On July 24, 2020, OIG issued an Advisory Opinion (AO), AO 20-04, regarding whether an arrangement where a charitable organization purchases or receives donations of unpaid medical debt from health care providers, and then forgives that debt, implicates federal fraud and abuse laws. OIG determined that while the arrangement could potentially generate prohibited remuneration under the Anti-kickback Statute (AKS), OIG would not impose administrative sanctions based on the particulars of the arrangement, detailed herein.

The AKS 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 health care program. The statute has been interpreted to cover any arrangement where one purpose of the remuneration was to engage in conduct prohibited by the statute. Section 1128A(a)(5) of the Social Security Act (the Beneficiary Inducements CMP) provides for the imposition of civil monetary penalties against any person who offers or transfers remuneration to a Medicare or state health care program (including Medicaid) beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of any item or service for which payment may be made, in whole or in part, by Medicare or a State health care program (including Medicaid). The issue presented in the AO is whether the arrangement for a hospital to sell or donate its patient debt to a charitable organization that then forgives the debt could violate the AKS or the Beneficiary Inducements CMP.

As a general matter, hospitals collect far less than the amounts billed to patients each year, even after accounting for hospitals’ financial assistance policies. According to the AO, most hospitals that are unable to collect after completing their own collection efforts proceed to write off uncollectible accounts as bad debt, while others sell portfolios of uncollectible accounts to debt purchasing companies. Debt purchasing companies continue to try to collect the debt from patients. In some instances, a charitable organization works with debt purchasing companies to screen for medical debt that meets the charitable organization’s criteria for forgiveness and then negotiates the purchase of that debt at arm’s length from the debt purchasing company. After the charitable organization acquires the medical debt, the organization forgives it completely, ensuring that the debt is reported as “paid in full” and any derogatory mark from the patient’s credit report is removed.

Under the proposed arrangement, the charitable organization would bypass dealing with the debt purchasing company altogether and, instead, purchase or receive a donation of inpatient and outpatient debt directly from hospitals and certain other providers. This medical debt could include debt related to services furnished under federal health care programs. Any medical debt that the charitable organization would consider purchasing or receiving through donation would be debt that the providers already attempted and failed to collect either through their own billing and collection process or by using one or more collection agencies. If debt is related to Medicare services, the debt would be “uncollectible” under Medicare bad debt rules. The charitable organization and providers would work with a HIPAA-compliant third-party vendor of data and analytical services to identify debt that meets the objective criteria for forgiveness. Finally, providers would agree not to publicize the sale or donation of debt to the charitable organization, and the charitable organization would not identify providers by name in promotional or marketing materials that are available to the public.

Given these facts, the AO acknowledged that the charitable organization’s forgiveness of a patient’s debt that was donated or sold to it by a provider, if known to the patient, could induce the patient to seek items or services from that provider or could influence the patient’s future selection of the provider. Therefore, according to OIG, the arrangement implicates both the Beneficiary Inducements CMP and the AKS. However, OIG noted that for the following reasons below, it would not impose sanctions under these authorities and found the proposed arrangement to be a low fraud risk.

• The charitable organization would forgive debt only after the provider attempted and failed to collect the debt and was based on an individualized determination of financial need. Therefore, there would be no blanket debt forgiveness or cost-sharing waiver concerns.
• Providers would have to agree not to publicize the sale or donation of debt to the charitable organization.
• The proposed arrangement should not lead to increased costs to federal health care programs because the debt forgiveness would take place only after the provider rendered the services with the expectation of collecting payment and attempted to collect payment.
• The proposed arrangement does not materially affect the status quo as providers already have a financial interest to try to collect the medical debt. If the provider is unable to collect the debt, it may write off the debt or sell it to a debt purchasing company, even in the absence of an arrangement with a charitable organization.
• Donors to the charitable organization would have only limited control over how their donations could be used to forgive medical debt, removing concern that individual donors would target particular patients, treatment types, or patients covered by a particular type of insurance.

As with all OIG Advisory Opinions, this AO applies only to the requestor, should not be relied upon by other parties and is not binding on any agency other than HHS. The AO does, however, give providers insight as to how a similar arrangement may be enforced.

Advisory Opinion 20-04 is available here.