The U.S. Department of Health and Human Services’ Office of Inspector General (OIG) recently issued a favorable Advisory Opinion on an arrangement that would allow a hospital to offer free items and services to patients who experienced certain complications after undergoing joint replacement procedures at the hospital. The arrangement only applied to a specific list of procedures and complications, and the patient would have to develop the complications within 90 days after receiving a covered procedure. The patient would also have to meet certain criteria, such as not smoking before and after the procedure and complying with their post-surgery treatment plan and follow-up appointments. The value of the free items and services offered to the patient would be capped at $50,000.

OIG explained that the free items and services would constitute remuneration under the federal Anti-Kickback Statute and beneficiary inducement under the federal Civil Monetary Penalties Law. The arrangement could induce a patient to have a covered procedure done at the hospital in order to qualify for the free items and services if a complication were to occur. It could also induce payors to refer patients to the hospital because the payors would also receive a benefit, since the free items and services would not be billed by the hospital to either the patient or the payor.

OIG noted that the free items and services were akin to a warranty for the covered procedure. Although there is a safe harbor under the Anti-Kickback Statute for warranties, it would not apply in this case because it only protects remuneration offered by a manufacturer or supplier, and not a provider (such as the hospital). When an arrangement does not fall within a safe harbor, OIG considers the totality of the facts and circumstances. In this case, OIG concluded that the arrangement presented a low risk of fraud and abuse for the following reasons:

1. The arrangement has the potential to improve quality of care and reduce costs of care. It would incentivize the hospital to achieve better outcomes for covered procedures in order to avoid incurring the costs of providing free items and services when a covered complication would arise. It would also reduce costs to patients and federal health care programs who would not be billed for the free items and services covered by the arrangement.
2. There was low risk that the arrangement would influence clinical decision-making or encourage providers to “cherry-pick” and only perform covered procedures on healthier patients that are at a lower risk of experiencing complications. The surgeons would have ultimate authority to decide whether a patient was eligible for a covered procedure based on their independent medical judgment, and the arrangement did not offer any financial incentive to the surgeons that could potentially skew their medical judgment. The hospital would also implement a quality assurance and oversight program that would periodically review the quality of care and performance metrics with respect to covered procedures.
3. The arrangement was unlikely to cause overutilization of federally reimbursable items or services. The free items and services would only be offered to qualifying patients and, as noted above, the surgeons would exercise their independent medical judgment when determining that a covered procedure is medically necessary.
4. The hospital in this case is located in a rural area, servicing eight counties across two states, and the next nearest hospital is 40 miles away. As such, it is unlikely that this arrangement would inappropriately steer patients from another hospital to this one, given the already limited options that exist.

Accordingly, OIG decided that the arrangement would not be subject to sanctions under the Anti-Kickback Statute and Civil Monetary Penalties Law.