Seyfarth Synopsis: On December 17, the Office of Inspector General (OIG) published Advisory Opinion 19-06 regarding a supermarket’s proposal for a loyalty program that would allow customers to earn loyalty “points” for product purchases and spend them to reduce the cost of other purchases. The requestor of the opinion has pharmacies in many of its stores, and it proposed to allow customers to earn points based on out-of-pocket expenses for pharmacy products (including items covered by federal health care programs), but would not allow those points to be used to purchase similar covered items, or be exchanged for cash. This advisory opinion should be of interest to any retailer whose operations include any items or services that are covered by federal health care programs (e.g. Medicare or Medicaid).

The OIG applied two relevant statutes (with their accompanying regulations)-- the federal Anti-Kickback Statute (or AKS) (42 U.S.C. 1320a-7b) and the Civil Monetary Penalties Law (or CMP Law) (42 U.S.C. 1320a-7a). The AKS prohibits any remuneration in order to induce or reward referrals for items or services covered by federal health care programs. The CMP Law imposes penalties on anyone who transfers remuneration to a beneficiary of a federal health care program to induce the beneficiary to purchase items or services covered by the program. Both statutes have exceptions and/or safe harbors that allow for certain permissible arrangements. The relevant concern is that the offering of rewards or incentives through the store’s loyalty program could constitute an inducement or remuneration to beneficiaries, and thus violate the AKS and/or the CMP Law.

The OIG pronounced that the proposed changes to the program would not be subject to sanctions under either the AKS or the CMP Law. The OIG focused on multiple primary factors in its decision:

  • The program would allow customers to obtain a discount, rebate or coupon from the retailer itself;
  • The program was open and available to members of the general public, regardless of health insurance status;
  • Customers could not use their points to purchase or reduce the out-of-pocket cost of any pharmacy products that were covered by federal health care programs, nor were purchases of pharmacy products eligible for some higher point value. Customers could obtain points and use them without any link to the pharmacy or its products whatsoever;
  • The retailer (a supermarket) sold a wide variety of items, and the pharmacy was not the sole, or even main, line of business through which loyalty points were available; and
  • The program would not lead to the waiver or reduction of any cost-sharing amounts, and only the out-of-pockets costs were eligible to earn loyalty points.

Retailers with pharmacy operations should review the OIG’s analysis closely and examine their own loyalty (or other discount) programs, as well as any proposed changes to such programs. While an advisory opinion is only applicable to the facts presented to the OIG by a requestor, the analysis includes conclusions that can be applied to similar programs, and gives providers and other interested parties a window into the OIG’s concerns.

Advisory Opinion 19-06 can be found at: https://oig.hhs.gov/fraud/docs/advisoryopinions/2019/AdvOpn19-06.pdf