Group Purchasing and HME Providers:
Analysis of Discounts, Rebates, and other
Issues of “Safe Harbor”
Introduction
The purpose of this paper is to analyze current concerns and issues
involved in group purchasing organization (“GPO”) offers that
include certain vendor discounts and rebates paid to HME provider
members of the GPO.
Discounts, rebates, or other reductions in price may violate an antikickback statute designed to prevent inducement in the purchase of
items or services payable by Medicare or Medicaid. As a result,
some GPO members abstain from participation in various
promotional programs sponsored by the GPO and/or the vendor(s).
This paper reviews these arrangements and cites OIG safe harbors,
which suggests that many promotional programs are clearly
permissible.
© 2003 VGM Management, Ltd.
---------------------------------------This paper was authored by Mark J. Higley, Vice President – Development. The information reported
should not be construed as legal advice, nor utilized to resolve legal problems.
Introduction, continued
The federal government's focus on fighting health care fraud and abuse is well known.
The Office of Inspector General (OIG) has increased its enforcement efforts with the help
of additional funds authorized by the Health Insurance Portability and Accountability Act
(HIPAA). The OIG has particular interest in the area of kickbacks, which occur when one
party offers money or some other form of inducement to another party in return for
increased Medicare or Medicaid business. According to the Department of Justice,
kickbacks corrupt the medical provider's decision-making process and encourage the
provider to take actions that are not in the patient's best interest.
“Kickbacks” may take many forms. Common examples include providers paying for
referrals or fees paid by a drug manufacturer to physicians for prescribing its drugs to
Medicare or Medicaid patients. In the HME industry, alleged kickbacks have arisen in
the context of vendor rebates paid directly to patients as part of a provider’s marketing
program.
One of the more recent HME incidents involved blood glucose testing products. In June
of 2000, the OIG released program memorandum (PM) OEI-03-98-00230 Blood Glucose
Test Strips: Inappropriate Medicare Payments1 citing “improper marketing practices that
could be in violation of the Medicare anti-kickback statute, 42 United States Code
(U.S.C.) 1320a-7b(b)”.
The PM text included “Medicare beneficiaries who utilize
medical supplies on a repeated basis, such as blood glucose test strips, may be strongly
influenced by marketing practices. Manufacturers’ rebates, special dealer sales, coupons,
discounts, and similar financial inducements are all designed to sway consumer product
choice”. While much of the PM focused on excessive utilization (e.g., excessive or nonrequested deliveries) and advertising incentives which implied a waiver of copayment or
deductible (e.g., “No Net Cost To You!”), the report also indicated that fifteen percent of
beneficiaries reported receiving “incentives” from suppliers. Seven percent reported that
they received incentives passed on directly from their HME supplier in the form of free
monitors, discounts on test strips, or vendor rebates.
“Some inducements…may be in violation of the anti-kickback statute”, the report opined,
though explicit examples of “instances of fraudulent or abusive practices” were not
offered. In any case, on November 29, 2000, the DHHS released Transmittal B-00-69
(SUBJECT: Blood Glucose Test Strips - Marketing to Medicare Beneficiaries) which
“explains marketing practices that could be in violation of the Medicare anti-kickback
statute”. The PM emphasized compliance with the OIG Compliance Program Guidance
for DMEPOS, and advised beneficiaries to report “any instances of fraud or abusive
practices” to the DMERCs.
Further, the PM cited 42 U.S.C. 1320a-7a(a) (5), which “prohibits a person from offering
or transferring remuneration”. While the section was clearly intended to indicate a waiver
of coinsurance and deductible amounts, some HME providers interpreted the citation as a
prohibition of participation in any vendor rebate programs. The PM text was arguably
1
See entire report in Appendix
chilling (“Suppliers should seek legal counsel if they have any questions or
concerns…Any supplier…can be criminally prosecuted and excluded from participating
in Federal health care programs”). As a result, counsel for many HMEs dissuaded
provider participation in any future vendor rebate programs.
Various vendor promotional programs are common within group purchasing
organizations (GPOs). Thousands of healthcare providers maintain membership in one or
more GPOs, (sometimes known as cooperatives or buying groups). A GPO is an entity
that contracts with health care providers (such as hospitals, nursing homes, home medical
equipment and home health agencies) to achieve savings and efficiencies by aggregating
purchasing volume and using group leverage to negotiate discounts with manufacturers,
distributors and other vendors. Many GPO vendor agreements frequently offer their
provider members specific discount and/or rebate programs. As a result of concern noted
above regarding kickbacks and other potential violations, some GPO members abstain
from participation in these various promotional programs sponsored by the GPO.
Effectively, these providers have increased their cost of goods sold, while operating in a
highly competitive industry2.
Unbeknownst to many of these providers, several years ago the OIG reconsidered its
position of “excluding rebates to charge-based buyers or buyers that are reimbursed based
on federal program fee schedules (such as HME) from safe harbor protection and
allow(ed) extension of this protection to all types of providers”3.
This paper will detail these Anti-kickback Statutes, GPOs, and applicable OIG safe
harbors, and suggest that most GPO promotional programs are clearly permissible.
The “Anti-kickback Statute”
Section 1128B(b) of the Social Security Act (the Act) (42 U.S.C. 1320a-7b(b)) “provides
criminal penalties for individuals or entities that knowingly and willfully offer, pay,
solicit or receive remuneration in order to induce the referral of business reimbursable
under the Federal or State health care programs.
“The home medical equipment industry is undergoing significant consolidation. It is a highly fragmented
industry characterized by a large number of providers in every market. The consolidation process has been
marked by a number of recent mergers and acquisitions by leading companies in the industry and by the
continued acquisition of smaller regional companies by the major companies in the industry. Industry
consolidation in home medical equipment is being driven by the need to achieve higher levels of efficiency
in the delivery of healthcare products and services in the home setting to reduce the costs of such care. It is
also being driven by the needs of the managed care community to contract for such services with
companies that can provide broader geographic market coverage. “ (Apria Healthcare Group Inc. Annual
Report)
2
3
"Clarifications" to the Discount Safe Harbor: 42 CFR Part 1001Medicare and State Health Care
Programs: Fraud and Abuse; Clarification of the Initial OIG Safe Harbor Provisions and Establishment of
Additional Safe Harbor Provisions Under the Anti-Kickback Statute; Final Rule
The types of remuneration covered specifically include kickbacks, bribes and rebates,
whether made directly or indirectly, overtly or covertly, in cash or in kind. Effectively,
the statute ascribes liability to both sides of an impermissible "kickback" transaction.
The statute has been interpreted to cover any arrangement where one purpose of the
remuneration was to obtain money for the referral of services or to induce further
referrals. In addition, prohibited conduct includes the payment of remuneration intended
to induce the purchasing, leasing or ordering of any good, facility, service or item
reimbursable by any Federal or State health care program.
Violation of the statute constitutes a felony punishable by a maximum fine of $25,000,
imprisonment up to five years or both. Conviction will also lead to automatic exclusion
from Federal health care programs, including Medicare and Medicaid. The U.S.
Department of Health and Human Services’ Office of Inspector General (“OIG”) may
also initiate administrative proceedings to exclude persons from the Federal and State
health care programs or to impose civil monetary penalties for fraud, kickbacks, and
other prohibited activities under sections 1128(b)(7) and 1128A(a)(7) of the Act.4
Since the statute on its face is so broad, concern had been expressed that some relatively
innocuous commercial arrangements were technically covered by the statute and
therefore were subject to criminal prosecution. As a response to the above concern,
section 14 of the Medicare and Medicaid Patient and Program Protection Act of 1987,
Public Law 100-93, specifically required the development and promulgation of
regulations, the so-called "safe harbor" provisions, designed to specify various payment
and business practices which, although potentially capable of inducing referrals of
business under the Federal and State health care programs, would not be treated as
criminal offenses under the anti-kickback statute5
On July 29, 1991, OIG began publishing in the Federal Register a series of final
regulations establishing "safe harbors" in various areas. These OIG safe harbor
provisions have been developed to limit the reach of the statute somewhat by permitting
certain non-abusive arrangements, while encouraging beneficial and innocuous
arrangements. Safe harbor protection is afforded only to those arrangements that
precisely meet all of the conditions set forth in the safe harbor. One safe harbor relevant
to this discussion includes the GPO safe harbor6.
The GPO
All types of health care organizations use group purchasing. Nearly every hospital in the
U.S. (approximately 96 to 98 percent) utilizes GPO contracts for their purchasing
functions. Industry estimates are that hospitals across the United States use, on average,
at least two and as many as four GPOs per facility. A growing portion of the long-term
care, ambulatory care, home care, and physician practice markets are using group
4
United States v. Kats, 871 F.2d 105 (9th Cir. 1989); United States v. Greber, 760 F.2d 68 (3d Cir.), cert.
denied, 474 U.S. 988 (1985).
5
See Section 1128B(b)(3) of the Act; 42 C.F.R. § 1001.952.
6
See 42 C.R.F. § 1001.952(j).
purchasing to help lower costs and improve efficiency7. Further, the federal government
also provides group-purchasing services to various executive branch agencies.
GPOs offer economies of scale to the health care supply chain. By aggregating
purchasing power GPOs help balance the negotiating equation between purchasers and
vendors. On average, GPOs save providers between 10 to 15 percent off their purchasing
costs. It is estimated that GPOs enable providers about $39 billion annually through
lower product prices.
GPOs work to negotiate contracts with health care manufacturers, distributors and other
suppliers. After a group purchasing contract is created, it is still up to the provider to
decide which product is most appropriate make the most appropriate purchase. GPOs do
not purchase (i.e., take title to) products; they negotiate contacts that providers may
utilize when purchasing products.
GPOs vary greatly in size, type of ownership and the services they offer their members.
There are more than 600 organizations in the United States that participate in some form
of group purchasing. Hospitals and other health care providers are increasingly relying
on GPOs to help manage the complex system of purchasing. Many GPOs offer providers
e-commerce solutions to help manage their purchasing.
GPOs rely, in part, on fees paid by vendors to finance the services the GPOs offer health
care providers. These administrative fees are generally based upon the purchase price that
the health care provider pays for a product purchased through a GPO contract. The fee is
paid when a GPO's provider-member utilizes a GPO contract. Seller-based fees and
buying cooperatives are widely accepted competitive business models in many industries
(agriculture, real estate, insurance and the U.S. Government).
GPO Safe Harbor
In 1986 Congress sanctioned the GPO model for health care programs by exempting
supplier-paid administrative fees from Medicare/Medicaid anti-kickback statutes. The
statutory exception and safe harbor regulation requires disclosure to members of the
vendor fees paid to GPOs, but allows competition to determine the level of vendor fees.
The GPO safe harbor provides protection for payments by a vendor of goods or services
to a GPO (the "GPO fee"). For purposes of this safe harbor, a GPO is defined as an entity
authorized to act as a purchasing agent for a group of individuals or entities who (i) are
furnishing services for which payment may be made in whole or in part under Medicare
or a State health care program and (ii) are neither wholly owned by the GPO nor
subsidiaries of a parent corporation that wholly owns the GPO (either directly or through
another wholly-owned entity). The GPO fee must be paid as part of an agreement to
furnish goods or services to the group of individuals or entities for which the GPO is the
authorized agent. The GPO must have a written agreement with each individual or entity
7
Health Industry Group Purchasing Association (HIGPA) Assessing the Value of Group Purchasing
Organizations (Lewin Group, May 2003)
that will purchase items or services from the vendor. In addition, where the entity that
receives the goods or services from the vendor is a health care provider of services, the
GPO must disclose in writing to the entity at least annually, and to the Secretary upon
request, the amount received from each vendor with respect to purchases made by or on
behalf of the entity.8
Safe Harbor: Discounts
The anti-kickback statute contains an exception for discounts and other reductions in
price obtained by providers, which are properly disclosed, and appropriately reflected in
costs claimed or charges made to federal health care programs by the provider 9. The
1991 safe harbor regulations implementing the exception defined the types of price
concessions that qualified as "discounts," and required buyers and sellers to comply with
discount disclosure and reporting mechanisms, which varied depending on the type of
buyer involved, in order for an arrangement to be protected10. The 1991 safe harbors were
subject to important limitations, however, such as the absence of protection for bundled
sales arrangements and for rebate arrangements with charge-based buyers such as
physicians, pharmacies, and DME suppliers. The discount safe harbor as "clarified"
makes important structural changes in the safe harbor and contains a significant
liberalization of prior restrictions, particularly relating to rebate arrangements and
bundled sales. The OIG also repeats a familiar theme: a critical aspect of the safe harbor
is that federal health care programs have the opportunity to realize the benefits of the
discount.
The final rule also reiterates the OIG’s general view that the statutory exception for
discounts does not offer broader protection than the discount safe harbor11. Nevertheless,
the rule appropriately recognizes that, in an environment of fixed-rate payment
methodologies and fee schedules, providers should have greater flexibility in contracting
arrangements.
On November 19, 1999, the OIG published eight new safe harbor regulations to the AntiKickback Statute12. In addition, the OIG clarified six of the original eleven safe harbors.
8
See 42 C.F.R. §1001.952(j).
See 42 U.S.C. §1320a-7b(b)(3)(A).
10
See 42 C.F.R. § 1001.952(h).
11
64 Fed. Reg. 63526-27
12
See 42 C.F.R. § 1001.952
9
The following payment practices shall not be treated as a criminal offense under section 1128B of the Act
and shall not serve as the basis for an exclusion:
(a) Investment Interests.
(b) Space Rental.
(c) Equipment rental.
(d) Personal services and management contracts.
(e) Sale of practice.
(f) Referral services.
(g) Warranties.
(h) Discounts.
The OIG also published two safe harbors as interim final rules, implementing the shared
risk exception created by the Health Insurance Portability and Accountability Act.
The federal Anti-Kickback Statute prohibits the knowing payment of anything of value to
influence the referral of federal healthcare business, including Medicare and Medicaid.
The safe harbors immunize from criminal and civil penalties certain payment and
business practices that are prohibited by the Anti-Kickback Statute. Falling outside a safe
harbor does not mean an arrangement is necessarily illegal, but means that the
arrangement will be evaluated based on a facts and circumstances analysis.
Safe Harbor and Discounts/Rebates
The new regulations regarding the safe harbor for discounts include separate
requirements for buyers, sellers and offerors and provide protection to certain rebates.
The safe harbors also distinguish among different types of buyers such that standards for
“fee schedule” organizations (e.g., HME providers13) are different from those for entities
that bill based on cost reports or through submission of claims for charges. Most
significantly, charge based buyers may now accept both up-front discounts and rebates
under the safe harbor provided the buyer maintains appropriate documentation of the
discount and agrees to furnish such information upon request of the Secretary of HHS.
The terms for any such rebates must be fixed at the time of sale and disclosed to the
buyer. The OIG had previously proposed that charge based providers be required to
disclose discounts on claims submitted to federal health care programs, but this
requirement has been eliminated from the final regulations as the most common claim
submission forms do not include fields for disclosure of discounts.
The regulations require sellers and offerors to provide cost-report and charge based
buyers with notice that is "reasonably calculated" to alert buyers to their reporting
obligations. The preamble comments clarify that a seller or offeror may be protected
under the safe harbor regardless of whether the buyer fulfills its reporting obligations, so
long as the seller or offeror satisfies any applicable standards for disclosure and notice to
the buyer.
13
HME providers are generally reimbursed by Medicare and private insurers via fee schedules. However,
about 10 states have a cost-plus program in place for Medicaid reimbursement. In these instances,
additional disclosure and documentation may be required.
The OIG Commentary on Discounts14
On November 19, 1999, the OIG published its Summary of Proposed Clarifications under
the Anti-Kickback statute in the Federal Register. Applicable sections of the text are
copied below (underline/emphasis added by author).
“…Because of expressed industry uncertainty over what obligations individuals or
entities have to meet in order to receive protection under this safe harbor, we proposed
clarifying the discount safe harbor…
-
We are modifying our proposed definition of a ‘rebate’ to include any discount
the terms of which are fixed at the time of the sale of the good or service and
disclosed to the buyer, but which is not received at the time of the sale of the good
or service. This modification will enable us to extend safe harbor protection to
certain chargebased buyers and buyers reimbursed on the basis of fee schedules
who obtain rebates.15 We are eliminating the requirement that charge-based
buyers report discounts on claims submitted to the Federal programs; however,
we are retaining the requirement that such buyers provide documentation of
discounts to the Secretary upon request. “
Commenter/Response Section Applicable to Rebates16
On November 19, 1999, the OIG also published public comments in response to the
proposed rule establishing the safe harbor provisions containing suggestions for the
consideration and adoption of additional safe harbor provisions under 42 CFR 1001.952.
Applicable sections of the text are copied below (underline/emphasis added by author).
“Comment: A number of commenters objected to our bar on safe harbor protection for
rebates offered to chargebased providers. Our proposed definition of ‘‘rebate’’ defined a
rebate as a discount not given at the time of sale. Under our proposed clarification, safe
harbor protection would only be extended to charge-based providers for discounts made
at the time of sale of a good or service. The commenters point out, for example, that the
regulation precludes retail pharmacies and outpatient clinics from being eligible for price
reductions on the same basis as hospitals (cost reporters) and other large purchasers (e.g.,
14 Part V Department of Health and Human Services
Office of Inspector General
42 CFR Part 1001
Medicare and State Health Care
Programs: Fraud and Abuse; Clarification of the Initial OIG Safe Harbor Provisions and Establishment of
Additional Safe Harbor Provisions Under the Anti-Kickback Statute; Final Rule Friday
November 19, 1999
15
Federal Register / Vol. 64, No. 223 / Friday, November 19, 1999 / Rules and Regulations, p. 63517
16
Federal Register / Vol. 64, No. 223 / Friday, November 19, 1999 / Rules and Regulations, p. 63529
HMOs). Moreover, the commenters note that there may be situations in which
adjustments to previous billings or other errors could result in a rebate. The commenters
also maintain that where payment is based on the lesser of actual charges or a fee
schedule amount, fee schedules could be adjusted to reflect the availability of volume
discounting. The commenters argue that excluding rebates for chargebased providers
lacks a statutory basis, since the statutory exception refers to a ‘‘reduction in price
obtained by a provider,’’ without any reference to when the reduction must be obtained.
The commenters further argue that there is no sound basis for not protecting delayed
discounts to physicians, since we are not requiring physicians to reduce their charges for
the amount of a discount, even where there is a separately claimed item. Thus, the
commenters urge that rebates be covered so long as the amount is fully disclosed to the
Federal health care programs and the other safe harbor conditions are satisfied.
Response: The most important aspect of the discount safe harbor is that the Federal
health care programs share in the discount in proportion to the percentage the programs
pay of the total cost. Congress intended only to protect discounts that could fairly benefit
the Federal health care programs. It is our intention in these regulations to ensure that the
only discounts protected are those where the Federal programs receive such benefit.
Having considered the comments received about rebates, we have concluded that
excluding safe harbor protection for all rebates to charge-based buyers or buyers that are
reimbursed based on Federal program fee schedules is unnecessarily restrictive and may
prevent the Federal health care programs from realizing indirect benefits that may accrue
from rebates to charge-based providers. Accordingly, we are defining a ‘‘rebate’’ for
purposes of the safe harbor as a discount, the terms of which are fixed at the time of the
sale and disclosed to the buyer at the time of sale, but which is not given at the time of
sale. ‘‘Terms’’ refers to the methodology that will be used to calculate the rebate (e.g., a
percentage of sales or a fixed amount per item purchased during a given period of time).
The terms of the rebate must be set at the time of the sale and disclosed to the buyer, even
though the exact dollar amount of the rebate may not be known until the rebate is paid. In
some circumstances, a rebate may be paid only after some number of successive
purchases of particular goods or services; in such circumstances, the terms of the rebate
must be fixed and disclosed to the buyer at the time of the first sale of a good or service
to which the rebate applies. We are eliminating the safe harbor requirement that
chargebased buyers (and sellers if submitting claims on behalf of charge-based buyers)
disclose the amount of discounts on claims submitted to the Federal programs. We are
retaining the existing requirement that buyers (and sellers submitting claims on their
behalf) must provide information documenting the discount upon request of the
Secretary.
Comment: One commenter objected to a ‘‘discount’’ for purposes of the safe harbor
being limited to discounts offered to buyers who buy directly or through wholesalers or
group purchasing organizations. This commenter urged that this limitation fails to
accommodate new distribution arrangements, many of which contribute to purchasing
economies. For example, hospitals, physicians or ambulatory surgical centers may buy
items and services through HMOs or other brokering-type suppliers.
Response: In general, if a discount is negotiated with a bona fide seller of the item or
service, including an entity that aggregates provider demand to obtain access to volume
discounts, in accordance with an arms-length transaction, and if the discount otherwise
meets all safe harbor requirements, we believe that the discount would come within the
safe harbor definition of discount. However, there may be arrangements that do not fit the
definition where access to a seller’s favorable discount rates is itself an inducement or
reward for referrals, e.g., providing certain physician practices access to a hospital’s
employee health benefits plan in order to reduce the physician’s employee insurance
costs.”
According to leading healthcare law firm Reed Smith, “the new protection for rebate
arrangements with charge-based buyers should provide significant new flexibility for
providers such as pharmaceutical and medical device manufacturers that sell their
products to physicians, pharmacies, and DME suppliers.”17 And, Foley and Lardner
commented, “Under today’s prevailing Medicare reimbursement methodologies (e.g.,
PPS and fee schedules), it generally does not matter how much or little providers pay for
any particular equipment or supply purchased, because providers are paid based on the
services they furnish to Medicare beneficiaries, without regard to their costs. One
reimbursement methodology in which it does matter how much the provider spends on
any particular item or another is cost-based reimbursement (another is when Medicare
pays providers for purchased services). The OIG has recognized that the purchaser’s
costs matter in the costbased reimbursement context, and this is where its concerns have
traditionally, and rightly, been focused.18
Conclusion
All HME providers, regardless of size, should be concerned with potential anti-kickback
and Stark violations. HME providers should be knowledgeable about, and compliant
with, the anti-kickback statute, the Stark referral laws and other relevant Federal and
State statutes or regulations.
The OIG recommends that provider’s written policies and procedures should specifically
reference and take into account the OIG’s safe harbor regulations, which describe certain
practices that are immune from criminal and administrative prosecution under the antikickback statute. Accordingly, this paper provides sourcing and citations of specific safe
harbors and other issues applicable to the HME provider (and its GPO) that include
vendor discounts and rebates.
HME providers should have policies and procedures in place with respect to compliance
with applicable laws, and with all arrangements reviewed by counsel.
New “Safe Harbor” Regulations Under The Anti-kickback Statute, August 17 2000, Reed Smith
(http://www.reedsmith.com/library/publicationPrint.cfm?itemid=3642))
18
Law Watch, Foley and Lardner VOL. 02-27 AUG. 19, 2002
17
Appendix A- Detail of the Discount Safe Harbor19
As used in section 1128B of the Act, ``remuneration'' does not include a discount, as
defined in paragraph (h)(3) of this section, on a good or service received by a buyer,
which submits a claim or request for payment for the good or service for which payment
may be made in whole or in part under Medicare or a State health care program, from a
seller as long as the buyer complies with the applicable standards of paragraph (h)(1) of
this section and the seller complies with the applicable standards of paragraph (h)(2) of
this section:
(1) With respect to the following three categories of buyers, the buyer must comply with
all of the applicable standards within each category-(i) If the buyer is an entity, which reports its costs on a cost report required by the
Department or a State agency, it must comply with all of the following four
standards-(A) The discount must be earned based on purchases of that same good or service
bought within a single fiscal year of the buyer;
(B) The buyer must claim the benefit of the discount in the fiscal year in which
the discount is earned or the following year;
(C) The buyer must fully and accurately report the discount in the applicable cost
report; and
(D) The buyer must provide, upon request by the Secretary or a State agency,
information provided by the seller as specified in paragraph (h)(2)(ii) of this
section.
(ii) If the buyer is an entity which is a health maintenance organization or competitive
medical plan acting in accordance with a risk contract under section 1876(g) or
1903(m) of the Act, or under another State health care program, it need not report the
discount except as otherwise may be required under the risk contract.
(iii) If the buyer is not an entity described in paragraphs (h)(1)(i) or (h)(1)(ii) of this
section, it must comply with all of the following three standards-(A) The discount must be made at the time of the original sale of the good or
service;
(B) Where an item or service is separately claimed for payment with the
Department or a State agency, the buyer must fully and accurately report the
discount on that item or service; and
(C) The buyer must provide, upon request by the Secretary or a State agency,
information provided by the seller as specified in paragraph (h)(2)(ii)(A) of this
section.
(2) With respect to either of the following two categories of buyers, the seller must
comply with all of the applicable standards within each category-(i) If the buyer is an entity described in paragraph (h)(1)(ii) of this section, the seller
need not report the discount to the buyer for purposes of this provision.
(ii) If the buyer is any other individual or entity, the seller must comply with either of
the following two standards-19
42 C.F.R. § 1001.952
(A) Where a discount is required to be reported to the Department or a State
agency under paragraph (h)(1) of this section, the seller must fully and accurately
report such discount on the invoice or statement submitted to the buyer, and
inform the buyer of its obligations to report such discount; or
(B) Where the value of the discount is not known at the time of sale, the seller
must fully and accurately report the existence of a discount program on the
invoice or statement submitted to the buyer, inform the buyer of its obligations
under paragraph (h)(1) of this section and, when the value of the discount
becomes known, provide the buyer with documentation of the calculation of the
discount identifying the specific goods or services purchased to which the
discount will be applied.
(3) For purposes of this paragraph, the term discount means a reduction in the amount a
seller charges a buyer (who buys either directly or through a wholesaler or a group
purchasing organization) for a good or service based on an arms length transaction. The
term discount may include a rebate check, credit or coupon directly redeemable from the
seller only to the extent that such reductions in price are attributable to the original good
or service that was purchased or furnished. The term discount does not include-(i) Cash payment;
(ii) Furnishing one good or service without charge or at a reduced charge in exchange
for any agreement to buy a different good or service;
(iii) A reduction in price applicable to one payor but not to Medicare or a State health
care program;
(iv) A reduction in price offered to a beneficiary (such as a routine reduction or
waiver of any coinsurance or deductible amount owed by a program beneficiary);
(v) Warranties;
(vi) Services provided in accordance with a personal or management services
contract; or
(vii) Other remuneration in cash or in kind not explicitly described in this paragraph.
Appendix B- New “Safe Harbor” Regulations Under The Anti-kickback Statute20
I. INTRODUCTION
On November 19, 1999, the Office of Inspector General ("OIG") of the Department of
Health and Human Services ("HHS") promulgated final regulations entitled "Clarification
of the Initial OIG Safe Harbor Provisions and Establishment of Additional Safe Harbor
Provisions Under the Anti-Kickback Statute," 64 Fed. Reg. 63518 (1999). These
regulations created eight new safe harbor provisions, which protect arrangements from
criminal prosecution and civil sanctions under the anti-kickback statute, 42 U.S.C. §
1320a-7b(b). This statute prohibits anyone from knowingly and willfully offering,
paying, soliciting, or receiving remuneration in order to induce business reimbursable
under federal or state health care programs.
The new safe harbors pertain to investments in underserved areas, sales of physician
practices, practitioner recruitment, obstetrical malpractice insurance subsidies,
investments in group practices, cooperative hospital service organizations, ambulatory
surgical centers ("ASCs"), and referral agreements for specialty services. The first four of
the new safe harbors address arrangements in underserved areas. In addition, the
regulations clarified various provisions in the original safe harbors relating to large and
small entity investment interests, space rental, equipment rental, personal services and
management contracts, referral services and discounts. On the same day, the OIG also
promulgated an interim final rule relating to two additional safe harbors for shared risk
arrangements. (fn1) As a result, there are now a total of 23 safe harbors to the antikickback statute.
The new safe harbors were originally proposed in 1993. While many provisions were not
changed, there have been several major modifications as well as considerable fine-tuning.
Half of the new safe harbors protect various types of arrangements in underserved areas,
although these areas are now defined more broadly to encompass certain urban, as well as
rural, areas. However, the definition of underserved area appears to limit the types of
practitioners who may qualify for safe harbor protection in certain cases.
The ASC safe harbor has been substantially enlarged, and now covers four types of ASC
arrangements. By contrast, the group practice investment safe harbor has been narrowed
to apply only to investments in the group practice itself, and will not protect a group’s
investment in separate entities. The clarifications contained in the final rule are generally
very similar to the language proposed earlier with one notable exception. The discount
safe harbor now provides much greater protection for certain types of rebates and
bundled discounts for charge-based or fee schedule providers and suppliers.
The OIG reiterates throughout the regulations that failure to qualify for a safe harbor does
not mean that an arrangement is necessarily illegal. However, since many arrangements
will not fully qualify for safe harbor protection and will need to be evaluated on an
individualized basis, the preamble frequently suggests that parties seek advisory opinions.
20
Reed Smith (http://www.reedsmith.com/library/publicationView.cfm?itemid=3642)
This Memorandum provides a brief overview of the legislative and regulatory history of
the safe harbors to the anti-kickback statute. It then discusses key aspects of the new safe
harbors and clarifications to the existing safe harbors, as set forth in the final rule and
accompanying preamble. In light of the complexity of the safe harbor regulations, this
Memorandum is not intended to be a comprehensive analysis of all the regulatory
provisions, and it cannot provide legal advice regarding the safe harbors’ application to
any particular business arrangement. To facilitate review, this Memorandum focuses on
selected issues that we believe will be of most interest to our clients, and describes some
of the more significant changes that have been made in the safe harbors.
II. STATUTORY AND REGULATORY BACKGROUND
Because the statutory language prohibiting kickbacks is so broad, there has long been
concern that innocuous commercial transactions could theoretically fall within its scope,
and subject legitimate arrangements to criminal or other sanctions. In 1987, Congress
amended the anti-kickback law to require the development of safe harbor regulations,
which would specify certain business and payment practices that would not be treated as
violations of the anti-kickback statute, even though they technically might not comply
with its terms. The goal of the safe harbor provisions is to permit "certain non-abusive
arrangements, while encouraging beneficial and innocuous arrangements."
In 1991, the OIG published the first final rulemaking that established safe harbors in ten
broad areas: investment interests; space rental; equipment rental; personal services and
management contracts; sales of practices; referral services; warranties; discounts;
employees; and group purchasing organizations ("GPOs"). The OIG received numerous
public comments on these regulations, including recommendations for additional safe
harbors. In 1993, the OIG published a proposed rule requesting comments on the
following seven new areas of safe harbor protection: investment interests in rural areas;
ambulatory surgical centers; group practices; practitioner recruitment; obstetrical
malpractice insurance subsidies; referral agreements for specialty services; and
cooperative hospital service organizations. A modification to the existing safe harbor for
sales of physician practices also was proposed at this time.
As the original safe harbors were implemented, the OIG became aware of a number of
ambiguities that had created uncertainties for health care providers seeking to comply
with the regulations. To clarify its intent, in 1994, the OIG published a notice of proposed
rulemaking to modify the language of the original safe harbors. These proposed
clarifications were not intended to change the safe harbors, but rather to make the
regulatory language more precise in order to carry out its intended purposes.
The new safe harbor regulations finalize the safe harbors and clarifications proposed in
1993 and 1994. The preamble to the regulations contains comments generally applicable
to interpretation of all the safe harbors as well as a summary of the new regulatory
provisions and responses to the over 350 public comments received.
III. 1999 SAFE HARBOR REGULATIONS
A. General Comments
1. Relationship Between The Anti-Kickback Statute And The Stark Statute
The OIG acknowledges that the anti-kickback statute’s safe harbor standards are not
necessarily the same as the requirements of the Stark statute prohibiting physician selfreferrals, 42 U.S.C. § 1395nn, and claims that this variation results from Congressional
intent and the fundamental difference between the two statutory schemes. Although both
laws apply to physician self-referrals, the anti-kickback statute is a criminal law, which
requires improper intent for a violation. The Stark law is a civil statute, and a transaction
must fall entirely within an exception to be lawful, regardless of the parties’ intent.
Therefore, even if an arrangement does not violate the Stark prohibitions, it may violate
the anti-kickback statute if the requisite improper intent to induce referrals is present. 64
Fed. Reg. 63520.
2. Integrated Delivery Systems - Intra System Referrals
With regard to integrated delivery systems, the preamble reiterates the position taken in
the 1991 regulations that the anti-kickback statute is not implicated when payments are
made within a single corporate entity, e.g. from one division to another. However, despite
requests, the OIG declines to provide a safe harbor at this time for integrated delivery
systems or for arrangements between wholly owned entities. These arrangements could
create improper financial incentives resulting in over-utilization and increased program
costs, which could adversely affect quality of care and patient freedom of choice.
According to the preamble, the risk is particularly high where the federal government is
paying for services on a fee for service basis. As a potential area of such concern, the
preamble gives the example of a hospital making referrals to a wholly owned home
health agency ("HHA") (but does not address the fact that HHAs will be transitioning to a
prospective payment system).
3. Transition Period
Several commenters asked the OIG to "grandfather" arrangements that had been
structured in good faith reliance on the 1991 safe harbors but which no longer comply
with these safe harbors as clarified. The OIG declines to grandfather these arrangements
or to provide a formal transition period, noting that a reasonable time for restructuring
may vary depending on the nature and complexity of the arrangement. However, the OIG
agrees to use its discretion "to be fair to the parties" who reasonably believed they
complied with one of the 1991 safe harbors, and are diligently working in good faith to
restructure the arrangement, as necessary, in light of the new regulations.
4. Failure To Comply With A Safe Harbor Does Not Necessarily Make An
Arrangement Illegal Or Suspect
At several points throughout the document, the preamble states that an arrangement does
not have to comply with a safe harbor in order to be legal under the anti-kickback statute.
Moreover, in response to several comments, the OIG emphasizes that an arrangement is
not necessarily suspect because it does not comply with a safe harbor although it may be
suspect under particular circumstances.
Appendix C- “Clarification of Existing Safe Harbors”21
Discount Arrangements
The discount safe harbor, which is probably the most complex and confusing of the 23
safe harbors, has been significantly modified in a number of respects to make it easier to
use and broaden its application. This is welcome relief for those who struggle to apply
this exception to the myriad of commercially common discounting arrangements. In
recognition that some parties that offer discounts are intermediaries, and not, strictly
speaking, buyers or sellers, the safe harbor has been expanded to include “offerors.” All
parties to discount transactions (i.e., buyers, sellers and offerors) can now come within
the safe harbor by meeting the separate requirements applicable to them.
One of the greatest concerns raised by the original safe harbor was that a seller’s ability
to come within the safe attribution permitted. Safe harbor was contingent on the buyer’s
compliance, which, of course, is not within the seller’s control. Now, a seller can satisfy
the safe harbor, even if its buyers do not, so long as the seller, among other requirements,
“informs the buyer in a manner reasonably calculated to give notice to the buyer” of the
buyer’s reporting obligations under the safe harbor, and the seller does nothing “that
would impede the buyer from meeting its obligations.” Another change from the original
rule permits discounts to be offered to a beneficiary, if other requirements of the safe
harbor are met. (Previously, discounts to beneficiaries were ineligible under the safe
harbor.) Routine waivers of deductibles or coinsurance, however, are not protected.
Another significant, beneficial change modifies the old rule’s prohibition on discounts
offered on one good or service to induce the purchase of a different good or service. As
modified, the rule permits mixing discounts on different goods and services so long as
“the goods and services are reimbursed by the same Federal health care program using
the same methodology and the reduced charge is fully disclosed to the Federal health care
program and accurately reflected where appropriate, and as appropriate, to the
reimbursement methodology….”
A number of other changes are of a more editorial variety, such as correcting a “technical
error” from the original rule (these are generally referred to by those outside of the
government as “typos”). Over all, the changes made to the discount safe harbor are
among the more significant of the clarifications to the original safe harbors.
21
©1999 Foley & Lardner. Reproduction with attribution
Appendix D - Blood Glucose Test Strips: Inappropriate Medicare Payments22
To assess the appropriateness of Medicare payments for blood glucose test strips by
examining critical elements of this Part B benefit, including coverage requirements,
supplier information and documentation, and beneficiary utilization.
BACKGROUND
Medicare covers home blood glucose monitors and test strips for beneficiaries who must
periodically test their blood sugar levels as part of their diabetes management, regardless
of insulin usage. Prior to July 1, 1998, Medicare coverage was restricted to beneficiaries
with insulin-treated diabetes. Insulin-treated diabetics usually test their blood glucose
levels one or more times a day. Medicare allowances for test strips more than doubled
between 1994 and 1997, increasing from about $102 million in 1994 to $220 million in
1997. Allowances exceeded $314 million in 1998.
Suppliers of blood glucose test strips submit claims to the Durable Medical Equipment
Regional Carriers (DMERCs) for processing and payment. The supplier must have an
order from the beneficiary’s physician verifying medical need for blood glucose test
strips. Suppliers signify that they have sufficient documentation to establish Medicare
coverage of supplies for insulin-treated beneficiaries by appending a ZX modifier to
procedure codes representing the supplies furnished.
For this inspection, we collected data from a sample of Medicare beneficiaries with paid
claims for blood glucose test strips in 1997 and the medical equipment suppliers who
provided the supplies.
FINDINGS
Medicare allowed $79 million for blood glucose test strips with missing or flawed
documentation. $33 million in test strip claims had insufficient documentation to support
eligibility. An additional $46 million in claims had incomplete orders or no supplier
delivery records.
Blood Glucose Test Strips 1 OEI-03-98-00230
Irregular billing cycles make review of test strip claims difficult. Such irregular cycles
can make it difficult for DMERCs to identify overlapping claims, claims without correct
supporting documentation, and claims containing excessive amounts of test strips.
RECOMMENDATIONS
To address the vulnerabilities identified in this report, we recommend that the Health
Care Financing Administration:
22
Department of Health and Human Services OFFICE OF INSPECTOR GENERAL JUNE GIBBS
BROWN, Inspector General. JUNE 2000 OEI-03-98-00230 EXEC27
Alert suppliers of the importance of properly completed documentation to support their
claims for test strips. This effort should encompass physicians’ orders as well as supplier
delivery documentation and documentation to support the medical necessity of quantities
of test strips greater than 100 per month. In addition, the use and meaning of ZX
modifiers should be emphasized. Further, HCFA should periodically review
documentation to ensure that it exists and is accurate.
Require suppliers to indicate actual and accurate “start” and “end” dates on claim forms.
This action would make it easier for DMERCs to determine the existence of aberrant or
potential problems, such as overlapping claims or whether documentation is needed to
support more than 100 test strips a month.
Promote supplier concurrence and cooperation with the Office of Inspector General’s
recently issued document entitled, Compliance Program Guidance for the Durable
Medical Equipment, Prosthetics, Orthotics and Supply Industry. Suppliers should be
encouraged to establish and adhere to the voluntary compliance program to ensure that
their operations meet the standards promulgated by the Office of Inspector General along
with national health care organizations.
Advise beneficiaries, as part of its outreach service, to report any instances of fraudulent
or abusive practices (such as receiving excessive or unrequested deliveries of test strips)
involving their home blood glucose monitors, test strips, or related supplies to their
DMERCs.
Appendix E- Blood Glucose Test Strips - Marketing to Medicare Beneficiaries23
This Program Memorandum (PM) explains marketing practices that could be in violation
of the Medicare anti-kickback statute, 42 United States Code (U.S.C.) 1320a-7b(b).
Share this information with suppliers of blood glucose strips in your next scheduled
bulletin. Emphasize compliance with the Medicare anti-kickback statute and the Office of
Inspector General’s Compliance Program Guidance for the Durable Medical Equipment,
Prosthetics, Orthotics and Supply Industry.
Marketing practices may influence Medicare beneficiaries who utilize medical supplies,
such as blood glucose strips, on a repeated basis. Beneficiaries are advised to report any
instances of fraudulent or abusive practices, such as misleading advertising and excessive
or non-requested deliveries of test strips, to their Durable Medical Equipment Regional
Carriers. Remind suppliers that beneficiaries must specifically request refills of supplies
before they are dispensed.
Advertising incentives that indicate or imply a routine waiver of coinsurance or
deductibles could be in violation of 42 U.S.C. 1320a-7b(b). Routine waivers of
coinsurance or deductibles are unlawful because they could result in (1) false claims, (2)
violation of the anti-kickback statute, and/or (3) excessive utilization of items and
services paid for by Medicare.
In addition, 42 U.S.C. 1320a-7a(a) (5) prohibits a person from offering or transferring
remuneration. Remuneration is a waiver of coinsurance and deductible amounts with
exceptions for certain financial hardship waivers that are not prohibited.
Suppliers should seek legal counsel if they have any questions or concerns regarding
waivers of deductibles and/or coinsurance of the propriety of marketing or advertising
material. Any supplier who routinely waives co-payments or deductibles can be
criminally prosecuted and excluded from participating in Federal health care programs.
The effective date for this PM is December 1, 2000.The implementation date for this PM
is March 1, 2001. These instructions should be implemented within your current
operating budget. This PM may be discarded after December 1, 2001. The contact person
for this PM is Kimberly Pugh, (410) 786-9212. HCFA-Pub. 60B
23
Program Memorandum Human Services (DHHS) Carriers HEALTH CARE FINANCING
ADMINISTRATION (HCFA) Transmittal B-00-69 Date: NOVEMBER 29, 2000 CHANGE REQUEST
1336 SUBJECT: Blood Glucose Test Strips - Marketing to Medicare Beneficiaries