The U.S. Department of Health and Human Services (HHS), Office of Inspector General (OIG) posted a favorable Advisory Opinion (24-10) allowing the expansion of an existing loyalty program offered by a medical and dental supply distributor (Company) to its member customers (Customers), while cautioning that “discount” programs are typically high risk.
Under the existing loyalty program, Customers (such as general dental practitioners, dental and orthodontic specialists, dental laboratories, and local dental service organizations) earned points on purchases they made from the Company’s Dental Division. These points could be redeemed to lower the cost of future purchases. Customers were also assigned tiered memberships based on annual spending amounts. Each tier provided defined benefits such as discounts and offerings on the Company’s support services and warranties.
Under the proposed expansion, Customers would also be able to redeem earned points on purchases from the Company’s subsidiaries, including those in which the Company had an ownership stake, as well as on roughly 200,000 dental-related products manufactured by thousands of entities. The Company certified that Customers would not be directed to redeem points for any specific item or service, and that the Federal health care programs reimbursed some of these items or services and not others.
In its analysis, OIG identifies two remuneration streams from the Company or its subsidiaries to Customers that implicate the Federal Anti-Kickback Statute:
- Remuneration in the form of points that could be redeemed for future qualifying purchases; and
- Remuneration in the form of tiered benefits based on the amount spent on qualifying purchases.
Neither stream satisfies the “discount” safe harbor, according to OIG, because they are types of “other remuneration.” Yet, OIG concluded that the proposed loyalty program expansion posed a sufficiently low risk of fraud and abuse because:
- the low dollar value of each earned point ($0.005) reduces the risk of steering and does not incentivize Customers to purchase particular items or services;
- use of redeemable points is limited to dental-related items or services and can cover no more than 50% of the purchase price of that item or service;
- the points have no value outside of the loyalty program and the tiered benefits relate to customer support services rather than lavish rewards for personal use; and
- the tiered benefits are based on objective criteria set forth in advance and consistently applied, which reduces the risk of abuse, overutilization, or corrupted medical decision-making.
Despite this favorable opinion, OIG points out that “discount” programs are subject to scrutiny and are high risk, especially if they do not meet a safe harbor. Consulting with legal counsel before engaging in this type of arrangement is, therefore, crucial to ensuring compliance.
A complete copy of the favorable advisory opinion is available here.
Should you have any questions regarding the above, or would like to seek your own advisory opinion, please contact the authors, the Garfunkel Wild attorney with whom you regularly work, or email us at [email protected].