HHS-OIG Issues Favorable Advisory Opinion On Discount Arrangement Between Medical Technology Manufacturer And Ambulatory Surgery Centers

Highlights

• The U.S. Department of Health and Human Services-Office of Inspector General (HHS-OIG) released Advisory Opinion No. 26-03, a favorable opinion addressing a proposed arrangement involving a medical technology manufacturer and distributor. Under the proposal, the company would offer certain ambulatory surgery centers a discount on intraocular lenses and other surgical supplies used to perform cataract surgery, contingent on affiliated physician practices purchasing the requestor’s software product. The opinion concludes that the arrangement would generate prohibited remuneration under the federal Anti-Kickback Statute (AKS), if the requisite intent were present, but that OIG would not impose administrative sanctions given the low risk of fraud and abuse.
• HHS-OIG found the arrangement favorable because the requestor certified that the proposed arrangement should not increase costs to federal healthcare programs or result in overutilization, presents a low risk of interference with clinical decision making, and does not present an inappropriately high risk of steering or unfair competition.
• Despite the favorable result, HHS-OIG cautioned that this opinion is limited in scope to this proposed arrangement and that in slightly different circumstances, it may have reached a different conclusion.

Background

The medical technology manufacturer and distributor (the requestor) offers products in numerous fields, including ophthalmology and microsurgery. These products include diagnostic tools needed to evaluate whether a patient requires cataract surgery, medical equipment, conventional or premium implants (e.g., IOLs), and surgical supplies to perform cataract surgery generally packaged in a single-case pack called a phacoemulsification pack (phaco pack), with one pack utilized per surgery.

Medicare reimburses for cataract surgery in two ways:

1. Professional services fee: A global payment made to the surgeon for the surgical services including the pre-operative evaluation, intraoperative work, and post-operative follow up for 90 days
2. Facility fee: A payment made to the facility where the procedure is performed, generally an ambulatory surgical center (ASC), for reimbursement of staff time, supplies including the phaco pack, and IOLs.

Patients may choose to use premium IOL for implants, but they bear the cost above the facility fee and the cost for insertion above conventional IOLs.

In addition to these products, the requestor also offers a web-based software platform that serves as a configurable digital planning tool specific to cataract surgery. This tool is not separately billable to federal healthcare programs. The software helps surgeons organize patient health records, diagnostic test results, observations, vision complaints and symptoms, and surgical formulas utilized in planning the surgery and selecting the equipment and techniques to be used, all in one location. The software is typically used in the surgeon’s ophthalmic clinic but can easily be transmitted to a surgery facility where the surgeon will perform the surgery in an ASC operating room. To use this software, the requestor charges customers a monthly license fee and a one-time set-up fee.

Under the proposed arrangement the requestor would offer discounts to ASCs on the purchase price for phaco packs and conventional IOLs contingent on an affiliated physician group practice purchasing and entering into a subscription agreement for the software. The ASC would not be required to purchase the software. These discounts would take the form of either an upfront, volume-based discount or a post-sale, volume-based rebate off the standard purchase price. Neither the practice nor the ASC would receive any discount on its software subscription price regardless of the volume or value of items purchased by the ASC. The practice and ASC would be considered eligible to participate in the proposed arrangement only if there is overlapping ownership between the two entities, as certified through an Ownership Certification Form.

The requestor certified that it would enter into separate, coterminous written agreements with each practice and ASC, generally for one-year renewable terms. The practice agreement would govern the software subscription, and the ASC agreement would govern the IOL consignment arrangement, phaco pack purchases, and any applicable discounts. The requestor further certified that it would provide ASCs with invoices reflecting all discounts and would require the ASCs to properly disclose and reflect those discounts in any federal healthcare program claims.

HHS-OIG's Findings

HHS-OIG concluded that the proposed arrangement, if undertaken, would generate prohibited remuneration under the AKS, if the requisite intent were present, but that OIG would not impose administrative sanctions. The opinion rested on several key certifications made by the requestor:

First, the proposed arrangement should not increase costs to federal healthcare programs or result in overutilization because the discounted items are included in set facility fees and professional services fees, and federal healthcare programs pay the same amount regardless of which products are used.

Second, the arrangement presents a low risk of interference with clinical decision-making because all discounted products and software are brand-agnostic. Additionally, the practice must pay full price for the software, making it an added cost rather than a financial incentive that could influence clinical decisions.

Third, the arrangement does not present an inappropriately high risk of steering or unfair competition because the referral source bears the cost of the full-price software purchase so that the referral recipient receives the discounts.

Based on these three considerations, HHS-OIG concluded that the unique features of the proposed arrangement sufficiently mitigated the risks typically associated with discount arrangements that fall outside of the safe harbor. Accordingly, they issued a favorable opinion declining to impose administrative sanctions on requestor.

HHS-OIG specifically emphasized that if the financial flow ran in the opposite direction, the risk would be much higher, and they may have reached a different conclusion.

Key Takeaways

This advisory opinion is significant for medical technology companies and healthcare entities considering discount arrangements that involve bundled purchasing conditions across affiliated but separate entities. The favorable outcome was driven by a combination of factors:

• The set reimbursement structure for cataract surgery that prevents increased costs to federal healthcare programs
• The manufacturer-agnostic nature of the software and discounted products that mitigates clinical decision-making interference
• The direction of the financial flow from the referral source to the referral recipient rather than the reverse.

Entities contemplating similar arrangements should note that HHS-OIG expressly found that this arrangement does not fit within the discount protected by safe harbor, as it conditions discounts on a separate entity's full-price purchase and requires the performance of a service to obtain the discount. Because the reduction in price is conditioned on both purchase of the product at issue and the additional action of performing a service, it does not meet the definition of a “discount” under the safe harbor.

This underscores the need for healthcare organizations to carefully structure proposed arrangements, as price reductions conditioned on performing a service are not low risk under the federal AKS; only the unique features of this arrangement mitigated HHS-OIG’s concerns.

Organizations should also be mindful that this advisory opinion is limited in scope to the proposed arrangement, and it does not address the Stark Law, the False Claims Act, or other applicable regulatory frameworks, which may impose additional requirements on such arrangements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.