August 28, 2009Client Alert

Recent OIG Advisory Opinions

The Department of Health and Human Services Office of Inspector General (“OIG”) has been particularly busy of late, publishing several advisory opinions over the last couple of weeks. Below is a short summary of each advisory opinion.

OIG Approves Prescription Assistance Program for Needy Patients (No. 09-08)

A pharmaceutical company proposed a prescription assistance program in which hospitals serving large populations of indigent patients would receive certain high-cost prescription drugs for free. The hospital would then distribute the medication to indigent patients who did not have prescription drug coverage. OIG endorsed the program because many safeguards were in place to protect against illegal kickbacks. Hospitals would be selected based on the proportionate size of the indigent population and utilization of the pharmaceutical company’s products or the ranking of the products on the hospital’s formulary would not be taken into consideration. The pharmaceutical company would not pay administration or dispensing fees and participating hospitals would not be allowed to sell or otherwise profit from the donated medication. An independent program administrator would manage the program and the terms of the program would be set forth in writing and signed by the parties. Given these safeguards, OIG determined the risk of fraud and abuse associated with the program was low.

OIG Approves Joint Venture Between Hospital and Physician Group (No. 09-09)

A hospital proposed an ambulatory surgery center (“ASC”) joint venture with an orthopedic surgeon group. The arrangement was the result of trying to avoid seeking a certificate of need by having the physician group and hospital develop separate ASCs and then merge the two into a single entity. While the arrangement did not meet all of the requirements for the statutory safe harbor for joint venture arrangements, and could generate prohibited referrals, OIG determined that the arrangement posed little risk of fraud or abuse. The hospital agreed not to require or encourage its medical staff to refer patients to the ASC and it did not track referrals made to the ASC. Further the medical staff would be compensated at fair market value, not taking into account the volume or value of any referrals. Finally, the hospital would continue to operate its own outpatient surgery facility, separate from the ASC. Given these safeguards, OIG determined the risk of fraud and abuse associated with the program was low.

OIG Approves Medigap Preferred Provider Networks (No. 09-10)

An insurance company selling Medigap policies proposed contracting with hospitals to establish a preferred provider network which would provide discounts on inpatient deductibles that otherwise would be covered by the Medigap policies. While the arrangement did not meet the statutory safe harbor for waiving inpatient deductibles, OIG determined that it would not likely result in kickbacks or increased costs for the Medicare program. The arrangement would not create unfair competition because any accredited, Medicare-certified hospital could participate. While the hospitals participating in the network would receive administrative services fees for any patients receiving a discount under their Medigap policy, the physicians would not receive any remuneration and policyholders would be free to choose any hospital, thereby reducing the likelihood that the arrangement would affect the physician’s independent medical judgment. The arrangement also included premium reductions on policy renewals for policyholders who used network hospitals. OIG determined this aspect of the arrangement posed a low risk for fraud and abuse because it was similar to insurance policies utilizing lower coinsurance and deductibles for in-network providers.

OIG Approves Hospital’s Free Blood Pressure Screening Program (No. 09-11)

A hospital proposed a program whereby walk-in visitors to the hospital would be offered free blood pressure screening. The free screenings would not be conditioned on the purchase or use of any goods or services offered by the hospital and recipients would not be directed to any particular provider. Should abnormal results be measured, the recipient would be told to contact their own physician. Further, no discounts would be provided if the recipient scheduled follow-up care with the hospital. After reviewing the program, OIG determined it did not improperly tie the screenings to other services.

OIG Approves Plan to Provide Part D Copayment Subsidy (No. 09-12)

A state board, that oversees mental health and drug or alcohol treatment programs, proposed an arrangement where the board would provide a subsidy for Medicare Part D copayments for needy patients. The mental health and drug and alcohol treatment programs are provided through contracts with state approved providers. If the patient is eligible for Medicare Part D, then the contracted provider would determine whether the patient is eligible for the copayment subsidy on the basis of financial need. The pharmacy filling the prescription would then bill the treatment center, which would be reimbursed by the board. OIG decided that it was unlikely that a patient would choose a treatment center specifically because of the subsidy, since the subsidy would not be advertised and uniform eligibility standards would be utilized. The subsidy would not be based on which treatment center the patient chooses or the selection of a particular Part D plan or pharmacy.

OIG Approves Hospital’s Ambulance Subsidy Program (No. 09-13)

A hospital proposed a program in which it would subsidize an ambulance cooperative for services currently provided by the hospital. The OIG determined that it would not impose sanctions on the hospital, even though the arrangement could violate the Anti-Kickback Statute. The hospital provides advanced life support ambulance services and a cooperative provides basic life support ambulance services, through one owned ambulance and three ambulances owned by local fire departments. The hospital controls the cooperative and would like to consolidate both types of ambulance services into the cooperative. According to the hospital, this arrangement would enhance service and reduce costs. Neither the hospital nor the fire departments would receive any benefit from the arrangement as individual providers or members of the cooperative. The hospital’s donations would not vary with the volume or value of referrals to the hospital by the cooperative and the cooperative and fire departments are really not in a position to make referrals.


Please note that OIG limits all Advisory Opinions to the particular facts and circumstances and, therefore, Advisory Opinions do not have the force of law.

For help in ensuring legal compliance in crafting similar arrangements to the ones outlined above, or with other questions, please contact one of the authors of this alert or your Michael Best attorney.

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