On October 20, 2023, the Office of Inspector General of the Department of Health and Human Services (“OIG”) issued an unfavorable Advisory Opinion No. 23-08 to a supplier of cochlear implants coupled with external sound processors (the “Device”). The Device supplier (the “Supplier”) proposed to provide free hearing aids to candidates for cochlear implants in one ear and hearing aids in the other (bimodal hearing). Under this arrangement (the “Proposed Arrangement”), the Supplier would, among other things, require hospitals and ambulatory surgery centers (“ASCs”) to certify that they would not bill patients or federal healthcare programs for the hearing aids. The OIG nonetheless concluded that the Proposed Arrangement could inappropriately steer patients to the Supplier’s Device, over a competitor’s clinically appropriate items or services, and would implicate civil monetary penalty provisions prohibiting inducements to beneficiaries of federal healthcare programs (Beneficiary Inducements CMP).
The Proposed Arrangement
Under the Proposed Arrangement, the bimodal-hearing bundle would consist of the Device and a free, compatible hearing aid. The Supplier would offer the bimodal-hearing bundle to candidates who meet Medicare-coverage requirements for a cochlear implant and have moderate to severe hearing loss in the ear not receiving the Device, as determined by the patient’s healthcare provider (the “Provider”). At the Provider’s request, the hospital or ASC, as applicable, would purchase the Device from the Supplier. The Provider would then implant the Device at the hospital or ASC, and an audiologist would later program and fit the hearing aid. The free hearing aid would be conditioned on the purchase of the Device, and the Supplier expected that patients and Providers would be aware of this offer.
The Supplier indicated that it would require the hospitals and ASCs to certify that they would not bill patients or federal healthcare programs for the hearing aids. The Supplier would also require the hospitals and ASCs to advise the patients and audiologists in writing that they were not to submit insurance claims for the hearing aid and that audiologists may only charge patients their usual and customary fees for fitting the hearing aid.
Finally, the Supplier proposed to either not impose any financial-need criteria for the free hearing aids or limit them to patients with household incomes at or below 300% of federal poverty level.
Federal Anti-Kickback Statute
The OIG determined that the Proposed Arrangement would implicate the federal Anti-Kickback Statute (“AKS”) because it would have the potential to induce the purchase of the Device, which is an item reimbursable by federal healthcare programs, such as Medicare and Medicaid. The OIG also noted that the Proposed Arrangement would not be protected by the safe harbor for “arrangements for patient engagement and support to improve quality, health outcomes, and efficiency.” The monetary cap imposed by this safe harbor is currently $570, whereas the cost of the hearing aid ranges from $1,180 to $2,240. Because the Proposed Arrangement would lack safe-harbor protection, the OIG then went on to discuss aspects of it that led the agency to conclude that the risk of fraud and abuse under the AKS were sufficient for the issuance of an unfavorable advisory opinion.
First, the OIG stated its “longstanding and continuing concerns” that the provision of free items or services to beneficiaries of federal healthcare programs could result in steering, unfair competition, improper utilization, and quality-and-cost concerns. The OIG concluded that these concerns would apply to the Proposed Arrangement because, as indicated by the Supplier, (1) patients are able to choose manufacturers for cochlear implants and sound processors; (2) the hearing aid is not required for the Device to work properly; and (3) in most cases, the Device would not be more clinically appropriate than similar devices of other manufacturers.
Additionally, the OIG indicated that the Proposed Arrangement could result in unfair competition. It viewed the Proposed Arrangement as a form of “giveaways to attract business,” which, according to the agency, “favors large providers with greater financial resources for such activities, disadvantaging smaller providers and businesses.” Thus, the OIG concluded that the Proposed Arrangement could give the Supplier “a significant advantage over its competitors (or potential competitors seeking to enter the hearing loss treatment market), who may not be in a position to offer a similar benefit.”
Beneficiary Inducements CMP
The OIG also determined that the Proposed Arrangement would implicate the Beneficiary Inducements CMP. According to the OIG, the provision of free hearing aids could influence a beneficiary to select the Device. As the hearing aid is not required for the Device to work properly, the agency determined that the hearing aid would not improve a beneficiary’s ability to obtain items or services payable by Medicare or Medicaid. Accordingly, the ”Promotes Access to Care Exception [to Beneficiary Inducements CMP]” would not apply.
Also, the Financial Need-Based Exception would not apply, even if the hearing aids would only be available for free to beneficiaries meeting financial need-based criteria. That is because the free hearing aids would be conditioned on the purchase of the Device, an item reimbursable under Medicare and Medicaid. The Financial Need-Based Exception requires that items or services being offered for free or less than fair market value not be tied to the provision of other federally reimbursable items or services. According to the OIG:
No exception to the Beneficiary Inducements CMP applies, and . . . the Proposed Arrangement could generate prohibited remuneration under the Beneficiary Inducements CMP. Our conclusion that the Proposed Arrangement would cause a risk of steering to [Supplier’s] Device and unfair competition remains the same whether or not the Proposed Arrangement contains a financial need requirement. We have long emphasized that “there is no meaningful statutory basis for a broad exemption based on the financial need of a category of patients . . . [and] that categorical financial need is not a sufficient basis for permitting valuable gifts.”
This advisory opinion shows how the provision of items or services for free or reduced cost can be fraught with fraud-and-abuse risk, even if protections are in place to ensure that no claims for such items or services are submitted to Medicare or Medicaid. In evaluating a program for free or reduced cost for items or services that are federally reimbursable, the OIG would look to, among other things, whether (1) patients and their healthcare providers are aware of these offers in advance, (2) such offers are tied to the purchase of other federally reimbursable items or services, and (3) competing items or services are available. A medical device supplier wanting to establish such a program should be mindful of these considerations. The supplier should also ensure that the program fits within an applicable anti-kickback safe harbor, to the greatest extent possible, and within a Beneficiary Inducements CMP exception.