On May 1, 2012, the OIG posted a new Advisory Opinion which offers additional guidance for health care providers related to patient/customer rewards programs. The laws governing patient/customer rewards programs in health care can be complicated to apply. The latest OIG Advisory Opinion is a good reminder to those in the health care field that programs offering or providing rewards or benefits to patients/customers should be carefully structured to ensure they comply with both the Medicare/Medicaid “Inducement Law” and with the federal anti-kickback statute.

The Loyalty Program

In Advisory Opinion 12-05, the OIG evaluated a customer loyalty rewards program offered by a supermarket chain which has in-store pharmacies and also operates retail pharmacies not located in the supermarkets (the “Loyalty Program”). Under the Loyalty Program, customers holding a loyalty card (which any customer could request at a customer service desk) could earn gasoline discounts at participating gas stations based on the amount the customer had spent on “allowable purchases” at the Requestor’s supermarkets and pharmacies. The Requestor proposed that cost-sharing amounts, such as co-payments and deductibles, that customers paid in connection with items covered by Federal health care programs would be included in “allowable purchases”. Medicare, Medicaid and private insurers’ portions of prescription costs would not be included in the calculation of “allowable purchases”. For every $50 the customer spent on “allowable purchases” under the Loyalty Program, the customer would earn a discount of ten cents per gallon on a single purchase of gasoline, up to a maximum of 20 gallons.

The Federal Anti-Kickback Statute and the Medicare/Medicaid Inducement Law

The OIG found that the proposed Loyalty Program would implicate both the federal anti-kickback statute and the civil monetary penalties provision of the Social Security Act which prohibits inducements to Medicare or Medicaid beneficiaries (the “Inducement Law”).

The federal anti-kickback statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a Federal health care program. Violation of the federal anti-kickback statute is a felony that could result in a maximum fine of $25,000, five years in prison, or both, in addition to automatic exclusion from Federal health care programs. Civil administrative proceedings may be pursued by the OIG, including exclusion proceedings.

The Inducement Law prohibits any person from offering or transferring remuneration to a Medicare or Medicaid beneficiary that the benefactor knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier or any item or service for which payment may be made, in whole or in part, by Medicare or Medicaid. Simply put, the Inducement Law generally prohibits offering or transferring inducements to Medicare or Medicaid beneficiaries. Violation of the Inducement Law leads to the imposition of civil monetary penalties and may also lead to exclusion from participation in Federal health care programs.

The OIG has previously stated, “incentives that are only nominal in value are not prohibited by the [Inducement Law]”, and the OIG has interpreted “nominal in value” to mean “no more than $10 per item, or $50 in the aggregate on an annual basis.” Due to the cumulative nature of the Loyalty Program at issue in this Advisory Opinion, the OIG found it was likely that many Medicare or Medicaid beneficiaries could exceed the $10/$50 limit in gasoline discounts, thus making the rewards more than “nominal in value”. However, in 2010, the Patient Protection and Affordable Care Act (as amended by the Health Care Education Reconciliation Act) added some new exceptions to the Inducement Law, including a new exception for rewards offered by retailers that meet the following criteria: 1) the rewards consist of coupons, rebates, or other rewards from a retailer; 2) the rewards are offered or transferred on equal terms available to the general public, regardless of health insurance status; and 3) the offer or transfer of the rewards is not tied to the provision of other items or services reimbursed in whole or in part by the Medicare or Medicaid programs (“Exception G”).

OIG Analysis of the Loyalty Program Under the Inducement Law

In analyzing the Loyalty Program, the OIG concluded that the arrangement met all three criteria of the new Exception G, and thus, would not constitute grounds for imposing penalties under the Inducement Law. Specifically, with respect to the third criteria, the OIG found that the rewards were not tied to the provision of Medicare or Medicaid items or services because the rewards were only redeemable on gasoline purchases (and not on any items or services reimbursable in whole or in part by the Medicare or Medicaid programs), and also because prescription purchases would not be required in order for customers to participate in the Loyalty Program.

Further, the OIG noted that prescription purchases would not be treated any differently under the Loyalty Program than any other purchases in the supermarket for purposes of earning the rewards.

OIG Analysis of the Loyalty Program Under the Federal Anti-Kickback Statute

Additionally, the OIG concluded that the proposed arrangement would pose a minimal risk of fraud and abuse under the federal anti-kickback statute based on the safeguards below, and thus, the OIG would not impose sanctions on the Requestor in relationship to the Loyalty Program:

  1. The OIG found that it was unlikely that the Loyalty Program would steer beneficiaries to the Requestor’s supermarkets or pharmacies to purchase federally reimbursable items or services, since the majority of the supermarkets were general supermarkets, selling a broad range of groceries and other non-prescription items. Further, customers would not be required to purchase any prescription items in order to earn the rewards, and there would be no specific incentive to customers for transferring prescriptions to the Requestor’s pharmacies. Additionally, as with the OIG’s analysis under the Inducement Law, the OIG found important that prescription purchases would not be treated any differently under the Loyalty Program than any other purchases in the supermarket for purposes of earning the rewards.
  2. The OIG found that the Loyalty Program would be unlikely to result in overutilization or to otherwise increase costs to Federal health care programs, since any cost-sharing amounts that count toward a customer’s rewards, would result from prescription drugs that have already been prescribed. Further, the OIG noted that the Loyalty Program did not involve any waiver or reduction of any cost-sharing amounts. Finally, the OIG characterized the rewards as “modest” and emphasized that the “modest rewards” were for an item that is not reimbursable by Federal health care programs.

While OIG Advisory Opinions can only be relied upon by the person or entity that requests the Advisory Opinion, they are reviewed carefully by those in the health care industry in order to better understand how the OIG analyzes particular facts and applies the applicable laws. This Advisory Opinion provides insight into the OIG’s analysis of the 2010 health reform’s new Exception G to the Inducement Law for retail or rewards programs, and also provides valuable guidance to assist those in the health care field who are evaluating current or potential patient/customer rewards programs.