, home health agencies, manufacturers of drugs to treat the chronic diseases, and suppliers of services used by patients with the chronic diseases. The program, which is very similar to the program approved by the OIG in Advisory Opinion 06-03, functions as follows:

Grants of up to $350 a month for 12 months would be provided on a first-come, first-served basis to applicants earning less than 250 percent of the federal poverty level.

Grants would be made without regard to the interest of any donor, the applicant’s choice of provider or supplier, or the identity of the entity that referred the applicant.

Donor identities would not be revealed to grant recipients, grant recipients would not be referred to any particular supplier or provider, and grant recipients would remain free to choose whatever suppliers or providers they preferred.

Donors would be permitted but not required to “earmark” their donations for patients either in a specific disease category or receiving a specific type of benefit.

Donors would be permitted to learn only the aggregate number of requests for assistance related to a specific disease category. They would not be permitted to learn any individual patient information, or be provided any information that would allow them to correlate their donations with the volume of orders received for their products or services.

The OIG analyzed the remuneration flowing (a) from the donors to the charity and (b) from the charity to recipients.

In terms of the remuneration between donors and the charity, the OIG determined that the imposition of the charity between the donors and the recipients minimized the risk of both beneficiary inducement and kickbacks. Specifically, the OIG noted that the charity prevented recipients from linking their benefits to any particular donor. Similarly, the OIG felt there was little risk that donor contributions would improperly influence referrals. Because the charity plans to award grants based on objective criteria and recipients would remain free to change providers or suppliers at any time, the OIG did not feel that the donors’ ability to earmark their donations for specific assistance or disease categories altered this analysis.

In terms of the remuneration between the charity and the recipients, the OIG determined that the subsidy was unlikely to influence recipients’ selection of suppliers or providers. In making this determination, the OIG noted that recipients would already be under the care of a physician and receiving treatment, the charity will not refer recipients to specific products, services, providers, or suppliers, the identity of donors will not be revealed to recipients, and recipients will be notified that they remain free to change suppliers or providers at any time without jeopardizing their eligibility for assistance.

With Advisory Opinion 06-04, the OIG continues its apparent willingness to allow programs intended to benefit needy patients as long as sufficient safeguards exist to minimize the risks of fraud and abuse. For providers or suppliers interested in establishing programs to assist the financially needy, Advisory Opinions 06-03 and 06-04 provide insight as to the safeguards that will likely be required by the OIG.

No. 06-05: OIG Approves St. Jude’s Provision of Drugs, Supplies to Affiliates
On April 26, 2006, the OIG issued Advisory Opinion 06-05, regarding a research hospital’s provision of drugs and supplies to affiliates who treat the hospital’s patients. The OIG determined that the arrangement could generate prohibited remuneration under the antikickback statute, but it would not impose sanctions based on the facts of the particular arrangement.

The hospital is dedicated to researching cures for devastating pediatric diseases. The only treatment the hospital provides is through its research programs and clinical trials. Children generally only receive treatment from the hospital if they meet the requirements of the relevant research program or clinical trial, and agree to participate.

The hospital does not bill the children who receive treatment or their families for any portion of their care. The OIG approved this “Billing Policy” in Advisory Opinion 99-06. Instead, the hospital’s operating revenue comes from charitable contributions (70 percent), third-party payors (including Medicaid), grants and other sources. In the event the hospital is able to bill a government payor, it generally recovers no more than 30 percent of the cost it actually incurred in providing the billed service.

The hospital’s research and clinical trials often last for years and require frequent hospital visits. To minimize the associated travel demands, the hospital has established four regional affiliates. Each affiliate agrees to treat the hospital’s patients, generally on an outpatient basis , according to strict research protocols, at no charge to the patients or their families.

To facilitate uniform treatment, the hospital prepares all drugs and supplies used by its patients at its in-house pharmacy and mails them to its affiliates for administration. The hospital incurs all of the costs associated with preparing and shipping the drugs and supplies, and neither the patients nor any third-party payors are billed for these costs. Affiliates may, where applicable, bill third-party payors for the costs associated with mixing or administering of drugs, but may not bill patients or their families.

In concluding that the arrangement did not warrant sanctions, the OIG cited several factors that mitigated the arrangement’s potential for fraud or abuse. First, the arrangement confers little, if any benefit on the affiliates. Since the affiliates do not bill for the cost of the drugs they receive, the arrangement does not inure to the affiliate’s economic benefit. Although the OIG noted that the affiliates may receive some economic benefit (for instance, a reduction in administrative costs), it concluded that such speculative, de minimus, value would not constitute an inducement for referrals. Further, since affiliates are responsible for billing the appropriate costs associated with their administration of the drugs, there is no overlap with services that the hospital may bill.

Second, the OIG concluded that it was “implausible” that the hospital created the arrangement to encourage the referral of federal health care program business. The agreements, the OIG noted, are actually designed to minimize referrals to the hospital, by offering participating families more convenient access to treatment. The OIG also felt that both the hospital’s admission policy and the low rate at which the Hospital expected to recoup its federally reimbursable costs suggested that it was unlikely that the arrangement was intended to generate referrals.

Third, the OIG noted that the type of treatment offered by the hospital minimized risks of overutilization or increased program costs. The majority of the treatment offered by the hospital is dictated by peer-reviewed research protocols, which make overutilization unlikely. Since most of the hospital’s programs are experimental, and, accordingly, are not even reimbursable under federal health care programs, an increase in program costs is similarly unlikely. Even amongst reimbursable treatments, however, the hospital’s policy of paying its patients’ copays creates, according to the OIG, a significant financial incentive to monitor utilization.

Finally, the OIG noted that the arrangement serves an important public benefit by ensuring that the hospital’s research on childhood diseases comported with good clinical research practices.

Advisory Opinion 06-05 reinforces the OIG’s previously articulated position that it will likely support programs designed to promote the public good, if they include reasonable safeguards. Nonetheless, given the very specific facts of Advisory Opinion 06-05, its application will likely be limited.

No. 06-06: OIG Approves City's Proposed Exclusive Arrangement for Emergency Ambulance Services
In Advisory Opinion 06-06, issued May 1, 2006, the OIG considered a city’s proposal to contract for exclusive emergency ambulance services with the winner of a competitive bid. The OIG determined the arrangement could potentially generate prohibited remuneration under the antikickback statute, but that it would not impose sanctions based on the facts provided.

The city operates paramedic units which provide advanced life support (ALS) but which do not transport patients (First Responder Services). The city’s 911 operators always dispatch a privately owned ambulance alongside the paramedic units. Generally, the paramedics arrive prior to the ambulance company and provide first responder services. When the ambulance service arrives it provides supplemental ALS, basic life support (BLS) and transport services (the second responder services).

Both Medicare and the city’s state Medicaid programs reimburse only the transporting entity for ambulance services. Both programs expect that service providers who do not provide transport will look to the transporting entity for payment.

The city issued a request for proposals from ambulance companies to provide emergency ambulance services in conjunction with the city’s paramedic units. Bidders were asked to propose a per-response payment to the city for each call of at least the difference between the Medicare Fee Schedule’s ALS and BLS rate. The city will forgo its payment for calls on uninsured city residents, but bidders must agree to charge uninsured city residents for BLS service only. Bidders must also agree to replenish certain drugs and supplies used by city paramedic units. In return, bidders will have an exclusive contract to provide transport during city 911 calls.

The OIG noted that the city’s solicitation for payment implicated the antikickback statute, but determined that sufficient safeguards existed to prevent fraud and abuse. In making its determination, the OIG focused on six primary factors:

The proposed arrangement is only one part of a comprehensive government regulatory scheme designed to manage the delivery of emergency medical services. Local governments should have the flexibility to run such systems economically.
The payments contemplated under the arrangement will not even cover the city’s actual costs to provide First Responder Services. Accordingly, the bidders will not be overpaying the source of the referrals. Additionally, Medicare payment rules contemplate the payment of nontransporting providers through transporting providers.
Since neither the bidders nor the city can influence the use of 911, they will not be able to encourage overutilization or increase federal health care program costs.
The city’s bidding process will be open and competitive, and such a process will likely preserve competition and is favored by public policy.
The putative remuneration (the per-response fees and replenished supplies) will inure to the public, not the private, benefit.
The proposed arrangement will not represent a fundamental change in the city’s delivery of emergency services.

The OIG also commented in a footnote that requiring the bidders to provide discounts to uninsured city residents also potentially implicates the antikickback statute. The OIG pointed out, however, that neither the statute nor the related regulations prevent providers or suppliers from offering free or substantially discounted services to uninsured individuals. See, e.g., Hospital Discounts Offered to Patients Who Cannot Afford to Pay Their Hospital Bills, available at http://oig.hhs.gov/fraud/docs/alertsandbulletins/2004/FA021904hospitaldiscounts.pdf. Further, the OIG noted that requiring the bidders to limit their charges to the uninsured does not provide any value to the city beyond the general public benefit of ensuring the availability of low-cost emergency services. This requirement, therefore, will not justify any sanctions.

Advisory Opinion 06-06 is consistent with a long line of mostly favorable opinions addressing EMS systems across the country. With certain safeguards in place, the OIG does not appear to be particularly concerned about government-run EMS systems. This advisory opinion also suggests that the OIG finds certain inherent benefits in an open and competitive bidding process.

No. 06-07: OIG Approves Waiver of Cost-sharing Obligations by Municipality-owned Ambulance Service
OIG Advisory Opinion 06-07, issued June 26, 2006, assessed the proposal of a municipality, which owns and operates it own ambulance service, to waive cost-sharing obligations of its residents through payment using local tax revenue. The OIG analyzed the proposal under the antikickback statute and, consistent with previous opinions on the topic (e.g., Advisory Opinions 04-12, 04-13, and 04-14), held that the arrangement would not generate prohibited remuneration under the antikickback statute.

Under the proposed arrangement, the municipality-owned ambulance provider would amend its billing policies to treat funding received from tax dollars as payment of cost-sharing obligations otherwise owed by municipal residents. The municipality ambulance provider would continue to bill non-residents for their cost-sharing amounts.

To begin its analysis, the OIG noted that insurance-only billing typically implicates the antikickback statute, particularly where routine waivers of cost-sharing obligations are made for reasons unrelated to individualized, good faith assessments of financial hardship. Here, the OIG looked to CMS guidance and concluded that a municipal ambulance company is not required, under the circumstances, to collect cost-sharing charges for municipal residents (see CMS Medicare Benefit Policy Manual, chapter 16, section 50.3.1).

The OIG noted that its conclusion would have been different had the municipality contracted its ambulance services to a third party. In that case, the municipality could not require the contractor to waive out-of-pocket cost-sharing, unless the municipality provided some method for cost-sharing payment.

No. 06-08: OIG Approves Free Clinic’s Prescription Distribution for Patient Assistance Program
OIG Advisory Opinion 06-08, issued June 27, 2006, addressed a free clinic’s practice of dispensing drugs free of charge to financially needy Medicare beneficiaries on behalf of patient assistant programs (PAPs) sponsored by pharmaceutical manufacturers. The OIG analyzed the arrangement under the antikickback statute and the prohibition against inducements to beneficiaries. The OIG concluded that the arrangement posed a minimal risk and thus it would not impose administrative sanctions.

The clinic is a nonprofit, tax-exempt community clinic that provides free medical care, dental care, and laboratory services to individuals who meet strict financial need guidelines. The clinic employs three nurse practitioners. The other practitioners providing professional services do so on a volunteer basis. The clinic is not a Medicare or Medicaid provider, as it only provides services to uninsured individuals.

The clinic also operates a pharmacy that stocks outpatient prescription drugs. These drugs are supplied by PAPs sponsored by pharmaceutical manufacturers. Under the arrangement, the clinic dispenses these drugs free of charge to financially needy PAP enrollees. The clinic dispenses drugs for two types of PAPs. The first type of PAP, or “individual-PAP,” enrolls individuals and sends drugs to the clinic to dispense to these enrollees. The individual-PAP establishes the enrollment eligibility criteria for each individual to receive free drugs and documents each individual’s eligibility. The second PAP is the “institutional-PAP.” It defines eligibility criteria for individuals to receive free drugs but the clinic must check and document a patient’s eligibility before dispensing drugs. Using these two approaches, the clinic dispenses drugs to uninsured individuals and in some circumstances to Medicare beneficiaries when the cost of a prescription at a local pharmacy would prohibit the beneficiary from filling the prescription. In the interest of conserving its drug stock, the clinic will direct individuals to other sources of assistance when available. The clinic does not fill prescriptions for Medicaid beneficiaries. The clinic receives no compensation from any PAP or PAP sponsor, directly or indirectly, in connection with its administrative or dispensing activities. In addition, no insurer or patient is billed for any part of the drugs.

At the outset, the OIG recognized that pharmaceutical manufacturer-sponsored PAPs have long provided important safety net assistance to uninsured patients with limited financial means, including Medicare beneficiaries who have no outpatient prescription coverage or cannot afford prescriptions through their Part D plans. Nevertheless, the OIG had to analyze whether the arrangement between the clinic and the PAPs could be a vehicle through which the PAP sponsors offer or pay remuneration to induce the clinic to purchase or order the PAP sponsor’s products that are payable by federal health care programs and, as such, implicate the antikickback statute. The OIG found that it did not for two reasons.

First, the OIG found that there was no remuneration paid by the PAPs to the clinic. The clinic received no monetary compensation from the PAPs or economic benefit by dispensing the PAPs’ drugs because it does not bill patients or insurers. In addition, the OIG found that the arrangement does not provide the clinic with any relief from an obligation, as it is not required to dispense drugs free of charge; rather, it is part of its charitable mission. The OIG also looked favorably upon the fact that this arrangement provides a public benefit.

Second, the OIG found that the clinic was not in a position to generate business for any PAP sponsor that would be payable under a federal health program. The prescriptions filled for Medicare beneficiaries were pursuant to care received at settings other than the clinic. The clinic does not compensate any physician or other prescriber who writes the prescription. Finally, even if the clinic bought any drugs from PAP sponsors it does not bill drugs to any federal health care programs.

The OIG also considered whether the arrangement would provide an impermissible inducement to Medicare beneficiaries that would generate business payable by federal health care programs. The OIG found it would not because the clinic does not bill federal health care programs for any items or services. Therefore, though the individuals receive something of value, there is no corresponding opportunity for the clinic to induce the individuals to obtain items or services payable by federal health care programs.

At first blush, Advisory Opinion 06-08 could appear at odds with Advisory Opinion 06-03, which also deals with PAP programs. The difference, however, is that Advisory Opinion 06-08 focuses on the clinic’s role in dispensing PAP drugs, instead of the PAP itself. The key to Advisory Opinion 06-08 is that the clinic does not engage in any business payable by federal health care programs.

No. 06-09: OIG Approves Charitable Organization’s Assistance with Medicare Part D Premiums and Cost-Sharing Obligations
On August 18, 2006, the OIG issued an advisory opinion regarding a charity’s proposal to subsidize the Medicare Part D premium and cost-sharing obligations of financially needy ESRD and chronic kidney disease patients. The OIG considered the arrangement under the prohibition against inducements to beneficiaries and the antikickback statute. The OIG concluded that it would not impose sanctions under the prohibition against inducements to beneficiaries. The OIG also concluded that it would not impose sanctions under the antikickback statute based on the facts of the situation.

The charity already received an OIG opinion approving its use of contributions from dialysis providers and others to fund its charitable work (which includes providing assistance to Part B beneficiaries). See Advisory Opinion 97-1. In this request, the charity sought to expand its programs to include subsidies for both the premiums of Part D plans that offer enhanced coverage for kidney conditions and the beneficiary cost-sharing obligations for Part D products associated with kidney disease.

Under the proposed arrangement, assistance would be provided on a first-come, first-served basis to the extent funding allows. The charity will review all applications based on its established objective criteria, including, inter alia, an applicant’s financial need and medical condition. If approved, assistance will be paid directly to applicant’s insurance company, providers, or suppliers for up to one year, at which point the applicant may reapply. When paying providers and suppliers directly is not possible, payment, subject to certain restrictions, will be made directly to the recipient.

Approved applicants will be permitted to use any provider or supplier and may change provider or suppliers at any point. The charity’s analysis of applications will not take into account the interests of any donor, the applicant’s providers or suppliers, or the identity of the person or group who referred the applicant. The charity will not refer to or recommend any particular product or provider.

Funding for the arrangement will come primarily from dialysis providers and pharmaceutical companies. Other than “earmarking” their donations for certain “condition-specific programs” created by the charity, donors will not be able to dictate the use of their contributions. Donors will not receive any patient-specific information regarding the use of their donations. Only the charity will decide which kidney disease-related programs it will subsidize.

The OIG analyzed the arrangement in two parts: the donors’ contributions and the charity’s grants. The OIG determined that here, as in other similar arrangements, the imposition of an independent, bona fide charitable organization between the donors and the recipients effectively minimizes the risk that a particular donor’s donation will be used to influence referrals.

In reaching its conclusion on donor contributions, the OIG noted:

Donors have no control over the charity or its programs.
Assistance is awarded in an independent manner, severing all links between donors and particular patients.
Neither an applicant’s choice of provider or supplier nor any donor’s interest influence the charity’s decision to award assistance.
Assistance is provided based on reasonable, verifiable, and uniform criteria.
Donors will not be able to correlate contributions with the use of their products or services.
Donors “earmarking” donations for condition-specific programs should not pose a risk of abuse because the donors will have no influence regarding the designation of the condition categories.

These safeguards, the OIG noted, conform to the guidance provided in the OIG’s November 2005 Special Advisory Bulletin on Patient Assistance Programs for Medicare Part D Enrollees. 70 Fed. Reg. 70,623 (Nov. 22, 2005).

The OIG’s analysis of the relationship between the charity and the recipients of its assistance noted similar safeguards, including:

Applicants will be reviewed objectively, subject to funding, on a first-come, first-served basis.
The charity’s analysis of applicants will not be influenced either by an applicant’s choice of providers or by any donor’s interests.
The arrangement will expand, rather than limit, patient freedom of choice.
As a charitable organization, the charity will have inherent incentives to monitor utilization.

Advisory Opinion 06-09 expands the analysis set forth in Advisory Opinion 97-1 to the Part D context. The OIG stresses that the imposition of a charitable organization has the practical effect of severing the tie between the pharmaceutical company (and other donors) and the Part D enrollee.

No. 06-10: OIG Approves Charitable Organization Providing Therapy Management and Cost-sharing Assistance
OIG Advisory Opinion 06-10, issued on September 14, 2006, addressed a non-profit, tax-exempt charitable organization’s practice of providing therapy management services and assistance with cost-sharing obligations to Medicare beneficiaries undergoing medical treatment for certain diseases. The OIG analyzed the arrangement under the antikickback statute and found that while the arrangement could potentially generate prohibited remuneration under the statute, based on the specific facts of the arrangement, the OIG would not impose administrative sanctions.

The charitable organization assists financially needy patients suffering from particular diseases (funded diseases) that require costly medications with particular features that complicate their use (specialty therapeutics). The specialty therapeutics may require physician administration, special handling or storage, or administration by injection or infusion. Initially, the charitable organization’s services were limited to financially needy patients with private insurance. Under the arrangement, the program expanded to include financially needy Medicare beneficiaries, including Part D enrollees.

Patients are selected to participate in the program on a first-come, first-served basis, using objective financial need criteria. The charitable organization asserts that eligibility determinations are made without consideration of donor interests, patient’s choice of provider, supplier, or product of any referring organizations. Once selected to participate, patients retain complete freedom of choice with regard to their providers, practitioners, suppliers, and products.

Strict compliance is critical to the effectiveness of each of the specialty therapeutics. As a result, the organization provides therapy management services, which can be accessed through the Internet, to help patients adhere to their treatment regime. These services are not billed to any federal health care program.

Funding for the organization is provided by individual donors, corporations, and foundations, including manufacturers of the specialty therapeutics, pharmacies distributing the specialty therapeutics, and suppliers of services used by patients on the specialty therapeutics. However, the charitable organization assures that no donor exerts any direct or indirect influence or control over the program. Donors may change or discontinue their contributions at any time and no donor receives any individual patient information. If requested, the charitable organization provides donors with aggregate information about the number of total applicants and qualified applicants for assistance for particular funded diseases.

The OIG analyzed the arrangement under the antikickback statute in two parts—first, the donor contributions to the charitable organization and, second, the organization’s assistance to patients. The OIG concluded that it would not impose administrative sanctions against either practice.

With respect to the donor contributions to the charitable organization, the OIG stated that “[l]ong-standing OIG guidance makes clear that industry stakeholders can effectively contribute to the health care safety net for financially needy Medicare beneficiaries by contributing to independent, bona fide charitable assistance programs.” The OIG found that the organization was an “independent, bona fide charitable organization” that effectively prevents beneficiaries from receiving information regarding funding sources for their particular benefits, thereby reducing any risk of improper influence or referrals. The OIG reached this conclusion based on the following six factors.

First, donors and their affiliates exercise no direct or indirect control over the charitable organization or its program. Second, the charitable organization awards assistance in an independent manner. Third, assistance is provided without regard to donors’ interests and without regard to the beneficiary’s selection of providers, practitioners, or suppliers. Fourth, the charitable organization uses reasonable, verifiable, and uniform criteria for financial need. Fifth, donors are not provided with any data that could be used to compare the amount of their donations with the use of their products. Sixth, no donor participates in the identification of funded diseases and thus, it is unlikely that the arrangement will serve as a conduit for a donor to provide financial assistance to patients using its products.

Next, the OIG turned to the charitable organization’s assistance to Medicare beneficiaries. The OIG concluded that providing therapy management services and assistance with Medicare cost-sharing obligations for eligible beneficiaries was not likely to improperly influence a beneficiary’s choice of a particular provider, practitioner, supplier, or product. The following four factors were influential in this decision.

First, patients are selected on a first-come, first-served basis to the extent funding is available. The charitable organization makes no recommendations or referrals to particular providers, practitioners, or suppliers. Second, the organization uses only objective financial need criteria to determine eligibility. Third, selection to the program puts no limitations on the patient’s choice of providers, practitioners, suppliers, or products. Fourth, the organization has an obligation to utilize its scarce resources to further its charitable mission.

Advisory Opinion 06-10 expands the OIG’s prior statements regarding contributions to charitable organizations and on to Medicare beneficiaries to the Part D context. The same analysis that stresses the independence of the charitable organization prevails.

We should note that although Advisory Opinion 06-10 is based on the antikickback statute, it includes a few references to the prohibition against inducements to beneficiaries. It is unclear if these references were inadvertent or intentional. In any event, the OIG’s analysis under each statute is generally consistent.

Nos. 06-11, 06-12: OIG Approves Municipality’s Exclusive Contract Arrangement for Ambulance Transport Services
On September 18, 2006, the OIG issued companion advisory opinions, 06-11 and 06-12, analyzing whether two cities seeking to enter into exclusive contracts with an ambulance transport service company for inter-facility transport of non-emergency patients would be in violation of the antikickback statute. The OIG found that while the proposed arrangements could potentially generate prohibited remuneration under the antikickback statute, the risk of fraud and abuse posed by these arrangements is mitigated by several factors.

Each of the requesting cities provides emergency medical transport within their respective boundaries. Under the proposed arrangements, the cities hope to expand their current services to offer non-emergency inter-facility transportation. The cities plan to adopt an ordinance to make each respective city the exclusive dispatcher and provider of non-emergency medical transport services to or from health care facilities, provided the transport originates within the cities’ respective boundaries. The ordinance would authorize the city to execute an exclusive contract with a medical transport service provider who, as a franchisee, will be required to respond to all calls from the city’s dispatch system for non-emergency inter-facility transports, regardless of the person needing service’s ability to pay. A schedule of user fees and charges will be established by the ordinance and the franchisee will be prohibited from providing services on an insurance-only billing basis. The franchisee must make reasonable efforts to collect on any cost-sharing amounts not reimbursed under the patient’s applicable health insurance.

The cities will choose their individual franchisees through an open procurement process and the original contract terms will be limited to three years. Under the arrangement, the franchisee will pay the city a flat fee of $50,000 annually, which the cities claim will offset their costs of operating dispatch services and of monitoring and supervising the performance of the program. No other remuneration is to be received directly or indirectly from the franchisee, and the annual fee is not based on the actual revenue received or dispatches made by the franchisee.

In its analysis, the OIG noted that “pay-to-play” arrangements, like the ones contemplated by the cities, undoubtedly implicate the antikickback statute because the arrangements involve the payment of an annual fee by the franchisee to be an exclusive provider of services which will be billed, in some cases, to a federal health care program. The OIG concluded, however, that several factors present in the cities’ proposed arrangement mitigate the risk of fraud or abuse.

First, the OIG found that the cities were ultimately accountable for the quality of services delivered to the public. By utilizing an open and competitive bidding process and entering into the exclusive agreement only as one part of a comprehensive regulatory scheme to manage emergency and non-emergency transport services, the cities achieve this accountability. Second, the OIG reasoned that the franchisees would not be overpaying for the source of referrals because the cities have certified that the $50,000 pay-to-play charge would offset only a portion of the cities’ actual costs for operating the dispatch services and other expenses. Third, the OIG found persuasive that the franchisee’s annual fee would not be based on the volume or value of referrals to the franchisee, and this fee will be the same no matter which service provider is exclusively selected to participate. Fourth, the OIG found that the arrangement would not be anti-competitive because it is the result of a competitive and open procurement process. Fifth, the potentially prohibited remuneration, the $50,000 payment, is a public benefit to the city’s citizens, rather than a private benefit retained by the franchisee. Finally, the OIG found that the risk of patient steering was minimal in these non-emergency transport arrangements, because the patients would be predestined for a particular facility prior to contacting the franchisee. Based on the foregoing reasons, the OIG determined that although the proposed arrangements could potentially violate the federal antikickback statute, it would not impose administrative sanctions on either of the cities.

Advisory Opinions 06-11 and 06-12 provide a roadmap for other cities to follow if they choose to pursue a similar strategy.

No. 06-13: OIG Approves Charity’s Assistance with Medicare Premiums and Cost-sharing
In Advisory Opinion 06-13, issued September 18, 2006, the OIG considered a charity’s proposal to subsidize certain patients’ premium and cost-sharing obligations under Medicare Parts B and D, Medicare Supplementary Health Insurance and the Medicare Advantage program. The OIG considered the arrangement under the prohibition against inducements to beneficiaries and the antikickback statute. The OIG concluded that it would not impose sanctions under the prohibition against inducements to beneficiaries. The OIG also concluded the arrangement could potentially generate prohibited remuneration under the antikickback statute, but that it would not impose sanctions based on the facts of the situation.

The requestor is a charity dedicated to funding research, education, and patient services for certain specified diseases. The charity sought approval to provide financially needy patients suffering from certain diseases with subsidies for their premiums and cost-sharing obligations under the Medicare program.

Under the arrangement, the charity will review applications for assistance based on an objective measure of financial need. Applications which met the financial need criteria would be approved on a first-come, first-served basis to the extent permitted by the charity’s funding. Assistance will be paid directly to the applicant’s insurance company, providers, or suppliers for up to one year, at which point the applicant may reapply. When paying providers and suppliers directly is not possible, payment, upon proof of incurred costs, will be made directly to the recipient.

Approved applicants will be under the care of a physician with a treatment regimen in place and will retain their freedom to change providers or suppliers at any point. The charity’s analysis of applications will not take into account the interests of any donor, the applicant’s providers or suppliers, or the identity of the person or group who referred the applicant. The charity will not refer to or recommend any particular product, provider, or supplier.

Funding for the arrangement will come primarily from drug manufacturers and the suppliers of certain services used by patients suffering from the specified diseases. Donors will be able to earmark their donations for certain “condition-specific programs” created by the charity. Otherwise, donors will not be able to dictate the use of their contributions. Donors will remain free to change their contributions at any time and will not receive any information enabling them to correlate donations with the use of their products or services.

The OIG analyzed the arrangement in the arrangement in two parts: the donors’ contributions and the charity’s grants. The OIG determined that here, as in other similar arrangements, the imposition of an independent, bona fide charitable organization between the donors and the recipients effectively minimizes the risk that a particular donor’s donation will be used to influence referrals.

In reaching its conclusion on donor contributions, the OIG noted:

Donors have no control over the charity or its programs.
Assistance is awarded in an independent manner, severing all links between donors and particular patients.
Neither an applicant’s choice of provider or supplier nor any donor’s interest influence the charity’s decision to award assistance.
Assistance is provided based on reasonable, verifiable, and uniform criteria.
Donors will not be able to correlate contributions with the use of their products or services.
Donors “earmarking” donations for condition-specific programs should not pose a risk of abuse because the donors will have no influence regarding the designation of the condition categories.

The OIG’s analysis of the relationship between the charity and the recipients of its assistance noted similar safeguards, including:

Applicants will be reviewed objectively, subject to funding, on a first-come, first-served basis.
The charity’s analysis of applicants will not be influenced either by an applicant’s choice of providers or by any donor’s interests.
The arrangement will expand, rather than limit, patient freedom of choice.
As a charitable organization, the charity will have inherent incentives to monitor utilization.

Opinion 06-13, like 06-09 and 06-10, is important because it stresses that the imposition of a charitable organization has the practical effect of severing the tie between the pharmaceutical company (and other donors) and the Medicare beneficiaries.

No. 06-14: OIG Approves Pharmaceutical Company’s Patient Assistance Program
On September 21, 2006, the OIG issued Advisory Opinion 06-14 regarding a pharmaceutical company’s desire to establish a patient assistance program (PAP) that would provide prescription drugs free of charge to financially needy Medicare Part D enrollees. The OIG found that the proposed arrangement could generate prohibited remuneration under the antikickback statute, but that the arrangement contained sufficient safeguards to justify the OIG’s decision not to impose administrative sanctions on the pharmaceutical company.

The pharmaceutical company’s proposed PAP would enroll individuals who use one or more of the PAP’s covered drugs, are enrolled in Medicare Part D, and who have financial need. Financial need would be determined based on whether a patient’s income is less than or equal to 200 percent of the federal poverty level. PAP assistance is provided for the remainder of the calendar year. Neither Medicare nor any Part D plan or enrollee would be charged for the drug provided to the enrollee by the PAP (except for a small copayment). Eligibility for the PAP would be reassessed each year.

PAP enrollees would pay a $25 copayment for each month’s supply of drugs. The enrollees would submit their prescriptions and payment to a mail order pharmacy which would also dispense the drugs to the enrollees. The cost of the drug would not count towards the enrollees’ TrOOP. Thus, the cost of these drugs would not count toward qualifying for catastrophic coverage under Part D. To help ensure this, the Company would participate in a data-sharing arrangement with CMS that would notify Part D plans regarding an enrollee’s participation in the PAP. Following, PAP enrollees would be required to certify that: (1) they would not submit any claim for reimbursement to any third-party insurer, including Medicare Part D for any product provided by the PAP and (2) they would not claim TrOOP costs from a Medicare Part D plan for the cost of the drug provided by the PAP.

The OIG began its analysis by referencing its 2005 Special Advisory Bulletin in which it discussed the fraud and abuse risks presented by a PAP’s subsidization of Medicare beneficiaries’ cost-sharing amounts for drugs payable by the Medicare Part D program. 70 Fed. Reg. 70,623 (Nov. 22, 2005). However, the OIG distinguished the proposed arrangement based on the fact that the pharmaceutical company would operate its PAP entirely outside of the Part D program. First, through the data sharing system, the PAP would notify Part D plans of its arrangement with enrollees and that no payment for the PAP drugs should be made by Medicare or any Part D plan and that no part of the PAP’s payment for the drugs would be counted toward the enrollee’s TrOOP. Second, an individual’s eligibility for enrollment in the PAP would be based solely on financial need and not on the individual’s choice of Part D plan, provider, supplier, or practitioner, and the duration of PAP coverage would not vary based on an enrollee’s drug usage. The OIG also looked favorably upon the PAP’s plan to maintain contemporaneous records of drugs provided to the enrollees as this would facilitate transparency and accountability in the arrangement.

The OIG found these elements of the proposed PAP to provide sufficient safeguards against the risk that the PAP drugs either would be used to tie Medicare beneficiaries to particular drugs payable under the Part D program or would result in increased costs to the Medicare Part D program. Therefore, the OIG determined that despite the potential for the proposed PAP to generate prohibited remuneration under the antikickback statute, it would not impose sanctions.

Advisory Opinion 06-14 does not reflect a change in the OIG’s position on PAPs sponsored by pharmaceutical manufacturers that cover Medicare Part D enrollees. Instead, it seems consistent with prior guidance that such programs will be approved where certain safeguards are present.

The OIG noted that while the proposed PAP could steer Medicare beneficiaries to the mail order pharmacy, prescriptions for PAP drugs are not payable by Medicare or Medicaid and thus the prohibition against inducements to beneficiaries would not be implicated.

No. 06-15: OIG Approves Contractor Disbursing Pay-for-performance Incentives for State Medicaid Program
The OIG issued Advisory Opinion 06-15 on September 29, 2006, addressing an arrangement allowing a private entity to disburse pay-for-performance incentives to physicians on behalf of a state Medicaid program. In finding that the arrangement did not violate the antikickback statute, the OIG stressed that the advisory opinion was very narrow in scope.

The requestor sells managed care products and services, including administrative services, as part of a larger company that operates businesses in the pharmaceutical, medical supply, and health care technology areas. The requestor had entered into an agreement with a state Medicaid program whereby the requestor agreed to develop and implement a disease management program on behalf of the state Medicaid program.

The disease management program includes a physician pay-for-performance component, by which the Medicaid program makes payments to physicians for ordering or recommending certain services designed to improve clinical outcomes. The Pay-for-performance Program was implemented through a Medicaid Waiver issued by CMS. The program’s goal is to reduce medical costs by achieving better health outcomes for patients.

Under the agreement, the requestor pays incentives to participating physicians in the form of checks drawn on a bank account in the name of the requestor. The state Medicaid program develops the criteria for the incentives, leaving the requestor with no discretion or independent authority to issue or revise payments. In return for its services, the requestor earns a fair market value fee, and the requestor is required to return any sums that are not disbursed to physicians. To avoid confusion, all marketing materials prominently designate the Pay-for-Performance Program or state Medicaid program as the payor and indicate that the requestor is a merely the contractor of the program.

The OIG began by stressing the narrowness of its decision, explaining that the opinion only addresses whether the requestor violated the antikickback statute by distributing financial incentives on behalf of the Medicaid program.

After stating that “it is the substance – not the form – of an arrangement” that is important for analyzing agreements under the antikickback statute, the OIG concluded that the requestor’s role as payment administrator was not a violation. First, the OIG found it persuasive that the state, rather than the requestor, funded payments. Second, the OIG noted that the requestor was acting as an agent of the state and lacked any discretion over the payments. Payments to physicians are not at all based on the use of the requestor’s products or services. Third, the OIG recognized that the state and the requestor have taken “meaningful” steps to reduce any misimpressions by third parties that the requestor is paying the physicians for referrals of Medicaid business.

Initial excitement that Advisory Opinion 06-15 might address pay-for-performance arrangements is quickly dashed by the OIG. Instead, the opinion considers the narrow issue of whether a contractor violates the antikickback statute by issuing checks on behalf of a Medicaid program. Of course, the OIG finds it does not.

No. 06-16: The OIG Warns Against DME Manufacturer’s Free Advertising and Consulting Services
Advisory Opinion 06-16, issued October 3, 2006, analyzed a proposed arrangement between a DME manufacturer and a DME supplier pursuant to which the DME manufacturer would provide free advertising and consulting services. The OIG concluded that the proposed arrangement implicated the antikickback statute and that the OIG could potentially impose administrative sanctions.

Advertising Services
Pursuant to the proposed arrangement, the DME manufacturer would provide free advertising services to the DME supplier which included reimbursing the DME supplier for its advertising costs, in the form of money or free DME, or the DME manufacturer, itself, might develop and pay for television, Internet, and print advertising for the DME supplier that feature the DME manufacturer’s products. Some of these advertisements would display the DME supplier’s name and contact information, which could include a toll-free number to a call center staffed and maintained by the DME manufacturer. The DME manufacturer determined which DME suppliers to assist and the value of such assistance based on the demographics for the customer’s market, historical market data, and projected market data.

Consulting Services
The DME manufacturer would either provide free consulting services to the DME supplier or underwrite such expenses that the DME supplier incurred. The free consulting services would include general claims submission information, such as coding advice. The DME manufacturer would also provide services related to reimbursement, such as assistance with: claims review, appealing denied claims, and assessing a patient’s medical need documentation in support of certain DME.

The OIG concluded that the proposed arrangement “clearly implicated the anti-kickback statute” and that it could “discern no safeguards against fraud and abuse in the [p]roposed [a]rrangement.” The OIG found there to be a substantial risk that the proposed arrangement would be a disguised kickback scheme having as one purpose the generation of business payable under the federal health care programs.

The OIG viewed the subsidized advertising expenses as sparing the DME supplier costs it would otherwise have to incur. The OIG noted that where advertising materials promoting the DME supplier displayed a toll-free number to a call center staffed by the DME manufacturer, there is a significant risk that patients may mistakenly believe they are speaking with the DME supplier’s representatives and obtaining objective information about the equipment, without any bias favoring one manufacturer’s products over another.

With regard to the consulting services, the OIG acknowledged that, as recognized in its Compliance Program Guidance for Pharmaceutical Manufacturers, standing alone, a manufacturer’s offer to purchasers certain reimbursement or support services may not have independent value to the purchaser or implicate the antikickback statute. However, if a manufacturer offered such services “in tandem with another service or program that confers a benefit on the [purchaser]… the arrangement would raise kickback concerns.” 68 Fed. Reg. 23,731 (May 5, 2003). The OIG found the consulting services in the proposed arrangement to fit within the latter category.

The OIG determined that the proposed arrangement presented all of the typical risks associated with kickbacks, such as overutilization and increased program costs. The OIG also noted the potential for beneficiaries to receive items or services that exceed their needs, and used the example of a DME manufacturer encouraging a DME supplier to equip a beneficiary with a power wheelchair when the patient does not require such equipment and then helping the supplier obtain reimbursement from federal health care programs. The OIG also noted the proposed arrangement would pose a risk of unfair competition as it may encourage suppliers to purchase from the DME manufacturer to the detriment of other manufacturers.

The OIG also noted that the proposed arrangement would be equally suspect if viewed from the opposite perspective, where the remuneration provided was from the DME supplier to the DME manufacturer. The OIG stated that the DME supplier’s agreement to generate business for the manufacturer could be remuneration provided in exchange for free advertising. The OIG stated that from either perspective the proposed arrangement presented risks of fraud and abuse.

Advisory opinions are sought from the OIG by individuals and entities that seek approval of an arrangement and individuals seeking arrangements must certify that if an arrangement is approved, they intend to enter into the arrangement. However, if individuals or entities find that competitors are offering things that it believes violate the antikickback statute, they may seek an opinion from the OIG believing that the OIG will disapprove of the arrangement, thus putting the competitor on notice regarding the OIG’s thoughts on the arrangement. Due to the lack of positive and mitigating facts that could arguably reduce the OIG’s perception of potential fraud or abuse included in the opinion, it appears that opinion 06-16 could fall with in this second category of opinion requests.

No. 06-17: OIG Approves Percentage Payment Between Dental Networks and Marketing Company
In Advisory Opinion No. 06-17, the OIG analyzed an arrangement between a dental preferred provider network and a marketing and management company, pursuant to which the network agreed to pay the marketing company percentage-based compensation for having identified a federal employee health benefits plan that entered into a contract with the network. The OIG determined that the arrangement could potentially generate prohibited remuneration under the antikickback statute, but that it would not impose administrative sanctions based on the facts of the arrangement.

The network consists of dentists who accept a discounted fee for services provided to network clients, such as employers. Employers who are clients of the network must pay the network a monthly fee per employee. The network engaged the marketing company to market the network to potential clients. For each potential client identified by the marketing company who entered into a services agreement with the network, the network pays the marketing company a percentage of the new client’s monthly fee per employee. This compensation does not vary based on, or otherwise reflect, the employees’ or client’s use of the network (and its dentists) or the payor of items or services furnished by network dentists.

Through the marketing company’s connections with a third-party administrator (TPA), the network entered into an agreement with the TPA giving the access to the network and, in turn, the TPA offered the network to one of its clients, a federal employee plan. As a result, the network must pay the marketing company a percentage of the monthly fee per employee paid by the TPA based on the number of employees in the federal employee plan.

The federal employee plan is not a federal health care program under the antikickback statute. However, some of the federal employee plan members may be beneficiaries of federal health care programs. any event, the amount of federal health care program dollars at issue is very small. To the extent federal employee plan members qualify for federal health care programs, Medicare covers few dental procedures and Medicaid would be the secondary payor. Overall, an estimated one percent of the billings for dental items and services provided to the federal employee plan enrollees are paid by federal health care programs.

The OIG began its analysis by stating that when any entity markets, arranges for, and/or recommends health care items that are payable, in whole or in part, by federal health care programs, the antikickback statute is potentially implicated. The OIG also noted that per-patient, per-unit-of-service, percentage, or other variable compensation structures are particularly problematic because they relate to the volume or value of the business generated. Despite these concerns, the OIG concluded it would not impose sanctions in connection with the arrangement for two primary reasons.

First, a small amount of federal health care program dollars would be paid to etwork dentists as a result of this arrangement. In the OIG’s view, the fact that some federal health care program beneficiaries may gain access to network dentists as a result of the arrangement is merely incidental.

Second, the OIG found that the compensation payable to the marketing company did not create an incentive for the marketing company to generate federal health care program business for the network or network dentists as the compensation does not depend, in any respect, on whether the members of the federal employee plan are federal health care program beneficiaries or whether they actually obtain services from the network dentists.

Though not expressly stated, the OIG seemed to view the very small amount of federal health care program reimbursement involved in the arrangement as its main saving grace.

Advisory Opinion 06-17 is important because the OIG essentially concluded that the amount of federal health care program business at issue is so small as to be “incidental” to the overall arrangement. While one percent is enough to trigger scrutiny under the antikickback statute, it is not enough to form the intent necessary for a violation.

No. 06-18: OIG Approves System’s Support of Outreach Volunteer Services Program
On October 26, 2006, the OIG issued an advisory opinion regarding a health system’s support of an outreach volunteer services program, specifically, the health system’s organization of the program and coverage of program volunteer travel costs. The OIG determined the arrangement could potentially generate prohibited remuneration under the antikickback statute, but that it would not impose sanctions based on the facts of the situation.

The requestor is a large health system operating six acute care hospitals, one specialty hospital, and numerous outpatient clinics. The health system supports an outreach program that coordinates volunteer physicians and other health care professionals to travel to underserved rural communities. The volunteers provide the needy communities with specialty medical care, health screenings, and related services while providing local physicians educational and collaborative opportunities. The volunteers work to address the rural areas’ identified needs, including shortage in health professionals, barriers due to distance and lack of transportation, vulnerable populations, and lack of adequate educational opportunities for rural practitioners.

The program is coordinated by the health system’s employees. When a request is received from a rural provider or community, the health system assesses the community’s needs, focusing on objective criteria relating to professional development, shortage of health care professionals, and shortage of specialty care. If a community is eligible under these criteria, the health system determines the scope of the project and coordinates volunteers.

Volunteers are required to spend at least 20 percent of their time during the trip on program activities. While volunteers are permitted to bill those patients with coverage (including Medicare), time spent performing billable services does not count towards the 20 percent. Volunteers must provide care to all patients, regardless of their ability to pay. Patients presenting for treatment receive care just as though they had sought care from the health system’s facilities; the program does not provide free or discounted care to beneficiaries.

The program either provides its volunteers with no-cost flights to the destination communities or it reimburses them based on the mileage they actually travel. Volunteers are not required to spend the night at the destination communities, and they are not permitted to travel to communities where they maintain an office or practice. The volunteers must be credentialed at one of the health system’s facilities, and may not have been subject to disciplinary or regulatory action.

The health system’s decision to serve a community does not take into account potential referrals or other business generated. The health system does not track referrals from the program, and volunteers are free to refer patients to any facility. The content of the program’s educational materials is controlled by the volunteers. A limited supply of volunteers has restricted the health system to accepting 30 percent of the assistance requests it receives.

The OIG noted that the program confers benefits on two potential referral sources— the volunteers (who receive free travel benefits), and the patients and professionals in the communities (who receive access to care and education not otherwise available). Accordingly, the program implicates the antikickback statute. The OIG noted, however, that several features of the program reduce the risk of abuse, including:

Volunteers will not unduly profit, and must see patients regardless of their ability to pay; accordingly the travel cost assistance does not generate income (or any other improper benefit) for volunteers.
Volunteers are not likely to generate referrals to the health system. In addition to the health system’s refusal to track referrals or take referral potential into account, the health system conducts annual audits to ensure compliance.
The provided education primarily benefits needy rural patients. Although rural providers will receive the education, the education is informal and geared towards advancing patient care rather than providing a benefit to those providers. Further, the health system has no control over the educational content, which is controlled by volunteers.
There is no remuneration provided to federal program beneficiaries since the program does not provide free or discounted services.
The program provides a valuable service to the needy communities.
The program addresses a defined and documented need in rural communities.

Given these features, the OIG decided that it would not impose sanctions.

Opinion 06-18 does not make any revolutionary points, but it does support the OIG’s ongoing position that programs intended to promote an obvious public benefit will not be sanctioned so long as they contain certain minimum safeguards against antikickback violations.

No. 06-19: OIG Approves Manufacturer’s PAP for Part D Enrollees
In an October 26, 2006, advisory opinion, the OIG approved two more PAPs (PAP A and PAP B) pursuant to an advisory opinion sought by a manufacturer of prescription drug products. These PAPs would provide outpatient prescription drug assistance for financially needy Medicare beneficiaries who are enrolled in a Part D plan, but which would operate entirely outside of the Medicare Part D drug program. In other words, no drugs proposed to be given by the PAPs to a Part D enrollee would be billed to the Medicare program or Part D plan, nor would the costs count towards participating beneficiaries’ true out-of-pocket costs.

To qualify for assistance from PAP A and PAP B, patients would have to meet the following requirements:

Use one or more of the applicable PAP’s covered drugs;
Have an income below 350 percent of the federal poverty level (PAP A), or below 250 percent of the federal poverty level (PAP B); and
Have spent at least $600 on outpatient prescription drugs already that coverage year.

Once an enrollee qualifies for PAP assistance in a given year, assistance would continue for the remainder of that year, even if the patient’s use of the drug was periodic. A patient’s eligibility for assistance in subsequent years would be reassessed each year, and assistance would not begin again until the patient met the eligibility criteria in that year.

The manufacturer also stipulated that the assistance would be awarded without regard to any provider, practitioner, or supplier used by the patient, and without regard to the enrollee’s choice of Part D plan, the benefit design of the enrollee’s Part D plan, or the percentage of costs borne by the enrollee, Part D plan, or the Medicare program.

Additionally, the manufacturer stipulated that the PAPs would maintain accurate and up-to-date records of all PAP drugs provided to Part D enrollees and that they would work with CMS to use data-sharing agreements to enable the PAPs to notify Part D plans regarding beneficiaries’ participation in the PAPs. Such coordination would ensure that neither Medicare nor any Part D plan or enrollee would be charged for the covered drug. It would also allow the patients’ Part D plan to conduct drug utilization and medication therapy management activities. Additionally, the PAPs would provide written notice to the patients that they will be eligible to receive the free drug from the PAP for the remainder of the year, that the drugs should not be reimbursed by the enrollee’s Part D plan, and that the free drugs will not count towards the patient’s true out-of-pocket costs. Finally, the manufacturer certified that the PAPs would operate in compliance with all then-existing CMS guidance.

PAP A
The first of the two proposed PAPs would provide free outpatient cancer drugs to qualified patients, including Part D enrollees. PAP A would ship the drugs directly to patients’ physicians. The physicians would receive no compensation for receiving the products and would be prohibited from billing any entity for the free products. Patients would receive the drugs free of charge and with no information regarding their value or cost.

PAP B
Under the second proposed arrangement, a qualified PAP applicant would obtain free outpatient drugs for a “broad spectrum of indications” other than oncology drugs covered by PAP A. The free drugs would be obtained by patients in one-month increments from any licensed retail pharmacy chosen by the enrollee, and the pharmacy would be reimbursed at fair market value by the PAP for the drugs. The patients would receive the drugs free of charge and with no information regarding their value or cost.

Under the proposed arrangement, a PAP enrollee would obtain PAP drugs from any duly licensed retail pharmacy of his or her choosing. The patient would present a valid prescription, and the pharmacy would dispense a one-month supply of the PAP drug. The PAP would pay the pharmacy fair market value for providing the PAP drug.

The manufacturer does not own or operate pharmacies, pharmacy benefit management companies, or any entities that file claims for payment under the Medicare or Medicaid programs. The patients who are Part D enrollees would obtain their drugs without using their Part D insurance benefit. No claims for payment for the drugs provided would be filed with a Part D plan or the Part D enrollees, and the assistance would not count towards the enrollee’s total Part D spending for any purpose.

The OIG did not express, nor was it asked to express, an opinion about the PAP’s relationship with retail pharmacies.

In analyzing the proposed arrangement, the OIG again noted its concern about the potential for PAPs that provide free products to Part D enrollees to introduce risks of fraud and abuse in the Medicare program through kickbacks, steering of patients, and reducing enrollees’ incentives to find less expensive, equally effective drugs. However, the OIG determined that the proposed PAPs, which operated entirely outside of the Part D benefit, contained adequate safeguards to ensure that they would operate entirely outside the Medicare treatment benefit, and with a minimal risk to the Part D program because of the data-sharing requirements with CMS and the methodology used to determine eligibility. Taken as a whole, the OIG determined that these safeguards mitigate the risk that the PAP drugs would be used to tie Medicare beneficiaries to particular outpatient prescription drugs payable by Medicare Part D or that the PAP drugs would be used to increase costs to the Medicare Part D program (for example, by increasing the number of beneficiaries who reach the catastrophic benefit, by hastening the point during the coverage year at which a beneficiary reaches the catastrophic benefit, or by inducing beneficiaries to use higher cost drugs during the catastrophic benefit instead of equally effective, lower-cost alternatives).

The OIG concluded that while the proposed PAPs could potentially generate prohibited remuneration under the antikickback statute if the requisite intent to induce or reward referrals of federal health care program business were present, it nevertheless would not impose sanctions.

No. 06-20: OIG Questions DME Suppliers’ Provision of Free Interim Home Oxygen and/or Free Overnight Oximetry Testing
On November 1, 2006, the OIG issued Advisory Opinion 06-20 regarding a DME supplier’s provision of free interim home oxygen and/or free overnight oximetry testing to Medicare beneficiaries. The arrangements were analyzed under the civil monetary penalty provision (CMP) prohibiting inducements to beneficiaries and the antikickback statute. The OIG indicated that the arrangements could potentially violate both the CMP and the antikickback statute.

The requestors were two DME suppliers who, among other things, furnish home oxygen products and services to a national patient population, including Medicare and Medicaid program beneficiaries. The requestors asked the OIG to consider two arrangements, one existing and one proposed, both together and separately.

The OIG explained that Medicare only covers home oxygen ordered by a physician if an oximetry test measuring blood-oxygen levels supports the order. A DME supplier may not conduct the qualifying oximetry test. Normally, the time lag from when the physician writes the order until the qualifying test is performed ranges from a few days to several weeks. Medicare does not cover oxygen prior to the completion of the qualifying test.

The existing arrangement involves providing free home oxygen to patients, including Medicare beneficiaries, during the time from when a physician orders oxygen until the patient completes a qualifying test. Under the proposed arrangement, the DME suppliers would deliver and set up the oxygen in the patient’s home based upon the physician’s order. The DME suppliers do not advertise the free interim oxygen, but they do respond truthfully to inquiries. Patients typically learn about the free interim oxygen from their physicians. The DME suppliers indicated that the provision of free interim oxygen is a common practice throughout the home oxygen industry.

The proposed arrangement involves providing free overnight oximetry testing to patients, including Medicare beneficiaries. The tests cannot qualify a beneficiary for oxygen coverage under Medicare, although the DME suppliers claim the tests can yield useful preliminary data. The DME suppliers estimate that the value of the overnight oximetry testing is approximately $22. As with the existing arrangement, the DME suppliers do not advertise the free overnight oximetry testing, but they do respond truthfully to inquiries. Patients generally learn about the free overnight oximetry testing from their physicians. The DME suppliers would provide patients with a written freedom of choice disclosure.

The analysis and results in Advisory Opinion 06-20 are essentially the same as those in Advisory Opinion 06-01 (which dealt with a home health agency’s practice of providing prospective customers with a free preoperative home safety assessment). The OIG began it analysis by noting that although the free interim oxygen and free overnight oximetry testing are not covered by Medicare or Medicaid, many of the DME companies’ other items and services are covered. The OIG reiterated its long-standing concern about the provision of free items in connection with covered services. The OIG then undertook a three-part test under the CMP.

First, the OIG considered whether the free interim oxygen and/or free overnight oximetry testing constitute remuneration. The OIG concluded that the free interim oxygen, which may last a few days to several weeks, has a “clear and substantial” value to Medicare beneficiaries. Next, the OIG concluded that the free overnight oximetry testing would be delivered to the beneficiary in such a way as to lead a reasonable beneficiary to believe that he or she was receiving a valuable service.

Second, the OIG considered whether the provision of free interim oxygen and free overnight oximetry testing is likely to influence the beneficiaries to select the DME suppliers to provide the Medicare-covered oxygen or other covered items or services. Here, the OIG articulated a test of whether it is “reasonable and probable” that the remuneration would influence the beneficiary’s choice of provider. The OIG concluded that the free interim oxygen and free overnight oximetry testing would influence the patient’s choice of oxygen provider. In reaching this conclusion, the OIG suggested that the patients are likely to infer a recommendation of the DME suppliers for the Medicare-covered oxygen from the physician’s recommendation of the same DME suppliers for the free interim oxygen and free overnight oximetry testing. The OIG also noted that the free interim oxygen and free overnight oximetry testing gives the DME provider “an opportunity to initiate a personal relationship” with the beneficiary. In other words, the DME supplier would use the free interim oxygen and free overnight oximetry testing as an opportunity to market other services. In a footnote, the OIG found that the DME suppliers’ use of a freedom of choice disclosure did not provide a sufficient safeguard by itself.

Finally, the OIG considered whether the DME supplier knew or should have known that the provision of the free interim oxygen and free overnight oximetry testing would likely influence the beneficiaries’ choice of oxygen provider. The OIG found that the structure and operation of the arrangement suggested it was calculated to generate subsequent business.

The OIG also raised an additional fraud and abuse concern that providing the free overnight oximetry testing is “a thinly veiled scheme” to evade the Medicare prohibition against DME suppliers (except hospitals) performing qualifying oximetry tests. Given the OIG’s recognition that the free tests cannot serve as qualifying oximetry tests, it is unclear how these free tests are designed to evade the Medicare prohibition.

Without any separate analysis, the OIG stated that the arrangements could potentially violate the antikickback statute for the same reasons as they potentially violate the CMP.

Advisory Opinion 06-20 shows one of the drawbacks of the advisory opinion process – namely, the lack of coordination between the OIG’s enforcement priorities and the subjects addressed in advisory opinions. It seem fairly unlikely that the OIG would ever choose to make it an enforcement priority under the CMP to pursue arrangements, such as the provision of the free interim oxygen, that benefit patients and do not cost the government additional money. However, when the question is posed in an advisory opinion, the result seems inevitable given the law as it is currently written and the OIG’s approach to advisory opinions.