On March 28, 2006, the Office of Inspector General (the “OIG”) of the Department of Health and Human Services (the “DHHS”) issued Advisory Opinion 06-02. The opinion examines two programs proposed by a manufacturer (the “Requestor”) of durable medical equipment, prosthetics, orthotics, and supplies (“DMEPOS”) for the delivery of DMEPOS in the physician practice setting. The OIG concluded that the programs could potentially generate prohibited remuneration under the federal anti-kickback statute (the “Anti-Kickback Law”) and result in administrative and criminal sanctions.
Introduction of the Anti-Kickback Law
The Anti-Kickback Law makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a federal healthcare program (“FHCP”), such as Medicare or Medicaid. The Anti-Kickback Law has been broadly interpreted by courts to prohibit any payment, if one purpose of the payment is to induce the referral of FHCP items and services, irrespective of whether there are other legitimate business purposes for the payment. Violation of the statute constitutes a felony punishable by a maximum fine of $25,000, imprisonment up to five years, or both. Conviction will also lead to automatic exclusion from Medicare and Medicaid.
Recognizing that many common, non-abusive arrangements could constitute technical violations of the law, the OIG has promulgated regulations known as “safe harbors.” If an arrangement satisfies all the elements of the applicable safe harbor(s), then payment under those arrangements will be protected from both criminal prosecution and civil penalties under the Anti-Kickback Law. The absence of safe harbor protection does not make arrangements that implicate the Anti-Kickback Law necessarily illegal, but requires the OIG to evaluate the arrangements on a case-by-case basis.
The Proposed Programs
Pursuant to the proposed programs, the Requestor would offer physician practices (the “Practices”) the option of choosing between one of two programs. The first program “carves out” FHCP beneficiaries, and thus only involves the provision of DMEPOS items and services to patients who are not FHCP beneficiaries (the “First Program”). The second program includes both FHCP and non-FHCP patients (the “Second Program”).
The First Program (Non-FHCP Patients Only)
The first proposed program would involve the following sixrelated components pursuant to a written agreement between the Requestor and the Practices:
- The Practices would bill commercial plans and patients directly for the furnishing of DMEPOS products.
- The Requestor would sell DMEPOS products to the Practices consistent with commercial practice and in compliance with the discount safe harbor. The Practices could profit by billing health plans and patients more for the products than the prices at which the Practices purchased the products.
The Requestor would rent continuous passive motion devices to the Practices on an as-needed basis at a per diem rate and the Practices would subsequently rent the devices to non-FHCP patients at a higher per diem rate than the Practices paid the Requestor. Although the rental arrangement would meet most of the requirements of the equipment rental safe harbor, the aggregate rental amount and the schedule and length of the rental would not be set in advance.