- November 1, 2023
- Alerts
OIG Issues Unfavorable Opinion on Supplying Free Device
By:
David M. Traskey
On October 25, 2023, the U.S. Department of Health and Human Services, Office of Inspector General (OIG) posted Advisory Opinion 23-08, an unfavorable opinion regarding a cochlear implant manufacturer’s proposal to offer and provide a free compatible hearing aid to eligible patients, including Federal health care program beneficiaries, who received one of the cochlear implants it manufactures.
The OIG stated that this proposal implicated the Federal anti-kickback statute (AKS) and the civil monetary penalty (CMP) law provision prohibiting inducements to beneficiaries because the manufacturer would offer and provide remuneration in the form of a free hearing aid to eligible patients. Such a proposal, according to the OIG, would generate prohibited remuneration under both the AKS and CMP. The OIG further found that none of the AKS safe harbors or CMP exceptions applied here.
In this case, the manufacturer produces an implantable device with an internal cochlear implant and an external sound processor that it sells to hospitals and ambulatory surgery centers (ASCs). The manufacturer is also a Medicare-enrolled, durable medical equipment (DME) supplier for the limited purpose of furnishing repair services and replacements for the device’s external sound processors. It bills these items and services to Medicare, Medicaid, Medicaid Managed Care, and other Federal health care programs. Federal health care programs cover cochlear implants in certain circumstances, but they do not cover hearing aids.
Some patients who receive the manufacturer’s device may be candidates for bimodal hearing (i.e., combined use of a hearing aid in one ear and a cochlear implant in the other ear). Although pairing the device with a hearing aid in the other ear can improve hearing outcomes for these patients, the manufacturer certified that the device worked with or without the use of a hearing aid in the other ear.
The manufacturer proposed to provide the device and a free compatible hearing aid (i.e., the “bundle”) to these patients: (1) if they met the Medicare coverage requirements for a cochlear implant, including using the device in accordance with FDA labeling; (2) if they had moderate-to-severe hearing loss, as determined by a medical provider, in the ear without the device; (3) if the hospital or ASC purchased the device from the manufacturer at the patient’s provider’s request; and (4) that the free hearing aid was conditioned on the purchase of the device.
Regarding the hearing aid, the manufacturer would require hospitals and ASCs to certify that they would: (1) not bill Federal health care programs for the hearing aid; and (2) advise patients and audiologists in writing that they may not claim insurance reimbursement for the hearing aid, and that the audiologists may charge patients only their usual and customary fee for fitting the hearing aid. Finally, the manufacturer proposed that there would be either no imposition of financial need criteria, or that patients would need to demonstrate financial need (i.e., those with household incomes are at or below 300 percent of the Federal Poverty Level) to qualify for a hearing aid.
The OIG determined that the manufacturer’s proposal to offer and provide a free hearing aid to beneficiaries would generate prohibited remuneration under the AKS. Accordingly, it next examined whether any of the statute’s safe harbor provisions applied. The OIG considered the safe harbor for arrangements for patient engagement and support to improve quality, health outcomes, and efficiency, but concluded that the manufacturer’s proposal would not fit within the safe harbor because the cost of the hearing aid exceeded the current monetary cap for such items or services.
The OIG also considered the exceptions for promoting access to care and financial need under the CMP. The OIG found, however, that the exception for promoting access to care would not apply here because the hearing aid would not improve a beneficiary’s ability to obtain items and services payable by Medicare or Medicaid, nor was the hearing aid required for the device to work properly. Likewise, the OIG determined that the financial need-based exception would not be satisfied because the free hearing aid was conditioned on the purchase of the device, which is a reimbursable item. The OIG reminded providers that the financial need-based exception applies only when the items or services being offered for free or less than fair market value are not tied to the provision of other reimbursable items or services.
Importantly, this opinion demonstrates that manufacturers and distributors who propose to offer and give a free, non-reimbursable item to Federal health care program beneficiaries, along with a reimbursable item or service, proceed with caution because it may generate prohibited remuneration and constitute grounds for the imposition of sanctions – even where those goods or services have therapeutic, as well as financial, benefits for patients. To avoid this potential pitfall, these arrangements must be structured to fit squarely into an AKS safe harbor or a CMP exception.
Should you have any questions regarding the above, please contact the author, the Garfunkel Wild attorney with whom you regularly work, or contact us at info@garfunkelwild.com.
The OIG stated that this proposal implicated the Federal anti-kickback statute (AKS) and the civil monetary penalty (CMP) law provision prohibiting inducements to beneficiaries because the manufacturer would offer and provide remuneration in the form of a free hearing aid to eligible patients. Such a proposal, according to the OIG, would generate prohibited remuneration under both the AKS and CMP. The OIG further found that none of the AKS safe harbors or CMP exceptions applied here.
In this case, the manufacturer produces an implantable device with an internal cochlear implant and an external sound processor that it sells to hospitals and ambulatory surgery centers (ASCs). The manufacturer is also a Medicare-enrolled, durable medical equipment (DME) supplier for the limited purpose of furnishing repair services and replacements for the device’s external sound processors. It bills these items and services to Medicare, Medicaid, Medicaid Managed Care, and other Federal health care programs. Federal health care programs cover cochlear implants in certain circumstances, but they do not cover hearing aids.
Some patients who receive the manufacturer’s device may be candidates for bimodal hearing (i.e., combined use of a hearing aid in one ear and a cochlear implant in the other ear). Although pairing the device with a hearing aid in the other ear can improve hearing outcomes for these patients, the manufacturer certified that the device worked with or without the use of a hearing aid in the other ear.
The manufacturer proposed to provide the device and a free compatible hearing aid (i.e., the “bundle”) to these patients: (1) if they met the Medicare coverage requirements for a cochlear implant, including using the device in accordance with FDA labeling; (2) if they had moderate-to-severe hearing loss, as determined by a medical provider, in the ear without the device; (3) if the hospital or ASC purchased the device from the manufacturer at the patient’s provider’s request; and (4) that the free hearing aid was conditioned on the purchase of the device.
Regarding the hearing aid, the manufacturer would require hospitals and ASCs to certify that they would: (1) not bill Federal health care programs for the hearing aid; and (2) advise patients and audiologists in writing that they may not claim insurance reimbursement for the hearing aid, and that the audiologists may charge patients only their usual and customary fee for fitting the hearing aid. Finally, the manufacturer proposed that there would be either no imposition of financial need criteria, or that patients would need to demonstrate financial need (i.e., those with household incomes are at or below 300 percent of the Federal Poverty Level) to qualify for a hearing aid.
The OIG determined that the manufacturer’s proposal to offer and provide a free hearing aid to beneficiaries would generate prohibited remuneration under the AKS. Accordingly, it next examined whether any of the statute’s safe harbor provisions applied. The OIG considered the safe harbor for arrangements for patient engagement and support to improve quality, health outcomes, and efficiency, but concluded that the manufacturer’s proposal would not fit within the safe harbor because the cost of the hearing aid exceeded the current monetary cap for such items or services.
The OIG also considered the exceptions for promoting access to care and financial need under the CMP. The OIG found, however, that the exception for promoting access to care would not apply here because the hearing aid would not improve a beneficiary’s ability to obtain items and services payable by Medicare or Medicaid, nor was the hearing aid required for the device to work properly. Likewise, the OIG determined that the financial need-based exception would not be satisfied because the free hearing aid was conditioned on the purchase of the device, which is a reimbursable item. The OIG reminded providers that the financial need-based exception applies only when the items or services being offered for free or less than fair market value are not tied to the provision of other reimbursable items or services.
Importantly, this opinion demonstrates that manufacturers and distributors who propose to offer and give a free, non-reimbursable item to Federal health care program beneficiaries, along with a reimbursable item or service, proceed with caution because it may generate prohibited remuneration and constitute grounds for the imposition of sanctions – even where those goods or services have therapeutic, as well as financial, benefits for patients. To avoid this potential pitfall, these arrangements must be structured to fit squarely into an AKS safe harbor or a CMP exception.
Should you have any questions regarding the above, please contact the author, the Garfunkel Wild attorney with whom you regularly work, or contact us at info@garfunkelwild.com.