Although often well-intentioned, offering free or discounted items or services to patients (e.g., gifts, rewards, writing off copays, free screening exams, free supplies, etc.) may violate federal and state laws governing improper inducements, especially if the patient is a federal program beneficiary. The government is concerned that offering or rewarding such inducements to patients may result in overutilization, biased decisions concerning care, and increased costs to the Medicare, Medicaid or other government programs. Penalties for illegal inducements may include administrative, civil and criminal penalties; repayment to government programs; and exclusion from federal programs. Increasingly, private payors are also challenging such inducements. It is imperative that healthcare providers and their staff understand the applicable laws and limits.
I. Applicable Laws.
(OIG Special Advisory Bulletin, Offering Gifts and Other Inducements to Beneficiaries (8/02), available at https://oig.hhs.gov/fraud/docs/alertsandbulletins/SABGiftsandInducements.pdf ). Violations of the CMPL may result in administrative penalties ranging from $5,000+ to $100,000+ per violation depending on the conduct involved. (42 U.S.C. § 1320a-7a; 42 C.F.R. part 1003; 45 C.F.R. § 102.3).
Because state laws vary, this article will focus on the AKS and CMPL, but healthcare professionals must keep their state laws in mind and their organizations in compliance with state as well as the federal laws.
II. Application of Laws to Patient Incentive Programs.
The Office of Inspector General (“OIG”) has repeatedly confirmed that offering free or discounted items or services to government program patients potentially implicates the AKS and/or CMPL unless the program is structured to fit within a statutory or regulatory exception or certain safeguards are put in place to minimize program fraud and abuse. (See, e.g., OIG Special Advisory Bulletin, Offering Gifts and Other Inducements to Beneficiaries (8/02)). Nevertheless, HHS and/or the OIG have affirmed the following safe harbors or situations in which providing free or discounted items or services would pose a relatively low risk under the statutes. In considering the potential safe harbors, healthcare providers must evaluate the AKS and CMPL separately: compliance with one does not necessarily ensure compliance with the other. The CMPL incorporates the regulatory safe harbors under the AKS (see 42 C.F.R. § 1003.110, definition of remuneration), but the reverse is not true: “beneficiary inducements CMP exceptions do not provide protection under the anti-kickback statute.” (81 Fed. Reg. 88398).
[the CMPL] only prohibits incentives that are likely to influence a beneficiary’s choice of a provider for particular services. Such influence is only possible if the beneficiary knows about the incentive before making his or her choice. Thus, incentives that are not advertised or otherwise disclosed to a beneficiary before the beneficiary selects a provider for services do not come within the statutory proscription, and therefore need not qualify under any of the [CMPL] exceptions…. For example, discounted CPR courses or home visits offered to women who have delivered a child at a particular hospital are not prohibited … if the availability of the discounted CPR course or home visits is not made known to the mother until after she enters the hospital to deliver her child.
(65 Fed. Reg. 24409). As noted above, however, providers must remember that “the provision of free goods or services to existing customers who have an ongoing relationship with a provider [are] likely to influence those customers’ future purchases” and, therefore, such items may implicate the AKS if not the CMPL. (OIG, Offering Gifts and Other Inducements to Beneficiaries).
The offer or transfer of items or services for free or less than fair market value by a person, if–
(i) The items or services are not offered as part of any advertisement or solicitation;
(ii) The offer or transfer of the items or services is not tied to the provision of other items or services reimbursed in whole or in part by the program under [Medicare or Medicaid];
(iii) There is a reasonable connection between the items or services and the medical care of the individual; and
(iv) The person provides the items or services after determining in good faith that the individual is in financial need.
(42 C.F.R. § 1003.110). For purposes of the CMPL “financial need” exception, “items or services” do not include cash or “cash equivalents” (81 Fed. Reg. 88402), which means:
items convertible to cash (such as a check) or that can be used like cash (such as a general purpose debit card, but not a gift card that can be redeemed only at certain stores or for a certain purpose, like a gasoline gift card).
(81 Fed. Reg. 88393 at fn.19). As for the prohibition against advertising, the OIG explained:
this exception is intended to protect remuneration given on a case-by-case basis, when a [financial] need is identified. It is not intended to encourage patients to seek care (in contrast to the exception for remuneration that incentivizes preventive care [discussed below]).
(81 Fed. Reg. 88402). Further, the financial need exception does not protect “offers or transfers of items or services that a provider or supplier conditions on the patient’s use of other services that would be reimbursed by Medicare or a State health care program.” (Id.). For example, “[p]rograms that offer lodging or transportation that is conditioned on receiving a particular service are ‘tied’ to the particular service and would not be protected under this exception.” (Id.) Conversely,
if a financially needy diabetic patient were to run out of test strips and needed an immediate supply before a refill could be authorized, the pharmacist could give the patient an extra package of test strips and not bill the patient or payor for them. This free supply is not tied to another item or service, because, in the example, the patient could not get a refill at that time. The free supply does not require the patient to purchase a prescription or anything else from the pharmacy at that time or in the future…. What this limitation prohibits is tying the purchase of a reimbursable item or service to the offer of the free item or service.
(81 Fed. Reg. 88403).
There is no similar general AKS safe harbor based on financial need, but the OIG has declared:
The Federal anti-kickback statute does not prohibit discounts to uninsured patients who are unable to pay their hospital bills. However, the discounts may not be linked in any manner to the generation of business payable by a Federal health care program. Discounts offered to underinsured patients potentially raise a more significant concern under the anti-kickback statute, and hospitals should exercise care to ensure that such discounts are not tied directly or indirectly to the furnishing of items or services payable by a Federal health care program.
(OIG, Hospital Discounts Offered to Patients Who Cannot Afford to Pay Their Hospital Bills at p.1). The OIG gave the following guidance concerning “financial need”:
The OIG recognizes that what constitutes a good faith determination of “financial need” may vary depending on the individual patient’s circumstances and that hospitals should have flexibility to take into account relevant variables. These factors may include, for example:
Hospitals should use a reasonable set of financial need guidelines that are based on objective criteria and appropriate for the applicable locality. The guidelines should be applied uniformly in all cases. While hospitals have flexibility in making the determination of financial need, we do not believe it is appropriate to apply inflated income guidelines that result in waivers for beneficiaries who are not in genuine financial need. Hospitals should consider that the financial status of a patient may change over time and should recheck a patient’s eligibility at reasonable intervals sufficient to ensure that the patient remains in financial need…. Hospitals should take reasonable measures to document their determinations of Medicare beneficiaries’ financial need. We are aware that in some situations patients may be reluctant or unable to provide documentation of their financial status. In those cases, hospitals may be able to use other reasonable methods for determining financial need, including, for example, documented patient interviews or questionnaires.
(Id. at p.4; see also 81 Fed. Reg. 88405).
the waiver of coinsurance and deductible amounts by a person, if the waiver is not offered as part of any advertisement or solicitation; the person does not routinely waive coinsurance or deductible amounts; and the person waives coinsurance and deductible amounts after determining in good faith that the individual is in financial need or failure by the person to collect coinsurance or deductible amounts after making reasonable collection efforts.
(42 C.F.R. § 1003.110).
The AKS contains a similar exception for the waiver of copays or cost-sharing payments for certain hospital services:
If the cost-sharing amounts are owed to a hospital for inpatient hospital services for which a Federal health care program pays under the prospective payment system, the hospital must comply with all of the following three standards:
(42 C.F.R. § 1001.952(k)). Additional requirements apply to other types of providers. (Id.). Unless the provider can fit within the regulatory exception or otherwise prove the patient’s inability to pay, the routine waiver of copays and deductibles associated with screening exams or other services almost certainly violates the AKS and/or CMPL. (See OIG, Special Fraud Alert: Routine Waiver of Copayments or Deductibles Under Medicare Part B (12/19/94), available at https://oig.hhs.gov/fraud/docs/alertsandbulletins/121994.html). It will also almost certainly violate private payor contracts and may result in termination of a provider’s participation, breach of contract claims, and perhaps claims for insurance fraud.
Incentives given to individuals to promote the delivery of preventive care services where the delivery of such services is not tied (directly or indirectly) to the provision of other services reimbursed in whole or in part by Medicare or an applicable State health care program. Such incentives may include the provision of preventive care, but may not include–
(42 C.F.R. § 1003.110). The regulations further define “preventive care” as:
any service that-
(Id.). Thus, “[t]he mere fact that a service involves screening, counseling or immunization will not suffice to qualify the service for the preventive care exception”; instead, only the pre- and post-natal services described in the regulation or other services identified in the Guide to Clinical Preventive Services fit within the exception. (65 Fed. Reg. 24408). Furthermore, the free or discounted items or services may not be “tied to the provision of other reimbursable services” (81 Fed. Reg. 88397 n.24):
Any tie between provision of an exempt covered preventive care service and a covered service that is not preventive would vitiate the preventive care exception and might constitute a violation of [the CMPL], the Federal anti-kickback statute, or other legal authorities.
(65 Fed. Reg. 24408). The OIG has noted that some free or discounted services may fit within the “preventive care” exceptions. For example, the OIG noted that free blood sugar screenings and cholesterol tests may fit within the exception assuming the other conditions are satisfied. (65 Fed. Reg. 24409-10).
The AKS does not contain a similar preventive care exception, but the OIG is unlikely to challenge legitimate preventive care programs so long as the free or discounted items or services are not tied to other items or services payable by federal healthcare programs:
From an anti-kickback perspective, the chief concern is whether an arrangement to induce patients to obtain preventive care services is intended to induce other business payable by a Federal health care program. Relevant factors in making this evaluation would include, but not be limited to: the nature and scope of the preventive care services; whether the preventive care services are tied directly or indirectly to the provision of other items or services and, if so, the nature and scope of the other services; the basis on which patients are selected to receive the free or discounted services; and whether the patient is able to afford the services.
(OIG, Supplemental Compliance Program Guidance for Hospitals, 70 Fed. Reg. 4873 (1/31/05), available at https://oig.hhs.gov/fraud/docs/complianceguidance/012705HospSupplementalGuidance.pdf).
Items or services that improve a beneficiary’s ability to obtain items and services payable by Medicare or Medicaid, and pose a low risk of harm to Medicare and Medicaid beneficiaries and the Medicare and Medicaid programs by–
(42 C.F.R. § 1003.110). The OIG commentary that accompanied the final rule clarified the scope of the exception:
First, it only applies to the provision of “items or services,” not waivers of copayments, cash or cash equivalents. (81 Fed. Reg. 88393). Thus, the exception would not apply if a physician offered a general purpose debit card to every patient who selected him for surgery. (Id. at 88393 and 88397).
Second, the exception only applies to items or services that “promote access to care” covered by Medicare or Medicaid, i.e., items or services that improve a particular Medicare or Medicaid beneficiary’s ability to obtain items or services payable by Medicare or Medicaid, but not items or services that simply reward care or incentives for complying with a treatment regimen. (81 Fed. Reg. 88393-96). The OIG provides the following helpful examples:
We recognize that there are socioeconomic, educational, geographic, mobility, or other barriers that could prevent patients from getting necessary care (including preventive care) or from following through with a treatment plan. Our interpretation of items or services that “promote access to care” encompasses giving patients the tools they need to remove those barriers. As we discuss below, this interpretation would not, however, incorporate the concept of rewarding patients for accessing care; the exception protects items or services that should improve a patient’s ability to access care and treatment, not inducements to seek care…. For example, if a patient had a health condition for which a smoking-cessation program was a payable service, under this exception, a provider could offer free child care to the patient so that the patient could attend the program, but the provider could not give the patient movie tickets or any other reward for attending a session or series of sessions. A patient might not be able to attend the appointment without child care assistance, but the movie tickets do not improve the patient’s ability to attend the appointment…. If a provider, practitioner, or supplier offered local transportation or parking reimbursement to patients for appointments for items or services payable by Medicare or a State health care program, such remuneration would improve a beneficiary’s ability to access that care. Self-monitoring tools also could promote access to care. For example, a hospital might send a patient home with an inexpensive device to record data, such as weight or blood pressure, that could be transmitted to the hospital or the patient’s physician. This remuneration could increase the beneficiary’s ability to capture information necessary for follow-up care and to comply with the treatment plan….
(81 Fed. Reg. 88393).
[S]martphone apps or low-cost fitness trackers could, depending on the circumstances, promote access to care; they could be used to track milestones and report back to the treating physician. Gift cards that relate to promoting access to care (e.g., a gift card specifically for an item that would monitor the patient’s health) could potentially fit into the exception as well. However, the examples structured as rewards (e.g., rewards for routine exercise) would not be covered.
(Id. at 88395).
[A] provider or supplier may offer educational materials (such as written materials about disease states or treatments), or informational programs (such as a program to help patients with asthma or diabetes learn more about controlling their diseases) to patients or prospective patients without implicating the beneficiary inducement CMP. However, if a provider, supplier, or other entity offered patients attending such a program an item or service (of more than nominal value), that the offeror knows or should know is likely to influence the patient to choose that provider or supplier, such remuneration would not be protected under this exception.
(Id. at 88396).
Third, the remuneration must pose a “low risk of harm,” i.e.,
the remuneration must: (1) be unlikely to interfere with, or skew, clinical decision making; (2) be unlikely to increase costs to Federal health care programs or beneficiaries through overutilization or inappropriate utilization; and (3) not raise patient-safety or quality-of-care concerns.
(Id.). The OIG explained:
For example, if a patient is discharged from the hospital with a prescription to manage newly diagnosed diabetes, cost to the Part D program might increase because of the new prescription, but overall health care costs may decrease because the patient will be managing a condition with the drug rather than having a higher chance of being re-hospitalized. Thus, we agree that the harm to be avoided is an overall increase in health care costs. However, the condition we proposed was not that the remuneration be unlikely to increase costs at all, but that it be unlikely to increase costs through overutilization or inappropriate utilization. Incentives to access a higher level of care than necessary, or to use a higher cost brand name drug instead of a lower cost generic drug would not be low risk.
In its commentary accompanying the CMPL regulations, the OIG has offered examples of how these factors may apply to common programs offered by providers:
A sampling of remuneration that commenters suggested that we protect includes free- or reduced-cost health screenings (e.g., blood pressure or fall-risk screenings); charitable dental care; education programs (e.g., regarding diabetes or nutrition); post-discharge support; family support services; chronic condition management; education about insurance or medical leave benefits; lodging provided by a hospital the night before procedures; transportation to appointments; other services that help patients live within their own communities; discounts for copayments; and gift cards for ongoing medications….
Response: We agree with the commenters’ suggestions that free or reduced-cost health care screenings and services and discounts for drugs promote access to care and may be low risk…. We note that many forms of free or reduced cost services (e.g., free screenings at a health fair or charitable dental program, post-discharge support, chronic care management) could lead the patient to seek follow-up care with the provider or supplier that offered the free service. Assuming the free screenings or health care services are not simply marketing ploys but rather identify or assist with necessary care, they could fit in the exception and be protected. Individuals and entities seeking to offer any of the listed items or services must determine, as an initial matter, whether they promote access to care (and if so, whether they are also low risk).
(81 Fed. Reg. 88396-97, emphasis added).
Again, there is no AKS exception for items or services that promote access to care. Accordingly, in evaluating AKS exposure as well as the CMPL’s “risk of harm” standard, the provider should consider relevant factors identified by the OIG as referenced above, e.g.,
the nature and scope of the preventive care services; whether the preventive care services are tied directly or indirectly to the provision of other items or services and, if so, the nature and scope of the other services; the basis on which patients are selected to receive the free or discounted services; and whether the patient is able to afford the services.
(OIG, Supplemental Compliance Program Guidance for Hospitals, 709 Fed. Reg. 4873).
Response: Under the final rule, certain early detection tests may themselves qualify as preventive care if they are enumerated in the Guide to Clinical Preventive Services and covered by Medicare or an applicable State health care program. With respect to the hypothetical posed by the commenter, provision of a free non-covered screening test would not violate [the CMPL] so long as the test is not tied to the provision of other services by the hospital. Thus, for example, the screening test would be permissible where the hospital provides an individual who tests positive for diabetes with general information or literature and a recommendation that the individual contact his or her personal physician. If, on the other hand, as part of the screening program, the hospital makes appointments for individuals with one of its physicians, offers individuals discounts for additional covered services, or otherwise promotes its particular diabetes programs, an inference may be drawn that the free screening test was an inducement to choose the hospital as a provider of other services. Finally, we note that some early detection tests may be of such nominal value as not to come within the scope of the statutory prohibition, as discussed below.
(65 Fed. Reg. 24410, emphasis added).
In Advisory Opinion 09-11, the OIG considered a hospital’s free blood-pressure screening program. The OIG stated,
For any type of free care offered by a provider, however, regardless of whether it is preventive care as defined in the regulation, it is necessary to determine whether the free care promotes the provision of other, non-preventive care reimbursed by Medicare or Medicaid. We conclude that in the Arrangement, the free blood pressure checks are unlikely to have this effect.
(Adv. Op. 09-11 at p.5). The OIG relied on the following factors in approving the free screening program:
(Id.). Under these circumstances, the OIG concluded that “the Arrangement is appropriately crafted so as to avoid improper ties to the provision of other services.” (Id.).
Although Adv. Op. 09-11 is not binding on anyone other than the parties to the agreement, the OIG’s conclusion is consistent with its other statements cited above and confirms that the primary concern with free screening programs is the risk that they will tie the screening to other items or services payable by federal programs. So long as the free screening program (or other free or discounted items or services) offers a legitimate patient benefit, incorporates the safeguards identified by the OIG, and does not otherwise pose a risk of fraud and abuse, the program may pose a low risk under the CMPL and/or AKS. Of course, the analysis will depend on the particular facts of each case, including:
the nature and scope of the preventive services; whether the preventive care services are tied directly or indirectly to the provision of other items or services and, if so, the nature and scope of the other services; the basis on which patients are selected to receive the free or discounted services; and whether the patient is able to afford the services.
(79 Fed. Reg. 4873).
Offering incentives to customers may be good business in other industries, but it can result in serious consequences in the healthcare industry. Healthcare providers should beware of any marketing program that would offer free or discounted items or services to patients as a way to generate business, especially if those patients are covered by federal healthcare programs. Before engaging in such practices, providers should review the intent and effect of the program, and determine whether the program fits within one of the regulatory exceptions or employs the OIG-approved safeguards discussed above. Failure to do so may result in significant administrative, civil and/or criminal penalties.
1 Many of the civil or administrative penalties are subject to periodic cost of living adjustments. (See 45 C.F.R. § 102.3).