The US Department of Health and Human Services Office of Inspector General (OIG) posted on October 25, 2023 Advisory Opinion No. 23-08, in which OIG rejected a proposed arrangement from a cochlear implant device manufacturer (the requestor) that would provide a free hearing aid to certain qualified patients who received a cochlear implant.
OIG concluded the proposed arrangement could generate prohibited remuneration under the federal Anti-Kickback Statute (AKS) and the Beneficiary Inducement Law and could violate those laws if the requisite intent were present.
Under the proposed arrangement, the manufacturer would offer a bundle consisting of a cochlear implant made by the manufacturer and a free hearing aid manufactured by a third party. The cochlear implant would be purchased by a hospital or ambulatory surgical center (ASC), and for certain “bimodal hearing candidates,” a hearing aid would be provided for free to the patient along with the cochlear implant. While hearing aids are not covered by most federal healthcare programs (FHCPs), cochlear implants may be covered.
In a footnote, OIG observed that the manufacturer was also a Medicare-enrolled durable medical equipment (DME) supplier “for the limited purpose of furnishing repair services and replacements for the [cochlear implants’] external sound processors.” As such, the requestor submits claims to Medicare and other FHCPs for external sound processor servicing and repairs.
This is notable because as a general legal principle, the Beneficiary Inducement Law does not apply to device manufacturers, as discussed in the OIG’s Special Advisory Bulletin “Offering Gifts and Other Inducements to Beneficiaries,” published August 2002. Here, however, OIG applies the Beneficiary Inducement Law to the requestor’s proposed arrangement even though there was no assessment of whether the DME service and repair business was a material aspect of the requestor’s business.
In its legal analysis, OIG determined that the proposed arrangement implicated the AKS because the manufacturer would provide remuneration in the form of a free hearing aid that may induce patients and providers (e.g., ASCs) to purchase the manufacturer’s cochlear implant, which is reimbursable by FHCPs. OIG reasoned that the value-based enterprise safe harbor for arrangements for patient engagement and support was inapplicable as the value of the hearing aids exceeded the safe harbor’s $570 monetary cap, as they were valued at $1,180 or more.
Furthermore, OIG found that the proposed arrangement would also implicate the Beneficiary Inducement Law because the manufacturer would provide remuneration in the form of a free hearing aid that may induce patients and providers, located in states where the manufacturer bills Medicaid and Medicaid managed care, to purchase the cochlear implant reimbursable by FHCPs.
OIG also concluded that the hearing aid may influence a patient to select the requestor manufacturer’s cochlear implant, which could in turn result in the manufacturer—in its role as a DME supplier—providing an increased number of repair or replacement services for the external sound processor that would be reimbursable under FHCPs. OIG assessed that the "promoting access to care” exception to the Beneficiary Inducement Law would not apply because the hearing aid is not required for the cochlear implant to work properly. OIG also decided the financial need-based exception would not apply because the hearing aid would be conditioned on the purchase of the cochlear implant, and not on an individual’s financial need.
The October 25 advisory opinion highlights OIG’s concern that valuable free products and other inducements offered by manufacturers may create real or perceived risks that patients and providers are inappropriately influenced to select one manufacturer’s product over another.
As it often does, OIG also expressed concern about unfair competition if free hearing aids were offered only by manufacturers with greater financial resources to attract business. Although the AKS was not enacted to protect "level playing field" competition, OIG often applies that standard in its AKS analyses, particularly in its advisory opinions, and this provides competitors with ample room to argue that competition would be harmed by such arrangements.
Despite the tenuous connection between the manufacturer’s role as a DME supplier offering external sound processor servicing and repair, and the offer of free hearing aids, the OIG leveraged that connection to apply the Beneficiary Inducement Law to the manufacturer. This is one of those rare situations when a manufacturer is also enrolled in Medicare and/or Medicaid as a supplier or provider, and thus the Beneficiary Inducement Law may apply.
Healthcare industry participants should always assess whether the provision of free products complies with both the AKS and the Beneficiary Inducement Law, regardless of how limited their enrollment and reimbursement under FHCPs may be. As manufacturers with specialized servicing and repair expertise consider direct enrollment with Medicare or Medicaid as a DME supplier, they should be aware of the additional legal risk associated with the Beneficiary Inducement Law, although that statute is not often enforced by OIG and affords no private right of action.