In a relatively rare move, the US Department of Health and Human Services Office of Inspector General (OIG) recently issued an unfavorable Advisory Opinion (No. 25-08) (Opinion) reinforcing the agency’s expansive view of the federal Anti-Kickback Statute (AKS).
In the Opinion, OIG concluded that a proposed flat-fee arrangement between a medical device manufacturer (Manufacturer) and a software vendor contracted by a health system (Vendor) could generate prohibited remuneration under the AKS because the fee could limit competition and inappropriately steer the purchase of certain items.
The Opinion highlights the risks associated with arrangements with third-party vendors, even those that do not on their face involve patient care or claims to government healthcare programs. In addition, given the specificity of the fact pattern presented to OIG, it appears that OIG’s advisory opinion process was used, at least in part, to help resolve a potential commercial dispute.
The Opinion
“Bill-only” surgical medical devices are items that surgeons or other physicians typically select for use during, or just prior to, surgery. In this case, the Manufacturer’s standard process involved the following steps:
- The Manufacturer supplied bill-only devices to its provider customers—hospitals, health systems, and ambulatory surgery centers—on an as-needed basis.
- The provider customers would record the devices used by the surgeon during surgery and create purchase order.
- The Manufacturer would then issue an invoice to be paid by the provider customer for the bill-only items.
However, certain of the Manufacturer’s customers engaged the Vendor to facilitate the purchase of the Manufacturer’s bill-only items (as well as other items) through an online “portal,” which effectively acted as an accounts receivable software where purchase orders, invoices, and payments would be processed.
The Manufacturer represented to OIG that some of its provider customers had requested that it use the Vendor to access the portal and facilitate purchases of bill-only items. To access the portal, the Manufacturer was required to engage the Vendor and pay approximately $395 per year per software license—allegedly totaling about $1.2 million annually across all the Manufacturer’s staff needing to access the portal.
Given the Manufacturer’s existing accounts receivable processes with its customers, the Manufacturer represented that the Vendor’s software provided no additional benefit to the Manufacturer beyond enabling sales to the provider customers.
Although the tone of the Opinion suggests OIG was led to this destination, OIG ultimately concluded that the Manufacturer’s potential arrangement with the Vendor would implicate the AKS and result in prohibited remuneration because the payment to use the portal would effectively “arrange” for provider customers to purchase the Manufacturer’s bill-only items.
Further, the Opinion highlighted the Manufacturer’s view that the Vendor’s services were effectively redundant to the Manufacturer’s internal accounts receivable infrastructure and, accordingly, any payment from the Manufacturer to the Vendor must be for something else— namely, to access the provider customers’ surgeon population.
Moreover, OIG found the arrangement would be anticompetitive and allow the provider customers to inappropriately steer their surgeons to use bill-only devices made by manufacturers that agreed to pay the Vendor’s fee to access the portal. This steering for commercial purposes, which would not allow surgeons to choose their preferred bill-only device or other devices with particular clinical benefits, would run afoul of the AKS according to OIG.
Takeaway: ‘Arranging For’ Can Be Broadly Defined
OIG reaffirmed its expansive interpretation of what it means to “arrange for” referrals under the AKS. This is not entirely surprising as the practical effects of the arrangement ultimately did involve payment to a third party (i.e., the Vendor) to access a referral source (the provider customers), despite the fact that the Manufacturer had some historical existing access with those customers already.
Even though the payment was not to the provider customers directly and was effectively for a license to access an accounts receivable software, the Opinion demonstrates that OIG will closely scrutinize arrangements that potentially implicate access-related payments—essentially, arranging for referrals of goods or services payable by Federal health care programs.
Nevertheless, stakeholders should also note the potential limited utility of this Opinion. OIG went out of its way in the Opinion to cabin its analysis to the arrangement as represented by the Manufacturer, going so far as to acknowledge that there are “myriad ways for parties to structure business arraignments to allocate responsibilities” that may have resulted in a favorable opinion.
The Manufacturer’s presentation of the facts and surrounding narrative, particularly here, seems to have played a strong role in OIG’s ultimate conclusions. Indeed, the origin of the Opinion appears to have been a concern among the Manufacturer, Vendor, and their provider customers about the use of the bill-only portal and will undoubtedly affect the commercial dynamics among those parties going forward.
The Opinion highlights that, in the right circumstances, OIG’s process may be a useful tool for parties attempting to get an external perspective on the legality and reasonableness of a proposed arrangement in the healthcare space.
Conclusion
The Opinion serves as an important reminder for healthcare stakeholders to carefully evaluate arrangements involving payments to third parties for compliance with the AKS, even those that do not directly involve claims for services or patient care. OIG will not look favorably on even hypothetical arrangements that could be interpreted as payment to access a patient population and, in turn, increased sales of goods or services or opportunities to bill.
Contact the authors of this blog post for more information about this Opinion or other contracting arrangements in the healthcare industry.