OIG's Final Rule on Revisions to Civil Monetary Penalty Rules Regarding Beneficiary Inducements

Last week, more than two years after publishing a proposed rule revising the safe harbors under the Anti-Kickback Statute (AKS) and the definition of remuneration under the beneficiary inducement civil monetary penalty (CMP) law, the Department of Health and Human Services’ Office of Inspector General (OIG) finalized the rule with few changes. This client alert summarizes the beneficiary inducements CMP issues, including: (i) the increase in dollar amounts for “gifts of nominal value”; (ii) the retailer rewards exception; (iii) the promotes access/low risk of harm exception; (iv) the financial-need-based exception; and (v) the exception for co-pay waivers on first fills of generic drugs. A companion client alert will address the AKS safe harbor issues. The Final Rule is available here: Final Rule.

1. OIG increased the dollar amounts for “gifts of nominal value” to $15 per gift and $75, total, annually.

In a 2002 Special Advisory Bulletin on offering gifts and other inducements to government beneficiaries, OIG stated that Medicare and Medicaid providers could give patients inexpensive gifts, other than “cash or cash equivalents”, without violating the CMP law so long as the gifts were no more than $10 individually and $50 in total, annually, per patient. Last week, OIG increased the dollar amounts to $15 for an individual gift and $75 total, annually, per patient.

OIG stated that “cash equivalents” are items convertible to cash, such as checks, or items that can be used like cash, such as general purpose debit cards. Gift cards that can be redeemed only at certain stores or only for a certain purpose, such as gasoline gift cards, are not considered “cash equivalents,” according to OIG.

OIG also noted that a lottery for patients who are in compliance with a treatment regimen with a $100 prize likely would be of nominal value and would not implicate the CMP law if, for example, 20 patients had an equal chance to win the prize. In that case, because each patient would have a 1 in 20 chance of winning, OIG would consider each chance to be worth only $5.

1. OIG did not address some chain pharmacies’ concerns about the Retailer Rewards exception.

The retailer rewards exception to the beneficiary inducements CMP was added by the Affordable Care Act. It purports to allow retailers to include Medicare and Medicaid beneficiaries in their rewards programs by protecting the offer or transfer of items or services for free or less than fair market value if—

1. the items or services consist of coupons, rebates, or other rewards from a retailer;
2. the items or services are offered or transferred on equal terms available to the general public, regardless of health insurance status; and
3. 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 Medicare or a State health care program.

• “Retailer” means an entity that sells items directly to consumers, including chain pharmacies, small and independent pharmacies, and online retailers. It does not include individuals or entities that primarily provide “services”, such as hospitals or physicians, nor does it include manufacturers.
• “Other rewards” primarily means free items or services, according to OIG. Those can include health care items or services, but not copayment waivers because co-pay waivers would not meet the third element of the exception, addressed below. 
• “Offered or transferred on equal terms” regardless of health insurance status does not prevent a pharmacy from requiring a patient to complete an enrollment form to join a rewards program, but it does mean that the rewards program must be offered to everyone who desires to participate.

One concern for pharmacies that want to offer to government beneficiaries pharmacy-specific rewards programs, as opposed to “whole house” programs that offer equal rewards for purchasing pharmacy products and front-end products, is OIG’s interpretation of the third element of the exception—that the reward not be “tied to other reimbursable items or services.”  On the front end of a transaction, (the “earning” side of the reward), OIG stated that a customer cannot be required to purchase a federally-payable item, such as a prescription covered by Medicare or Medicaid, to earn or redeem the reward. OIG also stated that a reward program should not treat federally-reimbursable items differently than non-reimbursable items. 

On the back end, or the “redeeming side” of a rewards program, OIG stated that the reward, itself, cannot be in the form of discounts specific to items or services reimbursable by a government program. A discount or reward could, however, be good for anything in the store, including federally-payable items or services.

OIG’s interpretation of the statue appears to mean that a retailer reward cannot be earned by purchasing a prescription unless the same reward can be earned by purchasing a non-prescription item. This would prohibit retailers from offering coupons and rewards that focus, exclusively, on the healthcare items and services that they offer. 

OIG was not persuaded by one commenter’s challenge to its interpretation of the statute and refused to alter the language it put forth in the proposed rule. The commenter had argued that the statute does not require a reward to be equally applicable to health care items and non-health care items. According to the commenter, the statute limits a reward connected to a health care item or service only if the reward is “tied” to the provision of a second, or “other”, covered item or service. OIG reiterated that a customer cannot earn rewards—or preferentially earn rewards—based only on purchases of federally-reimbursable items because, OIG stated, without purchasing the reimbursable items, the customer would not be able to earn the reward. OIG gave two examples:

• A pharmacy could not have a rewards program that offers two points for every dollar spent on prescription copayments, but one point for every dollar spent elsewhere in the store.
• A reward could not be in the form of a $20 co-payment waiver because the reward would be tied to the purchase of a federally-reimbursable item, i.e., the item for which the co-pay is waived. On the other hand, a reward in the form of a $20 coupon good on anything in the store could be used to redeem a co-pay.

Going forward, a pharmacy that wants to include government beneficiaries in its retailer rewards program must be sure to tailor the program to comply with the intricacies of the Final Rule.

1. OIG provided details on the “promote access to care/low risk of harm” exception.

OIG clarified the “promotes access to care/low risk of harm” exception to the beneficiary inducements CMP law. That exception protects remuneration that promotes access to care and poses a low risk of harm to patients and Federal health care programs. In the Final Rule, OIG changed the definition of “care” in the context of “access to care” from “medically necessary items and services” to “items and services payable by Medicare or a State health care program.”  OIG said the exception includes, among other things, health care screenings, vaccines, and managing chronic conditions, and includes care provided by a particular provider, practitioner, or supplier who is receiving payment from Medicare or a State health care program.

OIG provided examples of things that “promote access to care,” and things that don’t.

The exception only covers remuneration that improves a particular beneficiary’s, or a beneficiary group’s, ability to obtain items or services payable by a government program. OIG stated repeatedly that the exception does not cover things that induce patients to seek care or that reward patients for receiving care. However, things that remove barriers to, or facilitate compliance with, a treatment plan could qualify as promoting access to care. OIG gave the following examples of things that would – and would not – promote access to care:

• A provider could give diabetic patients a subscription to a web-based food and activity tracker because it would help patients understand and manage the interaction between lifestyle, disease, and prescribed treatment.
• An ophthalmologist could not give a $20 general purpose debit card to every patient who chose her as a surgeon to perform cataract surgery because the debit card would not help the patient receive access to care.
• Similarly, a provider could offer free child care to a patient to attend a smoking-cessation program, but he could not give the patient free movie tickets or any other reward for attending a session. The patient might not be able to attend without childcare, but movie tickets would not improve the patient’s ability to attend a session.
• OIG noted that a health plan would not implicate the beneficiary inducement CMP by offering its members incentives to seek preventive health services or to achieve health-related benchmarks so long as the health plan did not influence its members to use a particular provider. (The Anti-Kickback Statute, however, might be implicated if, for example, a drug manufacturer offered rewards or incentives for treatment compliance because the remuneration could induce the beneficiary to purchase a federally-reimbursable item).

It is helpful to remember that no exception is necessary, at all, if the remuneration being offered to a patient is not likely to influence the patient to select a particular provider, practitioner, or supplier, or if the remuneration is an item or service of “nominal value”, (now defined as $15 for a single item and $75, collectively, per year). In addition, incentives to seek preventive care could be covered under the “preventive care exception,” at SSA § 1128A(i)(6)(D) and 42 C.F.R. § 1003.110.

The term “low risk of harm” did not change from the proposed rule to the final rule.

For remuneration to be “low risk of harm” to Medicare or Medicaid beneficiaries and to Medicare and Medicaid programs, it must: (i) be unlikely to interfere with or skew clinical decision making; (ii) be unlikely to increase costs to Federal health care programs or beneficiaries through overutilization or inappropriate utilization; and (iii) not raise patient-safety or quality-of-care concerns.

1. OIG finalized a financial-need-based exception to the definition of “remuneration”.

OIG also incorporated a statutory provision that carves out from the definition of remuneration the offer or transfer of items or services for free or less than fair market value if three criteria are met:

1. the items and services are not advertised or tied to the provision of other items or services reimbursed by Medicare or State health care programs;
2. there is a reasonable connection between the items or services and the medical care of the person; and
3. the person has been determined to be in financial need.

The rule requires a patient-by-patient, “good faith” determination of financial need. OIG declined to mandate a particular test or basis for determining need, but it stated that it expects entities that offer free or less-than-fair market value items to have a set policy, based on income or other factors, that is uniformly applied. It also stated that a provider should not rely solely on a representation by a patient that he or she is in financial need. OIG decided not to require specific documentation of financial need, but it noted that if an entity came under investigation and asserted this exception as a defense, it would need proof that it made a good faith determination of financial need. Having a written policy describing standards and procedures for establishing financial need and evidence that the policy was followed would be useful in making such a showing.

OIG noted that providers and suppliers cannot provide cash and instruments convertible to cash, such as checks and debit cards, as those are not “items or services” that are excluded from the definition of remuneration. Further, providers cannot advertise the free or discounted items.  OIG stated that the exception is intended to protect remuneration that is given on a case-by-case basis when a financial need is identified; it is not intended to encourage patients to seek care.  The ban on advertising means that providers cannot advertise in the media or post information for public display or on a website. But if a provider learned that a financially needed patient needed an item or service, the provider could mention its availability at that point.

OIG also stated that there cannot be a tie between the items or services being offered and other services paid for by Medicare or a State health care program. In other words, a provider cannot give a free or discounted item or service to a patient that is conditioned on the patient using another service that would be paid for Medicare or Medicaid. The items or services must be “reasonably connected” to the patient’s medical care, which OIG stated means reasonable from a medical perspective and reasonable from a financial perspective. OIG did not provide clear guidance on what is “reasonable from a medical perspective.” It stated that the medical professional working with the patient is in the best position to make the determination, and emphasized that the exception does not protect items and services “that are essentially for entertainment or other non-medical purposes.” Likewise, there is ambiguity surrounding what is “reasonable from a medical perspective.” OIG stated that a “reasonable connection” may not exist if the remuneration is “disproportionately large” compared to the medical benefit conferred on the patient, but declined to provide a specific retail value for something that is “disproportionately large.”   

1. OIG incorporated an exception for co-pay waivers by Part D plan sponsors for first fill generics.

OIG also incorporated into its regulations a provision that states that Part D plan sponsors that offer copayment waivers for the first fill of a generic covered Part D drug do not violate the beneficiary inducements CMP. The purpose of the exception is to minimize drug costs by encouraging the use of lower cost generics. CMS already permits these waivers as part of Part D and MA plan designs. Sponsors desiring to offer these waivers to their enrollees must disclose the incentive program in their benefit plan package submissions to CMS. Because OIG’s Final Rule was published after the deadline for submission to CMS of benefit plan packages for coverage year 2017, the exception is applicable to coverage years beginning on or after January 1, 2018. OIG agreed with one commenter that disclosure and transparency by Part D plan sponsors is important. The commenter had advocated for early disclosure of co-pay waiver programs to pharmacies to give pharmacies time to decide whether, and on what terms, to participate in a Part D plan sponsor’s network and co-pay waiver program.

For questions, please contact Ed Rickert at (312) 715-5139/edward.rickert@quarles.com or your Quarles & Brady attorney.