The safe harbors to the Federal Anti-Kickback Statute (AKS) offer providers an important lifeline when crafting arrangements which might otherwise be prohibited. One of the more popular safe harbors is the Personal Services and Management Contracts safe harbor. Typically, in applying this safe harbor, the U.S. Department of Health and Human Services, Office of Inspector General (OIG) views flat fee arrangements favorably.
Recently, however, OIG issued an unfavorable opinion (25-08) in which a medical device company (Company) proposed to pay a third-party vendor (Vendor) a yearly flat fee to access Vendor’s electronic billing portal (Portal). The Company sought access to the Portal in order to sell certain surgical medical devices to Company’s Customers who use the Portal or require Company to use the Portal as a condition of doing business. This unfavorable opinion shows that not all flat fee arrangements are created equal. Providers who use flat fee arrangements may be subject to additional scrutiny from OIG concerning the business rationale or underlying purpose of such fees.
The OIG determined that the proposed arrangement (Arrangement) implicates the AKS and that the Personal Services and Management Contracts safe harbor did not apply because:
- Company would pay Vendor remuneration to access its Portal, the same Portal that Vendor uses to facilitate customers’ purchases of certain medical devices that may be reimbursable by the Federal health care programs;
- Company’s payments to Vendor to access its Portal may result in savings to Customers which may induce Customers to purchase medical devices reimbursable by the Federal health care programs; and
- Company could not certify that the aggregate services contracted for would not exceed those which are reasonably necessary to accomplish the commercially reasonable business purpose of the service.
OIG further concluded that the Arrangement was not sufficiently low risk issue a favorable advisory opinion even using a “totality of the facts and circumstances” analysis because:
- The Arrangement does not serve a commercially reasonable business purpose. Rather, Company’s Vendor payments appear to be for the purpose of accessing referrals to expand or retain business;
- Company’s Vendor payments would be substantial, estimated to be in excess of $1.2 million annually, and are “redundant” of Company’s well-established processes that ensure Customers receive and pay invoices timely; and
- The Portal has value. Some Customers require Company to use it as a condition of doing business and Vendor markets Portal’s potential cost savings. Thus, the Arrangement presents anti-competitive and inappropriate steering risks if Company’s competitors cannot or will not make similar payments to Vendor to access its Portal.
OIG acknowledged that there are a “myriad ways” to structure business arrangements that would result in a favorable conclusion, but not with these facts given that the Company certified the Arrangement would be part of an effort to retain and expand business from Customers who used Vendor’s Portal.
A complete copy of the Advisory Opinion is here.
Should you have any questions regarding the above or wish to have a proposed arrangement evaluated for compliance with applicable laws, please contact the authors, the Garfunkel Wild attorney with whom you regularly work, or contact us at [email protected].