[Federal Register Volume 67, Number 169 (Friday, August 30, 2002)]
[Notices]
[Pages 55855-55858]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-22124]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of Inspector General


Publication of OIG Special Advisory Bulletin on Offering Gifts 
and Other Inducements to Beneficiaries

AGENCY: Office of Inspector General (OIG), HHS.

[[Page 55856]]


ACTION: Notice.

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SUMMARY: The OIG periodically develops and issues guidance, including 
Special Fraud Alerts and Special Advisory Bulletins, to alert and 
inform the industry about potential problems or areas of special 
interest. This Federal Register notice sets forth the recently issued 
OIG Special Advisory Bulletin addressing the offering of gifts and 
other inducements to Medicare and Medicaid beneficiaries.

FOR FURTHER INFORMATION CONTACT: Vicki Robinson or Joel Schaer, Office 
of Counsel to the Inspector General, (202) 619-0335.

SUPPLEMENTARY INFORMATION:

I. Background

    We are issuing this Special Advisory Bulletin to help the industry 
better understand the prohibition on furnishing inducements to Medicare 
and Medicaid beneficiaries at section 1128A(a)(5) of the Social 
Security Act. Specifically, the Special Advisory Bulletin addresses the 
offering of gifts and other inducements to beneficiaries to influence 
their choice of a Medicare or Medicaid provider, practitioner, or 
supplier.

II. Special Advisory Bulletin: Offering Gifts and Other Inducements to 
Beneficiaries (August 2002)

Introduction

    Under section 1128A(a)(5) of the Social Security Act (the Act), 
enacted as part of Health Insurance Portability and Accountability Act 
of 1996 (HIPAA), a person who offers or transfers to a Medicare or 
Medicaid beneficiary any remuneration that the person knows or should 
know is likely to influence the beneficiary's selection of a particular 
provider, practitioner, or supplier of Medicare or Medicaid payable 
items or services may be liable for civil money penalties (CMPs) of up 
to $10,000 for each wrongful act. For purposes of section 1128A(a)(5) 
of the Act, the statute defines ``remuneration'' to include, without 
limitation, waivers of copayments and deductible amounts (or any part 
thereof) and transfers of items or services for free or for other than 
fair market value. (See section 1128A(i)(6) of the Act.) The statute 
and implementing regulations contain a limited number of exceptions. 
(See section 1128A(i)(6) of the Act; 42 CFR 1003.101.)
    Offering valuable gifts to beneficiaries to influence their choice 
of a Medicare or Medicaid provider \1\ raises quality and cost 
concerns. Providers may have an economic incentive to offset the 
additional costs attributable to the giveaway by providing unnecessary 
services or by substituting cheaper or lower quality services. The use 
of giveaways to attract business also favors large providers with 
greater financial resources for such activities, disadvantaging smaller 
providers and businesses.
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    \1\ For convenience, in this Special Advisory Bulletin, the term 
``provider'' includes practitioners and suppliers, as defined in 42 
CFR 400.202.
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    The Office of Inspector General (OIG) is responsible for enforcing 
section 1128A(a)(5) through administrative remedies. Given the broad 
language of the prohibition and the number of marketing practices 
potentially affected, this Bulletin is intended to alert the health 
care industry as to the scope of acceptable practices. To that end, 
this Bulletin provides bright-line guidance that will protect the 
Medicare and Medicaid programs, encourage compliance, and level the 
playing field among providers. In particular, the OIG will apply the 
prohibition according to the following principles:
     First, the OIG has interpreted the prohibition to permit 
Medicare or Medicaid providers to offer beneficiaries inexpensive gifts 
(other than cash or cash equivalents) or services without violating the 
statute. For enforcement purposes, inexpensive gifts or services are 
those that have a retail value of no more than $10 individually, and no 
more than $50 in the aggregate annually per patient.
     Second, providers may offer beneficiaries more expensive 
items or services that fit within one of the five statutory exceptions: 
waivers of cost-sharing amounts based on financial need; properly 
disclosed copayment differentials in health plans; incentives to 
promote the delivery of certain preventive care services; any practice 
permitted under the federal anti-kickback statute pursuant to 42 CFR 
1001.952; or waivers of hospital outpatient copayments in excess of the 
minimum copayment amounts.
     Third, the OIG is considering several additional 
regulatory exceptions. The OIG may solicit public comments on 
additional exceptions for complimentary local transportation and for 
free goods in connection with participation in certain clinical 
studies.
     Fourth, the OIG will continue to entertain requests for 
advisory opinions related to the prohibition on inducements to 
beneficiaries. However, as discussed below, given the difficulty in 
drawing principled distinctions between categories of beneficiaries or 
types of inducements, favorable opinions have been, and are expected to 
be, limited to situations involving conduct that is very close to an 
existing statutory or regulatory exception.
    In sum, unless a provider's practices fit within an exception (as 
implemented by regulations) or are the subject of a favorable advisory 
opinion covering a provider's own activity, any gifts or free services 
to beneficiaries should not exceed the $10 per item and $50 annual 
limits.\2\
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    \2\ The OIG will review these limits periodically and may adjust 
them for inflation if appropriate.
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    In addition, valuable services or other remuneration can be 
furnished to financially needy beneficiaries by an independent entity, 
such as a patient advocacy group, even if the benefits are funded by 
providers, so long as the independent entity makes an independent 
determination of need and the beneficiary's receipt of the remuneration 
does not depend, directly or indirectly, on the beneficiary's use of 
any particular provider. An example of such an arrangement is the 
American Kidney Fund's program to assist needy patients with end stage 
renal disease with funds donated by dialysis providers, including 
paying for their supplemental medical insurance premiums. (See, e.g., 
OIG Advisory Opinion No. 97-1 and No. 02-1.)

Elements of the Prohibition

    Remuneration. Section 1128A(a)(5) of the Act prohibits the offering 
or transfer of ``remuneration''. The term ``remuneration'' has a well-
established meaning in the context of various health care fraud and 
abuse statutes. Generally, it has been interpreted broadly to include 
``anything of value.'' The definition of ``remuneration'' for purposes 
of section 1128A(a)(5)--which includes waivers of coinsurance and 
deductible amounts, and transfers of items or services for free or for 
other than fair market value--affirms this broad reading. (See section 
1128A(i)(6).) The use of the term ``remuneration'' implicitly 
recognizes that virtually any good or service has a monetary value.\3\
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    \3\ Some services, such as companionship provided by volunteers, 
have psychological, rather than monetary value. (See, e.g., OIG 
Advisory Opinion No. 00-3.)
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    The definition of ``remuneration'' in section 1128A(i)(6) contains 
five specific exceptions:
     Non-routine, unadvertised waivers of copayments or 
deductible amounts based on individualized determinations of financial 
need or exhaustion of reasonable collection efforts. Paying the 
premiums for a beneficiary's Medicare Part B or supplemental insurance 
is not protected by this exception.
     Properly disclosed differentials in a health insurance 
plan's copayments or

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deductibles. This exception covers incentives that are part of a health 
plan design, such as lower plan copayments for using preferred 
providers, mail order pharmacies, or generic drugs. Waivers of Medicare 
or Medicaid copayments are not protected by this exception.
     Incentives to promote the delivery of preventive care. 
Preventive care is defined in 42 CFR 1003.101 to mean items and 
services that (i) are covered by Medicare or Medicaid and (ii) are 
either pre-natal or post-natal well-baby services or are services 
described in the Guide to Clinical Preventive Services published by the 
U.S. Preventive Services Task Force (available online at http://odphp.osphs.dhhs.gov/pubs/guidecps). Such incentives may not be in the 
form of cash or cash equivalents and may not be disproportionate to the 
value of the preventive care provided. (See 42 CFR 1003.101; 65 FR 
24400 and 24409.)
     Any practice permitted under an anti-kickback statute safe 
harbor at 42 CFR 1001.952.\4\
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    \4\ For example, anti-kickback statute safe harbors exist for 
warranties; discounts; employee compensation; waivers of certain 
beneficiary coinsurance and deductible amounts; and increased 
coverage, reduced cost-sharing amounts, or reduced premium amounts 
offered by health plans. See 42 CFR 1001.952(g), (h), (i), and (k).
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     Waivers of copayment amounts in excess of the minimum 
copayment amounts under the Medicare hospital outpatient fee schedule. 
(See section 1128A(i)(6) of the Act; 42 CFR 1003.101.)
    In addition, in the Conference Committee report accompanying the 
enactment of section 1128A(a)(5), Congress expressed its intent that 
inexpensive gifts of nominal value be permitted. (See Joint Explanatory 
Statement of the Committee of Conference, section 231 of HIPAA, Public 
Law 104-191.) Accordingly, the OIG interprets the prohibition to 
exclude offers of inexpensive items or services, and no specific 
exception for such items or services is required. (See 65 FR 24400 and 
24410.) The OIG has interpreted inexpensive to mean a retail value of 
no more than $10 per item or $50 in the aggregate per patient on an 
annual basis. Id. at 24411.
    Inducement. Section 1128A(a)(5) of the Act bars the offering of 
remuneration to Medicare or Medicaid beneficiaries where the person 
offering the remuneration knows or should know that the remuneration is 
likely to influence the beneficiary to order or receive items or 
services from a particular provider. The ``should know'' standard is 
met if a provider acts with deliberate ignorance or reckless disregard. 
No proof of specific intent is required. (See 42 CFR 1003.101.)
    The ``inducement'' element of the offense is met by any offer of 
valuable (i.e., not inexpensive) goods and services as part of a 
marketing or promotional activity, regardless of whether the marketing 
or promotional activity is active or passive. For example, even if a 
provider does not directly advertise or promote the availability of a 
benefit to beneficiaries, there may be indirect marketing or 
promotional efforts or informal channels of information dissemination, 
such as ``word of mouth'' promotion by practitioners or patient support 
groups. In addition, the OIG considers the provision of free goods or 
services to existing customers who have an ongoing relationship with a 
provider likely to influence those customers' future purchases.
    Beneficiaries. Section 1128A(a)(5) of the Act bars inducements 
offered to Medicare and Medicaid beneficiaries, regardless of the 
beneficiary's medical condition. The OIG is aware that some specialty 
providers offer valuable gifts to beneficiaries with specific chronic 
conditions. In many cases, these complimentary goods or services have 
therapeutic, as well as financial, benefits for patients. While the OIG 
is mindful of the hardships that chronic medical conditions can cause 
for beneficiaries, there is no meaningful basis under the statute for 
exempting valuable gifts based on a beneficiary's medical condition or 
the condition's severity. Moreover, providers have a greater incentive 
to offer gifts to chronically ill beneficiaries who are likely to 
generate substantially more business than other beneficiaries.
    Similarly, there is no meaningful statutory basis for a broad 
exemption based on the financial need of a category of patients. The 
statute specifically applies the prohibition to the Medicaid program--a 
program that is available only to financially needy persons. The 
inclusion of Medicaid within the prohibition demonstrates Congress' 
conclusion that categorical financial need is not a sufficient basis 
for permitting valuable gifts. This conclusion is supported by the 
statute's specific exception for non-routine waivers of copayments and 
deductibles based on individual financial need. If Congress intended a 
broad exception for financially needy persons, it is unlikely that it 
would have expressly included the Medicaid program within the 
prohibition and then created such a narrow exception.
    Provider, Practitioner, or Supplier. Section 1128A(a)(5) of the Act 
applies to incentives to select particular providers, practitioners, or 
suppliers. As noted in the regulations, the OIG has interpreted this 
element to exclude health plans that offer incentives to Medicare and 
Medicaid beneficiaries to enroll in a plan. (See 65 FR 24400 and 
24407.) However, incentives provided to influence an already enrolled 
beneficiary to select a particular provider, practitioner, or supplier 
within the plan are subject to the statutory proscription (other than 
copayment differentials that are part of a health plan design). Id. In 
addition, the OIG does not believe that drug manufacturers are 
``providers, practitioners, or suppliers'' for the limited purposes of 
section 1128A(a)(5), unless the drug manufacturers also own or operate, 
directly or indirectly, pharmacies, pharmacy benefits management 
companies, or other entities that file claims for payment under the 
Medicare or Medicaid programs.

Additional Regulatory Considerations

    Congress has authorized the OIG to create regulatory exceptions to 
section 1128A(a)(5) of the Act and to issue advisory opinions to 
protect acceptable arrangements. (See sections 1128A(i)(6)(B) and 
1128D(b)(2)(A) of the Act.) While the OIG has considered numerous 
arrangements involving the provision of various free goods and services 
to beneficiaries, for the following reasons the OIG has concluded that 
any additional exceptions will likely be few in number and narrow in 
scope:
     Any exception will create the activity that the statute 
prohibits--namely, competing for business by giving remuneration to 
Medicare and Medicaid beneficiaries. Moreover, competition will not 
only result in providers matching a competitor's offer, but inevitably 
will trigger ever more valuable offers.
     Since virtually all free goods and services have a 
corresponding monetary value, there is no principled basis under the 
statute for distinguishing between the kinds of goods or services 
offered or the types of beneficiaries to whom the goods or services are 
offered. Attempting to draw such distinctions would necessarily result 
in arbitrary standards and would undermine the entire prohibition. 
Congress has provided no further statutory guidance on the bases for 
distinguishing and evaluating potential exceptions.
    Despite these serious concerns, the OIG is considering soliciting 
public comment on the possibility of regulatory ``safe harbor'' 
exceptions under section

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1128A(a)(5) for two kinds of arrangements:
     Complimentary local transportation. The OIG is considering 
proposing a new exception for complimentary local transportation 
offered to beneficiaries residing in the provider's primary catchment 
area. The proposal would permit some complimentary local transportation 
of greater than nominal value. However, the exception would not cover 
luxury or specialized transportation, including limousines or 
ambulances (but would permit vans specially outfitted to transport 
wheelchairs). The proposed exception may include transportation to the 
office or facility of a provider other than the donor; however, such 
arrangements may implicate the anti-kickback statute insofar as they 
confer a benefit on a provider that is a potential referral source for 
the party providing the transportation.
     Government-sponsored clinical trials. The OIG may propose 
a new exception for free goods and services (possibly including waivers 
of copayments) in connection with certain clinical trials that are 
principally sponsored by the National Institutes of Health or another 
component of the Department of Health and Human Services.
    The OIG is reviewing its pending proposal (65 FR 25460) to permit 
certain dialysis providers to purchase Medicare supplemental insurance 
for financially needy persons in the light of the principles 
established in this Bulletin.
    While the OIG does not expect at this time to propose any 
additional regulatory exceptions related to unadvertised waivers of 
copayments and deductibles, the OIG recognizes that such waivers occur 
in a wide variety of circumstances, some of which do not present a 
significant risk of fraud and abuse. The OIG encourages the industry to 
bring these situations to our attention through the advisory opinion 
process. Instructions for requesting an OIG advisory opinion are 
available on the OIG Web site at http://oig.hhs.gov/advopn/index.htm.
    Finally, the OIG reiterates that nothing in section 1128A(a)(5) 
prevents an independent entity, such as a patient advocacy group, from 
providing free or other valuable services or remuneration to 
financially needy beneficiaries, even if the benefits are funded by 
providers, so long as the independent entity makes an independent 
determination of need and the beneficiary's receipt of the remuneration 
does not depend, directly or indirectly, on the beneficiary's use of 
any particular provider. The OIG has approved several such arrangements 
through the advisory opinion process, including the American Kidney 
Fund's program to assist needy patients with end stage renal disease 
with funds donated by dialysis providers. (See, e.g., OIG Advisory 
Opinion No. 97-1 and No. 02-1.)

Conclusion

    Congress has broadly prohibited offering remuneration to Medicare 
and Medicaid beneficiaries, subject to limited, well-defined 
exceptions. To the extent that providers have programs in place that do 
not meet any exception, the OIG, in exercising its enforcement 
discretion, will take into consideration whether the providers 
terminate prohibited programs expeditiously following publication of 
this Bulletin.

    The Office of Inspector General (OIG) was established at the 
Department of Health and Human Services by Congress in 1976 to 
identify and eliminate fraud, abuse, and waste in the Department's 
programs and to promote efficiency and economy in departmental 
operations. The OIG carries out this mission through a nationwide 
program of audits, investigations, and inspections.
    The Fraud and Abuse Control Program, established by the Health 
Insurance Portability and Accountability Act of 1996 (HIPAA), 
authorized the OIG to provide guidance to the health care industry 
to prevent fraud and abuse and to promote the highest level of 
ethical and lawful conduct. To further these goals, the OIG issues 
Special Advisory Bulletins about industry practices or arrangements 
that potentially implicate the fraud and abuse authorities subject 
to enforcement by the OIG.

    Dated: August 8, 2002.
Janet Rehnquist,
Inspector General.
[FR Doc. 02-22124 Filed 8-29-02; 8:45 am]
BILLING CODE 4152-01-P