AMARILLO, TX – The federal anti-kickback statute (“AKS”) is very broad. The AKS makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce, or in return for, the referral of an individual to a person for the furnishing of, or arranging for the furnishing of, any item or service reimbursable under a federal health care program (“FHCP”).
The statute’s prohibition also extends to remuneration to induce, or in return for, the purchasing, leasing, or ordering of, or arranging for or recommending the purchasing, leasing, or ordering of, any good, facility, service, or item reimbursable by an FHCP. “Remuneration” includes the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind. The AKS has been interpreted to cover any arrangement where one purpose of the remuneration is to induce referrals for items or services reimbursable by an FHCP.
The reach of the AKS goes way beyond giving a physician a brown paper bag full of cash. Any arrangement that might result in patients obtaining a product or service covered by an FHCP needs to be reviewed in light of the AKS.
- The Office of Inspector General (“OIG”) has published a number of “safe harbors.” If an arrangement clearly meets the requirements of a safe harbor, then as a matter of law the AKS is not violated.
- If an arrangement substantially, but not entirely, falls into a safe harbor, the risk is low that the OIG and/or Department of Justice (“DOJ”) will bring an enforcement action.
- If an arrangement has no connection with a safe harbor, but if the arrangement serves a legitimate need and will not result in unnecessary payments by an FHCP, then it is unlikely that the OIG/DOJ will bring an enforcement action.
Let’s focus on the third bullet. This is the proverbial “gray area.” While the parties to a proposed arrangement may justifiably believe that an enforcement action will not ensue, uncertainty may nevertheless remain. It is at this point that the parties to the proposed arrangement might want to ask the OIG for an Advisory Opinion (“AO”). Here is how the AO program works:
- The parties to the proposed arrangement will submit to the OIG a detailed description of the arrangement.
- The OIG will assign one if its attorneys to review the proposed arrangement. The parties to the proposed arrangement (“Requestors”) and the OIG attorney will have a series of communications in which (i) the OIG attorney will ask a number of questions and (ii) the Requestors will provide additional information.
- After the OIG attorney has received all of the relevant information, he/she will confer with other OIG attorneys, after which the OIG will issue an AO. In doing so, the OIG will redact the Requestors’ names. They will be referred to as “Party A” and “Party B.”
- The AO will be sent to the Requestors and will be published on the OIG’s website. Technically, the AO will be binding only on the Requestors. However, from a practical standpoint, the AO will provide guidance to others that may wish to enter into similar arrangements.
- In issuing the AO, the OIG’s conclusion will normally fall into two categories: (i) the proposed arrangement will generate prohibited reimbursement and the OIG will likely impose administrative sanctions if the proposed arrangement is implemented or (ii) the proposed arrangement will generate prohibited remuneration under the AKS if the requisite intent is present, but for the reasons set out in the AO, the OIG will not impose administrative sanctions.
The above discussion brings us to the crux of this article. In AO No. 22-13, the Requestors asked the OIG to opine on an arrangement in which, under certain circumstances, a DME manufacturer will introduce a DME supplier customer to a lender that, if the supplier qualifies, will provide interest-free financing to the supplier. The challenge with such an arrangement is that the manufacturer might be construed to be offering something of value to a DME supplier (the possibility to obtain interest free-financing) …and that such financing will enable the DME supplier to sell FHCP-covered products, thereby implicating the AKS. However, because of the safeguards that the Requestors built into the proposed arrangement, the OIG concluded that the proposed arrangement would not result in an enforcement action.
Here is what the AO says:
Requestor is a durable medical equipment (“DME”) manufacturer that sells its products to DME supplier customers (“Customers”), some of whom dispense the products to Federal health care program beneficiaries. Under the Arrangement, Requestor has entered into agreements with two third-party financial institutions (each, a “Lender”) to make zero-interest financing available to Customers, subject to certain terms and conditions described in the Lender’s loan documents with approved Customers. Requestor asserted that financing options like the Arrangement promote competition and patient choice because they may enable smaller DME suppliers to compete with large, corporate DME suppliers that can, as necessary, self-finance or obtain their own financing to purchase and dispense DME that may be subject to a lengthy reimbursement timeline.
Requestor certified that, at some point before or after a Customer’s payment is due to Requestor pursuant to the invoiced terms, the Customer may contact or be contacted by Requestor’s credit and collections personnel. If a Customer chooses not to or cannot pay Requestor the full amount of an invoice that is due, the Customer may request (or Requestor’s credit and collections personnel may offer) the opportunity to seek financing from a Lender. Under the Arrangement, Requestor’s credit and collections personnel may refer to a Lender any interested Customer that: (i) owes or will owe at least $10,000 to Requestor; (ii) is in good standing with Requestor; and (iii) is an acceptable credit risk, as reasonably determined by Requestor. Requestor does not advertise the potential for zero-interest financing in its marketing materials nor does Requestor guarantee to any Customer or potential Customer that zero-interest financing will be available from a Lender.
Once Requestor learns that a Customer desires zero-interest financing and meets the above referenced criteria, Requestor’s credit and collections personnel contact one of the Lenders. That Lender performs its own creditworthiness analysis to decide independently whether to offer financing to the particular Customer. If approved, the financing agreement is between the applicable Lender and the Customer. Requestor certified that the typical financing agreement between a Lender and a Customer results in a loan that is for 1 year at zero-percent interest and requires that the Customer make payments to the Lender in 12 equal installments. The Lender pays Requestor the invoiced amount that the Customer owes to Requestor, minus an amount that the Lender retains (the “Finance Charge”) based on rates set forth in the agreement between Requestor and the Lender (e.g., 3 percent of the loan value). Requestor certified that these rates were the result of independent, arms-length negotiations with each Lender and are subject to change periodically based on fluctuations in certain published interest rates, such as the 12- month London Interbank Offered Rate (or “LIBOR rate”) published in the Wall Street Journal. If a Customer uses financing from a Lender, Requestor’s sales representative’s commission on the Customer’s purchase is reduced by the same percentage that Requestor is charged by the Lender.
The Lenders have the sole right to seek payment from the Customers after entering into the financing agreements. Requestor’s agreement with each Lender makes clear that the Lenders, using their own personnel, are responsible for administering, enforcing, collecting, litigating, settling, waiving, or compromising on any defaulted transaction, as the Lender would do for any other debt in the exercise of its reasonable business judgement. Although each Lender has the sole right and responsibility to collect payment from Customers with whom the Lender enters into financing agreements, and Customers remain liable only to the Lender, the agreement between each Lender and Requestor under the Arrangement establishes a “loss pool” to allocate responsibility between the applicable Lender and Requestor in the event of a Customer default. The loss pool allocations are different with each Lender, but in each case the loss pool is based on the total amount of Customer contracts funded by the Lender in a particular year. Each loss pool has three layers of liability. The Lender assumes the first layer of liability, which is calculated as a percentage amount of the loss pool. If the defaulted amount exceeds this first layer, then Requestor bears the loss amount in the second layer of liability, which is the greater of a defined dollar amount or percentage of the loss pool. The Lender is responsible for any losses beyond this second layer (i.e., if the Lender’s losses exceed the defined dollar amount or percentage of the loss pool borne by Requestor under its agreement with the Lender, the Lender assumes responsibility for the remainder).
Under the Arrangement, Requestor has entered into agreements with Lenders that make zero interest financing available to eligible Customers. This benefit to Customers, many of which submit claims to Federal health care programs for the DME financed by the Arrangement, constitutes remuneration and implicates the Federal anti-kickback statute. However, for the following reasons, we conclude that the Arrangement poses a sufficiently low risk of fraud and abuse under the Federal anti-kickback statute.
First, while arranging for zero-interest financing is remuneration and a clear benefit for Customers, the Customers do not receive a discount or other price concession from Requestor under the Arrangement. Other than Customers that default, which Requestor certified occurs with only 2.5 percent (or significantly less, in the most recent fiscal year) of the total amount financed on behalf of Customers across all Lender loans, Customers pay the total amount Requestor charged, just over a longer timeframe.
Second, the involvement of risk-bearing Lenders in the Arrangement reduces the risk associated with providers, suppliers, or manufacturers that might offer, subsidize, or forgive loans to secure future referrals. The Lenders, which are third-party financial institutions, make and collect on the loans to Customers. The Lenders perform their own creditworthiness analysis on each Customer-applicant and make their own decisions, independent of Requestor, regarding whether to enter into a financing agreement. Further, the Lenders are responsible for collecting payments and, if applicable, bear the first and third layers of responsibility for defaulted loans.
Third, Requestor’s agreement with Lenders to receive less than the total amount owed by the Customer (in the form of the Finance Charge) does not increase the risk of fraud and abuse under the Federal anti-kickback statute. Under the Arrangement, Requestor receives payment up front from the Lender and is relieved of the administrative burden of determining creditworthiness; administering the loan; and administering, enforcing, collecting, litigating, settling, waiving, or compromising on any defaulted transaction, which has value to Requestor. While we have not been asked, and are not opining on, whether the amount of the Finance Charge Requestor agrees to pay each Lender is fair market value, Requestor certified that the Finance Charge results from independent, arms-length negotiations with each Lender, and we reiterate that neither Lender is a health care provider or supplier and neither is in a position to refer Federal health care program business to Requestor.
Fourth, the Arrangement presents a sufficiently low risk with respect to many of the other fraud and abuse concerns that we consider when examining arrangements under the Federal antikickback statute. For example, the Arrangement should not result in increased costs to Federal health care programs because the items are reimbursed based on fee schedule amounts, regardless of the amount DME suppliers pay to acquire them. Because DME suppliers do not prescribe equipment, the Arrangement should not result in overutilization. Requestor asserted that the Arrangement may favorably impact competition between smaller DME suppliers and larger companies because it creates an opportunity for the smaller suppliers to finance the equipment, while larger companies might be able to acquire the equipment outright (or have other financing opportunities). While facilitating the zero-interest financing might give Requestor a competitive advantage over other manufacturers who do not have similar arrangements, we believe this factor presents limited risk of fraud and abuse under the Federal anti-kickback statute, particularly because Requestor does not market the possibility of, or guarantee access to, zero-interest loans, and the sales representative’s commission is reduced if a Customer receives zero-interest financing.
Finally, we recognize that Requestor assumes partial liability in the event that Customers default on the loans. However, as discussed above, the Lender decides whether to extend the zero interest financing to a Customer and bears the first layer of liability on defaulted loans in a given year before Requestor’s shared liability is triggered. Under the Arrangement, Requestor’s liability is limited, and if defaulted loan amounts exceed both the first and second layers of liability, then the Lender is responsible for the remaining amounts. Because of this shared liability, Requestor’s incentive to initiate the zero-interest financing by contacting a Lender on the Customer’s behalf, and the Lenders’ incentive to approve such requests, from Customers who may be unlikely to pay their obligations, is limited. Moreover, each Lender uses its own personnel to engage in the same collection and enforcement activities to collect the amount due from each Customer as the Lender would use for any other debt. In the event of a default following such collection efforts, the Customer would have no reason to know if Requestor subsidized part of a default through the loss pool.
Based on the relevant facts certified in your request for an advisory opinion and supplemental submissions, we conclude that, although the Arrangement would generate prohibited remuneration under the Federal anti-kickback statute if the requisite intent were present, the OIG will not impose administrative sanctions on Requestor in connection with the Arrangement under sections 1128A(a)(7) or 1128(b)(7) of the Act, as those sections relate to the commission of acts described in the Federal anti-kickback statute.
Jeffrey S. Baird, Esq., is Chairman of the Health Care Group at Brown & Fortunato, a law firm with a national health care practice based in Texas. He represents pharmacies, infusion companies, HME companies, manufacturers, and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or email@example.com.
AAHOMECARE’S EDUCATIONAL WEBINAR
When it is Proper to Re-Start the 36 Month Oxygen Rental Period
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato & Lisa K. Smith, Esq., Brown & Fortunato
Tuesday, July 19, 2022
1:30-2:30 p.m. CENTRAL TIME
The importance of DME suppliers has come to the forefront during the pandemic. In short, DME suppliers (particularly oxygen equipment suppliers) are instrumental in keeping patients out of the hospital. This program focuses on those suppliers that provide oxygen concentrators … and in particular on when it is proper for the supplier to re-start the 36 month oxygen rental period. When a DME supplier provides an oxygen concentrator to a Medicare beneficiary, Medicare will pay the supplier for the first 36 months and then the supplier will be obligated to service the beneficiary’s oxygen needs, for very little compensation, for the next 24 months. The beneficiary’s continuous use of the concentrator may be interrupted by one of the following events: (i) the concentrator is lost, stolen, or damaged beyond repair; (ii) there is an extended break in need of greater than 60 days; (iii) the supplier sells its assets to another supplier; (iv) the supplier goes out of business; (v) the supplier files bankruptcy; or (vi) the beneficiary relocates outside the supplier’s service area. This program will discuss whether the 36 month rental period will start over when one of these interruptions occur.
 Neither Lender is a health care provider or supplier, bills or submits claims to any Federal health care program, or is in a position to refer Federal health care program business to Requestor. Lenders are independent from Requestor; Requestor does not have any direct or indirect ownership interest in Lenders or in the financing arrangements offered by Lenders.
 Requestor’s sales personnel will not be permitted to offer zero-interest financing to any Customer. If a Customer inquires about zero-interest financing at the time of the Customer’s purchase from Requestor, Requestor’s sales representative will refer the Customer to Requestor’s credit and collections personnel. The credit and collections personnel will then provide to one of the Lenders the Customer’s name, account details, the equipment to be financed, the requested term, and the maximum total to be financed so that the Customer can learn in advance whether its purchase will be eligible for financing. Other than this advance credit approval, the remaining steps of the financing process do not change.
 Requestor certified that, to be considered “in good standing,” the Customer must be in compliance with Requestor’s General Terms and Conditions of Sale as set forth on Requestor’s invoices, which include, but are not limited to, prohibitions on the unauthorized distribution of Requestor’s products and the impermissible use of Requestor’s intellectual property and various regulatory compliance requirements.
 Requestor certified that a Customer that already is delinquent on payment obligations for past purchases would not be a good credit risk for financing future purchases. In contrast, a Customer that was in good financial standing at the time it purchased equipment but encountered a financial setback preventing it from making full payment at a given time might be eligible (i.e., the Customer might be delinquent on the purchase for which it seeks financing, but is up-to-date on any payments for previous purchases); the opportunity to pay the invoice over time might enable the Customer to pay the full amount owed, rather than potentially defaulting on its debt to Requestor.
 Requestor may elect to repurchase a defaulted contract between a Customer and Lender; this option—which is limited to defaulted contracts falling in Requestor’s loss pool—is intended to provide for situations where: (i) Requestor may have better success collecting on a defaulted contract than the Lender would; (ii) Requestor has an interest in reacquiring unsold or returned devices that could be sold and dispensed to patients in need; or (iii) repurchasing a defaulted contract allows for administrative convenience.
 Requestor certified that, historically, the default rate for amounts financed by Lenders on behalf of Customers has been approximately 2.5 percent of the total amount financed but that in Requestor’s Fiscal Year 2021 (July 1, 2020–June 30, 2021), the default rate was approximately 0.2 percent of the total amount financed by Lenders. In addition, because the financing agreement is solely between a Customer and a Lender, and the Lender pursues all collection efforts, the Customer would have no reason to expect Requestor to cover any loss amounts because Requestor provides no information to Customers about the terms of its agreements with Lenders with respect to the loss pools. Further, in the very limited situations where Requestor might choose to exercise its option to repurchase a defaulted contract falling in Requestor’s loss pool, the Customer’s obligation remains unchanged, and the Customer likewise would have no reason to expect Requestor to cover any loss amounts.