OIG’s First Advisory Opinion of 2022 Allows for Expansion of Discount Programs

Footnotes for this article are available at the end of this page.

On January 19, 2022, the Department of Health and Human Services, Office of Inspector General (“OIG”) released a favorable advisory opinion, OIG Advisory Opinion No. 22-01 (the “Opinion”), analyzing a proposed expansion of discount programs for low-income individuals. The Requestor, an owner of retail pharmacies, inquired about whether its pharmacies adding Medicaid enrollment as an eligibility category for its low-income discount program would constitute grounds for sanctions under the federal Anti-Kickback Statute (“AKS”) or the Beneficiary Inducements Civil Monetary Penalty (“CMP”) Provision. The OIG concluded that although the proposed arrangement would generate prohibited remuneration under the AKS (if the requisite intent were present) and the Beneficiary Inducements CMP Provision, the OIG would not impose administrative sanctions on Requestors in connection with the proposed arrangement.

The Advisory Opinion

According to the facts presented, the Requestor is an online retailer that sells a variety of consumer goods and services to the general public. It indirectly owns pharmacies that are enrolled as providers in Medicare Part B and Medicaid programs in multiple states. The pharmacies also have agreements with a number of commercial insurers and pharmacy benefit managers, including those that administer pharmacy benefits for Medicare Part D sponsors, Medicare Advantage plans, and Medicaid managed care organizations.

For a monthly or annual fee, the Requestor’s customers may enroll in a Membership Program that confers various benefits, including free expedited shipping on orders from its pharmacies, and a prescription savings benefit, which offers discounts on certain brand-name and generic prescription medications purchased out-of-pocket. Third-party payors, including federal healthcare programs, cannot be billed for drugs purchased under the prescription savings benefit, although payors can be billed for covered drugs purchased from Requestor’s pharmacies that are not eligible for the prescription savings benefit.

The Requestor offers discounts on the Membership Program fee and  certain food and other grocery items to low-income individuals. Individuals are eligible for these discounts if they can show proof that they are already receiving benefits from one of several programs serving low-income individuals, such as the National School Lunch Program or the Supplemental Security Income or Low Income Home Energy Assistance programs. The Requestor proposes to add enrollment in Medicaid as an additional category of eligibility for its discount programs.

The OIG noted that Requestor’s proposed arrangement would implicate both the AKS and the Beneficiary Inducements CMP Provision because it could induce Medicaid beneficiaries who are not otherwise eligible for discounts under current eligibility categories to select Requestor’s pharmacies for future drug purchases, including drugs reimbursable by Medicaid. The proposed arrangement meets no AKS safe harbors. Further, the proposed arrangement would not meet all conditions of the retailer rewards exception to the Beneficiary Inducements CMP Provision, and no other exception to this statute was applicable to the proposed arrangement.

Under the retailer rewards exception to the Beneficiary Inducements CMP Provision, retailer rewards do not constitute prohibited remuneration if:

1. the rewards consist of coupons, rebates, or other rewards from a retailer;
2. the rewards 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 rewards is not tied to the provision of other items or services reimbursed in whole or in part by the Medicare or Medicaid programs.

The OIG observed that the discount under the proposed arrangement would not be offered on equal terms available to the general public, regardless of health insurance status (thereby failing to meet the exception’s second criteria). Rather, the discount would be available only to individuals who are enrolled in one of a number of programs, including Medicaid.

Nonetheless, the OIG found that the proposal presents minimal risk of fraud and abuse under the AKS and that it would not impose sanctions under the Beneficiary Inducements CMP Provision in connection with the proposed arrangement for the following reasons:

• First, there is only an attenuated nexus between Requestor’s discount programs and a Medicaid beneficiary’s potential ordering of drugs from Requestor’s pharmacies. The discount programs offer a wide range of benefits, most of which are unrelated to prescription drug purchases or Medicaid-reimbursable drugs.
• Second, remuneration is not specifically targeted at federal healthcare program beneficiaries under Requestor’s proposed arrangement. Rather, the proposed arrangement would use Medicaid enrollment as a proxy for financial need, not as part of an effort to provide remuneration only to Medicaid beneficiaries. Further, Requestors certified that they do not and would not track pharmacy utilization by individual customers who qualify for its discounts based on Medicaid enrollment.
• Third, Requestor’s proposed arrangement is unlikely to lead to inappropriate utilization or overutilization of items or services reimbursable by federal healthcare programs. There is no indication that the free expedited shipping offered on orders from Requestor’s pharmacies would induce beneficiaries to order prescription drugs they would not otherwise purchase, and the prescription savings benefit would not induce overutilization or inappropriate utilization of drugs reimbursable by a federal healthcare program because it applies only when customers pay out of pocket.
• Fourth, the proposed arrangement poses no risk to patient safety or quality of patient care. Rather, Requestor’s discount programs would potentially provide meaningful assistance to low-income individuals.
• Finally, the proposed arrangement presents no heightened concern with respect to steering beneficiaries to a particular pharmacy, despite the availability of free expedited shipping on pharmacy purchases. Other important factors, including price, location, availability, and medication management considerations, also could inform a Medicaid beneficiary’s decision to purchase drugs from Requestor’s pharmacies instead of others.

Based on its analysis of facts presented, the OIG concluded that although the proposed arrangement would generate prohibited remuneration under the AKS (with the requisite intent) and the Beneficiary Inducements CMP Provision, the OIG would not impose administrative sanctions related to the proposed arrangement under those statutes.

Analysis

Advisory Opinion 22-01 is the latest of the OIG’s analyses addressing retailer discount or loyalty programs with respect to the retailer rewards exception to what constitutes prohibited remuneration under the Beneficiary Inducements CMP Provision. Congress enacted this law in 1981 as one of several administrative remedies to combat fraud and abuse in Medicare and Medicaid.¹  Under it, 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 of up to $20,000 for each wrongful act.²  The term “remuneration” includes the waiver of coinsurance and deductible amounts (or any part thereof), and transfers of items or services for free or for other than fair market value.³  The OIG has previously taken the position that “incentives that are only nominal in value are not prohibited by the statute,” and has interpreted “nominal in value” to mean “no more than $10 per item, or $50 in the aggregate on an annual basis.”⁴

Notwithstanding this interpretation, many retailer reward programs included a blanket exclusion of federal healthcare program beneficiaries.⁵  The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”), amended the definition of “remuneration” for purposes of the Beneficiary Inducements CMP Provision by adding a new exception for rewards offered by retailers that met the three criteria analyzed in Advisory Opinion 22-01.⁶  In December 2016, the OIG issued a final rule in which it interpreted this exception and codified it into regulation.⁷  The OIG believed this new exception should increase retailers’ willingness to include federal healthcare program beneficiaries in their reward programs in appropriate circumstances.⁸

The OIG has employed a similar analytical framework as applied in Advisory Opinion 22-01 to assess whether previously proposed loyalty programs violated the AKS or met the retailer rewards exception to the Beneficiary Inducements CMP Provision. For example, in Advisory Opinion 12-05 (Apr. 24, 2012), the OIG approved a proposed arrangement in which a requestor’s customers could earn gasoline discounts based on the value of purchases made in its retail stores and pharmacies, including deductibles and copayments for prescriptions covered under government programs. The OIG found that this proposed arrangement met all of the Beneficiary Inducements CMP Provision’s retailer rewards exception criteria added by the ACA. The proposed arrangement posed a minimal risk of fraud and abuse sanctionable under the AKS because, in addition to the factors the requestor satisfied in meeting the foregoing retailer rewards exception, (i) there was a low risk that the proposed arrangement would steer beneficiaries to purchase federally reimbursable items or services at the Requestor’s supermarkets; and (ii) the proposed arrangement would be unlikely to result in overutilization because the drugs had already been prescribed, there would be no waiver of any cost-sharing amount, and the gasoline purchased with the loyalty discount was not federally reimbursable. In Advisory Opinion 12-14 (Oct. 9, 2012), the OIG approved a similar program for the same reasons.

In Advisory Opinion 17-05 (Sep. 7, 2017), the OIG approved an arrangement in which a retail pharmacy chain would expand its existing rewards program to include federal healthcare program beneficiaries, whose enrollment it had prohibited to that point. The OIG concluded that the first two criteria for the retailer rewards exception under the Beneficiary Inducement CMP Provision were satisfied as the pharmacy was a retailer within the meaning of the statute, and the rewards program was available on equal terms to the public. The OIG also determined that the program was not tied to the provision of other items or services reimbursable by a government health program, in satisfaction of the third criterion. Notably, although the pharmacy could not enforce the condition prohibiting the use of its program in conjunction with other insurance or health plan coverage, the OIG noted that such claims were “unlikely” because a “rational economic actor” would only utilize the benefit program to purchase items and services that would cost less than they would if purchased using a federal healthcare program benefit. The OIG incorporated the above factors in its determination that the proposed arrangement posed a minimal risk of fraud and abuse under the AKS. It also noted in its AKS analysis that the proposed arrangement did not include any features specifically to steer beneficiaries to the requestor’s retail pharmacy locations to purchase federally reimbursable items or services. Additionally, the program would not likely result in overutilization or increased costs to government healthcare programs because an individual would only purchase prescription drugs for which a written order had already been obtained.

The OIG undertook a similar analysis to reach the same conclusion in Advisory Opinion 19-06 (Dec. 12, 2019), in which it considered the expansion of a supermarket’s loyalty program to allow customers to earn rewards points on out-of-pocket costs paid in connection with purchases at its in-store pharmacies, including pharmacy products covered by government healthcare programs. The OIG concluded that the proposed expansion of the customer loyalty program would satisfy the retailer rewards exception to the Benefits Inducement CMP Provision and posed a low risk of fraud and abuse under the AKS. In its AKS analysis, the OIG relied on the factors that satisfied the Benefits Inducement CMP Provision retailer rewards exception The program was also unlikely to increase costs to federal healthcare programs or steer beneficiaries to the requestor’s supermarkets to purchase federally reimbursable items or services.

Advisory Opinion 22-01 and the previous Advisory Opinions discussed above provide welcome guidance to retailers that operate reward programs applicable to federal healthcare program beneficiaries. Although the retailer rewards exception to the Benefits Inducement CMP Provision has no parallel in the AKS, the OIG has repeatedly incorporated the retail rewards exception analysis findings into its examination of AKS compliance of proposed arrangements. While meeting the Benefits Inducement CMP Provision retailer rewards exception has never been a stamp of approval regarding AKS compliance, the analyses in Advisory Opinions preceding Opinion 22-01 suggested that arrangements satisfying the exception are less likely to be found violative of the AKS.

However, Advisory Opinion 22-01 involved the first proposed arrangement in this series in which the discount program is offered specifically to a subset of the population, not the general public. Though the OIG determined that the arrangement would not satisfy the retailer rewards exception for this reason (and that it satisfied no other exception to the Beneficiary Inducement CMP Provision), it nevertheless determined that it would not impose sanctions under the AKS. To reach this conclusion, the OIG analyzed considerations beyond the retail rewards exception factors, potential inappropriate steering, and overutilization, as it limited itself to in its prior AKS analyses in this series.

Here, the OIG incorporated the third Beneficiary Inducement CMP Provision retail rewards exception factor (which requires that the reward not be tied to items or services reimbursable by Medicare or Medicaid) in its first reason for declining to sanction the proposed arrangement under the AKS — that is, that there was only an “attenuated” nexus between the Requestor’s discount program and the Medicaid beneficiary’s potential ordering of drugs from the Requestor’s pharmacies. The OIG also analyzed an additional factor relevant to another exception to the Beneficiary Inducement CMP Provision, which provides that prohibited remuneration does not include remuneration that, inter alia, poses a low risk of harm to patients.⁹  The OIG has suggested that “low risk” remuneration “does not raise patient-safety or quality-of-care concerns,” among other requirements.¹⁰  The OIG echoed this very language in its fourth reason that it would not impose sanctions related to this Requestor’s proposed arrangement under the AKS.¹¹  Finally, another additional analytical point that seems vital to the OIG’s decision to refrain from imposing AKS sanctions is that the remuneration was not specifically targeted at federal health program beneficiaries, but was merely using Medicaid enrollment as a proxy to assess individuals’ financial need. This may have suggested to the OIG that any remuneration provided by the Requestor was without the intent required for a violation of the AKS.¹²

Though prior OIG Advisory Opinions addressing loyalty programs suggested overlapping analyses for satisfaction of the Beneficiary Inducement CMP Provision retail rewards exception and compliance with the AKS, Advisory Opinion 22-01 shows that the OIG is willing to examine a range of factors beyond the retail rewards exception to determine whether a proposed arrangement will be acceptable under the AKS. The OIG previously stated that the retail rewards exception should increase retailers’ willingness to include federal healthcare program beneficiaries in their reward programs in appropriate circumstances. The OIG’s flexibility in pulling in additional factors to analyze when a proposed arrangement does not satisfy the retail rewards exception may signal continued inclination for retailers to create and execute loyalty programs that include federal healthcare beneficiaries. As a result, retailers may be able to structure their programs to comply with regulatory requirements with greater comfort that their arrangements will not be found to violate AKS or the Beneficiary Inducement CMP Provision.

Advisory Opinion 22-01 is available here. While this Opinion and others discussed herein only apply to the specific facts and proposed arrangements presented in each particular request and should not be relied upon as general policies, they offer informal guidance to the retail industry about practices or arrangements that implicate the AKS and Beneficiary Inducement CMP Provision, and the OIG’s approach to assessing the risks that loyalty programs might violate these statutes. For more information on OIG Advisory Opinion No. 22-01 or other issues addressed herein, please contact AGG attorneys Aaron Danzig or Lisa Churvis.

 

[1] Medicare and State Health Care Programs: Fraud and Abuse; Revisions to Safe Harbors Under the Anti-Kickback Statute, and Civil Monetary Penalty Rules Regarding Beneficiary Inducements and Gainsharing, 79 Fed. Reg. 59717-01 (Oct. 3, 2014), 2014 WL 4925461 at *59719.

[2] 42 U.S.C. § 1320a-7a(a)(5).

[3] Id. § 1320a-7a(a)(6).

[4] Health Care Programs: Fraud and Abuse; Revised OIG Civil Money Penalties Resulting From Public Law 104-191, 65 Fed. Reg. 24400-01(Apr. 26, 2000), 2000 WL 472616 at *24,410-11.

[5] Medicare and State Health Care Programs: Fraud and Abuse; Revisions to Safe Harbors Under the Anti-Kickback Statute, and Civil Monetary Penalty Rules Regarding Beneficiary Inducements and Gainsharing, 79 Fed. Reg. 59717-01 (Oct. 3, 2014), 2014 WL 4925461 at *59726.

[6] “[R]etailer rewards do not constitute “remuneration” under the Beneficiary Inducements CMP if: (i) the rewards consist of coupons, rebates, or other rewards from a retailer; (ii) the rewards are offered or transferred on equal terms available to the general public, regardless of health insurance status; and (iii) the offer or transfer of the rewards is not tied to the provision of other items or services reimbursed in whole or in part by the Medicare or Medicaid programs.” OIG Advisory Opinion No. 22-01, 2022 WL 194394, at *4.

[7] 42 C.F.R. § 1003.110; Medicare and State Health Care Programs: Fraud and Abuse; Revisions to the Safe Harbors Under the Anti-Kickback Statute and Civil Monetary Penalty Rules Regarding Beneficiary Inducements, 81 Fed. Reg. 88,368 (Dec. 7, 2016), 2016 WL 7103282 at *88368.

[8] Medicare and State Health Care Programs: Fraud and Abuse; Revisions to Safe Harbors Under the Anti-Kickback Statute, and Civil Monetary Penalty Rules Regarding Beneficiary Inducements and Gainsharing, 79 Fed. Reg. 59717-01 (Oct. 3, 2014), 2014 WL 4925461 at *59726.

[9] 42 U.S.C. § 1320a-7a(i)(6)(F).

[10] Medicare and State Health Care Programs: Fraud and Abuse; Revisions to Safe Harbors Under the Anti-Kickback Statute, and Civil Monetary Penalty Rules Regarding Beneficiary Inducements and Gainsharing, 79 Fed. Reg. 59717-01 (Oct. 3, 2014), 2014 WL 4925461 at *59725.

[11] “Fourth, the Proposed Arrangement does not pose a risk to patient safety or raise any quality of care concerns.” OIG Advisory Opinion No. 22-01, 2022 WL 194394, at *6.

[12] See OIG Advisory Opinion No. 07-09, 2007 WL 6400836, at *5 (inferring that requestor was not operating the arrangement under consideration to induce beneficiaries to self-refer their federal program business to requestor based, in part, on its observation that the arrangement did not target federal healthcare program beneficiaries).