OIG Issues Favorable Advisory Opinion on Retailer’s Proposed Expansion of Discount Programs for Low-Income Individuals

King & Spalding

On January 19, 2022, OIG posted a favorable Advisory Opinion on a pharmacy-owning retailer’s proposal to expand its existing discount programs for low-income individuals by including enrollment in Medicaid as an additional category of eligibility. In its decision, OIG recognized the discount programs are likely to have a neutral effect on federal health care programs while offering meaningful benefits to newly eligible members.

The retailer operates a web-based marketplace that sells consumer goods to the public. Customers of the retailer may enroll in a membership program that confers various benefits (e.g., shipping, streaming services, digital storage). The retailer also owns a pharmacy that is enrolled with Medicaid programs in multiple states and that offers delivery of orders. The membership program provides shipping benefits for pharmacy orders and discounts to customers who pay out of pocket for certain drugs.

The retailer offers two types of discount programs for qualifying low-income individuals: (1) a discount on the monthly fee for the membership program; and (2) discounts on certain grocery items, but not anything sold by the pharmacy. Individuals may qualify for these programs if they can show proof they receive benefits under certain public assistance programs. The retailer proposed to offer the programs to Medicaid enrollees.

OIG first observed the retailer’s expansion of the programs to Medicaid beneficiaries who are not otherwise eligible for the discount programs under current eligibility categories could induce those beneficiaries to select the pharmacy for purchasing future drugs, including drugs reimbursable by Medicaid. Despite finding the proposal would not meet a safe harbor to the federal Anti-Kickback Statute or an exception to the prohibition on beneficiary inducements under the civil monetary penalties law, OIG declined to impose administrative sanctions for the following reasons:

  • First, the nexus between the discount programs and a Medicaid beneficiary’s potential ordering of drugs from the pharmacy is attenuated. In particular, OIG noted the grocery discount is wholly unrelated to pharmacy purchases, and that the membership discount includes access to free expedited shipping on all drugs ordered from the pharmacy—not just Medicaid-reimbursable drugs.

  • Second, Medicaid enrollment would be used as one of multiple proxies for financial need, rather than part of a targeted effort to provide remuneration only to Medicaid beneficiaries.

  • Third, the proposal is unlikely to result in inappropriate utilization or overutilization of items or services reimbursable by federal health care programs or an increase in costs to such programs. OIG did not see any indication that the discount programs would induce beneficiaries to order prescription drugs they would not otherwise purchase.

  • Fourth, the proposal does not raise patient safety or quality of care concerns and instead has the potential to provide meaningful assistance to low-income individuals.

  • Lastly, the proposal does not pose a heightened risk of steering beneficiaries to a particular pharmacy. OIG recognized that while the proposed arrangement may factor into a Medicaid beneficiary’s decision to purchase drugs from the retailer’s pharmacy, other important considerations could also inform that decision.

OIG Advisory Opinion 22-01 is available here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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