The Office of Inspector General in the Department of Health and Human Services (“OIG”) recently issued Advisory Opinion 23-08 in which it concluded that a proposed arrangement involving a supplier’s durable medical equipment, prosthetics, orthotics and supplies (“DMEPOS”) offer and provision of a free hearing aid to patients (including federal health care program beneficiaries) who receive one of the cochlear implants that the supplier manufactures (the “Proposed Arrangement”) would violate the federal Anti-Kickback Statute (“AKS”), if the requisite intent were present. This would also violate the Beneficiary Inducements Civil Monetary Penalties Law (“CMP”) by generating prohibited remuneration and hence constituting grounds for the imposition of sanctions.
The opinion makes clear that such free gifts or services cannot be conditioned upon the receipt or purchase of reimbursable services or devices.
The Requester manufactures and distributes implantable hearing solutions, including a device (the “Device”) comprising both an internal cochlear implant and an external sound processor sold as a system to hospitals and ambulatory surgical centers. The Requestor is a Medicare-enrolled DMEPOS supplier for the limited purpose of furnishing repair services and replacements for the Device’s external sound processors and bills Medicare and other federal health care programs for such. Requestor also submits claims for payment for the Device to Medicaid programs and Medicaid managed care plans in three states. The Device is reimbursable by federal health care programs, including Medicare for certain indications.
Some of the patients who receive the Device may also be candidates for bimodal hearing, which is the combined use of a hearing aid in one ear and a cochlear implant in the other. The hearing aid assists with localizing sound and increases hearing ability in noisy environments. To qualify, the patient must have a cochlear implant and sound processor like the Device in one ear and moderate-to-severe hearing loss in the other. Hearing aids, however, are not covered by Medicare and, although the pairing of the Device with a hearing aid can improve hearing outcomes, the Device functions properly without the additional use of a hearing aid.
The Proposed Arrangement
Under the Proposed Arrangement, the Requestor would offer eligible bimodal hearing candidates the Device and a free compatible hearing aid that can be programmed by an audiologist together with the Device. The Device would be purchased from the Requestor by the hospital or ambulatory surgical center at the request of the patient’s health care provider and the hearing aid would be provided by the Requestor for free. The Device would then be implanted by the health care provider at the hospital or ambulatory surgical center and the hearing aid would later be programmed and fitted by an audiologist. The free hearing aid would be conditioned upon the purchase of the Device and both patients and their health care providers would be aware of the Requestor’s role within the Proposed Arrangement.
Requestor would require hospitals and ambulatory surgical centers to certify that neither the patients nor the federal health care programs would be billed for the hearing aid. Additionally, Requestor would advise both patients and audiologists in writing that neither may claim insurance reimbursement for the hearing aid and that audiologists must only charge patients the usual and customary fee for the fitting of the hearing aid.
The Requestor claimed to propose to either not impose any financial need criteria for the provision of the hearing aid or to establish it to provide the hearing aid only to those with household incomes at or below 300% of the Federal Poverty Level.
The OIG’s Analysis
The Federal Anti-Kickback Statute
The OIG concluded that the Proposed Arrangement would, if undertaken, generate prohibited remuneration under the AKS, if the requisite intent were present, because the Requestor planned to offer and provide a free hearing aid to eligible patients, which in turn may induce them to arrange for the ordering and purchasing of the Device, an item reimbursable by federal health care programs. The OIG found that the safe harbor was not applicable because “among other reasons,” the value of the hearing aid exceeded the current monetary cap imposed by the safe harbor of $570. The OIG was concerned with the risk of fraud and abuse and emphasized that the provision of free items or services to federal health care program beneficiaries has been a longstanding and continuing concern because of the associated potential harms such as steering and unfair competition. While the OIG expressed its awareness of the hardships that certain medical conditions can impose upon beneficiaries, it stated that “there is no meaningful basis . . . for exempting valuable gifts based on a beneficiary’s medical condition.”
Beneficiary Inducements CMP
The OIG concluded that the Proposed Arrangement would, if undertaken, generate prohibited remuneration under the CMP, because the Requestor’s offer and provision of the hearing aid could influence beneficiaries. The Proposed Arrangement could influence a beneficiary to not only select Requester as a DMEPOS supplier for the order and receipt of the Device but also select the Device, for which Requestor could, in its role as a DMEPOS supplier, provide repair or replacement services, all of which may be reimbursable by Medicare or a state health care program.
The OIG found that the Promotes Access to Care Exception was not applicable because the hearing aid was not required for the Device to work properly and hence would not improve a beneficiary’s ability to obtain items and services payable by Medicare or Medicaid. The OIG also found that the Financial Need-Based Exception was not applicable because the free hearing aid was conditioned upon the purchase of the Device, an item reimbursable by Medicare and Medicaid. The OIG emphasized that the risk of steering and unfair competition remained the same whether or not the Proposed Arrangement contained a financial need requirement. The OIG reiterated that “there is no meaningful statutory basis for a broad exemption based on the financial need of a category of patient . . . [and] that categorized financial need is not a sufficient basis for permitting valuable gifts.”
 OIG, Special Advisory Bulletin: Offering Gifts and Other Inducements to Beneficiaries 4—5 (2002), Special Advisory Bulletin: Offering Gifts and Other Inducements to Beneficiaries (hhs.gov). Although the guidance relates to the CMP, the OIG emphasized that the risks identified as they relate to the provision of a free item or service are “instructive” when assessing the risks under the AKS.
 Id. at 5.