On June 20, the U.S. Department of Health and Human Services Office of Inspector General (OIG) published Advisory Opinion 25-04, in which it declined to approve a proposal by a medical device company (Requestor) to pay the costs its customers otherwise would incur for a third-party company to screen and monitor Requestor for exclusion from federal healthcare programs (FHCPs) and other compliance checks.
Although it is common for vendors to conduct—and pay for—their own exclusion screening, the per-customer methodology the third-party screening company used to charge for screening services likely caused OIG to conclude that the payments could be remunerative to the Requestor’s customers.
The Proposed Arrangement
Under the proposed arrangement, some of Requestor’s hospital, health system, and ambulatory surgical center customers (Customers), would request or require, as a condition of doing business, that Requestor pay a third-party company (Company) to screen and monitor Requestor for exclusion from FHCPs and to ensure compliance with certain other legal requirements, such as compliance with certain Medicare Advantage plans’ requirements.
The Company would charge Requestor an annual subscription fee for each Customer receiving screening and monitoring reports on Requestor—a fee which the Customers would otherwise incur. Requestor would pay the per-Customer fees, which Requestor estimated would cost approximately $450,000 annually, directly to the Company.
OIG’s Analysis
OIG explained that the proposed arrangement would implicate the federal Anti-Kickback Statute (AKS) because Requestor’s payment of the screening and monitoring fees for which Requestor’s Customers otherwise would be responsible could induce the Customers to purchase federally reimbursable items or services from Requestor. OIG then concluded that the proposed arrangement would not qualify for safe harbor protection and was not sufficiently low risk under a facts and circumstances analysis for OIG to issue a favorable advisory opinion.
In reaching its conclusion, OIG cited anti-competitive and steering risks, finding that Requestor’s payments to the Company on behalf of its Customers could inappropriately steer Customers to Requestor over competitors that are not able or willing to pay the fees. OIG acknowledged that parties can allocate financial responsibilities in a variety of ways but stated that the proposed arrangement’s specific facts could allow the Company to serve as a “gatekeeper of referrals” by allowing Customers to condition their business on Requestor’s payment of the screening costs.
Takeaways
When issuing advisory opinions, OIG must opine on the facts presented to it. This opinion presents a fact pattern that appears to have been designed to draw an unfavorable outcome. While Requestor’s Customers bear the primary risk of their vendors’ non-compliance with exclusion screening and other laws, vendors often take on the responsibility to conduct their own screening because they represent and warrant that neither they nor their workforce members are excluded, and, more generally, that they comply with all applicable laws, including laws relating to exclusion. As a result, vendors often engage independent compliance screening services at their own cost.
Perhaps what makes the proposed arrangement unusual is the “gatekeeper” function a particular screening company could play if customers ask vendors to use—and pay for—that company’s services as a condition of doing business. Even so, the cost of the screening services does not necessarily have to fall on the customers (and often falls on the vendor). Nonetheless, because the vendor in this case seemingly would subsidize a direct cost for its customers, OIG was unable to conclude that the arrangement poses a low risk of fraud and abuse sufficient to issue a favorable advisory opinion.
Stakeholders should consider the allocation of compliance risk, and financial risk, when evaluating appropriate vendor-screening requirements in their business arrangements.
