On February 4, 2022, OIG issued Advisory Opinion No. 22-02 in which it responded to a request for an advisory opinion submitted by a hospital system that operates a children’s hospital (Requestor) regarding a proposed subsidization of certain cost-sharing obligations with respect to qualifying patients of Requestor (the Proposed Arrangement). As discussed in further detail below, OIG determined that the Proposed Arrangement could generate prohibited remuneration under the federal Anti-Kickback Statute and the beneficiary inducement provision of the civil monetary penalties law (CMP Law). However, OIG ultimately concluded that it would not impose administrative sanctions upon Requestor because the Proposed Arrangement presents a low risk of fraud and abuse.

FACTUAL BACKGROUND

Requestor is a tax-exempt organization that operates multiple hospitals, including a children’s hospital (the Children’s Hospital). Most federal healthcare program beneficiaries treated at the Children’s Hospital do not incur out-of-pocket expenses related to their care because they are under the age of 18 and covered by Medicaid, which does not impose cost-sharing obligations for Medicaid-billable items and services provided to children.

Under the Proposed Arrangement, two individuals (Donor A and Donor B), will leave a monetary donation to the Children’s Hospital, from which the parties will establish a restricted endowment fund (the Fund) that would: (i) be subject to specific rules governing how Requestor can use monies from the Fund; and (ii) be used to subsidize patient bills for families with children who have an established treatment relationship with physicians at the Children’s Hospital and who receive treatment services in the cancer, cardiac, or neurosurgical programs at the Children’s Hospital (Qualified Families). Under the Proposed Arrangement, Requestor and the Fund will pay all out-of-pocket costs owed to Requestor incurred by Qualified Families for their children’s medical care from the above specified programs. Requestor would also be required to make certain reductions in a Qualified Family’s bill before the Fund may be used to subsidize that bill. If there are remaining sums in the Fund after monies are allocated for all Qualified Families that receive cancer, cardiac, or neurosurgical treatment services, Requestor may use monies in the Fund to pay for Qualified Families’ out-of-pocket expenses for other services provided at the Children’s Hospital.

Requestor certified that it would not advertise the existence of the Proposed Arrangement. Additionally, Requestor certified that the criteria for clinical determinations regarding the appropriateness of inpatient or outpatient care would not change in light of the Proposed Arrangement, and that it would not consider insurance coverage, type of insurance, or a patient’s diagnosis or medical condition in determining which families are Qualified Families.

LEGAL ANALYSIS

OIG determined that the Proposed Arrangement could generate prohibited remuneration under the federal Anti-Kickback Statute and the beneficiary inducement provision of the CMP Law. However, OIG stated that it would not impose administrative sanctions on Requestor in connection with the Proposed Arrangement because it presents a minimal risk of fraud and abuse. In coming to this conclusion, OIG relied upon the following factors:

• The Proposed Arrangement would cover care-related expenses incurred by all Qualified Families, regardless of payor, for the treatment of their children at the Children’s Hospital.

• The Proposed Arrangement would not be advertised, which reduces risks typically associated with cost-sharing waivers, such as over-utilization and inappropriate steering.

• Unbilled cost-sharing amounts under the Proposed Arrangement will not be reported as bad debt on cost-reports, nor will those amounts be shifted to third-party payors, including federal health care programs, which reduces the risk that the Proposed Arrangement would contribute to increased federal health care program costs.

• Requestor would not use the Proposed Arrangement to attract highly profitable patients.

As is typical, OIG stated that Advisory Opinion No. 22-02 is limited in scope to the Proposed Arrangement. However, this opinion provides guidance as to how OIG might respond to similar requests. The OIG Opinion is available here.