Walk through any grocery store or shopping center and you are likely to see at least one offer of a free product with the purchase of something else. It is a common and often quite effective marketing method. However, when it comes to the diabetic supply field, marketing methods used in the retail world can cause legal confusion for HME providers. Given Medicare’s restrictions on marketing directly to its beneficiaries, may one offer a free glucometer to all new diabetic supply customers? And what about advertising that a company accepts Medicare payment in full for diabetic supplies?

Marketing to Medicare beneficiaries is essentially covered by two federal statutes: The Beneficiary Inducement Statute and the Anti-kickback Statute. Both have serious penalties for violators so providers need to understand them fully.

The Beneficiary Inducement Statute is located in Section 1128A(a) of the Social Security Act, 42 USC 1320a-7a(a), and it prohibits any person or company from offering something to an individual that will likely influence that individual to purchase an item or service from that person or company. A person or company that violates this ban may be subject—in addition to any other penalties that may be prescribed by law—to a civil monetary penalty of not more than $10,000 for each item or service. In addition, such a person shall be subject to an assessment of not more than three times the amount claimed for each such item or service in lieu of damages sustained by the United States or a state agency because of such a claim. Furthermore, that person or company may be excluded from participation in the Medicare program, as well as their local Medicaid program.

The federal Anti-kickback Statute is similar to the Beneficiary Inducement Statute, but its scope is somewhat broader as it is also intended to prohibit the bribing of referral sources. The Anti-kickback Statute [42 USC §1320a-7b(b)] prohibits knowingly and willfully offering or paying any remuneration (ie, a kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce him or her to either:

A) Make a referral for an item or service covered by a federal health care program; or

B) Purchase, lease, order, arrange for, or recommend an item or service paid for under a federal health care program.

Its penalties also are stronger than those for the Beneficiary Inducement Statute. Violators of the Anti-kickback Statute may be fined up to $25,000 and/or imprisoned for up to 5 years. In addition, they may also have to pay civil monetary penalties and can be excluded from both the Medicare and Medicaid programs.

Fortunately, the statute enumerates certain exceptions, and other exceptions are provided for in “safe harbor” regulations issued under the authority of the Anti-kickback Statute.

Know Your Rights
Certain marketing activities directed to Medicare beneficiaries clearly fall on one side of the line or the other under the Inducement Statute and the Anti-kickback Statute. Inevitably, however, there are gray areas, such as those discussed in the introduction of this article.

When it comes to waivers of co-payments and deductibles, advertising such offers is strictly prohibited. Under the Inducement Statute, a supplier may not routinely waive co-payments and deductibles, and may never advertise that it will waive these payments. In addition, according to the Office of Inspector General (OIG), the waiver of co-payment and deductible amounts is a potential violation of the Anti-kickback Statute, as well as the False Claims Act.

You may waive co-payments and deductibles for a specific beneficiary, if you determine in good faith that the beneficiary is “in financial need” and document that need in the patient file. However, accepting a statement from a beneficiary that he or she cannot afford to pay the co-payment without inquiring into the beneficiary’s actual financial status, or advertising your willingness to accept Medicare payment as payment in full, will likely attract the attention of the enforcement authorities.

Giving free goods, such as a glucometer, to Medicare beneficiaries as a way of attracting business would seem to fall squarely within the Inducement Statute’s definition of remuneration that includes “transfers of items or services for free or for other than fair market value.” However, there is one notable exception. In the preamble to the regulations issued under the Inducement Statute, the OIG stated that the statute does not prohibit the giving of incentives that are of “nominal value.” Although the exception for items of nominal value is not explicit in the statute, the OIG observed that “if an incentive is nominal in value, then the individual providing the incentive would not and should not know that the incentive is likely to induce a beneficiary to use a particular provider, practitioner, or supplier. Accordingly, we believe that incentives that are only nominal in value are not prohibited by the statute, and therefore no exception is necessary.”1

The OIG went on to state that it would define “nominal value” to be no more than $10 per item or $50 in the aggregate to any one beneficiary on an annual basis.2

It should be noted that the national marketing guidelines cited by the OIG specify that the $10 definition of “nominal value” is based on the retail purchase price of the item.3 Nevertheless, this exception permits suppliers to give away small promotional items without concern about liability under the Inducement Statute.

The Anti-kickback Statute does not contain a nominal value exception, and the OIG has repeatedly stated that there is no “de minimis” exception to the statute.4 However, a violation of the Anti-kickback Statute requires an intent to induce the purchase of a covered item or service. It would be difficult for the OIG to take the position that a supplier had such an intent in giving away a nominal value item, in light of the inducement regulations, which hold that such an item is unlikely to influence a beneficiary’s choice of a supplier.

Therefore, there appears to be little risk under the Anti-kickback Statute as long as the retail value limits of $10 per item and $50 per beneficiary per year are observed. Therefore, the key to whether advertising a free glucometer for new diabetic supply customers is a violation lies in the retail value of the glucometer offered.

Clearly, the Beneficiary Inducement Statute and the Anti-kickback Statute prohibit offering something of value to a Medicare or Medicaid beneficiary in order to induce that beneficiary to receive covered items or services from a particular provider, as well as advertising that “Medicare payment is accepted as payment in full.” But HME suppliers can market effectively to Medicare beneficiaries, provided they have a clear understanding of the unique rules that apply and the risks involved if those rules are not followed.

Lisa K. Smith, JD, is an attorney with the Health Care Group of Brown & Fortunato PC, Amarillo, Tex. She represents HME companies, pharmacies, and other health care providers throughout the United States and Puerto Rico. Contact her at (830) 896-0018 or lsmith@bf-law.com.

References
1. 65 Federal Register 24400-24410 (2000) (codified at 42 CFR Parts 1001, 1003, 1005, and 1006).
2. 65 Federal Register 24411 (2000) (codified at 42 CFR Parts 1001, 1003, 1005, and 1006).
3. Operational Policy Letter #120, OPL2000.120 at 37 (June 8, 2000).
4. See, eg, 59 Federal Register 35952-35954 (1991).