Pursuant to the Affordable Care Act (“ACA”), beginning January 1, 2014, certain individuals will be permitted to purchase “qualified health plans” (“QHPs”) through state exchanges.  Some of these individuals will be entitled to government-funded premium credits and cost-sharing subsidies that will be paid by the government to QHPs on behalf of eligible individuals (collectively, “subsidy payments”).  In light of these subsidy payments, a question arises:  are ACA exchanges and/or QHPs — at least to the extent they have enrollees who qualify for subsidy payments — “Federal health care programs” for purposes of Federal fraud and abuse laws?

Although this question has received limited attention to date, the answer could have a significant impact on manufacturers, providers, patients and insurers. If the answer is “no,” many of the sales, marketing, referral and other arrangements that are ubiquitous in the commercial insurance marketplace may be duplicated in the QHP marketplace. If the answer is “yes,” implementing these same arrangements in the QHP marketplace could give rise to civil and/or criminal exposure. While the relevant Federal agencies have yet to weigh in on this issue, health care organizations don’t have this luxury: long before January 1, 2014, affected organizations will need to choose a path, and assume any associated legal risk.

Anti-Kickback Law

The Federal health care program anti-kickback law ("AKL") generally prohibits payments that are intended to induce the recipient (1) to refer patients for items or services that are reimbursed (in whole or in part) under a “Federal health care program” or (2) to purchase or order (or recommend or arrange for the purchasing or ordering) of such items or services. For example:

  • If a hospital offers to waive the cost-sharing obligations of a Medicare beneficiary in connection with an outpatient procedure, this waiver might implicate the AKL on the ground that the remuneration (the waived co-payment) is contingent on the purchase of a service (the procedure) that is reimbursed by Medicare. The offer of the same waiver to a commercially insured patient, however, would not implicate the AKL.
  • Similarly, if a drug manufacturer offers a Medicare beneficiary a co-payment subsidy on a particular drug, this offer might implicate the AKL on the grounds that the remuneration (the subsidy) is contingent on the purchase of an item (the drug) that is reimbursed by Medicare. Again, the offer of the same subsidy to a commercially insured patient would not implicate the AKL.
  • Further, if an insurer offers an individual a nominal gift in exchange for enrolling in one of the organization’s Medicaid managed care plans, this offer might implicate the AKL on the ground that the remuneration (the gift) is contingent on enrollment in a plan that is paid for, in whole or in part, by the Federal government. Once again, the offer of the same gift in exchange for enrollment in a purely commercial health plan would not implicate the AKL.

Federal Health Care Programs

So, what is a “Federal health care program” for AKL purposes? By statutory definition, it is any “plan or program that provides health benefits, whether directly, through insurance, or otherwise, which is funded directly, in whole or in part, by the United States Government" (other than the Federal Employee Health Benefits Program).

In some cases, the program at issue clearly will meet this definition. For example, where a veteran receives hospital inpatient services at a medical center owned and operated by the U.S. Department of Veterans Affairs (“VA”), the individual plainly has participated in a program that provides “health benefits” “directly” to patients. Similarly, where a Medicare fee-for-service beneficiary receives clinical services from a physician who, in turn, is reimbursed by the Centers for Medicare & Medicaid Services (“CMS”) under Medicare Part B, the patient has participated in a program that provides “health benefits” through “insurance” (or “otherwise”).

In other cases, however, arrangements involving Federal financial assistance relating to health care would not appear to give rise to a “Federal health care program” for AKL purposes. For instance, we do not think that the government would take (or ever has taken) the position that in those cases where the Internal Revenue Service (“IRS”) effectively subsidizes the purchase of health insurance through tax deductions for medical expenses, the government has “provided” “health benefits” — “directly,” “through insurance,” or “otherwise” — to individuals taking advantage of such deductions.


The $64,000 question, of course, is where the subsidy payments provided for under the exchanges fall on this spectrum. Are the subsidy payments more like the funds that flow to individuals from the VA and Medicare, or more like the tax subsidies that flow to individuals from the IRS? As noted above, to the best or our knowledge, no Federal agency or court has yet spoken to this specific issue. Until one does, each affected health care organization — including providers, manufacturers, QHPs and others — will need to develop a well-reasoned, supportable position on this issue and implement its affected programs accordingly.