OIG Issues Advisory Opinion regarding Rebate Program

On June 24, 2013, the U.S. Department of Health & Human Services, Office of Inspector General (“OIG”) issued Advisory Opinion 13-07 regarding whether a Proposed Arrangement in which a rebate program that provided a tiered, percentage rebate based on purchase of surgical supplies and devices would generate prohibited remuneration under the anti-kickback statute and constitute grounds for sanctions. The OIG concluded that the Proposed Arrangement would not generate prohibited remuneration under the anti-kickback statute because the arrangement qualified for safe harbor protection and accordingly, the OIG would not impose administrative sanctions.

The Requestor of the advisory opinion is a corporation that manufactures products used to treat ophthalmologic disorders and to improve vision, including pharmaceutical products, surgical equipment, vision aids, and related products. Some of the Requestor’s products are reimbursable directly or indirectly by Federal health care programs. The Requestor proposed an arrangement by which it would establish a rebate program that would provide a tiered, percentage rebate based on purchases of surgical supplies and devices. The rebate would be calculated based on a customer’s total annual purchases of these surgical products. The Requestor certified that the rebate amount would not vary based on the number of Federally reimbursable products a customer purchases. The Requestor also certified that it would notify all customers receiving rebates of their obligation to report any rebates received based on sales of Federally reimbursable surgical products. The notification would be presented in the contract, the invoices the Requestor would send to participating customers, and the year-end report that would be given to each participating customer.

The OIG stated that The Department of Health and Human Services has promulgated safe harbor regulations found at 42 C.F.R. § 1001.952 that define practices not subject to the anti-kickback statute because the practices would be unlikely to result in fraud or abuse and the discounts encourage price competition that benefit Federal health care programs. To determine if the Proposed Arrangement would qualify for protection under the safe harbor, the OIG engaged in a multi-part analysis beginning by (1) determining if the proposed rebate program involves a “discount” as defined in the safe harbor, and then (2) determining whether the Requestor would meet the requirements of a seller under the safe harbor.

In determining that the Proposed Arrangement involved a “discount,” the OIG referenced the preamble to the 1999 final rule, which noted that “discounts offered on one good or service to induce the purchase of a different good or service where the net value can be properly reported do not pose a risk of program abuse and may benefit the programs through lower costs or charges achieved through volume purchasing and other economies of scale.” See 64 Fed. Reg. 63,518, 63,5302 (Nov. 19, 199). The OIG found that this principle also applies to the Proposed Arrangement. Under the Proposed Arrangement, because a discount on one product would not be contingent on the purchase of another product and the discount would be readily attributable to each item purchased, the OIG deemed the rebates offered to meet the definition of “discount” under the safe harbor.

The OIG also found that the rebates offered in the Proposed Arrangement met the definition of “rebate” because the program description provided in the contract would explain the terms of the rebate program, the types of products involved, and the purchasing volume required to reach each tier of the rebate program.

Finally, the OIG discussed the requirements of the safe harbor that sellers have certain notification requirements, depending on the type of buyer. See 42 C.F.R. § 1001.952(h)(2). The safe harbor regulations mandate that where the value of the discount is not known at the time of sale, the seller must report the existence of a discount program on the invoice, coupon or statement submitted to the buyer and inform the buyer in a reasonably calculated manner to give notice of its obligations. Id. When the value of the discount becomes known, the seller must provide the buyer with documentation of the calculation of the discount identifying the specific goods or services purchased. Id. The Requestor certified that it would meet all of the obligations of a seller under the safe harbor by providing a program description to customers describing the terms of the rebate program and a notification of their obligations to report the rebate applicable to Federally reimbursed products, providing invoices to customers that the items included on the invoice may trigger reporting obligations, and providing a year-end report summarizing the customer’s total qualifying purchases, explaining the tier for which the customer qualified, and calculating the total rebate to which the customer is entitled. As such, the OIG found that the Requestor had committed to meet the seller’s requirements. 

Ultimately, the OIG concluded that the Proposed Arrangement would not generate prohibited remuneration under the anti-kickback statute because it qualified under the safe harbor regulations. Of importance though, is the OIG’s point to reiterate their concern about discounts on bundled items. However, the Proposed Arrangement at issue is not a “bundle” because a discount on one product would not be contingent on the purchase of another product.

If you have any questions regarding this Advisory Opinion, please contact Brian Heaton at (317) 238-6354 or bheaton@kdlegal.com or Tom Hutchinson at (317) 238-6254 or thutchinson@kdlegal.com.

OIG Issues Advisory Opinion Modification

On June 21, 2013, the U.S. Department of Health & Human Services, Office of Inspector General (“OIG”) issued Modification of OIG Advisory Opinion 06-13 regarding whether proposed modifications to a Requestor’s Existing Arrangement, which provides annual individual grants to help patients with blood-related cancers, including Federal health care program beneficiaries, to pay their health insurance premiums and medical cost-sharing obligations, would materially increase risk to Federal health care programs. The Requestor sought the OIG’s opinion after modifying its Existing Agreement, to which the OIG issued OIG Advisory Opinion No. 06-13 (“Original Advisory Opinion”) on September 18, 2013. The OIG concluded that the modifications to the Existing Arrangement would not affect their conclusion in the Original Advisory Opinion.

Under the Existing Arrangement, the Requestor provides annual individual grants to help patients with blood-related cancers, including Federal health care beneficiaries, to pay for their health insurance premiums and medical cost-sharing obligations. The Requestor pays premium assistance grants directly to the patient’s insurance company and pays cost-sharing assistance grants directly to physicians, provides, and suppliers of items and services. Currently, the Requestor pools donations into five disease funds, which provide financial grants consisting of premium and cost-sharing assistance.

The Requestor proposed to modify the Existing Arrangement by first staggering its patient grant application renewal process based on the date the Requestor initially approves a patient’s application. Second, the Requestor proposes to create a reserve system in which the Requestor would reserve the maximum annual funding allowed for each enrollee within the disease category upon approval of the enrollee’s initial claim submission. If the enrollee doesn’t file an additional claim within 90 days, the remaining unspent funds reserved for the enrollee would be release. Third, the Requestor proposes to establish a cap for some of its disease funds on the amount of financial assistance provided by the Requestor to each enrollee for premium assistance. Fourth, the Requestor proposes to use a pharmacy benefit manager (“PBM”) to administer copayment assistance at the enrollee’s pharmacy point of sale through the use of a membership card. The Requestor would include in the PBM contract a prohibition of the PBM influencing an enrollee’s selection of a particular product, practitioner, provider, supplier, or insurance plan. To preserve an enrollee’s right to use the pharmacy of his or her choice, enrollees that elect to use a pharmacy outside the PBM’s network would pay the coinsurance at the pharmacy and submit a claim for reimbursement to the Requestor. The Requestor would make no referrals or recommendations regarding specific providers, practitioners, suppliers, products, or plans.

The OIG found that the Requestor’s modification were largely administrative in nature. In particular, the OIG noted that the Requestor is a charity with limited resources. The OIG stated that all safeguards that led them to determine that the Existing Agreement entailed minimal risk that donor contributions would improperly influence referrals by the Requestor, and beneficiaries would not likely be improperly influenced in their selection of a particular provider, practitioner, supplier, or product, remain in place. In a footnote to the opinion, the OIG stated that the safeguards described in the Original Advisory Opinion have been strengthened in one respect because in support of the modification, the Requestor certified that each of its disease funds covers cost-sharing for many categories of drugs, and that none of these funds have covered, nor would any cover, only one drug or the drugs of only one pharmaceutical manufacturer.

The OIG concluded that the modifications do not materially increase risk to Federal health care programs and did not affect their conclusion in the Original Advisory Opinion that the Existing Arrangement would not constitute grounds for the imposition of civil monetary penalties and although it could potentially generate prohibited remuneration under the anti-kickback statute if the requisite intent to induce or reward referrals were present, the OIG would not impose administrative sanctions. The OIG also highlighted the fact that the Requestor was a charity who focuses on financially needy patients. The OIG did reiterate that the Existing Arrangement could generate prohibited remuneration under the anti-kickback statute if the requisite intent to induce or reward referrals of Federal health care program business were present, but the OIG would not in this instance.

If you have any questions regarding this Advisory Opinion, please contact Brian Heaton at (317) 238-6354 or bheaton@kdlegal.com or Tom Hutchinson at (317) 238-6254 or thutchinson@kdlegal.com. 

Proposed CMS Rule Raises Medicare OPPS and ASC Payments for 2014

On July 8, 2013, the Centers for Medicare & Medicaid Services (“CMS”) released a proposed rule that would update the payment policies and rates for services to Medicare beneficiaries in hospital outpatient departments and ambulatory surgical centers (“ASCs”) beginning January 1, 2014. CMS analyzed 2013 figures for the more than 4,000 facilities paid under the Outpatient Prospective Payment System (“OPPS”) and more than 5,000 Medicare-participating ASCs paid under the ASC payment system, and obtained estimates of the benefits and impacts of the proposed increases. The proposed rule would, among other aspects, increase average OPPS Medicare payments by 1.8% and the Medicare payments to ASCs by 0.9%. CMS further estimates that the increases to payment policies and rates of such services will increase OPPS payments by $4.37 billion and the Medicare payments to ASCs by $133 million.

If enacted, the proposed rule would also expand the current categories of packaged services to make the OPPS more of a prospective payment system and less of a fee-for-service system. For the 2014 calendar year, the CMS is proposing to package seven new items and services, which would be added to the list of those already listed in 42 C.F.R. 419.2(b). Such items and services include:

·         Drugs, biologicals, and radiopharmaceuticals that function as supplies in a diagnostic test or procedure;

·         Drugs and biologicals that function as supplies or devices in a surgical procedure;

·         Lab tests;

·         Procedures described by add-on codes;

·         Ancillary services;

·         Diagnostic tests on the bypass list; and

·         Devices removal procedures.

CMS is also proposing under this rule that certain ancillary or adjunctive items or services would be packaged similarly under the ASC payment system for 2014.

Although the main focus of the proposed rule is the increased OPPS and ASC Medicare payments, the rule also discusses adding quality reporting measures for both OPPS and ASC. Furthermore, the proposed rule discusses changes to conditions for coverage for organ procurement organizations, revisions to the Quality Improvement Organization regulations, changes to Medicare fee-for-service Electronic Health Record Incentive Programs, and changes related to provide reimbursement determinations and appeals.  

CMS will accept comments until 5:00 p.m. (EST) on September 6, 2013 on the proposed rule. The proposed rule may be accessed here: http://www.ofr.gov/OFRUpload/OFRData/2013-16555_PI.pdf. 

If you have questions or would like more information about this proposed rule, its implication, or other health care matters, please contact Susan Ziel at (317) 238-6244 or sziel@kdlegal.com.